<PAGE> 1
FORM 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 July 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 July 1, 2000: 18,044,665
<PAGE> 2
TITAN MOTORCYCLE CO. OF AMERICA
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TITAN MOTORCYCLE CO. OF AMERICA
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
JULY 1, 2000 JANUARY 1, 2000
------------ ---------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash $ 163,822 $ 33,700
Accounts receivable, net 1,977,203 1,228,311
Accounts receivable - related party 425,000 999,252
Inventories, net 14,606,893 17,451,996
Prepaid expenses 256,653 351,483
----------- -----------
TOTAL CURRENT ASSETS 17,429,571 20,064,742
Property and equipment, net 1,823,035 2,013,905
Other assets 17,317 17,317
Trademarks 84,516 85,481
----------- -----------
TOTAL ASSETS $19,354,439 $22,181,445
=========== ===========
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' DEFICIT
Current
liabilities:
Bank Overdraft $ -- $ 305,538
Accounts payable 3,930,753 3,891,287
Accrued expenses 1,368,426 2,158,985
Note Payable - Line of Credit 6,028,228 9,779,731
Repurchase obligation 1,262,092 --
Current portion of notes payable 941,782 627,825
----------- -----------
TOTAL CURRENT LIABILITIES 13,531,281 16,763,366
Notes payable 2,583,212 2,647,169
----------- -----------
Total liabilities 16,114,493 19,410,535
Redeemable Preferred Stock
Cumulative preferred stock,
7,273 share outstanding 5,608,836 3,536,739
Stockholders' deficit
Common stock, par value $.001;
100,000,000 shares authorized 18,005 17,162
Additional paid in capital 10,735,424 9,098,252
Unearned compensation (27,843) (31,475)
Accumulated deficit (13,094,476) (9,849,768)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIT (2,368,890) (765,829)
----------- -----------
TOTAL LIABILITIES, REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' DEFICIT $19,354,439 $22,181,445
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 4
Titan Motorcycle Co. of America
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended Twenty-Six Weeks Ended
July 1, 2000 July 3, 1999
<S> <C> <C>
Sales, net $19,146,421 16,096,910
Cost of goods sold 17,958,060 14,059,411
----------- -----------
Gross profit 1,188,361 2,037,499
----------- -----------
Operating expenses:
Selling, general and administrative 3,662,554 2,449,088
Research and development 68,886 113,402
----------- -----------
Total operating expenses 3,731,440 2,562,490
Income (loss) from operations (2,543,079) (524,991)
Other income (expense):
Other income (expense) 3,524 (2,683)
Finance costs (185,000) --
Interest expense (520,153) (423,888)
----------- -----------
Total other income (expense) (701,629) (426,571)
Income (loss) before income taxes (3,244,708) (951,562)
Income taxes -- --
----------- -----------
Net loss (3,244,708) (951,562)
Amortization of beneficial conversion (1,047,368) --
feature
Net loss available to common stockholders (4,292,076) (951,562)
=========== ===========
Loss per common share - basic and diluted $ (0.25) $ (0.06)
=========== ===========
Weighted average shares used in computation: 17,402,050 16,652,744
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
TITAN MOTORCYCLE CO. OF AMERICA
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirteen Weeks Ended
July 1, 2000 July 3, 1999
<S> <C> <C>
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
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
TITAN MOTORCYCLE CO. OF AMERICA
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
July 1, 2000 July 3, 1999
------------ ------------
<S> <C> <C>
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 --
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 7
TITAN MOTORCYCLE CO. OF AMERICA
Notes to the Consolidated Financial Statements
July 1, 2000 and July 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 July 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 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
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 July 1, 2000 are not necessarily indicative of the operating
results for the full year.
NOTE 2-INVENTORY
The composition of inventory as of July 1, 2000 and January 1, 2000 was as
follows:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Raw materials and $ 11,175,795 $ 10,607,330
supplies
Work-in-process 1,023,458 2,461,800
Finished Goods 3,292,640 4,382,866
------------ ------------
Total inventories 15,491,893 17,451,996
Inventory reserves (885,000) --
------------ ------------
$ 14,606,893 $ 17,451,996
============ ============
</TABLE>
The 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.
