<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
/X/ Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the Fiscal Year
Ended January 1, 2000
Commission File Number: 000-24477
TITAN MOTORCYCLE CO.
OF AMERICA
(Name of small business issuer 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)
Issuer's telephone number, including area code: (602) 861-6977
Securities registered under Section 12(g) of the Exchange Act: common stock
Check whether the issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
informational statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB [ ]
State issuer's revenues for its most recent fiscal year $ 26,939,962
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days: High $2.313 Low: $2.218
as of March 31, 2000.
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$17,078,306 Non - Affiliate Float
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 17,181,187 as of March 31,
2000.
Documents incorporated by reference: None
Transitional Small Business Disclosure Format. Yes No X
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PART I
FORWARD LOOKING STATEMENTS
Certain matters discussed in this report on Form 10-KSB are "forward-looking
statements." These forward-looking statements can generally be identified as
such because the context of the statement will include words such as the Company
"believes," "anticipates," "expects," "estimates" or words of similar meaning.
Similarly, statements that describe the Company's future plans, objectives or
goals are also forward-looking statements. Such forward-looking statements are
subject to certain risks and uncertainties which are described in close
proximity to such statements and which could cause actual results to differ
materially from those anticipated as of the date of this report. Shareholders,
potential investors and other readers are urged to consider these factors in
evaluating the forward-looking statements and are cautioned not to place undue
reliance on such forward-looking statements. The forward-looking statements
included herein are only made as of the date of this report and the Company
undertakes no obligation to publicly update such forward-looking statements to
reflect subsequent events or circumstances.
ITEM 1. DESCRIPTION OF BUSINESS
The genesis of Titan Motorcycle Co. of America ("Titan") was a small retail
aftermarket motorcycle shop known as Paragon Custom Cycles in Phoenix, Arizona,
which was owned and operated by the Company founder, Patrick Keery. Paragon
specialized in aftermarket Harley Davidson(TM) customizations, repairs and
upgrades, as well as the sale of a wide range of optional equipment and parts
for the Harley Davidson(TM) line.
Through the design talents of its founder, Paragon became known for its unique
award-winning Harley Davidson(TM) customizations. It was not unusual for such
customizations to increase a stock vehicle's cost by 50% to 100% of the original
purchase price. In the customizing process, a good deal of factory installed
hardware was removed and discarded and major design restrictions improved.
Paragon evolved to designing and building custom large V-twin cylinder
motorcycles from the ground up using various OEM parts. Although various
configurations are used both domestically and internationally to power
motorcycles; including one, two and four cylinder engines, the engine of choice
in the United States for the larger displacement cruiser and touring bike
classes of motorcycles is the V-twin engine. This engine design features two
cylinders configured in a 45(degree) "V" shaped orientation.
By 1994, the aftermarket Harley Davidson(TM) parts market had gestated to the
point where all major and minor components, including engine and drive trains,
required to design and build a unique custom motorcycle from inception were
readily available. While quality and continuity of supply were major challenges,
a well connected shop owner could secure the necessary parts and labor to build
the customer's dream creation.
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Paragon, under the design and engineering skills of its president, Patrick
Keery, became the shop of choice for more and more customers who sought him out
to have their concept bikes built.
Initially, the process was somewhat long and tedious. It was not unusual for the
total elapsed time from the design concept to delivery of the finished product
to be as long as six months. The selling price for such vehicles could easily
reach the $40,000 to $50,000 range.
In late 1994, Patrick approached his principal financial backer (and father)
with the idea of creating an integrated manufacturing company to dramatically
reduce the cost of production while enhancing delivery for new and unique custom
designed and manufactured V-twin cruiser motorcycle products. This approach did
not require the essential rebuilding of other large V-twin production
configurations. The idea was to implement this design and production concept in
a disciplined "cell" manufacturing process and environment where a small team or
single individual artisan would essentially build the custom motorcycle using
readily available and scientifically arranged component parts. The disciplined
cell manufacturing process is a production methodology whereby a complete
motorcycle is built from all components by a single builder/technician, as
opposed to an assembly line methodology where a team of individuals assemble a
finished motorcycle by repetitive, individual processes such as when one worker
puts on the wheels, another worker installs a motor, etc.
The present Company was incorporated in 1994 employing the foregoing production
techniques. Shortly after the incorporation, it became apparent that Titan
needed additional capital to grow and that it would be advantageous to seek out
and complete a merger with a publicly held company which, as a result, would
provide both a public market and a new source of capital. Readily available was
Mojave Financial Services, Inc. At the time, Mojave was essentially inactive. A
merger was completed in June of 1996, with Mojave Financial Services, Inc.
contributing its capital; and, as the surviving entity, assuming the name Titan
Motorcycle Co. of America, a Nevada corporation. Titan Motorcycle Co. of
America, the pre-merger entity, was incorporated as an Arizona successor
corporation to Paragon on December 12, 1994 and ceased existence pursuant to the
foregoing merger and name change. The integrated Company has existed and
continues since the date of merger on June 11, 1996.
All present financial statements and other disclosures concerning Titan are
based upon the merger accounting. The merger was accounted for as a
recapitalization of Titan because the shareholders of Titan controlled Titan
after the acquisition. There was no adjustment to the carrying value of the
assets or liabilities of Titan in the exchange. Titan is the acquiring entity
for legal purposes and Titan is the surviving entity for accounting purposes.
