1
FORM 10-Q/10Q/A
Securities and Exchange Commission
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended AprilJuly 1, 2000
-----------------------
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 000-24477
---------------
TITAN MOTORCYCLE COMPANY OF AMERICA
(Exact name of registrant as specified in its charter)
Nevada 86-0776876
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2222 West Peoria Avenue, Phoenix, Arizona 85029
- ----------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 861-6977
-------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
_____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of shares of common stock, par value $.001,
outstanding as of May 8,July 1, 2000: 17,704,458
REASON FOR THE AMENDMENT
The Company has restated its earnings per share calculation to account for the
beneficial conversion feature associated with the Series B Redeemable Preferred
Stock.18,044,665
2
TITAN MOTORCYCLE CO. OF AMERICA
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of April 1, 2000 and
January 1, 2000 (Unaudited)
Condensed Consolidated Statements of Operations for the thirteen-weeks
ended April 1, 2000 (Restated) and April 3, 1999 (Unaudited)
Condensed Consolidated Statements of Shareholders' Equity for the years
ended January 1, 2000 and January 3, 1999 and the thirteen-weeks ended
April 1, 2000 (Unaudited)
Condensed Consolidated Statements of Cash Flow for the thirteen-weeks
ended April 1, 2000 and April 3, 1999 (Unaudited)
Notes to Condensed Consolidated Financial Statements
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
PART II. OTHER INFORMATION
- ---------------------------
ITEM 5. Other Matters
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of July 1, 2000 and January 1, 2000......................................
Condensed Consolidated Statements of Operations for the thirteen-weeks
ended July 1, 2000 and July 3, 1999 and for the twenty-six-weeks ended July
1, 2000 and July 3, 1999..........................................................................................
Condensed Consolidated Statements of Cash Flows for the twenty-six-weeks
ended July 1, 2000 and July 3, 1999...............................................................................
Notes to Condensed Consolidated Financial Statements............................................................
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.............................................................................................
PART II. OTHER INFORMATION
ITEM 2. Other Information
ITEM 6. Exhibits and Reports on Form 8-K
2
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TITAN MOTORCYCLE CO. OF AMERICA
Consolidated Balance Sheets
(Unaudited)
APRILJULY 1, 2000 JANUARY 1, 2000
2000
---- ---------------- ---------------
ASSETS (UNAUDITED)
ASSETS
Current assets:
Cash $ 1,072,015163,822 $ 33,700
Accounts receivable, net 3,058,6661,977,203 1,228,311
Accounts receivable - related party 611,250425,000 999,252
Inventories, net 15,280,82014,606,893 17,451,996
Prepaid expenses 277,121256,653 351,483
------------ ----------------------- -----------
TOTAL CURRENT ASSETS 20,299,87217,429,571 20,064,742
Property and equipment, net 1,920,9831,823,035 2,013,905
Other assets 17,317 17,317
Trademarks 85,01884,516 85,481
------------ ----------------------- -----------
TOTAL ASSETS $ 22,323,190 $ 22,181,445
============ ============$19,354,439 $22,181,445
=========== ===========
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:Current
liabilities:
Bank Overdraft $ 647,761-- $ 305,538
Accounts payable 3,745,6833,930,753 3,891,287
Accrued expenses 2,241,6991,368,426 2,158,985
Note Payable - lineLine of credit 8,644,350Credit 6,028,228 9,779,731
Repurchase obligation 1,262,092 --
Current portion of notes payable 1,541,381941,782 627,825
------------ ----------------------- -----------
TOTAL CURRENT LIABILITIES 16,820,87413,531,281 16,763,366
NoteNotes payable - related party 1,303,399 2,199,980
Mortgage note payable 353,432 370,407
Other long - term2,583,212 2,647,169
----------- -----------
Total liabilities 66,282 76,782
------------ ------------
TOTAL LIABILITIES 18,543,98716,114,493 19,410,535
REDEEMABLE PREFERRED STOCKRedeemable Preferred Stock
Cumulative preferred stock,
6000 shares7,273 share outstanding $.001 par value, including accrued dividends 5,068,1115,608,836 3,536,739
STOCKHOLDERS' DEFICITStockholders' deficit
Common stock, par value $.001;
100,000,000 shares authorized 17,70518,005 17,162
Additional paid in capital 10,060,02910,735,424 9,098,252
Unearned compensation (29,659)(27,843) (31,475)
Accumulated deficit (11,336,983)(13,094,476) (9,849,768)
------------ ----------------------- -----------
TOTAL STOCKHOLDERS' EQUITY (1,288,908)DEFICIT (2,368,890) (765,829)
------------ ----------------------- -----------
TOTAL LIABILITIES, REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' DEFICIT $ 22,323,190 $ 22,181,445
============ ============$19,354,439 $22,181,445
=========== ===========
The accompanying footnotesnotes are an integral part of these financial statements
3
4
TITAN MOTORCYCLE CO. OF AMERICATitan Motorcycle Co. of America
Consolidated Statements of Operations
(Unaudited)
THIRTEEN WEEKS ENDED THIRTEEN WEEKS ENDED
APRILTwenty-Six Weeks Ended Twenty-Six Weeks Ended
July 1, 2000 APRILJuly 3, 1999
------------- -------------
(Restated)
Sales, net $ 8,021,820 $ 7,645,565$19,146,421 16,096,910
Cost of goods sold 7,509,267 6,485,346
