<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 10-K

(Mark One)

/X/   Annual Report  Pursuant to Section 13 or 15(d) of the Securities  
      Exchange Act of 1934 For the Fiscal Year Ended January 2, 1999
                                      or

/_/   Transition Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934 For the Transition Period From _______________ to
      ________________.

                       Commission file number 000-22765

             EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
            ------------------------------------------------------
            (Exact name of registrant as specified in its charter)

                    Minnesota                                41-1771946
         -------------------------------                ------------------
         (State or other jurisdiction of                  (I.R.S. employer
         incorporation or organization)                 identification no.)

                805 Hanlon Drive
             Belle Plaine, Minnesota                           56011
    ----------------------------------------                 ----------
    (Address of principal executive offices)                 (Zip code)

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

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

                         Common Stock, $.01 par value
                         ----------------------------
                             (Title of each class)
                   ----------------------------------------

         Check whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
         Yes  /X/          No  /_/

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

         The aggregate market value of the common equity held by non-affiliates
of the registrant as of March 2, 1999 was $91,157,852, based on a closing price
of $9.03125 per share as reported on the Nasdaq National Market on such date.

         State the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date: Common Stock, $.01 par value -
13,505,752 shares issued and outstanding as of March 2, 1999.


<PAGE>

THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE SAFE HARBOR PROVISIONS OF SECTION 21E OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED, RELATING TO FUTURE EVENTS OR THE FUTURE FINANCIAL
PERFORMANCE OF THE COMPANY. FORWARD-LOOKING STATEMENTS ARE ONLY PREDICTIONS OR
STATEMENTS OF INTENTION SUBJECT TO RISKS AND UNCERTAINTIES AND ACTUAL EVENTS OR
RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED. FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER INCLUDE THE RISKS, UNCERTAINTIES AND OTHER MATTERS SET
FORTH BELOW UNDER THE CAPTION "FORWARD-LOOKING STATEMENTS" AND THE MATTERS SET
FORTH UNDER THE CAPTIONS "BUSINESS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION," AS WELL AS THOSE DISCUSSED
ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K.

                                    PART I

                      DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the registrant's definitive proxy statement for the 1999
Annual Meeting of Shareholders are incorporated by reference in Part III.

ITEM 1.  BUSINESS

         The Company, which was incorporated in Minnesota in 1993, manufactures,
markets and sells premium heavyweight cruiser motorcycles with a brand that
evokes an authentic American motorcycling heritage and lifestyle. The Company's
motorcycle products feature current technology but also reflect the distinctive
designs, styling and names reminiscent of the motorcycles produced in the early
part of this century by Excelsior Supply Company under the brand names Excelsior
and Henderson. The Company's initial motorcycle is a heavyweight cruiser named
the Excelsior-Henderson Super X. On December 30, 1998, the Company's "Road Crew"
produced Super X motorcycle number 000001. This first Super X was then placed
next to the 1931 Super X in the Company's heritage museum at its corporate
headquarters. On January 30, 1999, the Company produced and shipped its first
revenue Super X.

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

THE EXCELSIOR-HENDERSON HERITAGE

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

         Founded as a bicycle supply company in Chicago in 1876, Excelsior
Supply was owned by bicycle producer Ignatz Schwinn from 1911 until it ceased
production. The Company secured Excelsior Supply's available brand names
beginning in 1993. 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 and continued to manufacture a
Henderson DeLuxe Four, which featured an inline four cylinder engine.


                                       2

<PAGE>

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

         In 1929, Excelsior Supply restyled its Super X and Henderson DeLuxe 
Four motorcycles into its "Streamline" product line. Several motorcycle 
historians have cited these "Streamline" models as among the originators of 
the classic American heavyweight motorcycle style. For the 1929 to 1931 Super 
X Streamline models, this classic style included a large displacement 
"X-twin" engine, a teardrop shaped split fuel tank, full valanced fenders, a 
curved front frame that followed the contour of the front fender, a low slung 
seat in which the rider sat into the bike, a leading link front suspension 
with fork tubes that passed through the front fender, a tank-mounted 
instrument panel, balloon tires and premium single and two-tone paint 
finishes.

PRODUCTS

         The Company currently produces one premium heavyweight cruiser 
motorcycle, the Super X. The Company completed the development and testing of 
the Super X for initial production and produced the first Commemorative Super 
X from its production line in December 1998. The first Super X was placed in 
the Company's heritage museum. The Company shipped its first revenue Super X 
in January 1999 and will continue to ramp up production of the Super X. The 
Company intends to expand its product line in the future by developing 
additional models of motorcycles with classic American heavyweight styling. 
In addition, the Company will sell a variety of accessory parts through its 
dealers for customization of its motorcycles. The Company will also sell 
individual replacement parts for its motorcycles. Finally, the Company sells 
a wide variety of apparel such as hats, shirts and jackets to build brand 
image and support the lifestyle of American motorcycling.

         The Super X is a new proprietary motorcycle featuring modern 
engineering and performance and a design inspired by the classic American 
heavyweight styling features of the original Excelsior Supply Super X. The 
Super X includes a proprietary large displacement "X-Twin" engine that 
produces a distinctive sound; a sleekly styled, teardrop shaped fuel tank; 
full valanced fenders; a curved front frame that follows the contour of the 
front fender; a low slung seat; 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 also incorporates a proprietary transmission, an 
electronic fuel injection system and computer controlled-engine management 
system. For the 1999 model year, the Super X has a limited 
twelve-month/unlimited mileage warranty.

         The 1999 model year Super X has the following specifications:

<TABLE>
<S>                         <C>
     Wheelbase              62.9 Inches
     Length                 92.5 Inches
     Dry Weight             647 lbs.
     Seat Height            26.5 Inches
     Bore X Stroke          3.66 X 4.02 Inches
     Engine Size            85 Cubic Inches (1386cc)
     Engine Design          50DEG."X-Twin"
     Engine Cooling         Air and Oil
     Fuel System            Port Sequential, Closed Loop Fuel Injection
     Valves                 4 Valves Per Cylinder, Dual Overhead Cams Per Cylinder
     Frame                  Double Wishbone Frame, Full Travel Suspension and Leading Link Front End
     Transmission           5 Speed, Constant Mesh
</TABLE>

INDUSTRY AND MARKET


                                       3

<PAGE>

         The heavyweight motorcycle category consists of motorcycles with an 
engine displacement of 651cc or greater. Within the heavyweight category, 
there are four types of motorcycles: (i) STANDARD, which emphasize simplicity 
and cost; (ii) PERFORMANCE, which emphasize handling and speed; (iii) 
TOURING, which emphasize comfort and amenities for long-distance travel; and 
(iv) CRUISER, which feature the distinctive styling of classic American 
motorcycles built during the early years of the motorcycling industry and are 
designed to facilitate customization by individual owners. Touring and 
cruiser motorcycles are the only types of heavyweight motorcycles that the 
Company plans to design and market. According to statistics in 
Harley-Davidson's public reports, in 1998, touring and cruiser models 
represented approximately 79% of retail unit sales in the U.S. heavyweight 
market. Heavyweight motorcycles, in turn, represented approximately half of 
retail motorcycle unit sales in the overall United States market in 1998. 
U.S. registrations of new heavyweight motorcycles increased in 1998 by 
approximately 19% (to 227,000 units) over 1997 registrations.

         As recreational products, the Company's motorcycles and related 
products are in a growing consumer market. According to U.S. Government 
reports, from 1992 through 1995 spending on recreational products grew at 
over five percent per year and from 1994 through 1997 grew at three times the 
rate of overall consumer spending. Based on industry information, the Company 
believes that the typical customer for heavyweight American touring and 
cruiser motorcycles is a male between the ages of 35 and 65, with a household 
income of approximately $65,000. These customers are generally experienced 
motorcycle riders who purchase motorcycles for recreational purposes rather 
than for transportation. According to estimates of the U.S. Census Bureau, 
the number of Americans that will fall into the targeted age bracket is 
projected to increase by approximately 9.2% from 1999 to 2005 and by 
approximately 13.1% from 1999 to 2010. The 35 to 65 year old age group also 
leads all age groups in annual spending per consumer on recreational products 
and generally has greater disposable income than other age groups.

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

MARKETING

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

         To introduce the production intent Super X to the motorcycling 
public and further establish the Company's brand, the Company implemented a 
marketing campaign for the August 1998 Sturgis Rally and Races in Sturgis, 
South Dakota, which included a parade of the production intent Super X 
motorcycles down Main Street. The Company also implemented a marketing 
campaign at the 1998 Daytona Beach Bike Week.

         In 1999, the Company opened Daytona Bike Week with its third Annual 
Excelsior-Henderson Motorcycle Parade. In addition, for the first time bikers 
were able to take a demonstration ride on a 1999 Super X at Daytona Bike 
Week, with approximately 1,000 bikers participating in such demonstration 
rides. The Company also plans to conduct demonstration rides of the Super X 
during 1999 at the Sturgis Rally and Races, the Laughlin River Run in 
Laughlin, Nevada, the Laconia Motorcycle Rally and Race Week in Laconia, New 
Hampshire, Biktoberfest in Daytona Beach, Florida, the Company's 1999 Annual 
Shareholders Meeting and Biker Barbecue at the Company's headquarters in 
Belle Plaine, Minnesota, and at other events. The Company intends to increase 
its other marketing efforts during 1999, including holding dealer promotional 
events (including demonstration rides), attending additional rallies, 
consumer events and trade shows and advertising in trade and consumer 
publications.

         To create a strong brand identity for its motorcycles and related 
products and to establish the authenticity of the Company's brand, the 
Company is fostering among consumers and dealers a culture and lifestyle that 
are reminiscent of the classic American motorcycling heritage. Such heritage 
refers to the "soul" of the traditional American motorcycling experience, 
fostered by motorcycle events, motorcyclists and media, which associates 
riding motorcycles with individuality and freedom. Owner customization of 
motorcycles is also an important part of this 


                                       4

<PAGE>

heritage, and the Company has designed the Super X, and intends to design 
future motorcycles, to facilitate individual customization by owners and to 
make custom parts and accessories available to owners. In addition, the 
Company intends to sponsor and promote a motorcycle owners' group, rallies 
and a magazine for owners and enthusiasts. The Company also sells a wide 
variety of apparel products with its logos such as hats, shirts and jackets 
and intends to license certain of its trademarks on a broad range of consumer 
items to increase public exposure and familiarization with its brand and 
products.

DISTRIBUTION

         The Company distributes its products through a nationwide network of 
independent dealers. In 1998, the Company completed selecting its initial 
dealer network and as of March 19, 1999, the Company had 86 dealers. The 
Company expects to add dealers as its production increases during 1999 and 
beyond. The Company's initial dealer network formation culminated with the 
Company's first Excelsior-Henderson Authorized Dealer Brand Meetings held 
during January and February 1999. Over 80 of the Company's dealers attended 
the meetings at the Company's headquarters.