Research and development activities of Titan are ongoing. In the fiscal year
1999, Titan expended approximately $466,000 in research and development and had
expended $301,000 on research and development in fiscal year 1998.
Titan provides a six month warranty for all parts and labor with regard to its
motorcycle products. In fiscal year 1999 warranty expense totaled approximately
$415,000. Titan has
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also obtained an extended warranty for two and one half years or three and one
half years (for a total warranty of 3 or 4 years depending on model).
The principal suppliers of the Company, and the parts purchased from these
suppliers are identified in the table on the below page.
<TABLE>
<CAPTION>
VENDOR CITY AND STATE PARTS PURCHASED
------ -------------- ---------------
<S> <C> <C>
S&S CYCLE VIOLA, WI MOTORS/MOTOR PARTS
DAYTEC HESPERIA, CA FRAMES/SHEET METAL
CUSTOM CHROME MORGAN HILL, CA MISC. PARTS
PERFORMANCE MACHINE LA PALMA, CA WHEELS/ROTORS/BRAKES
JIMS USA CAMARILLO, CA TRANSMISSIONS/MOTOR PARTS
DEANO'S TEMPE, AZ PAINTED PARTS
URSCHEL MANUFACTURING SCOTTSDALE, AZ FORWARD CONTROL/PEGS
WORKS PERFORMANCE CANOGA PARK, CA SHOCKS
</TABLE>
There are alternative sources for all items listed in the table. In some cases
there might be delays in the manufacturing process while alternate suppliers
gear up to meet production level requirements. In some cases these delays could
be considered to be material.
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DESCRIPTION OF THE COMPANY
Titan has expanded its manufacturing and distribution facilities at 2222 West
Peoria Avenue, Phoenix, Arizona 85029. It presently occupies two leased
structures having approximately 124,000 square feet of combined administrative,
manufacturing, assembly and distribution space. Titan has a current five year
lease on these premises at the rate of approximately $65,000 per month.
It is reasonably anticipated that the present physical facilities should be
adequate for Titan's anticipated manufacturing and distribution needs into the
year 2002.
In fiscal 1999, the Company opened a new product development center located
within a few miles of its main facilities. This approximately 3,200 square feet
facility is reserved for development and testing of new bikes, parts and
subsystem designs.
Titan believes it has developed a unique design and manufacturing process for
the large customized displacement motorcycle industry. Titan offers seven (7)
custom model configurations and four (4) "Phoenix" models. In addition, Titan
brings a unique service to its customers by allowing the customers to
specifically "predesign" the end product down to the customization of colors and
finish. The completed product, in its custom design configuration and based upon
one of the basic models, can be delivered within eight to ten weeks of an order.
Customers not desiring individual customization can choose one of the basic
custom models in standard finish and configuration and be assured of prompt
delivery, usually from dealer floor stock.
Titan believes itself to be the market leader in volume production, customized
V-twin motorcycles as evidenced by its rapidly expanding distribution network.
New designs and the introduction of the "Phoenix" line of four new models in
1999 should insure continuing leadership in this market niche.
This custom manufacturing and service concept is made possible by the
application of a small production team or single skilled artisan who is
responsible for assembling each unit from component parts.
Titan believes it is unique in providing this degree of customization resulting
in essentially a "hand built" new vehicle at a cost and design advantage to
purchasing a typical stock model V-twin, such as Harley Davidson(TM) and paying
for customization through an individual shop. Additionally, the customer is
assured of state of the art design, assembly and testing technology. For
comparison purposes, the price of the basic Titan models range from the top of
the line "Gecko", currently selling at retail for $29,065, to the "Phoenix" at
$20,495. This compares to a non-customized similar displacement stock Harley
Davidson at approximately $15,000 to $20,000. Currently the products of Titan
are being distributed through 60 domestic dealers, and 26 foreign dealers with
current expansion plans underway.
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EMPLOYEES
As of March 15, 2000, Titan had 189 full-time employees, of whom 148 work in
engineering and manufacturing; 11 work full-time in marketing; and 30 work in
staff and administration. Titan is not subject to any collective bargaining
agreement.
FOREIGN OPERATIONS
The foreign operations of Titan consist solely of sales of its products through
non-U.S. distributors of the motorcycles of Titan.
SUBSIDIARY OF TITAN
Titan has one subsidiary. Titan Motorcycle GmbH, Alte Hersfelder Str. 30, 36289
Friedewald, Germany is wholly owned by Titan. Titan Motorcycle GmbH was
established in April 1998 to set up a marketing organization for Titan in
Europe. Its function is to coordinate with and offer support to dealers and
other marketing partners in Europe, to organize and participate in trade shows
and develop product advertising and promotional activities for Titan and its
authorized dealers, and to establish a central office in Europe to handle
Titan's business affairs.
ITEM 2. DESCRIPTION OF PROPERTY.