------------ ------------17,958,060 14,059,411
----------- -----------
Gross profit 512,553 1,160,219
------------ ------------1,188,361 2,037,499
----------- -----------
Operating expenses:
Selling, general and administrative 1,702,128 1,044,9363,662,554 2,449,088
Research and development 22,347 84,108
------------ ------------68,886 113,402
----------- -----------
Total operating expenses 1,724,475 1,129,0443,731,440 2,562,490
Income (loss) from operations (1,211,922) 31,175(2,543,079) (524,991)
Other income (expense):
Other income (expense) 1,200 8,2573,524 (2,683)
Finance costs (185,000) --
Interest expense (276,493) (199,724)
------------ ------------(520,153) (423,888)
----------- -----------
Total other income (expense) (275,293) (191,467)
------------ ------------(701,629) (426,571)
Income (loss) before income taxes (1,487,215) (160,292)(3,244,708) (951,562)
Income taxes - -
------------ -------------- --
----------- -----------
Net loss $ (1,487,215) $ (160,292)(3,244,708) (951,562)
Amortization of beneficial conversion (1,047,368) --
feature (restated) $ 500,000 -
------------ ------------
Net loss available to common shareholders (restated) $ (1,987,215) $ (160,292)
============ ============
Income (loss)stockholders (4,292,076) (951,562)
=========== ===========
Loss per common share - basic and diluted (restated) $ (.11)(0.25) $ (0.01)
============ ============(0.06)
=========== ===========
Weighted average number of common shares and equivalents
Basic 17,342,040 16,467,372
Diluted 17,342,040 16,467,372
The accompanying footnotes are an integral part of these financial statements
4
5
TITAN MOTORCYCLE COMPANY OF AMERICA
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
COMMON STOCK ADDITIONAL PAID-
---------------------------------- IN
SHARES AMOUNT CAPITAL
----------- ------------ -------
BALANCE, DECEMBER 31, 1997 16,210,666 $ 16,211 $ 6,480,769
Issuance of common stock for cash
at $3.00 per share 166,667 167 499,833
Issuance of common stock for
advertising services at $4.17 per share 60,000 60 249,940
Issuance of stock options 41,875
Amortization of unearned compensation
Net income
----------- ----------- -----------
BALANCE, JANUARY 2, 1999 16,437,333 $ 16,438 $ 7,272,417
Issuance of common stock for cash 700,000 700 1,349,250
at $2.25 per share
Issuance of common stock
for services 23,647 24 82,976
Issuance of warrants 463,307
Preferred stock dividends (69,698)
Amortization of unearned compensation
Net loss
----------- ----------- -----------
BALANCE, JANUARY 1, 2000 17,160,980 $ 17,162 $ 9,098,252
Issuance of common stock 543,478 543 749,457
Issuance of warrants 280,000
Preferred dividends (67,680)
Amortization of unearned compensation
Net loss
BALANCE, APRIL 1, 2000 (UNAUDITED) 17,704,458 $ 17,705 $10,060,029
=========== =========== ===========
UNEARNED ACCUMULATED
COMPENSATION DEFICIT TOTAL
------------ ------- -----
BALANCE, DECEMBER 31, 1997 $ (2,026,965) $ 4,470,015
Issuance of common stock for cash
at $3.00 per share 500,000
Issuance of common stock for
advertising services at $4.17 per share 250,000
Issuance of stock options (41,875) -
Amortization of unearned compensation 3,134 3,134
Net income 237,479 237,479
------------ ------------ ------------
BALANCE, JANUARY 2, 1999 $ (38,741) $ (1,789,486) $ 5,460,628
Issuance of common stock for cash 1,349,950
at $2.25 per share
Issuance of common stock
for services 83,000
Issuance of warrants 463,307
Preferred stock dividends (69,698)
Amortization of unearned compensation 7,266 7,266
Net loss (8,060,282) (8,060,282)
------------ ------------ ------------
BALANCE, JANUARY 1, 2000 $ (31,475) $ (9,849,768) $ (765,829)
Issuance of common stock 750,000
Issuance of warrants 280,000
Preferred dividends (67,680)
Amortization of unearned compensation 1,816 1,816
Net loss (1,487,215) (1,487,215)
BALANCE, APRIL 1, 2000 (UNAUDITED) $ (29,659) $(11,336,983) $ (1,288,908)
============ ============ ============
The accompanying footnotes are in integral part of these financial statements
-5-
6
TITAN MOTORCYCLE CO. OF AMERICA
Consolidated Statements of Cash Flows
(Unaudited)
THIRTEEN WEEKS ENDED THIRTEEN WEEKS ENDED
APRIL 1, 2000 APRIL 3, 1999
------------- -------------
Cash Flows from Operating Activities:
Net loss $(1,487,215) $ (160,292)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization 93,395 61,073
Net change in balance sheet accounts
Accounts receivable (1,442,357) (1,762,285)
Inventories 2,171,176 67,011
Other assets 74,361 (133,517)
Accounts payable (154,288) 300,404
Accrued expenses 97,872 403,180
----------- -----------
Net cash used in operating expenses (647,056) (1,224,426)
----------- -----------
Cash Flows from Investing Activities:
Purchase of property and equipment - (174,731)
----------- -----------
Net cash used in investing activities - (174,731)
----------- -----------
Cash Flows from Financing Activities
Bank overdraft 342,223 (52,680)
Issuance of stock and warrants 2,478,529 649,980
Net (decrease) increase in line of credit (1,135,381) 950,876
----------- -----------
Net cash provided by financing activities 1,685,371 1,548,176
----------- -----------
Net increase in cash 1,038,315 149,019
Cash and cash equivalents at beginning of year 33,700 8,398
----------- -----------
Cash and cash equivalents at end of period $ 1,072,015 $ 157,417computation: 17,402,050 16,652,744
=========== ===========
The accompanying notes are an integral part of these financial statements.