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

MANUFACTURING

         In 1998, the Company completed the equipping of its manufacturing 
facility for initial production, obtained the tooling necessary for initial 
production, commenced hiring its first production assembly employees, and 
began establishing its production components and parts supply flow. The 
Company also tested its manufacturing facility, commenced the operation of 
its integrated manufacturing and accounting software system, and produced the 
first production Super X. The Company began the ramp up of production of the 
Super X in January 1999. The manufacturing operations consist of three main 
manufacturing processes: welding, painting and assembly.

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

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

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

         The Company assembles its motorcycles using proprietary and 
non-proprietary components. The Company is obtaining the components primarily 
from original equipment suppliers. The Company strives to engage 
original equipment suppliers who have established records of producing 
reliable products for the motorcycle industry in a timely manner and will 
constantly review such vendors to ensure strict quality control.

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


                                       5

<PAGE>

COMPETITION

         In the U.S. heavyweight motorcycle market, Harley-Davidson, Honda, 
Suzuki, Kawasaki and Yamaha have the largest market share. Other 
manufacturers of heavyweight motorcycles include BMW, Ducati, Moto Guzzi, and 
Triumph. The Company's primary competitor in the U.S. heavyweight market is 
expected to be Harley-Davidson, which has been the only significant American 
heavyweight cruiser and touring motorcycle manufacturer since 1953. According 
to its public reports, in 1998, Harley-Davidson reported an approximate 49% 
market share of U.S. and a 25% market share of worldwide (including U.S.) new 
heavyweight motorcycle registrations, representing approximately $1.6 billion 
in worldwide (including U.S.) motorcycle revenue. Trade publications and 
dealers have reported that there are substantial waiting lists at the dealers 
for certain models of Harley-Davidson motorcycles. In response to demand for 
its products, Harley-Davidson has tripled its production capabilities over 
the past decade and forecasts doubling its 1995 production capacity by the 
year 2003. Several of the major foreign manufacturers compete against 
Harley-Davidson in the domestic market by selling motorcycles with a 
"nostalgic" American design. Due to recent growth in the market for 
heavyweight motorcycles, the Company expects that other manufacturers will 
attempt to enter the market. In addition, a number of other companies build 
and sell motorcycles from non-proprietary parts, commonly referred to as "kit 
bikes" or "clones".

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

INTELLECTUAL PROPERTY RIGHTS

         The Company believes that it has the exclusive right to use the 
trademarks "Excelsior-Henderson," "Super X" and "X-Twin", among others, and 
certain related word and design trademarks in the United States in connection 
with the manufacture and sale of motorcycles and related structural parts. In 
addition, the Company believes that it has the right to use certain of these 
marks on ancillary merchandise and apparel. The Company believes that it has 
obtained common law rights through the use of these marks on its motorcycles 
and ancillary merchandise and apparel that are independent of the United 
States Patent and Trademark Office ("USPTO") registration process. In 
addition, the Company has obtained registrations or notices of allowance for 
a number of these marks ("Excelsior", "Henderson", "Super X" and "X-Twin") 
for use on motorcycles and has applications pending approval in the USPTO on 
other marks.

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

         The Company currently owns one design patent and has filed 
additional utility and design patents in connection with the Super X 
motorcycle. At appropriate points in the design and development process, the 
Company may file additional patent applications with the USPTO to cover 
certain features or aspects of its products.

         The Company intends to diligently police its trademark, copyright 
and patent rights throughout the world. There are no claims of infringement 
against the Company and the Company is not and has not been involved in any 
court proceedings regarding its intellectual property rights. From time to 
time, the Company has been involved in INTER PARTES opposition proceedings in 
the USPTO to protect its trademark rights. All such proceedings have been 
resolved to the Company's satisfaction, and there are no material proceedings 
pending.

GOVERNMENT REGULATION

         Commercial sales of the Company's motorcycles depend upon compliance 
with certain government regulations and the Company is designing its 
motorcycles to comply with such regulations. The Company's motorcycles are 
subject to the emissions and noise standards of the U.S. Environmental 
Protection Agency ("EPA") and the more stringent emissions standards of the 
State of California Air Resources Board ("CARB"). In early 1999, the Company 
received approval from the EPA and CARB to sell the Super X motorcycle. The 
Company's motorcycles 


                                       6

<PAGE>

also are subject to the National Traffic and Motor Vehicle Safety Act and the 
rules promulgated thereunder by the National Highway Traffic Safety 
Administration. Furthermore, the European Union and other foreign 
governmental entities have regulations to which the Company's motorcycles 
will be subject. Finally, federal, state and local authorities have adopted 
various standards relating to air, water and noise pollution that will affect 
the Company's manufacturing operations. The Company believes that its 
facilities comply with all such regulations and standards. The potential 
delays and costs that could result from obtaining such additional regulatory 
approvals and complying with, or failing to comply with, such regulations 
could adversely affect operating results.

EMPLOYEES

         As of March 19, 1999, the Company had 180 full-time employees, of whom
124 work in engineering and manufacturing. The Company is not subject to any
collective bargaining agreement. The Company anticipates adding supervisory,
engineering and manufacturing, marketing and administrative staff as the Company
continues to transition from the development stage to an operating company.

ITEM 2.  PROPERTIES

         The Company leases a 160,000 square foot manufacturing and 
administrative facility in Belle Plaine, Minnesota.

ITEM 3.  LEGAL PROCEEDINGS

         Not applicable.

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

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

                                    PART II

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

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

<TABLE>
<CAPTION>
                                               High         Low
                                              ------      ------
<S>                                           <C>         <C>
Year Ended January 2, 1999
--------------------------
First Quarter...............................  $6.00       $5.188
Second Quarter..............................  $8.375      $5.50
Third Quarter...............................  $9.75       $6.375
Fourth Quarter..............................  $9.25       $6.25

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

         As of March 1, 1999, the Company had 1,305 shareholders of record and
approximately 16,000 beneficial holders of its Common Stock.

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


                                       7

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

         The statement of operations data for the years ended December 31, 1996
(Fiscal 1996), January 3, 1998 (Fiscal 1997) and January 2, 1999 (Fiscal 1998)
and cumulative for the period from inception (December 22, 1993) to January 2,
1999, and the balance sheet data as of January 3, 1998 and January 2, 1999 are
derived from and are qualified by reference to, and should be read in
conjunction with the more detailed Financial Statements of the Company and the
Notes thereto, which have been audited by Arthur Andersen LLP, independent
public accountants, whose report is included elsewhere in this Annual Report on
Form 10-K, and the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations," which follows this section. The
statement of operations data for the years ended December 31, 1994 and 1995 and
the balance sheet data as of December 31, 1994, 1995 and 1996 are derived from
audited financial statements not included in this Annual Report on Form 10-K.

<TABLE>
<CAPTION>

                                                                                                                     CUMULATIVE FOR
                                                                                                                       THE PERIOD
                                                                                                                          FROM
                                                                                                                       INCEPTION
                                                YEAR ENDED DECEMBER 31,             YEAR ENDED       YEAR ENDED      (DECEMBER 22,
                                    -------------------------------------------     JANUARY 3,       JANUARY 2,        1993) TO
                                        1994            1995            1996           1998             1999        JANUARY 2, 1999
                                    -----------     -----------     -----------     -----------    -------------    ----------------
<S>                                 <C>             <C>             <C>             <C>            <C>              <C>
STATEMENT OF OPERATIONS DATA:      
Preoperating Expenses:             
   Research and development ......  $   110,082     $   702,345     $ 1,271,276     $ 2,648,964     $ 14,907,976     $ 19,640,643
   Marketing .....................       32,133         106,974         694,239       1,673,680        3,797,185        6,304,211
   General and administrative ....      241,630         460,793         716,154       2,180,848        4,559,639        8,160,239
                                    -----------     -----------     -----------     -----------    -------------    -------------
     Total preoperating expenses..      383,845       1,270,112       2,681,669       6,503,492       23,264,800       34,105,093
Interest Income ..................            -          43,522         174,226         810,058        1,108,997        2,136,803
Interest Expense .................       (5,346)         (7,301)         (4,088)       (179,297)      (1,753,502)      (1,949,534)
                                    -----------     -----------     -----------     -----------    -------------    -------------
Net Loss .........................  $  (389,191)    $(1,233,891)    $(2,511,531)    $(5,872,731)    $(23,909,305)    $(33,917,824)
                                    -----------     -----------     -----------     -----------    -------------    -------------
                                    -----------     -----------     -----------     -----------    -------------    -------------
Basic and diluted net              
   loss per share(1) .............  $      (.11)    $      (.25)    $      (.43)    $      (.65)    $      (1.83)    $      (4.66)
                                    -----------     -----------     -----------     -----------    -------------    -------------
                                    -----------     -----------     -----------     -----------    -------------    -------------
Basic and diluted weighted         
   average shares outstanding(1)..    3,529,417       4,989,058       5,859,977       9,073,839       13,048,708        7,281,142
                                    -----------     -----------     -----------     -----------    -------------    -------------
                                    -----------     -----------     -----------     -----------    -------------    -------------
</TABLE>

<TABLE>
<CAPTION>                                                     DECEMBER 31,
                                               -------------------------------------------         JANUARY 3,          JANUARY 2,
                                                 1994            1995             1996                1998                1999
                                               --------       ----------       -----------         -----------        -----------
<S>                                            <C>            <C>              <C>                 <C>                <C>
BALANCE SHEET DATA:
Working capital (deficit)..............        $188,025       $1,550,914       $ 9,038,639         $21,104,052        $(3,117,625)
Total assets...........................         373,926        1,882,588        10,023,400          48,185,467         47,988,132 
Current maturities of long-term debt...          25,015           24,351            70,086             675,372            919,533 
Long-term debt.........................               -                -                 -          13,738,615         20,569,409 
Total stockholders' equity.............         254,123        1,728,858         9,631,327          31,188,216         17,196,934 
</TABLE>
-------------------------------------------------------------------------------
 (1)  See Note 2 to Financial Statements for determination of weighted average 
      shares outstanding.


                                       8

<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
         RESULTS OF OPERATIONS

OVERVIEW

         The Company manufactures, markets and sells premium heavyweight cruiser
motorcycles. The Company is currently transitioning from the development stage
to an operating company and its operations are subject to all of the risks
inherent in the establishment of a new business enterprise. Primarily as a
result of the operating expenses described below in "Results of Operations," the
Company's deficit accumulated during the development stage was $33.9 million at
January 2, 1999. Historic spending levels are not indicative of anticipated
future spending levels, as the Company enters the period of transition from
development stage to an operating company. During such transition, the Company
believes that its expenses will increase and that it will incur significant
additional losses before cash generated from sales will fund the Company's
operations.

RESULTS OF OPERATIONS

FISCAL 1998 COMPARED TO FISCAL 1997

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased
to $14.9 million in Fiscal 1998 from $2.6 million in Fiscal 1997. The increase
was primarily due to staffing increases, increased product design and
development costs, developing and testing of prototype and production intent
motorcycles, and the costs incurred to establish the Company's manufacturing
capabilities. Included within research and development expenses is a provision
of $2.0 million to write down inventory on hand and to reserve for inventory
purchase commitments in excess of the estimated net realizable value as of
January 2, 1999.