<PAGE> 8
NOTE 3 - 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.
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended Twenty-Six Weeks Ended
July 1, 2000 July 3, 1999
--------------------------------------------- ------------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------------------------------------------- ------------------------------------------------
BASIC EPS
<S> <C> <C> <C> <C> <C> <C>
Net loss $(3,244,708) 17,402,050 $(0.19) $(951,562) 16,652,744 $(0.06)
Amortization of beneficial
conversion feature $(1,047,368) 17,402,050 $(0.06) $ - - $ -
Net Income (Loss) available
to common shareholders $(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) available
to common shareholders $(4,292,076) 17,402,050 $(0.25) $(951,562) 16,652,744 $(0.06)
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
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
---------------------------------------------- --------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Net loss $(1,757,493) 17,402,050 $(0.10) $(771,269) 16,652,744 $(0.05)
Amortization of beneficial
conversion feature $ (547,368) 17,402,050 $(0.03) $ - - $ -
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 $ - - $ - $ - - $ -
---------------------------------------------------------------------------------------------------
DILUTED EPS
Net Income (Loss) available
to common shareholders $(2,304,861) 17,402,050 $(0.13) $(771,269) 16,652,744 $(0.05)
---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 9
NOTE 4 - GOING 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.
The Company has incurred net losses of $3,244,708 for the twenty-six weeks ended
July 1, 2000. For the year ended January 1, 2000, the Company has incurred a net
loss of $8,060,282. As of July 1, 2000 and January 1, 2000, the Company had cash
balances of approximately $163,822 and $33,700, respectively, and an accumulated
deficit of $13,094,476 as of July 1, 2000. Additionally, as of July 1, 2000, the
Company has an outstanding balance on its credit line of $6,028,228 that matures
on September 10, 2000 (see Note 6). These factors, among other things, raise
substantial doubt about the Company's ability to continue as a going 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.
Management is pursuing various options in order to provide necessary financing.
Management's plans to resolve near term cash flow issues include the following:
- Negotiating a new line of credit with additional cash availability;
- Effecting a private placement equity financing to provide approximately
$3 to $5 million in cash flow, less offering costs; and
- Reducing its operating costs.
Management believes if it can finalize the financing alternatives that it is
pursuing and improve its 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 financing sources will
be available to the Company on acceptable terms or when necessary or that the
Company will be successful in its efforts to improve its operating results.
<PAGE> 10
NOTE 5 - EQUITY
On June 20, 2000, the Company sold 1,300 shares of Series C Convertible
Preferred Stock ("Series C Stock") 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 $401,000 related to the value of
the warrants. The warrants 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
3,500,000 shares of the Company's common stock. For the first six months after
issuance, the Series C Stock is convertible at a fixed conversion price of $0.95
per share, which was less than the common stock price at the date of close,
resulting in a beneficial conversion feature at issue date. Thereafter, the
conversion price is adjusted every three months to be the lower, 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 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 approximately 612,000 to the
beneficial conversion feature, of which $547,368 was 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 occurrence of certain events as defined
in the agreement.
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 Company's
common stock.
NOTE 6 - SUBSEQUENT EVENTS
CONVERTIBLE DEBENTURES
On August 14, 2000, in a private placement, the Company sold $750,000 of its 12%
Convertible Debentures. The private placement also included warrants to purchase
1,025,160 shares of the Company's common stock.
The Debentures 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 Company's common stock as of the 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.
<PAGE> 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 be issued upon conversion. Management is
currently evaluating the impact of the amendments.
CREDIT LINE EXTENSION AND AMENDMENT
In July 2000, the Company signed an agreement which extended the line of credit
due on July 10, 2000 for an additional two months. The extension agreement
contains restrictive covenants and fees 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.
RELATED PARTY REPURCHASE OF INVENTORY
In July 2000, the Company was notified of default under and cancellation of
flooring 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 this
transaction has been included in the accompanying financial statements.