5
TITAN MOTORCYCLE CO. OF AMERICA
Consolidated Statements of Operations
(Unaudited)
Thirteen Weeks Ended Thirteen Weeks Ended
July 1, 2000 July 3, 1999
Sales, net $11,124,601 $ 8,451,345
Cost of goods sold 10,448,793 7,574,065
----------- -----------
Gross profit 675,808 877,280
----------- -----------
Operating expenses:
Selling, general and administrative 1,960,426 1,359,576
Research and development 46,539 73,869
----------- -----------
Total operating expenses 2,006,965 1,433,445
Income (loss) from operations (1,331,157) (556,165)
Other income (expense):
Other income (expense) 2,324 9,060
Finance charges (185,000) --
Interest expense (243,660) (224,164)
----------- -----------
Total other income (expense) (426,336) (215,104)
Loss before income taxes (1,757,493) (771,269)
Income taxes -- --
----------- -----------
Net income (loss) (1,757,493) (771,269)
Amortization of beneficial conversion (547,368) --
feature
Net loss available to common
stockholders $(2,304,861) $ (771,269)
=========== ===========
Loss per common share - basic and diluted $ (0.13) $ (0.05)
=========== ===========
Weighted average shares used in computation: 17,402,050 16,652,744
=========== ===========
The accompanying notes are an integral part of these financial statements.
6
TITAN MOTORCYCLE CO. OF AMERICA
Consolidated Statements of Cash Flows
July 1, 2000 July 3, 1999
------------ ------------
Cash Flows from Operating Activities:
Net loss $(3,244,708) $ (951,562)
Adjustments to reconcile net loss to net cash Provided (used)
in operating activities:
Depreciation and amortization 191,835 127,853
Stock compensation expense 3,632 4,843
Net change in balance sheet accounts
Accounts receivable (174,640) (2,019,337)
Inventories 4,024,028 (1,766,538)
Other assets 94,830 (82,039)
Accounts payable 122,633 1,046,563
Accrued expenses (790,559) 175,534
---------- ----------
Net cash Provided (used) in operating activities 227,051 (3,464,683)
---------- ----------
Cash Flows from Investing Activities:
Purchase of property and equipment -- (684,451)
Purchase of trademarks -- --
---------- ----------
Net cash used in investing activities -- (684,451)
---------- ----------
Cash Flows from Financing Activities
Bank overdraft (305,538) 93,422
Issuance of stock 3,710,112 1,122,480
Note payable 250,000 --
Net change in line of credit (3,751,503) 2,932,124
---------- ----------
Net cash provided by financing activities (96,929) 4,148,026
---------- ----------
Net increase in cash 130,122 (1,108)
Cash and cash equivalants at beginning of year 33,700 8,398
---------- ----------
Cash and cash equivalants at end of period $ 163,822 $ 7,290
========== ==========
Supplemental Cash Flow Information:
Cash paid for:
Interest $ 705,000 $
Non-cash investing and financing activities
Inventory in exchange for payables $ 83,167 $
$ --
$ --
Repurchase obligation $ 1,262,092 --
The accompanying notes are an integral part of these financial statements
7
TITAN MOTORCYCLE CO. OF AMERICA
Notes to the Consolidated Financial Statements
AprilJuly 1, 2000 and AprilJuly 3, 1999
NOTE 1 - Condensed Consolidated Financial Statements
The accompanying condensed consolidated financial statements have been prepared
by the Company without audit. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to present fairly
the financial position, results of operations and cash flows at AprilJuly 1, 2000 and
for all periods presented have been made.
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted.omitted pursuant to the rules and regulations
of the Securities and Exchange Commission and generally accepted accounting
principles for interim financial information. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's year ended January 1,
2000 audited consolidated financial statements. The results of operations for
the period ended AprilJuly 1, 2000 are not necessarily indicative of the operating
results for the full year.
NOTE 2-Inventory2-INVENTORY
The composition of inventory as of AprilJuly 1, 2000 and January 1, 2000 was as
follows:
2000 1999
Raw materials and supplies $ 10,906,94711,175,795 $ 10,607,330
supplies
Work-in-process 1,350,3091,023,458 2,461,800
Finished Goods 3,173,5643,292,640 4,382,866
------------ ------------
Total inventories 15,430,82015,491,893 17,451,996
Reserve for obsolescence (150,000) -Inventory reserves (885,000) --
------------ ------------
$ 15,280,82014,606,893 $ 17,451,996
============ ============
7The Company intends to sell certain raw material inventory as a method of
obtaining capital. A reserve of approximately $ 400,000 has been established to
provide for estimated losses on disposal.
8
NOTE 3 - Earnings Per Share (Restated)EARNINGS PER SHARE
In accordance with the disclosure requirements of Statement of Financial
Accounting Standards No. 128, Earnings Per Share, a reconciliation of the
numerator and denominator of basic and diluted EPS is provided as follows:
Since the company incurred a net loss for all periods presented, potential
common shares are antidilutive and excluded from the calculation of diluted
earnings per share.