MARKETING EXPENSES. Marketing expenses increased to $3.8 million in Fiscal 1998
from $1.7 million in Fiscal 1997. The increase was primarily due to staffing
increases, increased advertising and promotion costs, increased participation at
various marketing events and dealer network development.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $4.6 million in Fiscal 1998 from $2.2 million in Fiscal 1997. The
increase was primarily due to staffing increases and increases in general
operating expenses due to Company growth.

INTEREST INCOME. Interest income increased to $1.1 million in Fiscal 1998 from
$810,000 in Fiscal 1997. The increase results from increased average levels of
cash, cash equivalents and short-term investments held by the Company resulting
from the net proceeds of the Company's initial public offering of its common
stock, net proceeds of the Series B Convertible Preferred Stock offering, and
the cash received from the FINOVA Capital Corporation ("FINOVA") and Minnesota
Agricultural and Economic Development Board loans. See "Liquidity and Capital
Resources."

INTEREST EXPENSE.  Interest expense increased to $1.8 million in Fiscal 1998 
from $180,000 in Fiscal 1997 due to increased average levels of debt 
outstanding.  See "Liquidity and Capital Resources."

FISCAL 1997 COMPARED TO FISCAL 1996

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

MARKETING EXPENSES. Marketing expenses increased to $1.7 million in Fiscal 1997
from $690,000 in Fiscal 1996. The increase was primarily due to staffing
increases, increased advertising and promotion costs, and increased dealer
network development.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $2.2 million in Fiscal 1997 from $720,000 in Fiscal 1996. The
increase was primarily due to staffing increases and increases in other general
operating expenses.


                                       9

<PAGE>

INTEREST INCOME. Interest income increased to $810,000 in Fiscal 1997 from
$170,000 in Fiscal 1996. The increase generally reflects interest earned on
increased average levels of cash, cash equivalents and short-term investments
held by the Company resulting from the proceeds of the Company's initial public
offering of its common stock in Fiscal 1997 and the proceeds of the sale of
Series A Convertible Preferred Stock (which has converted into common stock in
Fiscal 1997) during Fiscal 1996.

NET OPERATING LOSS CARRYFORWARDS

         As of January 2, 1999, the Company had net operating loss carryforwards
of approximately $18.8 million for federal income tax purposes that are
available to offset future taxable income through the year 2013. A valuation
allowance equal to the full amount of the related deferred tax asset has been
established due to the uncertainty of realization of the deferred tax asset.
Certain restrictions, caused by a 1996 change in ownership resulting from sales
of the Company's stock, will limit annual utilization of these net operating
loss carryforwards. The portion of the net operating loss carryforwards subject
to this limitation is approximately $2.6 million. The calculated annual
limitation is approximately $600,000.

LIQUIDITY AND CAPITAL RESOURCES

         The Company had cash, cash equivalents and short-term investments of
$4.7 million at January 2, 1999, as compared to $24.2 million at January 3,
1998. The decrease is due primarily to cash paid for research and development
costs (including pre-production manufacturing and completion of the design,
engineering and testing of the Super X); sales and marketing costs (including
increased marketing activity prior to the commercial introduction of the Super X
and dealer network development); capital expenditures (including completing and
equipping the manufacturing and administrative facility for initial production,
acquiring tooling and motorcycle components and supplies); and general and
administrative costs. Such decrease was offset by the net proceeds received from
the funds drawn from the Minnesota Agriculture and Economic Development Board
escrow account, the Series B Convertible Preferred Stock offering, the funds
drawn from the FINOVA escrow account and the funds drawn from the Dakota Bank
loan (see below).

        The Company anticipates that it will incur significant losses from 
operations during Fiscal 1999 due to the transition from the development 
stage to an operating company.  As of March 19, 1999, the Company's currently 
available resources included cash and cash equivalents, available restricted 
cash (which includes the proceeds to be drawn from the Minnesota Agriculture 
and Economic Development Board and the proceeds to be drawn from the FINOVA 
Bond) and remaining proceeds to be drawn from the Dakota Bank loan. The 
Company believes that its existing resources and estimated cash from 
operations will not be sufficient to fund its cash requirements in Fiscal 
1999.  Accordingly, the Company will require significant additional debt and 
equity financing during Fiscal 1999.  There can be no assurance that sufficient
additional debt or equity financing will be available or, if available, will be
on terms favorable to the Company or its shareholders.

         In addition, the Company's debt agreements contain certain restrictive
covenants, among other requirements, relating to the Company's current ratio,
tangible net worth, debt to net worth ratio and debt service coverage ratio.
Except for the current ratio covenant, the Company was in compliance with all
covenants as of January 2, 1999. The lenders have agreed to waive the current
ratio covenant through January 1, 2000. If significant losses are incurred or
additional funding is not obtained, the Company will not comply with other
covenant ratios at various times in Fiscal 1999. Non-compliance could lead to an
event of default in the agreements, in which case the lender(s) could demand
repayment of the obligation(s).

MINNESOTA AGRICULTURE AND ECONOMIC DEVELOPMENT BOARD

         In Fiscal 1997, the Company received a $7.1 million loan from the 
Minnesota Agriculture and Economic Development Board for financing of certain 
of the Company's equipment and tooling. The loan proceeds were placed in 
escrow and may be drawn for certain equipment and tooling purchases. The loan 
has a ten-year term with annual interest of 9.5% and is secured by the 
equipment and tooling purchased. Subsequent to January 2, 1998, the Company 
received $2.6 million out of the escrow account. At March 19, 1999, 
approximately $350,000 remained available in the escrow account, leaving $1.1 
million for a debt service reserve.


                                      10

<PAGE>

FINOVA BOND

         In Fiscal 1998, the Company issued a $6.1 million Taxable Industrial
Development Revenue Bond through the Economic Development Authority of the City
of Belle Plaine, Minnesota. The Bond was purchased by FINOVA. The proceeds of
the sale of the Bond, net of a $1.1 million debt service reserve, were placed
into an escrow account and may be drawn for certain past and future equipment
and tooling purchases. The Bond is repayable over a seven and one-half year
term, carries a stated interest rate of 10.4% and is secured by equipment and
tooling. FINOVA also received a warrant to purchase 196,500 shares of common
stock of the Company. The warrant may be exercised up to ten years from the date
of issuance at an exercise price of $9.00 per share. Subsequent to January 2,
1998, the Company received $2.0 million out of the escrow account. At March 19,
1999, approximately $800,000 remained available in the escrow account, leaving
$1.1 million for a debt service reserve.

ISSUANCE OF SERIES B AND SERIES C CONVERTIBLE PREFERRED STOCK

         In Fiscal 1998, an institutional investor (the "Investor") purchased
10,000 shares of the Company's Series B Convertible Preferred Stock ("Series B")
for a gross purchase price of $10.0 million, from which the Company received
$9.3 million in net proceeds. Subject to certain limited restrictions, the
holder of the Series B may convert the Series B to common stock at any time.
Until September 1999, the conversion price of the Series B is fixed. After
September 1999, the conversion price will adjust based on a defined average
market price of the Company's common stock (the "Market Price"). If the Market
Price of the Company's common stock is less than $5.00 per share on the date of
conversion, then the Series B conversion price will be 105% of such Market
Price.

         Subsequent to January 2, 1999, the Investor purchased 3,000 shares of
the Company's Series C Convertible Preferred Stock ("Series C") for a gross
purchase price of $3.0 million, from which the Company received $2.8 million in
net proceeds. Until September 1999, the conversion price of the Series C is
fixed. After September 1999, the conversion price will be at the Market Price.
If the Market Price of the Company's common stock is less than $5.00 per share
on the date of conversion, then the Series C conversion price will be 105% of
such Market Price.

         Notwithstanding the foregoing, the holder is not permitted to hold at
any point in time an amount of common stock issued upon conversion of Series B
or Series C that is greater than 4.99% of the then outstanding shares of the
Company's common stock. In addition, if the aggregate amount of shares of common
stock of the Company issued upon conversion of the Series B and/or C Preferred
Stock exceeds 20% of the outstanding shares of common stock of the Company, the
Company would likely be required to take one of the following actions: (A)
submit such issuances of common stock in excess of 20% for the approval of the
Company's shareholders and honor the conversion of the amounts in excess of 20%;
or (B) redeem all of the outstanding shares of Series B and/or C Preferred Stock
from the holders at the face amount of the Preferred Stock ($1,000 per share).
The provision in the preceding clause (A) is required by the Marketplace Rules
of the Nasdaq Stock Market.

         In addition, warrants to purchase 442,000 shares of the Company's
common stock were issued in connection with the Series B and C offerings. The
warrants have exercise prices of $8.49 and $11.28, respectively and expire five
years from the date of the respective Series B or C offering.

         Subsequent to January 2, 1999, the Company has received conversion
notices from the Investor to convert 2,750 shares of the Series B into 368,097
shares of common stock of the Company. As of March 19, 1999, there were
outstanding 7,250 shares of Series B and 3,000 shares of Series C.

DAKOTA BANK LOAN

         In Fiscal 1998, the Company entered into a $5.0 million multi-advance
working capital loan with Dakota Bank, with a variable interest rate based on
the prime rate plus one-half percent. The Company is required to repay interest
only until the earlier of July 1, 2000 or the time at which the loan is fully
drawn. Once fully drawn, the loan is repayable over sixty months. The loan is
collateralized by certain assets of the Company. Subsequent to January 2, 1998,
the Company received $2.6 million out of the loan proceeds. At March 19, 1999,
approximately $1.0 million of the loan proceeds remained available.


                                      11

<PAGE>

YEAR 2000 ISSUE

         The Company has assessed the impact of year 2000 on the Company's
significant internal systems and software, which include information technology
(IT) and non-IT, or embedded technology, systems. The Company believes that its
internal systems and software are year 2000 compliant. The Company's internal
year 2000 assessment is based in large part on the recent acquisition and
installation of substantially all of the Company's internal systems and
software, which began in 1997. The Company also has initiated discussions with
its significant vendors to ensure that those parties have appropriate plans to
remediate year 2000 issues. The Company is assessing the extent to which its
operations are vulnerable should those vendors fail to properly remediate their
computer systems. If certain vendors are unable to deliver product on a timely
basis, due to their own year 2000 issues, the Company's production would be
interrupted, which would materially adversely affect its results of operations.
During 1999, the Company will attempt to identify, if possible, multiple vendor
sources to address such contingency.

         The Company's year 2000 initiative is being completed by a team of
internal staff with consultation from outside advisors. The team's mission is to
ensure that there is no material adverse effect on the Company's business
operations. The anticipated costs of the year 2000 initiatives are not
considered material by the Company. While the Company believes its efforts are
adequate to address its year 2000 concerns, there can be no guarantee that the
systems of other companies will be converted on a timely basis and will not have
a material adverse effect on the Company.

FORWARD-LOOKING STATEMENTS

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

-    THE COMPANY IS TRANSITIONING FROM THE DEVELOPMENT STAGE TO AN OPERATING
     COMPANY--The Company has not had material sales to date. As of January 2,
     1999, the Company had an accumulated deficit of $33.9 million. The Company
     expects operating losses to increase as its product development, marketing
     and sales, manufacturing and administrative functions expand during the
     initial stage of motorcycle sales. There can be no assurance that the
     Company will generate significant motorcycle sales or become profitable.