In March 1997, Titan moved to its present manufacturing and distribution
facilities to 2222 West Peoria Avenue, Phoenix, Arizona 85029. In September
1998, Titan entered into a second lease with the same landlord for an adjacent
parcel of property. Under the combined leases, Titan presently occupies two
leased structures having approximately 124,000 square feet of combined
administrative, manufacturing, assembly and distribution space. Approximately
15,800 square feet are devoted to offices with the remaining area dedicated to
production and warehouse. Titan has just entered the third year of a current
five-year lease on these premises at an aggregate rate for the two leases of
approximately $65,000 per month. Titan has maintained its former leased facility
at 2002 East Indian School Road, Phoenix, Arizona on a month to month basis at
the current monthly cost of $3,978.
It is reasonably anticipated that the present physical facilities should be
adequate for Titan's anticipated manufacturing and distribution needs into the
year 2002.
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ITEM 3. LEGAL PROCEEDINGS
Titan is involved in certain litigation encountered in the normal course of
business. Management does not believe that the ultimate resolution of any of the
cases involved will have a material impact on the Company's financial position
or results from operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The stock of the Company is traded on the NASDAQ SmallCap market. As of March
31, 2000, there were more than 634 shareholders of record of the common stock of
the Company. As of the same date, 17,181,187 shares of common stock were
outstanding. Actual trading volume of the stock of the Company in fiscal year
1999 has been moderate.
Provided in the following table is the price range of the Company's stock for
the eight most recent quarters, and as of March 31, 2000. The referenced
quotations do not reflect inter-dealer prices, dealer retail markup, markdown,
or commissions, and may not necessarily represent actual transactions.
PRICE RANGE OF COMMON STOCK
TRANSACTION PRICE
<TABLE>
<CAPTION>
Quarter & Year High Low
- -------------- ---- ---
<S> <C> <C>
1st 1998 4.630 3.000
2nd 1998 6.500 3.750
3rd 1998 5.190 3.625
4th 1998 5.125 4.125
1st 1999 4.500 3.750
2nd 1999 4.125 3.810
3rd 1999 4.000 2.375
4th 1999 3.625 2.625
</TABLE>
March 31, 2000 high $2.313 low $2.218
The Company has paid no dividends on common stock during its two most recent
calendar years, and has no present intention to pay dividends in fiscal year
2000.
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RECENT SALES OF UNREGISTERED SECURITIES.
On March 9, 2000, Titan sold to private U.S. investors two thousand shares of a
newly authorized Series B Convertible Preferred Stock. Total gross proceeds for
the private placement transaction were $2,000,000.
The Series B Convertible Preferred Stock is convertible into a maximum of
3,436,000 shares of the common stock of the company. For the first year after
issuance, the Series B Convertible Preferred Stock is convertible at a fixed
conversion price of $1.75. Thereafter, the conversion price is adjusted every
six months to the lesser of:
- - the prior conversion price, or
- - the average market price for the ten days prior to the adjustment date.
Titan also issued warrants in connection with the offering of the Series B
Convertible Preferred Stock. The warrants issued to the Series B Convertible
Preferred stockholders allowed such stockholders to purchase 250,000 shares of
common stock of the company. Titan also issued warrants to purchase an
additional 12,500 shares of common stock to an entity and its designees as
partial compensation for their assistance in placing the Series B Convertible
Preferred Stock. The exercise price of all warrants is $2.00 per share. The
warrants expire on March 9, 2005.
The recipients of the Series B Convertible Preferred Stock and of the warrants
are U.S. entities making written representations of their "accredited investor"
status. Titan reasonably believes that the issuance of the shares is exempt from
registration under the provisions of Regulation D promulgated by the Securities
and Exchange Commission.
Subsequent to its fiscal year ending January 1, 2000, Titan made three separate
private placements to three non-U.S. investors as defined in Regulation S
promulgated by the Securities and Exchange Commission. Pursuant to these
transactions, Titan has agreed to issue 543,480 shares of its restricted common
stock for the aggregate sum of $750,000.
In April 2000, the Company entered into an agreement to satisfy the annual
installment payment and all accrued interest as of January 1, 2000 related to a
loan with a private lender by issuing 724,638 shares of its restricted common
stock. The shares will be issued pursuant to the exemption from registration
provided under Regulation S promulgated by the Securities and Exchange
Commission. The total amount of principal and interest satisfied pursuant to
this transaction is approximately $1,050,000. The payment of these amounts is
documented in a Modification and Partial Payment Agreement entered into between
Titan and the lender.
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The Regulation S transactions are deemed exempt from registration. Titan
reasonably believes, and the purchasers specifically warranted and represented
to Titan, that (a) the purchasers were not U.S. persons as that term is defined
under Regulation S; (b) at the time the buy orders for the securities were
originated, the purchasers were outside of the United States; (c) the purchasers
were purchasing the securities for their own account and not on behalf of any
U.S. person; (d) the sale had not been pre-arranged with a purchaser in the
United States; (e) all offers and resales of the securities would only be made
in compliance with Regulation S; and (f) the sales transactions were made in
compliance with all laws of the country of domicile of the purchasers, and of
any political subdivision thereof, and the customary practices and documentation
of such jurisdictions. The certificates representing the shares to be issued in
such transactions will bear the appropriate restrictive legend.
Except as otherwise disclosed above, no commissions or finders fees were paid on
any of the referenced transactions.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
The audited consolidated financial statements as of January 1, 2000, and for
fiscal years ended January 1, 2000 and January 2, 1999 are enclosed with this
Form 10-KSB. Reference is made to the Consolidated Financial Statements filed
with this Registration Statement for greater detail regarding the financial
position of the Company.