Thirteen -Twenty-Six Weeks Ended Thirteen -Twenty-Six Weeks Ended
AprilJuly 1, 2000 AprilJuly 3, 1999
-------------------------------------------- ------------------------------------------------------------------------------------------- ------------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-------------------------------------------- ----------------------------------------------
Restated Restated--------------------------------------------- ------------------------------------------------
BASIC EPS
BASIC EPS
Net income (loss) $ 1,487,215 - - $ 160,292 - -loss $(3,244,708) 17,402,050 $(0.19) $(951,562) 16,652,744 $(0.06)
Amortization of beneficial
conversion feature 500,000$(1,047,368) 17,402,050 $(0.06) $ - - $ -
- -
------------ ----------
Net income (loss)Income (Loss) available
to common shareholders $ (1,987,215) 17,342,040 $ (0.11) $ (160,292) 16,467,372 $ (0.01)$(4,292,076) 17,402,050 $(0.25) $(951,562) 16,652,744 $(0.06)
EFFECTS OF DILUTIVE SECURITIES
Common stock options $ - - $ - $ - - $ -
--------------------------------------------------------------------------------------------------
DILUTED EPS
Net income (loss)Income (Loss) available
to common shareholders $(4,292,076) 17,402,050 $(0.25) $(951,562) 16,652,744 $(0.06)
- -----------------------------------------------------------------------------------------------------------------------------------
Thirteen-Weeks Ended Thirteen-Weeks Ended
July 1, 2000 July 3, 1999
---------------------------------------------- --------------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
---------------------------------------------- --------------------------------------------------
BASIC EPS
Net loss $(1,757,493) 17,402,050 $(0.10) $(771,269) 16,652,744 $(0.05)
Amortization of beneficial
conversion feature $ (1,987,215) 17,342,040(547,368) 17,402,050 $(0.03) $ (0.11)- - $ (160,292) 16,467,372-
Net Income (Loss) available
to common shareholders $(2,304,861) 17,402,050 $(0.13) $(771,269) 16,652,744 $(0.05)
EFFECTS OF DILUTIVE SECURITIES
Common stock options $ (0.01)- - $ - $ - - $ -
---------------------------------------------------------------------------------------------------
DILUTED EPS
Net Income (Loss) available
to common shareholders $(2,304,861) 17,402,050 $(0.13) $(771,269) 16,652,744 $(0.05)
---------------------------------------------------------------------------------------------------
Earnings per share as previously reported in the first quarter has been restated
to include the amortization of the preferred stock beneficial conversion feature
which had previously been omitted. The effect was to change earnings per share
from ($.09) to ($.11). 9
NOTE 4 - Going ConcernGOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis of accounting which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
For the first quarter of fiscal 2000, theThe Company has incurred net losses of $1,487,215 million.$3,244,708 for the twenty-six weeks ended
July 1, 2000. For the two years endingyear ended January 1, 2000, the Company has incurred a net
loss and net income of $8,060,282 and $237,479, respectively.$8,060,282. As of AprilJuly 1, 2000 and January 1, 2000, the Company had cash
balances of approximately $1,072,015$163,822 and $34,000,$33,700, respectively, and an accumulated
deficit of $11,336,983 million$13,094,476 as of AprilJuly 1, 2000. Additionally, as of AprilJuly 1, 2000, the
Company has an outstanding balance on its credit line of $8,644,350$6,028,228 that matures
on JulySeptember 10, 2000.2000 (see Note 6). These factors, among other things, may indicate thatraise
substantial doubt about the Company will be unableCompany's ability to continue as a going concern for a reasonable period of
time.concern.
The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability of assets and classification of
liabilities that may be necessary should the Company be unable to continue as a
going concern.
8
9
Management is pursuing various options in order to provide necessary financing.
Management's plans to resolve near term cash flow issues include the following
transactions:following:
- - Negotiating a new $15 million line of credit with additional cash availability;
- - AEffecting a private placement equity financing to provide approximately
$3 to $5 million in cash flow, less offering costs; and
- - Projected improvement ofReducing its operating results.costs.
Management believes if it can finalize the financing alternatives that it is
pursuing together withand improve its projected improvement in operating results for the remainder of fiscal 2000,
the Company will generate sufficient resources to ensure uninterrupted
performance of its operating obligations as currently structured and
anticipated. The Company's continuance as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations in a timely
manner, to obtain additional financing as required, and ultimately to attain
profitability. There can be no assurance, however, that thesefinancing sources will
be available to the Company on acceptable terms or when necessary.necessary or that the
Company will be successful in its efforts to improve its operating results.
10
NOTE 5 - Issuance's of Preferred and Common Stock
In FebruaryEQUITY
On June 20, 2000, the Company sold 543,478 shares of common stock under three
separate private placements to three non-U.S. investors. The Company received
$750,000 in proceeds related to these transactions.
In March 2000, the Company sold two thousand1,300 shares of Series BC Convertible
Preferred Stock ("Preferred Shares"Series C Stock"). Gross proceeds totaled $2 million with net
proceeds and a warrant to purchase 1,642,106 shares of
the Company's common stock. in a private placement for $1,300,000 in gross
proceeds. The Company allocated approximately $1.8 million.$401,000 related to the value of
the warrants. The Preferred Shareswarrants have an exercise price of $2.26 for 1/6 of the
warrants and $1.69 for the remaining warrants. The warrants expire on June 30,
2005.
The Series C Stock and warrants are convertible at any time into a maximum of
3,436,0003,500,000 shares of the Company's common stock. For the first yearsix months after
issuance, the Preferred Shares
areSeries C Stock is convertible at a fixed conversion price of $1.75$0.95
per share, which was less than the common stock price at the date of close,
resulting in a beneficial conversion feature at the issue date. Thereafter, the
conversion price is adjusted every sixthree months to be the lesser of:
- - The prior conversion price, or
- - Thelower, of (a) 80% of
the average market price for the lowest three trading days during the last ten
trading days prior to the adjustment date.date and (b)either (i) the current
conversion price if 80% of the average market price is less than or equal to
200% of the current conversion price, or (ii) $.95 if 80%of the average market
price is more than 200% of the current conversion price. The number of shares of
Common stock underlying the Series C Stock is subject to adjustment for stock
splits, stock dividends, combinations, capital reorganizations and similar
events relating to the Company's common stock. An additional beneficial
conversion feature occurred as a result of the 80% of market adjustment.
As of the issue date the Company allocated $500,000approximately 612,000 to the
beneficial conversion feature, of which $547,368 was fully amortized as of July 1,
2000.
Subject to certain restrictions in a subordination agreement with the Company's
bank, the Series C Stock holders have the right to force the Company to redeem
the Series C Stock at a premium upon the dateoccurrence of issuance.
The preferred stock contains conditions for redemption which are not solely
withincertain events as defined
in the controlagreement.
During the second quarter, the Company received $300,000 in gross proceeds
related to the exercise of warrants to purchase 300,000 shares of the issuer. AsCompany's
common stock.
NOTE 6 - SUBSEQUENT EVENTS
CONVERTIBLE DEBENTURES
On August 14, 2000, in a result, these shares have been classified
as mandatorily redeemable in the accompanying condensed consolidated financial
statements.