     During the transition to an operating company, the Company must 
     successfully increase the production volume of the Super X, produce a 
     high-quality motorcycle and control production costs. Factors that may 
     affect the volume of production include the ability of the Company to 
     maintain adequate quantities of high-quality components and supplies, to 
     refine its manufacturing processes, to solve unanticipated manufacturing 
     problems, and to hire additional qualified personnel. Factors that may 
     affect production costs include the ability of the Company to purchase 
     motorcycle components and supplies at reasonable costs and to 
     effectively manage its inventory. The Company has tried to produce 
     high-quality products through the design, construction and equipping of 
     its manufacturing line, the design of the Super X, its choice of 
     vendors, testing of components and supplies received, and testing of 
     motorcycles in the production process; however, the Company has not yet 
     manufactured a significant number of motorcycles and the transition to 
     production could affect product quality in a manner that may not be 
     apparent at this time. As the Company transitions to an operating 
     company, there will be increasing demands on the Company's management, 
     operational and financial resources to manage growth.

     The Company relies on original equipment suppliers to supply most of the
     proprietary and non-proprietary components that are used to manufacture its
     motorcycles. For most of the components, the Company relies on a sole
     source of supply. Such reliance involves a number of significant risks,
     including the unavailability of or interruptions in delivery of such
     components, manufacturing delays caused by such unavailability or
     interruptions, and fluctuations in the quality and price of such
     components. Any significant adverse variation in the quantity, quality or
     cost of such components manufactured by suppliers, especially single-source
     suppliers, could materially 


                                      12

<PAGE>

     and adversely affect the volume of production and the cost of the Company's
     product, until an additional source of supply is identified.

     The Company purchases certain components from foreign suppliers. In
     addition to the risks of dependence on suppliers described above, the risks
     of dependence on foreign suppliers include currency fluctuations affecting
     the value of goods purchased, trade restrictions, changes in tariffs and
     difficulty of enforcing supply arrangements.

     The Company's success also depends upon market acceptance of its brand of
     products. Market acceptance depends upon the ability of the Company to
     establish its intended brand image, a reputation for high quality and to
     differentiate its brand of products from its competitors. The Company will
     operate in a highly competitive environment and compete against established
     motorcycle manufacturers such as Harley-Davidson, BMW, Ducati, Honda,
     Kawasaki, Moto Guzzi, Suzuki, Triumph and Yamaha. Harley-Davidson, which is
     expected to be the Company's primary competitor in the U.S. market, has
     stated in its public reports that it had a 49% share of the U.S. market for
     new heavyweight motorcycle registrations in 1997 and that it will double
     its 1995 production capacity by the year 2003. The Company also expects
     that other manufacturers will attempt to enter the industry. The Company's
     established competitors have greater resources than the Company. No
     assurance can be given that the Company's products will be accepted or that
     the Company will be able to compete effectively.

     Sales of the Super X and any additional motorcycles the Company may produce
     are dependent on the effectiveness of the Company's dealer network and
     internal sales team. The Company may need to attract additional dealers to
     sell its brand of products. In addition, the Company will be required to
     support its dealers through, among other things, providing continuing
     education about the Company's brand of products, supplying parts and
     accessories, and training repair personnel. The Company does not have any
     history in such dealer support. If the Company is unable to maintain its
     dealer network, sales and distribution of the Company's products will be
     adversely affected.

-    THE COMPANY ANTICIPATES SEEKING ADDITIONAL DEBT AND EQUITY FINANCING
     IN 1999--There can be no assurance that additional debt or equity financing
     will be available or, if available, will be on terms favorable to the
     Company or its shareholders. Any additional equity financing may cause
     substantial dilution to existing equity holders. In addition, if the
     Company's estimates of the amount of debt and equity financing needed to
     fund operations are incorrect due to unanticipated additional production
     costs, increased costs of components and supplies, increased sales and
     marketing costs, or other unanticipated events, then the Company would be
     required to obtain additional debt or equity financing beyond its current
     estimates.

     In addition, if the Company is not able to obtain such financing or if the
     Company incurs significant losses, the Company would not be in compliance
     with covenants contained in its debt agreements. Such non-compliance could
     lead to an event of default in the agreements, in which case the lender(s)
     could demand repayment of the obligation(s).

-    THE COMPANY BELIEVES THAT ITS INTERNAL SYSTEMS AND SOFTWARE ARE YEAR
     2000 COMPLIANT; DURING 1999, THE COMPANY WILL ATTEMPT TO IDENTIFY, IF
     POSSIBLE, MULTIPLE VENDOR SOURCES TO ADDRESS YEAR 2000 CONTINGENCIES--The
     Company's assessment of its internal year 2000 status may be incorrect or
     incomplete. If such assessment is incorrect or incomplete, the Company's
     production of its motorcycles may be interrupted. In addition, the Company
     has not yet completed its assessment of the effect the year 2000 problem
     may have on the Company's vendors. If certain vendors for a particular
     product are unable to supply such product because of year 2000 problems,
     other vendors who supply such product may not be able to meet the increased
     demand for such product, which could cause an interruption in the Company's
     production. Due to the complex nature of the year 2000 problem, it is even
     possible that all vendors for a particular item could have year 2000
     compliance problems and be unable to supply goods to the Company, which
     would materially affect the Company's ability to continue production until
     such product could be obtained. Any interruption in production caused by
     year 2000 problems could materially adversely affect the Company's
     operating results.


                                      13

<PAGE>

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company anticipates that it will be exposed to market risk from
changes in foreign exchange and interest rates with respect to its components
obtained from foreign sources. The Company is currently analyzing such risk and
will attempt to reduce such risk through the use of certain financial
instruments. In addition, the Company has entered into an import letter of
credit in the amount of $995,000 for the benefit of a foreign vendor.


                                      14

<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
                                                                                          Page Number
                                                                                          -----------
         <S>                                                                              <C>
         Report of Independent Public Accountants......................................       16
                                                                                              
         Balance Sheets as of January 3, 1998                                                 
             and January 2, 1999.......................................................       17
                                                                                              
         Statements of Operations for the Years Ended December 31, 1996, January              
             3, 1998, and January 2, 1999 and Cumulative for the Period from                  
             Inception (December 22, 1993)                                                    
             to January 2, 1999........................................................       18
                                                                                              
         Statements of Stockholders' Equity for the Period                                    
             from Inception (December 22, 1993) to January 2, 1999.....................       19
                                                                                              
         Statements of Cash Flows for the Years Ended December 31, 1996, January              
             3, 1998, and January 2, 1999 and Cumulative for the Period from                  
             Inception (December 22, 1993)                                                    
             to January 2, 1999........................................................       21
                                                                                              
         Notes to Financial Statements.................................................       22
</TABLE>


                                      15


<PAGE>

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Excelsior-Henderson Motorcycle Manufacturing Company:

We have audited the accompanying balance sheets of Excelsior-Henderson 
Motorcycle Manufacturing Company (a Minnesota corporation in the development 
stage) as of January 3, 1998 and January 2, 1999, and the related statements 
of operations, stockholders' equity and cash flows for each of the three 
years in the period ended January 2, 1999 and cumulative for the period from 
inception (December 22, 1993) to January 2, 1999. 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 January 3, 1998 and January 2, 1999, 
and the results of its operations and its cash flows for each of the three 
years in the period ended January 2, 1999 and cumulative for the period from 
inception (December 22, 1993) to January 2, 1999, in conformity with 
generally accepted accounting principles.

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


                                      ARTHUR ANDERSEN LLP


Minneapolis, Minnesota,
   March 19, 1999


                                      16

<PAGE>

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

                               Balance Sheets
<TABLE>
<CAPTION>
                                                                                      January 3,         January 2, 
                                                                                         1998               1999
                                                                                   ----------------   -----------------
<S>                                                                                <C>                <C>
                                   ASSETS
CURRENT ASSETS:
   Cash and cash equivalents                                                           $12,484,502        $ 4,697,542
   Short-term investments                                                               11,764,689                  -
   Inventories                                                                                   -          1,865,251
   Other current assets                                                                    113,497            541,371
                                                                                   ----------------   -----------------
               Total current assets                                                     24,362,688          7,104,164

PROPERTY, PLANT AND EQUIPMENT, net of accumulated 
   depreciation of $255,529 and $999,869                                                12,908,770         30,317,118

INTELLECTUAL PROPERTY, to be amortized                                                     200,545            275,532

RESTRICTED CASH                                                                          7,275,569          8,065,727

DEPOSITS                                                                                 2,670,675                  -

OTHER ASSETS, net of accumulated amortization of $2,656
   and $402,487                                                                            767,220          2,225,591
                                                                                   ----------------   -----------------
                                                                                       $48,185,467        $47,988,132
                                                                                   ----------------   -----------------
                                                                                   ----------------   -----------------
                    LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable                                                                    $ 1,997,783        $ 5,540,599
   Accrued liabilities                                                                     585,481          3,761,657
   Current maturities of long-term debt                                                    675,372            919,533
                                                                                   ----------------   -----------------
               Total current liabilities                                                 3,258,636         10,221,789

LONG-TERM DEBT, less current maturities                                                 13,738,615         20,569,409
                                                                                   ----------------   -----------------
COMMITMENTS AND CONTINGENCIES (Note 6)

STOCKHOLDERS' EQUITY:
   Series B Convertible Preferred Stock, par value $0.01; 10,000 shares
      authorized, issued and outstanding at January 2, 1999                                      -          9,325,000
   Common stock, par value $0.01; 25,000,000 shares authorized; 13,026,191 and
      13,083,461 shares issued and outstanding                                             130,262            130,835
   Additional paid-in capital                                                           41,066,473         41,658,923
   Deficit accumulated during the development stage                                    (10,008,519)       (33,917,824)
                                                                                   ----------------   -----------------
               Total stockholders' equity                                               31,188,216         17,196,934
                                                                                   ----------------   -----------------
                                                                                       $48,185,467        $47,988,132
                                                                                   ----------------   -----------------
                                                                                   ----------------   -----------------
</TABLE>

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


                                      17

<PAGE>

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

                           Statements of Operations

  For the Years Ended December 31, 1996, January 3, 1998 and January 2, 1999,
       and Cumulative for the Period From Inception (December 22, 1993)
                              to January 2, 1999

<TABLE>
<CAPTION>
                                                                Fiscal 1996       Fiscal 1997      Fiscal 1998        Cumulative
                                                                ------------      -----------      ------------      ------------
<S>                                                             <C>               <C>              <C>               <C>
PREOPERATING EXPENSES: 
   Research and development                                      $ 1,271,276      $ 2,648,964      $ 14,907,976      $ 19,640,643
   Marketing                                                         694,239        1,673,680         3,797,185         6,304,211
   General and administrative                                        716,154        2,180,848         4,559,639         8,160,239
                                                                ------------      -----------      ------------      ------------
               Total preoperating expenses                         2,681,669        6,503,492        23,264,800        34,105,093

INTEREST INCOME                                                      174,226          810,058         1,108,997         2,136,803