Effective January 1, 1998, the Company adopted a fiscal accounting period as
opposed to the calendar accounting period of prior years. The effect of this
change is that all quarters are now comprised of thirteen weeks, ending Saturday
at midnight instead of the last calendar day of the month. The first two fiscal
months of a quarter have four weeks each and the last fiscal month has five
weeks.
The selected financial data set forth below should be read in connection with,
and is limited by, the more complete information in the attached Consolidated
Financial Statements and the notes thereto.
<TABLE>
<CAPTION>
1/1/00 1/2/99 12/31/97 12/31/96 12/31/95
------ ------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue $ 26,939,692 $ 27,913,025 $ 13,064,145 $ 4,983,876 $ 625,284
Net Income (Loss) ($ 8,060,282) $ 237,479 ($ 1,673,743) ($ 95,496) ($ 257,513)
Earnings (Loss) Per
Share(1) ($ 0.47) $ 0.01 ($ 0.11) ($ 0.01) ($ 0.02)
Total Assets $ 22,181,445 $ 18,420,223 $ 8,769,057 $ 3,318,289 $ 187,244
Long-Term
Obligations $ 2,647,169 $ 8,249,311 $ 1,928,664 $ 502,521 $ 252,113
</TABLE>
- --------
(1) These figures have been restated to reflect the two-for-one forward
split of the stock of the Company which took effect in March 1997.
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FISCAL YEAR 1999 COMPARED WITH FISCAL YEAR 1998
OVERALL
Net Sales for fiscal 1999 of $26.9 million were $1 million less than net sales
of $27.9 million for fiscal 1998. The Company experienced a net loss of $8.1
million, or ($0.47) per common share as compared to net income of $237,000 or
$0.01 per common share for fiscal 1998.
Over the past year, the Company continued investing in building an
infrastructure that is necessary to meet anticipated sales growth along with the
development of new models and features for its customer base. Part of this
investment is in the Company's engineering capability, which is focused on
developing new products and components as well as continuing to improve upon the
current products and production processes. Other investments have been made in
building the management team of the Company, developing marketing capabilities
focused on building the Titan brand name, adding new facilities to support the
introduction of the Phoenix line of products and upgrading computer systems to
support anticipated growth of the business.
RESULTS OF OPERATIONS
MOTORCYCLE UNIT SHIPMENTS AND NET SALES
<TABLE>
<CAPTION>
INCREASE
1999 1998 (DECREASE) % CHANGE
---- ---- ---------- --------
<S> <C> <C> <C> <C>
Motorcycle Units 1,010 1,001 9 --
Net Sales (in $ 000's):
Motorcycles $26,224 $27,286 $(1,062) (03)%
Motorcycle Parts and Accessories 715 627 88 14%
Total Motorcycles and Parts $26,939 $27,913 $ (974) (03)%
</TABLE>
As indicated above, the Company's business consisted primarily of motorcycle
sales. Parts and Accessories sales were approximately 2% of total revenues. The
Company's Clothing and accessories product line, introduced in late 1997,
continues to be well received
The increase in motorcycle shipments is lower than anticipated and relates
primarily to production issues. The Company's historically rapid growth was
disrupted primarily due to part supply issues during start-up operations for its
new Phoenix line of bikes. The disruption duration was long enough to cause
liquidity problems which led to part supply problems on its high end product
line as well. These issues, among others, had a major, negative impact on
production output during 1999.
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GROSS PROFIT (LOSS)
<TABLE>
<CAPTION>
1999 1998 DECREASE % CHANGE
--------------------------------------------
<S> <C> <C> <C> <C>
Gross Profit (Loss) (In 000's) $ (339) $ 4,193 $(4,532) (108)%
Gross Margin % (1.0)% 15.0% (16)%
</TABLE>
In 1999, the Company's cost of goods sold ("COGS") has been negatively impacted
by the Company's transition into its new facility and costs associated with
ramping-up both the new facility and new employees in preparation of anticipated
increased production volume. The "ramping-up" activities consist principally of
amassing the various elements necessary to rapidly increase unit production
output, including:
- - Adding expanded floor space for manufacturing, storage and personnel
offices
- - Adding staff, both hourly and salaried, throughout the organization
- - Adding production equipment to facilitate higher unit volume output
- - Expansion of marketing and promotion activities
During 1999, these costs were exacerbated due to parts delivery issues that
reduced production. Labor inefficiencies and overhead resulted in a higher cost
per unit than the Company has experienced historically. Management anticipates
lower costs per unit for the first quarter and throughout fiscal 2000.
Production was less than anticipated due to the delayed introduction of the new
"Phoenix by Titan" line of motorcycles. Expected sales of the Phoenix line were
negatively impacted due to unexpected limitation on parts availability from two
outside suppliers. Failure to achieve anticipated Phoenix line production volume
was a significant factor in the Companys' lower than expected sales volume and
resulting cost inefficiencies.
Management has plans in place to improve the gross margin with volume purchases
of components, vertical integration , motorcycle and component redesign and
improved utilization of labor and overhead.