9
10
Additionally, with the Preferred Shares,private placement, the Company issuedsold $750,000 of its 12%
Convertible Debentures. The private placement also included warrants for theto purchase
of 250,0001,025,160 shares of the Company's common stock.
The Company also
issuedDebentures are collateralized against substantially all of the Company's
assets, subject to a senior security interest in favor of the holder of the
Company's credit line.
Unless shareholder approval is obtained, the Debentures are convertible into a
maximum of 3,500,235 shares of the Company's common stock at the lower of a
fixed or variable conversion price as defined in the agreement.
The warrants are exercisable at a price equal to 105% of the market price for
the purchaseCompany's common stock as of 12,500the closing date or $0.64 per share and expire
on August 31, 2005, subject to the terms and conditions as described in the
agreement.
In connection with the sale of the Convertible Debentures, the Company was
required to obtain the consent of the holders of the Series C Stock. In exchange
for this concession, the Company agreed to amend the terms of the Series C
Stock. Pursuant to the terms of the amendment, the conversion price of the
Series C Stock is equal to 70% of the average of the market price of the 5
lowest trading days over the 22 trading days preceding the relevant conversion
date.
11
As a condition to the sale of the Debentures, the Company was required to obtain
consent from its existing holders of Series A and Series B and Series C
Convertible Preferred Stock. In exchange for this consent, the Company amended
certain provisions of the related agreements. The effect of these amendments is
to accelerate the preferred holders' ability to convert at a variable conversion
price which in each case is based upon then current market price as defined in
the amendment.
Since the price of the Company's common stock has declined significantly since
the closing of the Series A and Series B and Series C Convertible Preferred
Stock, the acceleration of reset dates may result in a substantially increased
number of shares of common stock to a third
party as partial compensation for their assistance in placingbe issued upon conversion. Management is
currently evaluating the Preferred
Shares. The exercise price of these warrants is $2.00 per share, with an
expiration date of March 9, 2005. The fair valueimpact of the warrants at the date of
issuance totaled $280,000 and is reflected as an increase to additional paid in
capital in the accompanying consolidated financial statements.
NOTE 6 Amended and Restated Loan and Security Agreementamendments.
CREDIT LINE EXTENSION AND AMENDMENT
In AprilJuly 2000, the Company signed an agreement which extended the line of credit
due on AprilJuly 10, 2000 for an additional three-months.two months. The extension agreement
contains certain additional restrictive covenants and fees. In addition, the
maximum borrowing amount has been reduced to $9 million with further reductions
of $250,000 every two weeks beginning in May, 2000. The borrowing base has also
been reducedfees as defined in the agreement. As of the
filing of this report on Form 10QSB, the Company is in technical default of the
covenants contained in the Loan and Security Agreement with Wells Fargo.
However, as of the date of the filing of this report on Form 10QSB the Company
has reached a verbal agreement with Wells Fargo to amend the Loan and Security
Agreement, which will bring this into compliance with the applicable covenants
and cure any prior default.
The Company expects to execute the amendment within one business day of this
filing.
Although management anticipates it will be able to either extend the line of
credit or obtain a new line of credit with another financial institution, there
can be no assurance that it will be able to obtain financing on acceptable terms
and conditions or when necessary.
NOTE 7 Newly Issued Accounting StandardsRELATED PARTY REPURCHASE OF INVENTORY
In December 1999July 2000, the SecuritiesCompany was notified of default under and Exchange Commission issued Staff Accounting
Bulletin No. 101 (SAB 101). SAB 101 summarizes applicationcancellation of
generally accepted
accounting principlesflooring arrangements for certain affiliated dealerships. Under the terms of the
wholesale financing agreement with the flooring company, the Company was
required to repurchase approximately $1.3 million in motorcycles sold to these
affiliated dealerships and held in inventory.
The estimated loss of $100,000 that the Company expects to incur related to revenue recognitionthis
transaction has been included in the accompanying financial statements.
Additionally, a reduction of $1.3 million dollars in sales and establishes certain
criteria. SAB 101cost of sales,
and a payable to the flooring company for $1.3 million, have also been
established.
In connection with the repurchase of the $1.3 million in motorcycles, the
Company has entered into a Forbearance Agreement with the commercial finance
company that requires the Company to repurchase the related motorcycles over a
maximum three month period with a required minimum payment of three equal
installments. The final
12
installment is effective fordue on October 17, 2000. The Company has delivered approximately
1/3 of the related motorcycles and met the required first installment in August
2000.
There can be no assurance that the Company will be able to sell the remaining
motorcycles or meet the installment payment requirements. In the event the
Company is unable to comply with the terms of the Forbearance Agreement, its
ability to sell motorcycles funded with commercial flooring could be eliminated,
which would have a material adverse impact on the Company's second quarterfinancial position.
Due to the loss of flooring and the closure of two of the affiliated dealership
locations, the Company has determined that the collectability of accounts
receivable balances as of July 1, 2000 from the affiliated dealerships is in
fiscal 2000.
Managementquestion. Accordingly, an allowance for doubtful accounts has been established
totaling approximately $600,000 is currently evaluatingincluded in the impact of this pronouncement.
10accompanying financial
statements.
1113
TITAN MOTORCYCLE COMPANY OF AMERICA
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
13 WEEK PERIOD ENDED APRILJULY 1, 2000, COMPARED WITH 13 WEEK PERIOD ENDED APRILJULY 3,
1999
OVERALL
Net Salessales for the thirteen-week period ended AprilJuly 1, 2000 of $8.0approximately $11.1
million were up 5% over$2.7 million, or 32%, higher than net sales for the comparable
period in 1998.1999. The Company recorded a net loss of $1.5 million,$1,757,493, or ($0.11)$(0.10) per
share in 2000 compared with a net loss of $160,292$771,269 or ($0.01)$(0.05) per share for
1999.