INTEREST EXPENSE AND OTHER                                            (4,088)        (179,297)       (1,753,502)       (1,949,534)
                                                                ------------      -----------      ------------      ------------
               Net loss                                          $(2,511,531)     $(5,872,731)     $(23,909,305)     $(33,917,824)
                                                                ------------      -----------      ------------      ------------
                                                                ------------      -----------      ------------      ------------
BASIC AND DILUTED NET LOSS PER SHARE                             $      (.43)     $      (.65)     $      (1.83)     $      (4.66)
                                                                ------------      -----------      ------------      ------------
                                                                ------------      -----------      ------------      ------------
BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING              5,859,977        9,073,839        13,048,708         7,281,142
                                                                ------------      -----------      ------------      ------------
                                                                ------------      -----------      ------------      ------------
</TABLE>

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


                                      18

<PAGE>

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

                    Statements of Stockholders' Equity

<TABLE>
<CAPTION>
                                                             Series A Convertible    Series B Convertible
                                                               Preferred Stock        Preferred Stock
                                                            ----------------------  ----------------------
                                                              Shares      Amount      Shares      Amount
                                                            ----------  ----------  ----------  ----------
<S>                                                         <C>         <C>         <C>         <C>
 BALANCE AT INCEPTION, December 22, 1993                             -   $       -           -   $       -
   Issuance of common stock, $0.01 per share                         -           -           -           -
   Excess of par value over issuance price                           -           -           -           -
   Net loss                                                          -           -           -           -
                                                            ----------  ----------  ----------  ----------
 BALANCE, December 31, 1993                                          -           -           -           -
   Sale of common stock, $0.75 per share, net of offering                                      
     costs of $23,059                                                -           -           -           -
   Sale of common stock, $0.90 per share, net of offering                                      
     costs of $14,919                                                -           -           -           -
   Issuance of common stock in settlement of construction                                      
     payable, $0.90 per share                                        -           -           -           -
   Issuance of common stock from conversion of promissory                                      
     note to investor, $0.60 per share, net of conversion                                      
     costs of $2,583                                                 -           -           -           -
   Net loss                                                          -           -           -           -
                                                            ----------  ----------  ----------  ----------
 BALANCE, December 31, 1994                                          -           -           -           -
   Sale of common stock, $1.88 per share, net of offering                                      
     costs of $363,874                                               -           -           -           -
   Issuance of common stock for research and development                                       
     services, $1.88 per share                                       -           -           -           -
   Net loss                                                          -           -           -           -
                                                            ----------  ----------  ----------  ----------
 BALANCE, December 31, 1995                                          -           -           -           -
   Sale of Series A Convertible Preferred Stock,                                               
     $3.75 per share, net of offering costs of $1,186,000    3,066,527      30,665           -           -
   Issuance of common stock for marketing services,                                            
     $1.88 per share                                                 -           -           -           -
   Exercise of stock options, $1.88 per share                        -           -           -           -
   Net loss                                                          -           -           -           -
                                                            ----------  ----------  ----------  ----------
</TABLE>

<TABLE>
<CAPTION>
                                                                                                       Deficit
                                                                                                     Accumulated
                                                                   Common Stock        Additional     During the        Total
                                                              ----------------------    Paid-In      Development    Stockholders'
                                                                Shares      Amount      Capital         Stage          Equity
                                                              ----------  ----------   -----------   ------------   -------------
<S>                                                           <C>         <C>          <C>           <C>            <C>
 BALANCE AT INCEPTION, December 22, 1993                               -  $        -   $         -   $          -   $          -
   Issuance of common stock, $0.01 per share                   3,366,667      33,667        16,833              -         50,500
   Excess of par value over issuance price                             -     (28,617)      (16,833)             -        (45,450)
   Net loss                                                            -           -             -         (1,175)        (1,175)
                                                              ----------  ----------   -----------   ------------   ------------
 BALANCE, December 31, 1993                                    3,366,667       5,050             -         (1,175)         3,875
   Sale of common stock, $0.75 per share, net of offering                                            
     costs of $23,059                                             86,667      29,483        12,458              -         41,941
   Sale of common stock, $0.90 per share, net of offering                                            
     costs of $14,919                                            594,433       5,944       514,127              -        520,071
   Issuance of common stock in settlement of construction                                            
     payable, $0.90 per share                                      5,567          56         4,954              -          5,010
   Issuance of common stock from conversion of promissory                                            
     note to investor, $0.60 per share, net of conversion                                            
     costs of $2,583                                             125,000       1,250        71,167              -         72,417
   Net loss                                                            -           -             -       (389,191)      (389,191)
                                                              ----------  ----------   -----------   ------------   ------------
 BALANCE, December 31, 1994                                    4,178,334      41,783       602,706       (390,366)       254,123
   Sale of common stock, $1.88 per share, net of offering                                            
     costs of $363,874                                         1,605,231      16,053     2,630,073              -      2,646,126
   Issuance of common stock for research and development                                             
     services, $1.88 per share                                    33,333         333        62,167              -         62,500
   Net loss                                                            -           -             -     (1,233,891)    (1,233,891)
                                                              ----------  ----------   -----------   ------------   ------------
 BALANCE, December 31, 1995                                    5,816,898      58,169     3,294,946     (1,624,257)     1,728,858
   Sale of Series A Convertible Preferred Stock,                                                     
     $3.75 per share, net of offering costs of $1,186,000              -           -    10,283,335              -     10,314,000
   Issuance of common stock for marketing services,                                                  
     $1.88 per share                                              33,333         333        62,167              -         62,500
   Exercise of stock options, $1.88 per share                     20,000         200        37,300              -         37,500
   Net loss                                                            -           -             -     (2,511,531)    (2,511,531)
                                                              ----------  ----------   -----------   ------------   ------------
</TABLE>


                                      19

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

                      Statements of Stockholders' Equity

                                  (Continued)
<TABLE>
<CAPTION>
                                                             Series A Convertible    Series B Convertible
                                                               Preferred Stock        Preferred Stock
                                                            ----------------------  ----------------------
                                                              Shares      Amount      Shares      Amount
                                                            ----------  ----------  ----------  ----------
<S>                                                         <C>         <C>         <C>         <C>
 BALANCE, December 31, 1996                                  3,066,527    $ 30,665           -  $        -
   Conversion of Series A Convertible Preferred Stock
     to common stock                                        (3,066,527)    (30,665)          -           -
   Cash paid for fractional shares in reverse stock split            -           -           -           -
   Sale of common stock, $7.50 per share, net of offering
     costs of $2,600,000                                             -           -           -           -
   Exercise of stock options and warrants, $1.88 per share           -           -           -           -
   Cashless exercise of stock options and warrants                   -           -           -           -
   Net loss                                                          -           -           -           -
                                                            ----------  ----------  ----------  ----------
 BALANCE, January 3, 1998                                            -           -           -           -
   Sale of Series B Convertible Preferred Stock, $1,000 face
      value per share, net of offering costs of $675,000             -           -      10,000   9,325,000
   Value assigned to common stock warrants (see Note 3)              -           -           -           -
   Exercise of stock options, $1.88 to $3.75 per share               -           -           -           -
   Cashless exercise of stock options and warrants                   -           -           -           -
   Shares issued under employee stock purchase plan                  -           -           -           -
   Net loss                                                          -           -           -           -
                                                            ----------  ----------  ----------  ----------
 BALANCE, January 2, 1999                                            -    $      -      10,000  $9,325,000
                                                            ----------  ----------  ----------  ----------
                                                            ----------  ----------  ----------  ----------
</TABLE>

<TABLE>
<CAPTION>
                                                                                                       Deficit
                                                                                                     Accumulated
                                                                   Common Stock        Additional     During the        Total
                                                              ----------------------    Paid-In      Development    Stockholders'
                                                                Shares      Amount      Capital         Stage          Equity
                                                              ----------  ----------   -----------   ------------   -------------
<S>                                                           <C>         <C>          <C>           <C>            <C>
 BALANCE, December 31, 1996                                    5,870,231    $ 58,702   $13,677,748   $ (4,135,788)  $  9,631,327
   Conversion of Series A Convertible Preferred Stock
     to common stock                                           3,066,527      30,665             -              -              -
   Cash paid for fractional shares in reverse stock split              -           -        (1,880)             -         (1,880)
   Sale of common stock, $7.50 per share, net of offering
     costs of $2,600,000                                       4,000,000      40,000    27,360,000              -     27,400,000
   Exercise of stock options and warrants, $1.88 per share        16,800         168        31,332              -         31,500
   Cashless exercise of stock options and warrants                72,633         727          (727)             -              -
   Net loss                                                            -           -             -     (5,872,731)    (5,872,731)
                                                              ----------  ----------   -----------   ------------   ------------
 BALANCE, January 3, 1998                                     13,026,191     130,262    41,066,473    (10,008,519)    31,188,216
   Sale of Series B Convertible Preferred Stock, $1,000 face
      value per share, net of offering costs of $675,000               -           -             -              -      9,325,000
   Value assigned to common stock warrants (see Note 3)                -           -       430,000              -        430,000
   Exercise of stock options, $1.88 to $3.75 per share            15,066         160        59,811              -         59,971
   Cashless exercise of stock options and warrants                29,093         282          (282)             -              -
   Shares issued under employee stock purchase plan               13,111         131       102,921              -        103,052
   Net loss                                                            -           -             -    (23,909,305)   (23,909,305)
                                                              ----------  ----------   -----------   ------------   ------------
 BALANCE, January 2, 1999                                     13,083,461    $130,835   $41,658,923   $(33,917,824)  $ 17,196,934
                                                              ----------  ----------   -----------   ------------   ------------
                                                              ----------  ----------   -----------   ------------   ------------
</TABLE>


                                      20

<PAGE>

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

                           Statements of Cash Flows

          For the Years Ended December 31, 1996, January 3, 1998 and
             January 2, 1999, and Cumulative For the Period From
               Inception (December 22, 1993) to January 2, 1999