OPERATING EXPENSES
<TABLE>
<CAPTION>
1999 1998 INCREASE % CHANGE
---- ---- -------- --------
<S> <C> <C> <C> <C>
Operating Expenses (In 000's) $6,885 $3,486 $3,399 97%
Operating Expense as % of Sales 25% 12.5% (12.5%)
</TABLE>
The increase in operating expenses for fiscal 1999 as compared to fiscal 1998 is
due to a number of factors, including but not limited to the following:
- - An increase in salaries and wages attributed to enhancing the
management and support staff necessary to support anticipated growth.
Salary and benefit expense increased in this area from approximately
$1.58 million in fiscal 1998 to approximately $2.11 million in fiscal
1999.
- - Increased advertising, trade show and promotional activities related
primarily to the "roll-out" of the Phoenix line and web site
development.
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- - Legal and accounting expense increased from approximately $126,000 in
fiscal 1998 to approximately $354,000 in fiscal 1999.
INTEREST EXPENSE
Interest expense was approximately $933,000 and $477,000 for fiscal years ended
1999 and 1998, respectively. The increased interest expense is due primarily to
the Company's $4.1 million dollar increase in debt and additional bank fees
incurred related to a line of credit.
CONSOLIDATED INCOME TAXES
The Company had an effective tax rate of 0.0% in both fiscal 1999 and fiscal
1998 as a result of the net operating loss in fiscal 1999 and the use of tax
loss carryforwards in 1998. The Company has net operating loss carryforwards of
approximately $8.4 million as of January 1, 2000.
WORKING CAPITAL MANAGEMENT
The Company supplies motorcycles to its dealers in one of two ways. First, the
dealer can specify the motorcycle completely with customized paint and selected
options with a lead time of 6-8 weeks, sometimes slightly longer during peak
season. Alternatively, the dealer can select a completed bike from 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. The Company builds some inventory of finished motorcycles during the
winter months that is consumed during the spring/summer peak season. During the
rest of the year the Company normally maintains a low level 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 levels as
well as part costs.
The Company has built a strong network of dealers both domestically and
internationally. Collectively, there are approximately 86 dealers currently in
place with more being added every month. There are 5 types of dealers in the
Company's network; independent dealers, "Easyrider" stores and franchises,
"Bikers' Dream" franchises, existing Harley Davidson(TM) dealers, and Titan
dealerships. In 1999, 4 dealers with common ownership (Titan of Houston, Titan
of Los Angeles, Titan of Las Vegas, and Paragon Custom dba Titan of Phoenix)
represented 18% of the
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Company's sales. In 1998, three dealers with common ownership, (Titan of Los
Angeles, Titan of Las Vegas, and Paragon Custom dba Titan of Phoenix)
represented 22.4% of the Company's sales. Majority ownership of these
dealerships are held by principals in the Company. No other dealer represents
more than 5% of sales.
As of March 31, 2000, backlog orders stood at approximately $7.3 million,
compared with approximately $1.4 million and $1.2 million at the same time in
1998 and 1997, respectively. The Company is presently completing an average of
more than 40 motorcycles each week. Management anticipates increasing to more
than 50 per week in the second quarter of fiscal 2000.
DESCRIPTION OF MARKETS
The typical buyer of the Company's products is a male businessman or
professional between 35 and 55 years of age, who has previously owned a
production line motorcycle. The average age of a motorcycle owner is increasing,
with the customer's median annual earnings exceeding $70,000. It is anticipated
that the population of foreign motorcycle enthusiasts may actually increase at a
greater rate than the domestic market.
It is generally accepted that demand for the customized V-twin motorcycle will
significantly outstrip production for the next several years. At present, the
Company occupies a unique niche in its capacity to produce, from the ground up,
a customized high-end V-twin motorcycle on a production basis, while preserving
the capacity to complete special orders. The Company does not anticipate
significant competition in this sector for the next twelve to twenty-four
months. Several companies compete in the market in and below the $20,000 price
range, headed by Harley Davidson(TM) who is clearly the dominant manufacturer.
There is currently no indication that they intend to move into Titan's market
niche, but the possibility of that happening at some time in the future cannot
be discounted. There are other builders that are currently smaller than the
Company in the below $20,000 price range that are starting to produce some
motorcycles at higher prices. The Company believes that none of these builders
has any significant position in the Titan's niche at this time.
Over the next three years, management anticipates the Company will increase its
market share of V-twin motorcycles, including both production line products and
custom models, from its estimated 0.5% market share in 1997 to 2% by the year
2002. The Company estimates that it has a major market share for V-twin
motorcycles over $25,000 and anticipates that this market sector will also
continue to increase.
International motorcycle sales were lower in 1999 than 1998 due primarily to a
general softness in demand in Asian markets related to general local economic
conditions.
During the first quarter of 1999, the Company introduced its new website
(www.titanmotorcycle.com). New features will be introduced to the website in
several stages throughout 2000. The site will provide information to potential
motorcycle customers and investors, allow customers to purchase clothing and
accessories directly from the Company, and provide information on available
motorcycle stock to the Company's dealers as well as other features.
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ENVIRONMENTAL CONTROLS
The Company's products meet all federal and state emission requirements, and
have been approved by the federal EPA and California CARB.
The Company's manufacturing facilities also meet all federal, state and local
environmental requirements. The primary area of potential discharge is the
Company's paint facility, which meets all required standards. Expansion of this
area would require additional capital requirements, but it is not anticipated
that this would have any significant material effect on earnings or capital
expenditures at this time.