RESULTS OF OPERATIONS
MOTORCYCLE UNIT SHIPMENTS AND NET SALES
2000 1999 INCREASE % CHANGE
---- ---- -------- --------
Motorcycle Units 359 251 108 43%568 291 277 95%
Net Sales (in $ 000's):
Motorcycles $ 7,64410,746 $ 7,472 $ 172 2.3%7,744 $3,002 39%
Motorcycle Parts and Accessories $ 378 $ 174707 $ 204 117%(329) (47)%
Total Motorcycles and Parts $ 8,02211,124 $ 7,646 $ 376 4.9%8,451 $(2,673) 32%
As indicated in the above chart, the Company's business consistedcontinues to consist
primarily of motorcyclemotorcycles sales. The Company's ClothingA small amount of business has been done in
parts and Accessories product line,
introduced in late 1997, continues to be well received.accessories. Parts and accessories sales were approximately 5% of
revenues.
The increase in motorcycle shipments is due to several reasons. Chief among them
isreasons, including the
successful introductioncontinuing growth in reputation of the Company's new "Phoenix by Titan" bike.
Additionally, themotorcycles resulting in
increased demand, growth in the Company's dealership network, continuesand the Company's
investment in new facilities and staff to be a factormeet this growing demand. Growth was
constrained in the growthsecond quarter due to cash flow problem causing part supply
issues affecting both the existing Legacy line of shipments.
11motorcycles as well as the new
Phoenix line of products. Cash flow issues continue to restrict the Company's
ability to obtain parts and meet production requirements.
1214
GROSS PROFIT
2000 1999 DECREASE % CHANGE
---- ---- -------- --------
Gross Profit (In 000's) $513 $1,160 $547 47%$676 $877 $201 23%
Gross Margin % 6.3% 15.1% 8.8%6.1% 10.4% 4.3% 41%
In the thirteen-weeks ended April 1, 2000,July 1,2000, gross profit decreased $513,000 or
47%, as compared towas fairly consistent in
dollars with the comparable period in 1999, although the gross margin decreased
to 6.1% from 10.4% in 1999.
This decrease inThe Company's gross profit
ismargins were negatively impacted during the second
quarter of 2000 due primarily to negative labor and overhead variancesparts acquisition issues encountered as a result of cash
flow constraints. Failure to generate cash flow sufficient to pay vendors in a
more timely manner resulted in lower production level due to athan expected materials cost savings and
anticipated margin improvement. The lower than planned reduction of finished goods inventory.
Additionally, margin was reduced due to increased salesvolumes in the last month
of the Company's new,
lower priced "Phoenix" line of motorcycles that generate a lower gross margin
than the Company's hi-line bikes and the establishment of a $150,000 inventory
reserve for obsolescence. The gross profit margin was 6.3% as compared with
15.1% in 1999.
Management has plans in place to improve gross margin with volume purchases of
components, motorcycle and component design, improved utilization ofsecond quarter impacted labor and overhead and the ramp-up of higher margin product for the remainder of fiscal
2000.utilization resulting in a
decline in gross margin.
OPERATING EXPENSES
2000 1999 INCREASE % CHANGE
---- ---- -------- --------
Operating Expenses (In 000's) $1,724 $1,129 $595 52.7%$2,007 $1,433 $574 40%
Operating Expense as % of Sales 21.5% 14.8% 6.7%18.0% 17% 1%
Total operating expense for the thirteen-week period ended AprilJuly 1, 2000
increased $595,000,$573,520, or 52.7%40%, over the comparable period in 1999.1999 while sales
increased approximately 32% for the same period. This increase was
due to a number of causes,factors, including but not limited to the following
principal factors:
- - an increase inincreased rental expense to supportin the expanded manufacturingnew
facility, - - an increase in salaries and wages attributed to enhancing both the
management andlarger support staff necessary to support anticipated growth.
- - an increase in anticipation of growth, and increased legal
and accounting expense;
- - an increase in advertising, trade show and promotional activities in order
to "roll-out" the Phoenix line of bikes.expenses.
CONSOLIDATED INCOME TAXES
The Company's effective tax rate was 0.0% in both the thirteen-week period ended
AprilJuly 1, 2000 and the comparable period ended AprilJuly 3, 1999 as a result of losses
in 2000 and use of tax loss carryforwards in 1999. The Company's ability to use
its tax loss carry forwards in the future may be limited due to IRS
Section 382 limitations.
15
26 WEEK PERIOD ENDED JULY 1, 2000, COMPARED WITH 26 WEEK PERIOD ENDED JULY 3,
1999
OVERALL
Net sales for the twenty-six week period ended July 1, 2000 of approximately
$19.1 million were $3.0 million, or 19%, higher than net sales for the
comparable period in 1999. The Company currently hasrecorded a federal and state net operating loss carry forward of approximately $8.8 million and $5.9 million, respectively.
12
13
WORKING CAPITAL MANAGEMENT
The Company supplies motorcycles to its dealers$3,244,708, or
$(0.19) per share, in one of two ways. First, the
dealer can specify the motorcycle completely with customized paint and selected
options2000 compared with a lead-timenet loss of 6-8 weeks, sometimes slightly longer during peak
season. Alternatively,$951,562 or $(0.06) per
share, for 1999.
RESULTS OF OPERATIONS
MOTORCYCLE UNIT SHIPMENTS AND NET SALES
2000 1999 INCREASE/(DECREASE) % CHANGE
---- ---- ------------------- --------
Motorcycle Units 927 542 385 71%
Net Sales (in $ 000's):
Motorcycles $18,645 $15,176 $ 3,469 23%
Motorcycle Parts and Accessories $ 501 $ 921 $ (420) (46)%
Total Motorcycles and Parts $19,146 $16,097 $ 3,049 19%
As indicated in the dealer can select a completed bike fromabove chart, the Company's available Finished Goods inventory list for immediate shipment or one from the
current production schedule that will be available inside the normal lead time
window.business continues to consist
primarily of motorcycle sales. Parts and accessories sales approached 6% of
revenue during this period.