<TABLE>
<CAPTION>
                                                              Fiscal 1996        Fiscal 1997        Fiscal 1998        Cumulative
                                                            --------------     --------------     --------------     --------------
<S>                                                         <C>                <C>                <C>                <C>
OPERATING ACTIVITIES:
   Net loss                                                  $(2,511,531)       $(5,872,731)       $(23,909,305)      $(33,917,824)
   Adjustments to reconcile net loss to net cash used in
      operating activities-
         Depreciation and amortization                            49,495            229,323           1,146,827          1,452,400
         Change in current assets and liabilities:
            Inventories                                                -                  -          (1,865,251)        (1,865,251)
            Other current assets                                  (5,524)          (104,378)           (427,874)          (541,371)
            Accounts payable                                       5,902          1,874,547           3,542,816          5,540,599
            Accrued liabilities                                  186,706            386,730           3,176,176          3,761,657
                                                            ------------       ------------        ------------       ------------
               Net cash used in operating activities          (2,274,952)        (3,486,509)        (18,336,611)       (25,569,790)
                                                            ------------       ------------        ------------       ------------
INVESTING ACTIVITIES:
   Sales (purchases) of short-term investments, net           (3,132,362)        (7,719,697)         11,764,689                  -
   Property and equipment additions, net                        (417,496)       (10,134,529)        (15,296,563)       (25,959,636)
   Purchases of intellectual property                            (46,743)           (65,161)            (74,987)          (275,532)
   Payments made for other assets                                      -           (445,127)         (1,306,972)        (1,752,099)
                                                            ------------       ------------        ------------       ------------
               Net cash used in investing activities          (3,596,601)       (18,364,514)         (4,913,833)       (27,987,267)
                                                            ------------       ------------        ------------       ------------
FINANCING ACTIVITIES:
   Proceeds from restricted cash, net                                  -           (130,569)          5,309,842          5,179,273
   Payments made for other assets                                      -           (324,749)           (553,886)          (878,635)
   Proceeds from long-term debt                                   75,025          2,300,000           1,884,181          4,389,276
   Repayment of long-term debt                                   (29,290)          (315,378)           (664,676)        (1,040,063)
   Proceeds from issuance of common stock,
      net of offering expenses                                   100,000         27,429,620             163,023         30,965,748
   Proceeds from issuance of convertible preferred stock, 
     net of offering expenses                                 10,314,000                  -           9,325,000         19,639,000
                                                            ------------       ------------        ------------       ------------
               Net cash provided by financing activities      10,459,735         28,958,924          15,463,484         58,254,599
                                                            ------------       ------------        ------------       ------------
               Net increase (decrease) in cash and cash 
                 equivalents                                   4,588,182          7,107,901          (7,786,960)         4,697,542

CASH AND CASH EQUIVALENTS:
   Beginning of period                                           788,419          5,376,601          12,484,502                  -
                                                            ------------       ------------        ------------       ------------
   End of period                                             $ 5,376,601        $12,484,502        $  4,697,542       $  4,697,542
                                                            ------------       ------------        ------------       ------------
                                                            ------------       ------------        ------------       ------------
SUPPLEMENTAL CASH FLOW INFORMATION:
   Interest paid                                             $     4,088        $   148,631        $  1,724,285       $  1,888,961
   Noncash transactions-
      Property and equipment acquired under capital
         lease obligations                                             -          5,214,279             185,450          5,399,729
      Restricted cash received from long-term debt and value
         assigned to common stock warrants                             -          7,145,000           6,100,000         13,245,000
      Conversion of note payable into common stock                     -                  -                   -             75,000
      Issuance of common stock for services                       62,500                  -                   -            125,000
      Issuance of common stock in settlement of 
        construction payable                                           -                  -                   -              5,010
                                                            
</TABLE>

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


                                      21

<PAGE>

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

                         Notes to Financial Statements

                      January 3, 1998 and January 2, 1999


1.   NATURE OF BUSINESS:

Excelsior-Henderson Motorcycle Manufacturing Company (the Company) is a 
development stage company incorporated on December 22, 1993 in the state of 
Minnesota for the purpose of developing, manufacturing, selling and 
distributing motorcycles. Effective January 3, 1998, the Company adopted a 
52/53-week fiscal year ending on the Saturday closest to December 31. Fiscal 
1997 ended January 3, 1998 and Fiscal 1998 ended January 2, 1999.

The Company is subject to all of the risks inherent in the establishment of a 
new business enterprise, including the absence of any material operating 
history. The Company has sustained losses since inception and will require 
substantial additional equity and debt financing during the ramp up of 
production and to comply with existing debt covenants. In addition, if the 
Company's estimates of the amount of financing needed to ramp up production 
of the Super X are incorrect due to unanticipated additional costs of 
equipping the Company's manufacturing facility, unanticipated problems in the 
development of the Super X for production, increased labor costs, increased 
costs of motorcycle parts and raw materials, increased marketing and dealer 
network development expenses, increased rates of consumption of available 
cash resources or other unanticipated events, then the Company may need 
additional equity or debt financing. Even if the Company is successful in 
completing the above activities, significant revenues might not be realized. 
The aforementioned factors raise substantial doubt about the Company's 
ability to continue as a going concern. The Company's ability to operate as a 
going concern is contingent upon obtaining additional financing that might 
not be available. 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.   SIGNIFICANT ACCOUNTING POLICIES:

CASH EQUIVALENTS

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

SHORT-TERM INVESTMENTS

Short-term investments consisted of U.S. government and corporate debt 
securities which were available for sale and were carried at fair value, 
which approximated cost.


                                      22

<PAGE>

INVENTORIES

Inventories consist of raw material components recorded at the lower of cost 
or market, with cost determined on a first-in, first-out basis and market 
based on estimated realizable value.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:

<TABLE>
<CAPTION>
                                                           January 3,     January 2, 
                                                              1998           1999
                                                          -----------    -----------
            <S>                                           <C>            <C>
            Land and improvements                         $ 2,172,586    $ 2,185,567
            Building and improvements                       8,795,212      9,217,027
            Machinery and equipment                         1,352,021     11,199,243
            Tools and dies                                    165,178      1,824,608
            Office equipment and fixtures                     679,302        986,918
            Construction in progress                                -      5,903,624
                                                          -----------    -----------
                                                           13,164,299     31,316,987
            Less- Accumulated depreciation                   (255,529)      (999,869)
                                                          -----------    -----------
                                                          $12,908,770    $30,317,118
                                                          -----------    -----------
                                                          -----------    -----------
</TABLE>

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

<TABLE>
<CAPTION>
                                                Useful Life
                                                ------------
            <S>                                 <C>
            Land improvements                     20 years
            Building and improvements           12-35 years
            Machinery and equipment              5-10 years
            Tools and dies                        5 years
            Office equipment and fixtures        5-10 years
</TABLE>

INTELLECTUAL PROPERTY

Intellectual property represents amounts incurred to prepare and file for 
U.S. and international patent and trademark registrations. These amounts are 
stated at cost and will be amortized over 5 to 17 years beginning January 
1999 or upon future patent or trademark registrations.

RESTRICTED CASH

Restricted cash consists of cash held in trusts pending the completion of the 
Company's paint and finishing facility and the acquisition of production 
tooling and manufacturing equipment. Subsequent to year-end and through March 
19, 1999, the Company has drawn $4.6 million of the restricted cash. 
Approximately $1.3 million remains available for future draws, with the
remaining amount of $2.2 million being unavailable due to debt service
requirements.


                                      23

<PAGE>

DEPOSITS

Deposits consisted of payments made for manufacturing and finishing equipment 
not yet installed in the Company's facility.

OTHER ASSETS

Other assets primarily consist of deferred financing costs associated with 
debt financings and the capitalization of software and related external 
development costs. Deferred financing costs are amortized over the lives of 
the related debt (ranging from six to eight years). Software and the related 
external development costs are amortized over the estimated useful lives of 
the software (ranging from three to five years).

ACCRUED LIABILITIES

Accrued liabilities consisted of the following:

<TABLE>
<CAPTION>
                                                  January 3,       January 2,
                                                     1998            1999
                                                  ----------     ------------
            <S>                                   <C>            <C>
            Inventory commitment reserve            $      -        $1,452,000
            Salaries and benefits                    139,131           527,860
            Research and development contracts        50,000         1,204,077
            Other accrued liabilities                396,350           577,720
                                                    --------        ----------
                                                    $585,481        $3,761,657
                                                    --------        ----------
                                                    --------        ----------
</TABLE>

The inventory commitment reserve results from firm purchase commitments for 
inventory to be received subsequent to January 2, 1999 in excess of the 
estimated realizable value. The Company recorded the reserve in 
Fiscal 1998 within research and development expenses in the accompanying 
statement of operations.

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.

RESEARCH AND DEVELOPMENT COSTS

Research and development costs are charged to expense as incurred.

BASIC AND DILUTED NET LOSS PER SHARE

Basic and diluted net loss per share for all periods presented is computed 
using the weighted average number of common shares outstanding. Basic 
weighted average shares outstanding includes only outstanding common shares. 
Shares reserved for outstanding warrants, stock options or convertible 
preferred stock 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 


                                      24

<PAGE>

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. Estimates are used when accounting for inventory 
obsolescence and valuation; determining the useful lives for property, plant 
and equipment and other assets; capitalizing software and related external 
development costs; and recording the inventory commitment reserve. Ultimate 
results could differ from those estimates.

RECLASSIFICATIONS

Certain amounts in the Fiscal 1997 financial statements have been 
reclassified to conform to the Fiscal 1998 presentation. These 
reclassifications had no effect on the previously reported net loss or 
stockholders' equity.

3.   LONG-TERM DEBT:

Long-term debt consisted of the following:

<TABLE>
<CAPTION>
                                                                                        January 3,          January 2, 
                                                                                           1998               1999
                                                                                       -----------        ------------
<S>                                                                                    <C>                <C>
Series 1997 B Revenue Bonds, interest rate at 9.5%, escalating annual
   principal payments through August 1, 2007                                           $ 6,915,000        $ 6,435,000
Building capital lease, imputed interest rate of 11.6%, escalating monthly
   principal payments through September 1, 2017                                          4,927,763          4,842,775
Industrial Development Revenue Bond, stated interest rate at 10.4%,
   interest-only payments through July 1, 1999, equal principal and interest
   payments of $107,920 from August 1, 1999 through January 1, 2006                              -          5,670,000
Tax Increment Financing Obligation, imputed interest rate of 7.9%, payments made
   through future property taxes, remaining balance due no later than
   February 1, 2012                                                                      2,300,000          2,750,000
Multiadvance $5.0 million working capital loan with a bank, variable interest
   rate (8.25% at January 2, 1999), interest-only payments until the earlier of
   July 1, 2000 or when the loan is fully drawn, principal and interest payments
   over 60 months thereafter, collateralized by certain assets of the
   Company                                                                                       -          1,434,181
Other                                                                                      271,224            356,986
                                                                                       -----------        ------------
                                                                                        14,413,987         21,488,942
Less- Current maturities                                                                  (675,372)          (919,533)
                                                                                       -----------        ------------
                                                                                       $13,738,615        $20,569,409
                                                                                       -----------        ------------
                                                                                       -----------        ------------
</TABLE>

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

In Fiscal 1997, the Company entered into a 20-year capital lease for its 
manufacturing facility. Rent for the life of the lease is equal to the debt 
service on the lessor's debt ($5,750,000) using a 20-year amortization plus a 
10% premium (escalating during the lease term to offset inflation). The 
$5,750,000 includes a $750,000 deposit held in a reserve fund. Earnings on 
the reserve fund will be paid to the 


                                      25

<PAGE>

Company. The reserve fund may be released to the Company at the first to 
occur: lessor permission, loan maturity or the purchase of the building by 
the Company. The lease includes a purchase option at the end of the fifth 
year for $6,250,000 less principal payments made and application of the 
$750,000 deposit.

In Fiscal 1998, the Company issued a $6.1 million Industrial Development 
Revenue Bond (the Bond). The proceeds of the Bond were placed into an escrow 
account and are being drawn for certain past and future equipment and tooling 
purchases. The Bond is secured by such equipment and tooling. The Bond is 
reported net of a $430,000 discount for the valuation of detachable stock 
purchase warrants issued in connection with the transaction. The Company is 
amortizing the debt discount over the life of the debt using the effective 
interest rate method.