NEWLY ISSUED ACCOUNTING STANDARDS
In December 1999 the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 (SAB 101). SAB 101 summarizes application of generally accepted
accounting principles related to revenue recognition. The Company is currently
evaluating the impact of this SAB.
IMPACT OF YEAR 2000
The Company has not experienced any adverse effects related to the Year 2000
issue. Costs associated with the Company's Year 2000 compliance efforts were
immaterial with no additional costs anticipated.
LIQUIDITY AND CAPITAL RESOURCES
During 1999, the Company satisfied its working capital needs principally with
funds obtained from a line of credit and certain financing transactions entered
into during the year. The net decrease in cash of approximately $25,000 is
primarily comprised of the following:
- - Net cash used in operating activities totaled approximately $8,346,000,
primarily due to the net loss incurred in 1999, an increase in inventory of
approximately $5.6 million, a decrease in accounts receivable of approximately
$2.4 million, along with changes in current assets and liabilities.
- - Net cash used in investing activities totaled approximately $944,000 primarily
due to purchases of fixtures and equipment for the expanded manufacturing
capabilities and establishment of the Phoenix product production line.
- - Cash generated from financing activities totaled approximately $9,315,000
during 1999 primarily from approximately $5.3 million in net proceeds on the
sale of company stock, approximately $2.7 million in increased borrowing against
the Company's available line of credit, and $ 1 million in additional financing.
For the two years ending January 1, 2000, the Company has incurred a net loss of
17
<PAGE> 18
approximately $8.1 million and net income of approximately $237,000,
respectively. The Company has a cash balance of approximately $34,000 and an
accumulated deficit of approximately $9.8 million as of January 1, 2000. These
factors, among other things, may indicate that the Company will be unable to
continue as a going concern for a reasonable period of time.
Management is pursuing various options in order to provide necessary financing.
As discussed in Note 9 to the consolidated financial statements, management's
plans to resolve near term cash flow issues include the following transactions:
- - Negotiating a new $15 million line of credit with additional cash
availability;
- - A private placement equity financing to provide approximately $3-5
million in cash flow, less offering costs; and
- - Projected improvement of operating results.
Management believes that if it can finalize the financing alternatives that it
is pursuing together with its projected improvement in operating results for
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 these sources will be
available to the Company on acceptable terms or when necessary.
INFLATION
Inflation rates appear to be relatively stable after several years of low to
moderate increases. Inflation will result in the escalation of costs as well as
increasing operating expenses for the Company. The Company anticipates the
ability to offset most if not all of these increases through its cost reduction
program and/or price increases, provided that inflation rates do not accelerate
dramatically.
FOREIGN RISK FACTORS
The primary risk to foreign sales is the state of the economy in the Company's
overseas markets. This evidences itself both in the willingness of the
marketplace to purchase the product and in the exchange rates for transactions
which ultimately impacts the final price of the product of the Company in the
dealer's country. Other risks include the relative strength of individual
dealerships in their respective countries, marketing expertise of the dealer
network, transportation delays associated with shipping products from Phoenix,
and individual country regulatory requirements. The Company believes it has
taken the necessary steps and signed up strong dealers in the countries where it
is currently represented to mitigate the above risks, except for those related
to country economics.
18
<PAGE> 19
ITEM 7. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Consolidated Balance Sheet as of January 1, 2000
Consolidated Statements of Operations for the years ended
January 1, 2000 and January 2, 1999
Consolidated Statements of Cash Flows for the years ended January 1,
2000 and January 2, 1999
Consolidated Statements Shareholders' Equity for the years ended
January 1, 2000 and January 2, 1999
Notes to Consolidated Financial Statement
19
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Titan Motorcycle Co. of America
In our opinion, the accompanying consolidated balance sheet, statement of
operations, stockholders' equity and cash flows present fairly, in all material
respects the financial position of Titan Motorcycle Co. of America and its
subsidiary at January 1, 2000 and the results of their operations and cash flows
for each of the two years then ended in conformity with accounting
principles generally accepted in the United States. 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 audit. We
conducted our audit in accordance with auditing standards generally accepted in
the United States which require that we plan and perform the audit to obtain
reasonable assurance that 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; assessing the
accounting principles used and significant estimates made by management; and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 9 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has an accumulated deficit that raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 9. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers, LLP
Phoenix, Arizona
April 14, 2000
20
<PAGE> 21
TITAN MOTORCYCLE CO. OF AMERICA
CONSOLIDATED BALANCE SHEET
AS OF JANUARY 1, 2000
<TABLE>
<CAPTION>
JANUARY 1, 2000
---------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash $ 33,700
Accounts receivable, net of allowance of $247,000 1,228,311
Accounts receivable - related party 999,252
Inventories 17,451,996
Prepaid expenses 351,483
------------
Total current assets 20,064,742
Property and equipment, net 2,013,905
Other assets 17,317
Trademarks, net 85,481
------------
TOTAL ASSETS $ 22,181,445
============
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Bank overdraft $ 305,538
Accounts payable 3,891,287
Accrued expenses 2,158,985
Note payable - line of credit 9,779,731
Current portion of notes payable 627,825
------------
Total current liabilities 16,763,366
Note payable - related party 2,199,980
Mortgage note payable 370,407
Other long term liabilities 76,782
------------
TOTAL LIABILITIES 19,410,535
Redeemable preferred stock
Cummulative preferred stock, 3,973 shares outstanding, $.001 par value,
including accrued dividends 3,536,739
Stockholders' Equity
Common stock, par value $.001; 100,000,000 shares
authorized and 17,160,980 shares issued and outstanding 17,162
Additional paid-in capital 9,098,252
Unearned compensation (31,475)
Accumulated deficit (9,849,768)
------------
TOTAL STOCKHOLDERS' DEFICIT (765,829)
------------
TOTAL LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' DEFICIT $ 22,181,445
============
</TABLE>
The accompanying footnotes are an integral part of the financial statements.