The Company builds some inventory of finished motorcycles during the
winter months that are consumed during the spring/summer peak season. During the
restincrease in motorcycle shipments is due to several reasons, including
continuing growth in reputation of the yearCompany's motorcycles, resulting in
increased demand. Sales were constrained in the Company normally maintains a lower levelsecond quarter due primarily to
cash flow issues that led to part supply issues affecting both the existing
Legacy line of finished goods
inventory.
Motorcycles are typically either floored with major financial institutions by
the dealer or are paid for in full prior to shipment by the Company. The Company
receives payment for floored bikes within 2 weeks of shipment. During winter
months the Company may provide free flooring for qualifying dealers depending on
model and stock situation to help smooth shipments and keep higher levels of
product available for customers.
Parts used to build the bikes are usually available with short lead times, but
some parts do require up to ten weeks lead-time. Due to high quality standards
and reliability of delivery, the Company sets slightly higher stocking levels to
assure the availability of parts to production. The Company has an ongoing
program to continue to upgrade its supplier base and to selectively bring
additional parts in house for production, reducing required inventory levelsmotorcycles as well as part costs.the Phoenix line of products.
GROSS PROFIT
2000 1999 DECREASE % CHANGE
---- ---- -------- --------
Gross Profit (In 000's) $1,188 $2,037 $849 42%
Gross Margin % 6.2% 12.7% 6.5% 51%
In the twenty-six weeks ended July 1, 2000, gross profit decreased approximately
$849,000 or 42%, as compared to the comparable period in 1999. Gross margin in
2000 was 6.2% as compared with 12.7% in 1999.
16
The Company has builtCompany's gross margins were negatively impacted during the second
quarter of 2000 due to parts acquisition issues encountered as a strong networkresult of dealers both domesticallycash
flow constraints. Failure to generate cash flow sufficient to pay vendors in a
more timely manner resulted in lower than expected materials cost savings and
internationally. Collectively, there are approximately 88 dealers currently in
place with more being added every month. There are 5 types of dealersanticipated margin improvement. The lower than planned volumes in the Company's network; independent dealers, Easyrider stores and franchises, Bikers'
Dream franchises, existing Harley Davidson(TM) dealers, and Titan dealerships.
To date in 2000, 4 dealers with common ownership (Titan of Los Angeles, Titan of
Las Vegas, Titan of Houston and Paragon Custom dba Titan of Phoenix) represented
approximately 14%last month
of the second quarter impacted labor and overhead utilization resulting in a
decline in gross margin.
The Company's sales. Principalsbudgeted sales for the new Phoenix line of motorcycles was
negatively impacted during the second quarter 2000 due to parts supply problems
derived from cash flow constraints. Failure to achieve anticipated Phoenix line
production was a significant factor in the Company hold
majority ownership of these dealerships.
As of May 8,disparity between sales revenues and
increased support costs.
OPERATING EXPENSES
2000 1999 INCREASE % CHANGE
---- ---- -------- --------
Operating Expenses (In 000's) $3,731 $2,562 $1,169 46%
Operating Expense as % of Sales 19.5% 15.9% 3.6% 23%
Total operating expense for the twenty-six week period ended July 1, 2000
backlog orders stood at approximately $9 million, compared
with approximately $1.4 million atincreased $1,168,947, or 46%, over the same timecomparable period in 1999. 13
14
NEWLY ISSUED ACCOUNTING STANDARDS
In December 1999This increase
was due to a number of factors, including, but not limited to the Securitiesfollowing
principal factors listed in descending order of importance:
- - an increase in salaries and Exchange Commission issued Staff Accounting
Bulletin No. 101 (SAB 101). SAB 101 summarizes applicationwages attributed to both management and
support staff necessary to support anticipated increases in sales
volumes that did not materialize as anticipated.
- - an increase in legal and accounting expense;
- - increased rental expense
Management has initiated significant cost cutting plans in an attempt to lower
operating costs in the third quarter of generally accepted
accounting principles related to revenue recognition and establishes certain
criteria. SAB 101 is effective for the Company's second quarter in fiscal 2000.
Management is currently evaluatingCONSOLIDATED INCOME TAXES
The Company's effective tax rate was 0.0% in both the impacttwenty-six week period
ended July 1, 2000 and the comparable period ended July 3, 1999 as a result of
this pronouncement.
IMPACT OF YEAR 2000losses in 1999 and use of tax loss carryforwards in 1999. The Company has not experienced any adverse effects relatedCompany's ability
to use its tax loss carry forwards in the Year 2000
issue. Costs associated with the Company's Year 2000 compliance efforts were
immaterial with no additional costs anticipated.future may be limited due to IRS
Section 382 limitations.
17
LIQUIDITY AND CAPITAL RESOURCES
The Company used $647,052 milliongenerated a small amount of cash in operating activities in the
thirteentwenty-six week period ended AprilJuly 1, 2000 compared with $1,224,426uses of $3.5 million in
the comparable period in 1999. The decrease in cash used for operating expenses
is due primarily to a reduction in inventory of approximately $2,200,000$4.0 million for
the thirteen weeks ended April 1, 2000.period. Capital expenditures totaled $ 0 in the thirteen-weektwenty-six week period
ending AprilJuly 1, 2000 compared with $174,731 in$684,000 for the comparable period in 1999.
Cash provided through the issuance and sale of common and preferred stock
totaled approximately $2,500,000$3.8 million for the first quartertwo quarters in fiscal 2000 as compared to
approximately $650,000$1.1 million for the first quartersame period in 1999. Additionally, the Company had a net
reduction in borrowings under its line of credit of $1,135,381$3.8 million in the first quarter of fiscal 2000 as
compared with a net increase of $950,876 for the same quarter$2.9 million in 1999. A more detailed
description of cash flows can be found in the attached financial statements.