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

The Company's debt agreements contain certain restrictive covenants, among 
other requirements, relating to the Company's current ratio, tangible net 
worth, debt to net worth ratio and debt service coverage ratio (as defined in 
the agreements). Except for the current ratio covenant, the Company was in 
compliance with all agreement covenants as of January 2, 1999. The lenders 
have agreed to waive the current ratio covenant through January 1, 2000. If 
significant losses are incurred or additional funding is not obtained, the 
Company will not comply with other covenant ratios at various times in Fiscal 
1999. Noncompliance could lead to an event of default, in which case the 
lender(s) could demand repayment of the obligation(s).

Future maturities of long-term debt are as follows:

<TABLE>
            <S>                            <C>
            1999                           $   919,533
            2000                             2,274,125
            2001                             2,679,016
            2002                             1,991,153
            2003                             2,102,796
            Thereafter                      11,522,319
                                           -----------
                                           $21,488,942
                                           -----------
                                           -----------
</TABLE>

4.   STOCKHOLDERS' EQUITY:

AUTHORIZED SHARES

The Company's Articles of Incorporation, as amended, authorize the aggregate 
issuance of 32,000,000 shares of stock. The shares are classified into two 
classes consisting of 7,000,000 shares of preferred stock, $.01 par value, 
and 25,000,000 shares of $.01 par value common stock.

REVERSE STOCK SPLIT

Effective May 22, 1997, the Company's board of directors approved a 2-for-3 
reverse stock split of the Company's outstanding stock. All periods presented 
reflect the reverse stock split.

SERIES B AND C CONVERTIBLE PREFERRED STOCK OFFERINGS


                                      26

<PAGE>
 
In Fiscal 1998, an institutional investor (the Investor) purchased 10,000 
shares of the Company's Series B Convertible Preferred Stock (Series B) for a 
gross purchase price of $10.0 million, from which the Company received $9.3 
million in net proceeds. The conversion price of the Series B is $7.47 and is 
fixed for the first twelve months. Thereafter, the conversion price may vary 
based upon the market price of the Company's common stock during the period 
immediately preceding conversion. Under certain circumstances within the 
Company's control, the Company may be required to redeem the Series B for 
cash. Subsequent to year-end and through March 19, 1999, the Company received 
conversion notices from the Investor and converted 2,750 shares of Series B 
into 368,047 shares of common stock.

On January 20, 1999, the Investor purchased 3,000 shares of the Company's 
Series C Convertible Preferred Stock (Series C) for a gross purchase price of 
$3.0 million from which the Company received $2.8 million in net proceeds. The 
conversion price of the Series C is $9.92 and is fixed until September 1999. 
Other terms are similar to those of the Series B.

COMPANY STOCK OFFERING

During Fiscal 1997, the Company completed an initial public offering of 
4,000,000 shares of common stock with net proceeds of approximately $27.4 
million.

SERIES A CONVERTIBLE PREFERRED STOCK OFFERING

During Fiscal 1996, the Company completed a restricted offering to the public 
of 3,066,527 shares of Series A Convertible Preferred Stock (Series A) with 
net proceeds to the Company of approximately $10.3 million. The Series A was 
converted into shares of common stock concurrent with the closing of the 
Company's initial public offering in July 1997.

TEAM STOCK PURCHASE PLAN

In Fiscal 1998, the Company implemented an employee stock purchase plan (the 
TSPP) that enables employees to contribute a percentage of their wages toward 
the purchase of the Company's common stock at 85% of the lower of market 
value at the beginning or the end of the semiannual purchase period. In July 
1998, the shareholders authorized 300,000 shares for issuance under the TSPP. 
On January 2, 1999, 13,111 shares were issued at $7.86 per share, leaving 
286,889 shares for future employee purchases of stock under the TSPP.

STOCK-BASED COMPENSATION

The Company has a stock option plan (the Plan), under the terms of which it 
is authorized to issue incentive stock options to employees, directors, 
advisors and officers. The incentive options allow the holder to purchase 
shares of the Company's common stock at fair market value on the date of the 
grant. For incentive options granted to holders of more than 10% of the
outstanding common stock, the option price at the date of the grant must
be at least equal to 110% of the fair market value of the stock. Currently,
1,200,000 shares have been reserved for issuance under the Plan. Stock options
granted expire between four to ten years from the date of grant and vest at 
various rates over one to ten years.

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


                                      27

<PAGE>

Information regarding stock-based compensation is as follows:

<TABLE>
<CAPTION>
                                        Fiscal 1996                 Fiscal 1997                   Fiscal 1998
                                   ----------------------      -----------------------      ------------------------
                                               Weighted                     Weighted                       Weighted
                                               Average                       Average                       Average
                                               Exercise                     Exercise                       Exercise
                                     Shares     Price           Shares       Price              Shares      Price
                                   ---------  ----------       ----------  -----------      ------------  ----------
<S>                               <C>         <C>              <C>         <C>              <C>           <C>
Outstanding, beginning 
  of year                            17,667     $1.49           410,934      $1.86              518,773     $3.40
      Granted                       413,267      1.88           311,338       4.72              744,500      7.76
      Exercised                     (20,000)     1.88           (43,666)      1.72              (20,666)     3.33
      Canceled                            -         -          (159,833)      2.41              (65,002)     6.08
                                   ---------                   ----------                      ----------- 


Outstanding,
   end of year                      410,934      1.86           518,773       3.40            1,177,605      6.02
                                   ---------                  ----------                    ------------
                                   ---------                  ----------                    ------------
Exercisable,
   end of year                      148,267      1.83           248,936       2.44              297,425      2.71
                                   ---------                  ----------                    ------------
Weighted average fair value
   of options granted              $   1.08                   $    3.43                     $      5.52
</TABLE>

In Fiscal 1997 and 1998, respectively, 12,000 and 4,667 options were 
exercised through the exchange of 3,000 and 933 shares held by the 
shareholder in excess of six months. Options outstanding at January 2, 1999 
have an exercise price per share ranging between $1.88 and $8.50, a weighted 
exercise price of $6.02 and a weighted average remaining contractual life of 
8.5 years.

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

<TABLE>
<CAPTION>
                                                                                           
                                                                                           
                                                                                           Cumulative for the Period 
                                                                                                From Inception       
                                                                                            (December 22, 1993) to   
                                        Fiscal 1996       Fiscal 1997      Fiscal 1998          January 2, 1999      
                                        -----------       -----------      -----------     --------------------------
<S>                                     <C>               <C>              <C>             <C>
Net loss:
      As reported                        $2,511,531        $5,872,731        $23,909,305            $33,917,824
      Pro forma                           2,696,083         6,060,375         24,418,004             34,798,719
Basic and diluted net loss per share:
      As reported                        $      .43        $      .65        $      1.83            $      4.66
      Pro forma                                 .46               .67               1.87                   4.78
</TABLE>

The fair value of each option grant is estimated on the date of the grant 
using the Black-Scholes option pricing model with the following weighted 
average assumptions used for grants in Fiscal 1996, 1997 and 1998, 
respectively: risk-free interest rates of 5.95%, 6.47% and 6.26%; expected 
lives of 7, 10 and 9 years; and expected volatility of 40%, 57% and 59%.


                                      28

<PAGE>

WARRANTS

In Fiscal 1995, the Company issued warrants to purchase 209,540 shares of 
common stock at a price of $1.88 per share exercisable through August 2, 
2000. During the year ended January 3, 1998, warrants to purchase 70,706 
common shares were exercised with cash and through the exchange of common 
shares, with net proceeds to the Company of $16,500.  During the year ended 
January 2, 1999, warrants to purchase 22,263 common shares were exercised 
through the exchange of common shares.

In Fiscal 1996, the Company issued warrants to purchase 262,667 shares of 
Series A Convertible Preferred Stock at $4.50 per share. During Fiscal 1997, 
these warrants were converted to common stock warrants exercisable at $4.50 
per share through September 2001.  During the year ended Janury 2, 1999, 
warrants to purchase 16,280 common shares were exercised through the exchange
of common shares.

In Fiscal 1998, the Company issued to the holder of the Bond warrants to 
purchase 196,500 shares of common stock at a price of $9.00 per share 
exercisable through July 2008.

In Fiscal 1998 and 1999, respectively, the Company issued to the Investor and 
a placement agent warrants to purchase 340,000 and 102,000 shares of common 
stock at a price of $8.49 and $11.28 per share exercisable through September 
2003 and January 2004.

5.   INCOME TAXES:

As of January 2, 1999, the Company had net operating loss carryforwards of 
approximately $18.8 million for federal income tax purposes that are 
available to offset future taxable income through the year 2013. A valuation 
allowance equal to the full amount of the related deferred tax asset has been 
established due to the uncertainty of realization of the deferred tax asset. 
Restrictions, caused by a 1996 change in ownership resulting from sales of 
the Company's stock, will limit annual utilization of these net operating 
loss carryforwards. The portion of the net operating loss carryforwards 
subject to this limitation is approximately $2.6 million and the annual 
limitation is approximately $600,000.

6.   COMMITMENTS AND CONTINGENCIES:

PROPERTY, PLANT AND EQUIPMENT

The Company has committed to capital expenditures of $3.7 million as of 
January 2, 1999, primarily for production equipment and tooling.

OPERATING LEASES

The Company leases certain office equipment and furniture, vehicles and 
trailers, and maintenance equipment under noncancelable operating leases. 
Future minimum payments under these leases as of January 2, 1999 are as 
follows:

<TABLE>
            <S>                 <C>
            1999                $  315,000
            2000                   276,000
            2001                   204,000
            2002                   176,000
            2003                   143,000
            Thereafter             135,000
                                ----------
                                $1,249,000
                                ----------
                                ----------
</TABLE>


                                      29

<PAGE>

Under the terms of these operating leases, the Company is also responsible 
for certain operating expenses. Total lease expense was $33,000, $99,000, 
$252,000 and $415,000 for Fiscal 1996, 1997 and 1998, and cumulative for the 
period from inception (December 22, 1993) to January 2, 1999, respectively.

LIFE INSURANCE

The Company is the owner and beneficiary of four term life insurance policies
covering the lives of its founders, majority shareholders 
and certain other executive officers.

7.   LETTER OF CREDIT:

As of January 2, 1999, the Company had outstanding an irrevocable import 
letter of credit of $995,000, which expires on March 31, 1999. This letter of 
credit collateralizes the Company's obligation to a third party for the 
purchase of inventory. The contract amount of this letter of credit 
approximates fair value.


                                      30

<PAGE>

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

         Not applicable.

                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information included in the Company's definitive proxy statement for the 
1999 Annual Meeting of Shareholders under the captions "Election of 
Directors", "Executive Officers" and "Section 16(a) Beneficial Ownership 
Reporting Compliance" is incorporated by reference.

ITEM 11.  EXECUTIVE COMPENSATION

The information included in the Company's definitive proxy statement for the 
1999 Annual Meeting of Shareholders under the captions "Election of 
Directors--Director Compensation", "Summary Compensation Table", "Option 
Grants in Last Fiscal Year", "Aggregate Option Exercises in Last Fiscal Year 
and Fiscal Year-End Option Values" and "Employment Contracts; Termination of 
Employment and Change-In-Control Arrangements" is incorporated by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information included in the Company's definitive proxy statement for the 
1999 Annual Meeting of Shareholders under the caption "Security Ownership of 
Principal Shareholders and Management" is incorporated by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information included in the Company's definitive proxy statement for the 
1999 Annual Meeting of Shareholders under the caption "Certain Relationships 
and Related Transactions" is incorporated by reference.