Additionally, a reduction of $1.3 million dollars in sales and cost 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
<PAGE> 12
installment is due 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 financial 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
question. Accordingly, an allowance for doubtful accounts has been established
totaling approximately $600,000 is included in the accompanying financial
statements.
<PAGE> 13
TITAN MOTORCYCLE COMPANY OF AMERICA
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
13 WEEK PERIOD ENDED JULY 1, 2000, COMPARED WITH 13 WEEK PERIOD ENDED JULY 3,
1999
OVERALL
Net sales for the thirteen-week period ended July 1, 2000 of approximately $11.1
million were $2.7 million, or 32%, higher than net sales for the comparable
period in 1999. The Company recorded a net loss of $1,757,493, or $(0.10) per
share in 2000 compared with a net loss of $771,269 or $(0.05) per share for
1999.
RESULTS OF OPERATIONS
MOTORCYCLE UNIT SHIPMENTS AND NET SALES
<TABLE>
<CAPTION>
2000 1999 INCREASE % CHANGE
---- ---- -------- --------
<S> <C> <C> <C> <C>
Motorcycle Units 568 291 277 95%
Net Sales (in $ 000's):
Motorcycles $ 10,746 $ 7,744 $3,002 39%
Motorcycle Parts and Accessories $ 378 $ 707 $ (329) (47)%
Total Motorcycles and Parts $ 11,124 $ 8,451 $(2,673) 32%
</TABLE>
As indicated in the above chart, the Company's business continues to consist
primarily of motorcycles sales. A small amount of business has been done in
parts and accessories. Parts and accessories sales were approximately 5% of
revenues.
The increase in motorcycle shipments is due to several reasons, including the
continuing growth in reputation of the Company's motorcycles resulting in
increased demand, growth in the Company's dealership network, and the Company's
investment in new facilities and staff to meet this growing demand. Growth was
constrained in the second quarter due to cash flow problem causing part supply
issues affecting both the existing Legacy line of motorcycles 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.
<PAGE> 14
GROSS PROFIT
<TABLE>
<CAPTION>
2000 1999 DECREASE % CHANGE
---- ---- -------- --------
<S> <C> <C> <C> <C>
Gross Profit (In 000's) $676 $877 $201 23%
Gross Margin % 6.1% 10.4% 4.3% 41%
</TABLE>
In the thirteen-weeks ended July 1,2000, gross profit was fairly consistent in
dollars with the comparable period in 1999, although the gross margin decreased
to 6.1% from 10.4% in 1999.
The Company's gross margins were negatively impacted during the second
quarter of 2000 due to parts 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 than expected materials cost savings and
anticipated margin improvement. The lower than planned volumes in the last month
of the second quarter impacted labor and overhead utilization resulting in a
decline in gross margin.
OPERATING EXPENSES
<TABLE>
<CAPTION>
2000 1999 INCREASE % CHANGE
---- ---- -------- --------
<S> <C> <C> <C> <C>
Operating Expenses (In 000's) $2,007 $1,433 $574 40%
Operating Expense as % of Sales 18.0% 17% 1%
</TABLE>
Total operating expense for the thirteen-week period ended July 1, 2000
increased $573,520, or 40%, over the comparable period in 1999 while sales
increased approximately 32% for the same period. This increase was
due to a number of factors, including increased rental expense in the new
facility, larger support staff in anticipation of growth, and increased legal
and accounting expenses.
CONSOLIDATED INCOME TAXES
The Company's effective tax rate was 0.0% in both the thirteen-week period ended
July 1, 2000 and the comparable period ended July 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.
<PAGE> 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 recorded a net loss of $3,244,708, or
$(0.19) per share, in 2000 compared with a net loss of $951,562 or $(0.06) per
share, for 1999.
RESULTS OF OPERATIONS
MOTORCYCLE UNIT SHIPMENTS AND NET SALES
<TABLE>
<CAPTION>
2000 1999 INCREASE/(DECREASE) % CHANGE
---- ---- ------------------- --------
<S> <C> <C> <C> <C>
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%
</TABLE>
As indicated in the above chart, the Company's business continues to consist
primarily of motorcycle sales. Parts and accessories sales approached 6% of
revenue during this period.