21
<PAGE> 22
TITAN MOTORCYCLE CO. OF AMERICA
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JANUARY 1, 2000 AND JANUARY 2, 1999
<TABLE>
<CAPTION>
JANUARY 1, 2000 JANUARY 2, 1999
--------------- ----------------
<S> <C> <C>
Sales, net $ 26,939,692 $ 27,913,025
Cost of goods sold 27,278,623 23,719,621
------------ ------------
Gross profit (loss) (338,931) 4,193,404
------------ ------------
Operating expenses:
Selling, general and administrative 6,419,134 3,184,696
Research and development 465,905 301,184
------------ ------------
Total operating expenses 6,885,039 3,485,880
Income (loss) from operations (7,223,970) 707,524
Other income (expense):
Other income (expense) 97,216 (31,883)
Interest expense (933,528) (476,765)
------------ ------------
Total other income (expense) (836,312) (508,648)
------------ ------------
Income (loss) before income taxes and cumulative
effect of change in accounting principle (8,060,282) 198,876
Income taxes -- --
------------ ------------
Income (loss) before cumulative
effect of change in accounting principle (8,060,282) 198,876
------------ ------------
Cumulative effect of change in accounting principle (Note 1) -- 38,603
------------ ------------
Net income (loss) $ (8,060,282) $ 237,479
============ ============
Income (loss) per common share - basic and diluted:
Income (loss) before cumulative effect
of change in accounting principle $ (.47) $ .01
Cumulative effect of change in accounting principle -- --
------------ ------------
Net income (loss) per common share $ (.47) $ .01
============ ============
Weighted average number of common shares and equivalents
Basic 17,092,068 16,416,823
Diluted 17,092,068 16,746,218
</TABLE>
The accompanying footnotes are an integral part of the financial statements.
22
<PAGE> 23
TITAN MOTORCYCLE CO. OF AMERICA
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 1, 2000 AND JANUARY 2, 1999
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN UNEARNED
SHARES AMOUNT CAPITAL COMPENSATION
--------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
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 (41,875)
Amortization of unearned compensation 3,134
Net income
--------------- ---------------- ---------------- ---------------
BALANCE, JANUARY 2, 1999 16,437,333 $ 16,438 $ 7,272,417 $ (38,741)
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 7,266
Net loss
--------------- ---------------- ---------------- ---------------
BALANCE, JANUARY 1, 2000 17,160,980 $ 17,162 $ 9,098,252 $ (31,475)
=============== ================ ================ ===============
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
DEFICIT TOTAL
------------------ ----------------
<S> <C> <C>
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 -
Amortization of unearned compensation 3,134
Net income 237,479 237,479
------------------ ----------------
BALANCE, JANUARY 2, 1999 $ (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
Net loss (8,060,282) (8,060,282)
------------------ ----------------
BALANCE, JANUARY 1, 2000 $ (9,849,768) $ (765,829)
================== ================
</TABLE>
The accompanying footnotes are an integral part of the financial statements.
23
<PAGE> 24
TITAN MOTORCYCLE CO. OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 1, 2000 AND JANUARY 2, 1999
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(8,060,282) $ 237,479
Adjustments to reconcile net (loss)
to net cash used in operating activities:
Depreciation and amortization 386,993 167,621
Cumulative effect of change in accounting principle -- (38,603)
Stock compensation expense 7,266 3,134
Net changes in balance sheet accounts:
Accounts receivable 2,422,799 (3,675,901)
Inventories (5,613,994) (5,314,639)
Other assets 410,571 18,908
Accounts payable 809,295 1,029,260
Accrued expenses 1,291,423 504,231
----------- -----------
Net cash used in operating activities (8,345,929) (7,068,510)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (919,887) (626,769)
Purchase of trademarks (24,170) (8,852)
----------- -----------
Net cash used in investing activities (944,057) (635,621)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft 227,801 77,737
Issuance of common stock 1,349,950 500,000
Issuance of preferred stock and warrants 3,930,348 --
Proceeds from notes payable 1,000,000 --
Line of credit, net 2,807,189 7,049,324
----------- -----------
Net cash provided by financing activities 9,315,288 7,627,061
----------- -----------
Net increase (decrease) in cash 25,302 (77,070)
Cash and cash equivalents at beginning of year 8,398 85,468
----------- -----------
Cash and cash equivalents at end of year $ 33,700 $ 8,398
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest $ 655,180 $ 251,593
Income taxes $ -- $ --
Non-cash Investing and Financing Activities:
Stock issued in exchange for services $ 83,000 $ 250,000
Inventory in exchange for advertising $ -- $ 112,305
Preferred stock dividends 69,698 --
</TABLE>
The accompanying footnotes are an integral part of the financial statements.