For the first quartertwo quarters of fiscal 2000 and fiscal 1999, the Company has
incurred net losses of $1,487,215$3.2 million and $160,292,$1.0 million, respectively. For the two
years ending January 1, 2000, the Company has incurred a net loss and net income
of approximately $8,100,000$8.1 million and $240,000, respectively. Additionally, as of April
1, 2000, the Company has an outstanding balance on its credit line of $8,644,350
that matures on July 10, 2000. As of AprilJuly 1, 2000 and
January 1, 2000, the Company had cash balances of approximately $1,487,000$164,000 and
$34,000, respectively, and an accumulated deficit of approximately $11,200,000$13.1 million
as of AprilJuly 1, 2000. These factors, among other things, may indicate thatraise substantial doubt
about the Company will be unableCompany's ability to continue as a going concern for a reasonable period of time.
14
15concern.
Management is pursuing various options in order to provide necessary financing.
As discussed in Note 4 to the consolidated financial statements, management's
plans to resolve near term cash flow issues include the following transactions:following:
- - Negotiating a new $15 million line of credit with additional cash availability;
- - AEffecting a private placement equity financing to provide approximately
$3 to $5 million in cash, flow, less offering costs; and
- - Projected improvement ofImproving its operating results.results primarily through a reduction in
operating costs.
Management believes if it can finalize the financing alternatives that it is
pursuing together withto improve its projected improvement in operating results for the remainder of fiscal 2000, the
Company will generate sufficient resources to ensure uninterrupted performance
of its operating obligations as currently structured and anticipated. The
Company's continuance as a growinggoing concern is dependent upon its ability to
generate sufficient cash flow to meet its obligations in a timely manner, to
obtain additional financing as required, and ultimately to attain profitability.
There can be no assurance,
18
however, that thesefinancing sources will be available to the Company on acceptable
terms or when necessary.
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
In April 2000,necessary or that the Company signed an agreement which extended the line of credit
due on April 10, 2000 for an additional three-months. The extension agreement
contains certain additional restrictive covenants and fees. In addition, the
maximum borrowing amount has been reduced to $9 million with further reductions
of $250,000 every two weeks beginning in May, 2000. The borrowing base has also
been reduced as defined in the agreement.
Although management anticipates it will be ablesuccessful in its efforts to
obtain a new line of credit
with another financial institution, there can be no assurance that it will be
able to obtain financing on acceptable terms and conditions or when necessary.
15
16improve its operating results.
PART II - OTHER INFORMATION
ITEM 5. Other Matters
The Company obtained an extension from its Series B Preferred Stock shareholders
extending the Company's annual shareholders' meeting from June 15, 2000 to
August 15, 2000.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
- ----------- -----------EXHIBIT
NUMBER DESCRIPTION
3.1 Amended and Restated Certificate of Designations for Series A Preferred
Stock filed August 16, 2000 with the Nevada Secretary of State
(incorporated by reference from the Company's Form 8-K filed August 21,
2000)
3.2 Amended and Restated Certificate of Designations for Series B Preferred
Stock filed August 16, 2000 with the Nevada Secretary of State
(incorporated by reference from the Company's Form 8-K filed August 21,
2000)
3.3 Amended and Restated Certificate of Designations for Series C Preferred
Stock filed August 16, 2000 with the Nevada Secretary of State
(incorporated by reference from the Company's Form 8-K filed August 21,
2000)
4.1 Form of Debenture issued to Esquire Trade & Finance, Inc. and Celeste
Trust Reg. (incorporated by reference from the Company's Form 8-K filed
August 21, 2000)
4.2 Form of Warrant issued to Esquire Trade & Finance, Inc. and Celeste
Trust Reg. (incorporated by reference from the Company's Form 8-K filed
August 21, 2000)
4.3 Registration Rights Agreement with Esquire Trade & Finance Inc. and
Celeste Trust Reg., dated as of August 14, 2000. (incorporated by
reference from the Company's Form 8-K filed August 21, 2000)
4.4 Security Interest and Pledge Provisions, dated as of August 14, 2000 by
and among the Company, Esquire Trade & Finance Inc. and Celeste Trust
Reg. (incorporated by reference from the Company's Form 8-K filed
August 21, 2000)
10.1 Securities Purchase Agreement with Esquire Trade & Finance Inc. and
Celeste Trust Reg., dated as of August 14, 2000. (incorporated by
reference from the Company's Form 8-K filed August 21, 2000)
10.2 Intecreditor Agreement dated as of August 14, 2000 by and among the
Company, Esquire Trade & Finance, Inc., Celeste Trust Reg. and Wells
Fargo Credit, Inc. (incorporated by reference from the Company's Form
8-K filed August 21, 2000)
10.3 Second Amendment to Amended and Restated Loan and Security Agreement
dated as of August 14, 2000 by and between the Company and Wells Fargo
Credit, Inc. (incorporated by reference from the Company's Form 8-K
filed August 21, 2000)
10.4 Consent and Waiver Agreement, dated as of August 14, 2000 by and among
the Company, Advantage Fund II Ltd. and Koch Investment Group Limited.
(incorporated by reference from the Company's Form 8-K filed August 21,
2000)
27 Financial Data Schedule
(b) Reports on Form 8-K
On March 24,During the quarter ended July 1, 2000 the Company filed atwo reports on Form 8-K
regarding a Series B Preferred
Stock transaction.
16on May 24, 2000 and June 22, 2000.
1719
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
TITAN MOTORCYCLE COMPANY OF AMERICA
(Registrant)
[Francis Keery] May 15,/S/ FRANCIS KEERY /S/ September 11, 2000
- ---------------------------- --------------------------------------------------------------------
FRANCIS KEERY DATE
CHAIRMAN AND CEO
[Robert Lobban] May 15,/S/ ROBERT P. LOBBAN /S/ September 11, 2000
- --------------------------- --------------------------------------------------------------------
ROBERT LOBBAN DATE
CHIEF FINANCIAL OFFICER
17
18
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
27.1 Financial Data Schedule