The increase in motorcycle shipments is due to several reasons, including
continuing growth in reputation of the Company's motorcycles, resulting in
increased demand. Sales were constrained in the second quarter due primarily to
cash flow issues that led to part supply issues affecting both the existing
Legacy line of motorcycles as well as the Phoenix line of products.
GROSS PROFIT
<TABLE>
<CAPTION>
2000 1999 DECREASE % CHANGE
---- ---- -------- --------
<S> <C> <C> <C> <C>
Gross Profit (In 000's) $1,188 $2,037 $849 42%
Gross Margin % 6.2% 12.7% 6.5% 51%
</TABLE>
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.
<PAGE> 16
The Company's gross margins were negatively impacted during the second
quarter of 2000 due to parts 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 than expected materials cost savings and
anticipated margin improvement. The lower than planned volumes in the last month
of the second quarter impacted labor and overhead utilization resulting in a
decline in gross margin.
The Company's budgeted 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 disparity between sales revenues and
increased support costs.
OPERATING EXPENSES
<TABLE>
<CAPTION>
2000 1999 INCREASE % CHANGE
---- ---- -------- --------
<S> <C> <C> <C> <C>
Operating Expenses (In 000's) $3,731 $2,562 $1,169 46%
Operating Expense as % of Sales 19.5% 15.9% 3.6% 23%
</TABLE>
Total operating expense for the twenty-six week period ended July 1, 2000
increased $1,168,947, or 46%, over the comparable period in 1999. This increase
was due to a number of factors, including, but not limited to the following
principal factors listed in descending order of importance:
- an increase in salaries and wages 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 fiscal 2000.
CONSOLIDATED INCOME TAXES
The Company's effective tax rate was 0.0% in both the twenty-six week period
ended July 1, 2000 and the comparable period ended July 3, 1999 as a result of
losses in 1999 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.
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
The Company generated a small amount of cash in operating activities in the
twenty-six week period ended July 1, 2000 compared with uses 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 $4.0 million for
the period. Capital expenditures totaled $ 0 in the twenty-six week period
ending July 1, 2000 compared with $684,000 for the comparable period in 1999.
Cash provided through the issuance and sale of common and preferred stock
totaled $3.8 million for the first two quarters in fiscal 2000 as compared to
$1.1 million for the same period in 1999. Additionally, the Company had a net
reduction in borrowings under its line of credit of $3.8 million in 2000 as
compared with a net increase of $2.9 million in 1999. A more detailed
description of cash flows can be found in the attached financial statements.
For the first two quarters of fiscal 2000 and fiscal 1999, the Company has
incurred net losses of $3.2 million and $1.0 million, respectively. For the two
years ending January 1, 2000, the Company has incurred a net loss and net income
of approximately $8.1 million and $240,000, respectively. As of July 1, 2000 and
January 1, 2000, the Company had cash balances of approximately $164,000 and
$34,000, respectively, and an accumulated deficit of approximately $13.1 million
as of July 1, 2000. These factors, among other things, raise substantial doubt
about the Company's ability to continue as a going concern.
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:
- Negotiating a new line of credit with additional cash availability;
- Effecting a private placement equity financing to provide approximately
$3 to $5 million in cash, less offering costs; and
- Improving its operating results primarily through a reduction in
operating costs.
Management believes if it can finalize the financing alternatives that it is
pursuing to improve its 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,
<PAGE> 18
however, that financing sources will be available to the Company on acceptable
terms or when necessary or that the Company will be successful in its efforts to
improve its operating results.
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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
During the quarter ended July 1, 2000 the Company filed two reports on Form 8-K
on May 24, 2000 and June 22, 2000.
<PAGE> 19
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)
/S/ FRANCIS KEERY /S/ September 11, 2000
--------------------------------------------------
FRANCIS KEERY DATE
CHAIRMAN AND CEO
/S/ ROBERT P. LOBBAN /S/ September 11, 2000
--------------------------------------------------
ROBERT LOBBAN DATE
CHIEF FINANCIAL OFFICER