                                      31

<PAGE>

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

(a)(1)   FINANCIAL STATEMENTS

         See Index to Financial Statements on page 15.

  (2)  FINANCIAL STATEMENT SCHEDULE

         Report of Independent Public Accountants on Schedule

         Schedule II--Valuation and Qualifying Accounts

         All other schedules for which provision is made in the applicable
         accounting regulations of the Securities and Exchange Commission are
         not required under the related instructions or are inapplicable and
         have therefore been omitted.

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

<TABLE>
<CAPTION>

Exhibit                    Description
-------                    -----------
<C>      <S>
    3.1  Restated Articles of Incorporation of Company, as Amended.(1)
    3.3  By-Laws of the Company.(2)
    4.1  Securities Purchase Agreement dated as of September 3, 1998, by and
         among Excelsior-Henderson Motorcycle Manufacturing Company and the
         Buyers listed therein.(6)
    4.2  Registration Rights Agreement dated as of September 3, 1998, by and
         between Excelsior-Henderson Motorcycle Manufacturing Company and the
         Buyers listed therein.(6)
    4.3  Amended Statement of Designation of Rights, Preferences and Limitations
         of Series B Convertible Preferred Stock as filed with the Secretary of
         State of the State of Minnesota on September 3, 1998.(6)
    4.4  Form of Common Stock Purchase Warrant Certificate dated September 3, 1998.(6)
    4.5  Statement of Designation of Rights, Preferences and Limitations of
         Series C Convertible Preferred Stock as filed with the Secretary of
         State of the State of Minnesota on January 20, 1999.
    4.6  Promissory Note, dated December 1, 1997, from the Company to Minnesota
         Agricultural and Economic Development Board
    4.7  Specimen Taxable Industrial Development Revenue Bond (Excelsior-Henderson 
         Project) Series 1998
   10.1  Loan Agreement, dated as of November 1, 1997,  by and between  Minnesota  
         Agricultural  and  Economic Development Board and the Company
   10.2  Loan Agreement, dated as of July 1, 1998, by and between Economic
         Development Authority of the City of Belle Plaine, Minnesota and the Company
   10.3  Assignment of Loan Agreement, dated as of July 1, 1998, by and 
         between Economic Development Authority of the City of Belle Plaine, 
         Minnesota, Finova Public Finance, Inc. and the Company
   10.4  Contract for Private Development by and among City of Belle Plaine,
         Minnesota and Belle Plaine Economic Development Authority Belle Plaine,
         Minnesota and the Company dated as of December 31, 1996.(3)
   10.5  Assignment, Assumption and Amendment of Development Contract by and
         among the City of Belle Plaine, Minnesota, Belle Plaine Economic
         Authority, Belle Plaine, Minnesota, the Company, and Ryan Belle Plaine,
         LLC dated April 21, 1997.(4)
   10.6  Lease Agreement between Ryan Belle Plaine, LLC and the Company dated
         April 21, 1997.(4)
   10.7  Construction Agreement by and between Ryan Belle Plaine, LLC and the
         Company dated April 21, 1997.(4)
   10.8  Guaranty by Ryan Companies US, Inc. in favor of the Company dated 
         April 21, 1997.(4)
   10.9  Amended and Restated 1995 Stock Option Plan.(4)
   10.10 Loan Agreement, dated as of December 22, 1998, by and between the
         Company and Dakota Bank
   10.11 Form of Employee Agreement.(5) 
   23    Consent of Arthur Andersen LLP. 
   24    Powers of Attorney.
</TABLE>


                                      32

<PAGE>

<TABLE>
<C>      <S>
   27    Financial Data Schedule for the year ended January 2, 1999.
</TABLE>
----------
(1)  Incorporated by reference to the like numbered Exhibit to the Company's
     Registration Statement on Form S-1 filed with the Commission on May 23,
     1997 (Registration No. 333-27789).
(2)  Incorporated by reference to the like numbered Exhibit to Amendment No. 1
     to the Company's Registration Statement on Form SB-2 filed with the
     Commission on July 23, 1996 (Registration No. 333-05060C).
(3)  Incorporated by reference to the like numbered Exhibit to the Company's
     Annual Report on Form 10-KSB for the year ended December 31, 1996 (File No.
     000-22765).
(4)  Incorporated by reference to the like numbered Exhibit to the Company's
     Quarterly Report on Form 10-QSB for the period ended March 31, 1997 (File
     No. 000-22765).
(5)  Incorporated by reference to the like numbered Exhibit to Amendment No. 1
     to the Company's Registration Statement on Form S-1 filed with the
     Commission on June 27, 1997 (Registration No. 333-27789).
(6)  Incorporated by reference to the like numbered Exhibit to the Company's
     Current Report on Form 8-K filed with the Commission on September 18, 1998
     (File No. 000-22765).


(b)  REPORTS ON FORM 8-K

         The registrant filed no reports on Form 8-K during the fourth 
quarter of the fiscal year ended January 2, 1999.


                                      33

<PAGE>

              REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE

To Excelsior-Henderson Motorcycle Manufacturing Company:

We have audited in accordance with generally accepted auditing standards, the 
financial statements of Excelsior-Henderson Motorcycle Manufacturing Company 
included in this Form 10-K, and have issued our report thereon dated March 19,
1999. Our report on the financial statements includes an explanatory paragraph
with respect to a going concern as discussed in Note 1 to the financial 
statements. Our audit was made for the purpose of forming an opinion on those 
statements taken as a whole. The schedule listed in Item 14(a)(2) is the 
responsibility of the Company's management and is presented for purposes of 
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a 
whole.


                               ARTHUR ANDERSEN LLP 
Minneapolis, Minnesota, 
March 19, 1999


                                      34

<PAGE>

                                 SCHEDULE II

             EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
                       VALUATION AND QUALIFYING ACCOUNTS
                      FOR THE YEAR ENDED JANUARY 2, 1999
<TABLE>
<CAPTION>
                                         Balance at             Additions                                 Balance at
                                         Beginning          Charged to Costs                                End of
                                         of Period            and Expenses           Deductions(1)          Period
                                        -------------     ----------------------    ----------------     -------------
<S>                                     <C>               <C>                       <C>                  <C> 
Accrued Liabilities:
   Inventory Commitment
      Reserve......................        $   --              $ 1,452,000             $   --             $ 1,452,000
</TABLE>

(1) Charges to the reserve are for the purpose for which the reserve was 
    created.


                                      35

<PAGE>

                                  SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the 
Securities Exchange Act of 1934, the registrant has duly caused this report 
to be signed on its behalf by the undersigned, thereunto duly authorized on 
April 2, 1999.

                                     EXCELSIOR-HENDERSON MOTORCYCLE
                                      MANUFACTURING COMPANY

                                     By               Daniel L. Hanlon
                                         --------------------------------------
                                          Daniel L. Hanlon, Co-Founder


                                     By               David P. Hanlon
                                         --------------------------------------
                                          David P. Hanlon, Co-Founder


                                     By               Jennie L. Hanlon
                                         --------------------------------------
                                          Jennie L. Hanlon, Co-Founder

         Pursuant to the requirements of the Securities Exchange Act of 1934, 
this report has been signed below by the following persons on behalf of the 
registrant and in the capacities indicated on April 2, 1999.

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

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

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

John B. Donahue*       Director

Wayne M. Fortun*       Director

David R. Pomije*       Director

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


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


                                      36

<PAGE>

                               INDEX TO EXHIBITS
<TABLE>
<CAPTION>

Exhibit                      Description                                                      Page
-------                      -----------                                                      ----
<C>      <S>                                                                            <C>
    3.1  Restated Articles of Incorporation of Company.............................     Incorporated by Reference
    3.3  By-Laws of the Company....................................................     Incorporated by Reference
    4.1  Securities Purchase Agreement dated as of September 3, 1998, by and
         among Excelsior-Henderson Motorcycle Manufacturing Company and
         the Buyers listed therein.................................................     Incorporated by Reference
    4.2  Registration Rights Agreement dated as of September 3, 1998, by and
         between Excelsior-Henderson Motorcycle Manufacturing
         Company and the Buyers listed therein.....................................     Incorporated by Reference
    4.3  Amended Statement of Designation of Rights, Preferences and
         Limitations of Series B Convertible Preferred Stock as filed with
         the Secretary of State of the State of Minnesota on September 3, 1998.....     Incorporated by Reference
    4.4  Form of Common Stock Purchase Warrant Certificate dated
         September 3, 1998.........................................................     Incorporated by Reference
    4.5  Statement of Designation of Rights, Preferences and Limitations of
         Series C Convertible Preferred Stock as filed with the Secretary of
         State of the State of Minnesota on January 20, 1999.......................     Filed Electronically
    4.6  Promissory Note, dated December 1, 1997, from the Company
         to Minnesota Agricultural and Economic Development Board..................     Filed Electronically
    4.7  Specimen Taxable Industrial Development Revenue Bond
         (Excelsior-Henderson Project) Series 1998.................................     Filed Electronically
   10.1  Loan Agreement, dated as of November 1, 1997, by and
         between Minnesota Agricultural and Economic Development Board
         and the Company...........................................................     Filed Electronically
   10.2  Loan Agreement, dated as of July 1, 1998, by and between Economic
         Development Authority of the City of Belle Plaine, Minnesota
         and the Company...........................................................     Filed Electronically
   10.3  Assignment of Loan Agreement, dated as of July 1, 1998, by
         and between Economic Development Authority of the City of
         Belle Plaine, Minnesota, Finova Public Finance, Inc. and the Company......     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......................................................................     Incorporated by Reference
   10.5  Assignment, Assumption and Amendment of Development Contract by
         and among the City of Belle Plaine, Minnesota, Belle Plaine Economic
         Authority, Belle Plaine, Minnesota, the Company, and Ryan Belle
         Plaine, LLC dated April 21, 1997..........................................     Incorporated by Reference
   10.6  Lease Agreement between Ryan Belle Plaine, LLC and the Company
         dated April 21, 1997......................................................     Incorporated by Reference
   10.7  Construction Agreement by and between Ryan Belle Plaine, LLC
         and the Company dated April 21, 1997......................................     Incorporated by Reference
   10.8  Guaranty by Ryan Companies US, Inc. in favor of the Company
         dated April 21, 1997......................................................     Incorporated by Reference
   10.9  Amended and Restated 1995 Stock Option Plan...............................     Incorporated by Reference
   10.10 Loan Agreement, dated as of December 22, 1998, by and
         between the Company and Dakota Bank.......................................     Filed Electronically
   10.11 Form of Employee Agreement................................................     Incorporated by Reference
   23    Consent of Arthur Andersen LLP............................................     Filed Electronically
   24    Powers of Attorney........................................................     Filed Electronically
   27    Financial Data Schedule for the year ended January 2, 1999................     Filed Electronically
</TABLE>