24
<PAGE> 25
TITAN MOTORCYCLE CO. OF AMERICA
CONSOLIDATED FINANCIAL STATEMENT FOOTNOTES
FOR THE YEARS ENDED JANUARY 1, 2000 AND JANUARY 2, 1999
1. ORGANIZATION DESCRIPTION OF BUSINESS
Titan Motorcycle Co. of America (the "Company" or "Titan") was
incorporated in the State of Arizona on December 12, 1994 and merged
with Mojave Financial Services, Inc. ("Mohave") on June 11, 1996.
Mohave, the surviving legal entity, was incorporated in the State of
Nevada on January 10, 1995. Subsequent to the merger, Mohave changed
its name to Titan. On June 11, 1996, the shareholders of the Company
authorized a reverse stock split of 1-for-10 and on February 17,1997,
the shareholders of the Company authorized a forward stock split of
2-for-1. All references to shares of common stock have been
retroactively restated for these splits.
The Company manufactures custom design motorcycles and sells them to
authorized dealers or to the general public. The consolidated financial
statements of the Company include all of the accounts and balances of
its wholly owned German subsidiary, Titan Motorcycle GmbH. Intercompany
transactions and balances are eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year End
Effective January 1, 1998, the Company changed its fiscal year-end from
December 31 to a 52-53 week fiscal year ending on the Saturday closest
to December 31.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less to be cash equivalents. The Company maintains
accounts at financial institutions located in Phoenix, Arizona. The
accounts are insured by the Federal Deposit Insurance Corporation up to
$100,000. The Company's balances occasionally exceed that amount.
Accounts Receivable
Accounts receivable potentially subjects the Company to credit risk.
The Company extends credit to its customers based upon an evaluation of
the customer's financial condition and credit history and generally
does not require collateral. The Company has historically incurred
minimal credit losses. Sales and accounts receivable to related parties
represent a significant concentration as discussed in Note 8.
25
<PAGE> 26
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
Property and Equipment
Property and equipment are stated at cost. Effective January 1, 1998,
the Company changed its method of depreciation from an accelerated to
the straight-line method. The Company believes the new method more
appropriately reflects the economic benefit received from these assets.
The cumulative effect of this change was a decrease to depreciation
expense of $38,603. The effect of this change related to fiscal 1998
depreciation was a decrease of approximately $55,000.
Depreciation is provided on depreciable assets over an estimated useful
life of 5 to 7 years, while leasehold improvements are amortized by the
straight-line method over the shorter of estimated useful lives or the
remaining lease term. When items are retired or disposed of, the cost
and accumulated depreciation are removed from the accounts and any gain
or loss is included in the statement of operations.
The Company periodically assesses the recoverability of its property
and equipment in accordance with Statement of Financial Accounting
Standards No. 121 Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of ("SFAS 121").
Trademarks
Trademarks are stated at cost and amortized on a straight-line basis
over a period of 40 years. The Company periodically assesses the
recoverability of its trademarks in accordance with SFAS 121.
Revenue Recognition
The Company's revenue is derived primarily from the sale of
custom-built motorcycles. Revenue is recognized upon shipment to the
customer. Export sales totaled approximately $872,000 and $2,028,000
for the years ended January 1, 2000 and January 2, 1999, respectively.
Advertising Expense
The Company expenses advertising costs as incurred. Advertising expense
for fiscal year 1999 and 1998 totaled approximately $920,000 and
$344,656, respectively.
26
<PAGE> 27
Non-monetary Transactions
The Company records non-monetary transactions based on the fair value
of the goods and/or services exchanged.
Income Taxes
The Company accounts for income taxes under the liability method in
accordance with Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes."
Newly Issued Accounting Standards
Financial Accounting Standards No. 130, Reporting Comprehensive Income
(SFAS 130) established standards for reporting and display of
comprehensive income and its components. SFAS 130 requires a separate
financial statement to report the components of comprehensive income
for each period reported. The Company does not have any material
components of other comprehensive income and therefore has not shown a
separate statement.
In December 1999 the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101). SAB 101 summarizes application
of generally accepted accounting principles related to revenue
recognition. The Company is currently evaluating the potential impact
of this SAB.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
3. INVENTORIES
Inventories at January 1, 2000, consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Raw materials and supplies $10,607,330
Work-in-process 2,461,800
Finished goods 4,382,866
-----------
Total inventories $17,451,996
===========
</TABLE>
27
<PAGE> 28
4. PROPERTY AND EQUIPMENT
Property and equipment at January 1, 2000, consist of the following:
<TABLE>
<S> <C>
Land $ 50,000
Building 393,226
Vehicles 246,522
Machinery and equipment 1,116,318
Displays 52,834
Leasehold improvements 784,580
----------
Gross property and equipment 2,643,480
Less accumulated depreciation and amortization 629,575
----------
Net property and equipment $2,013,905
==========
</TABLE>
5. NOTES PAYABLE
Line of Credit
At January 1, 2000, the Company has an asset based line of credit,
bearing interest at Prime plus .5% (8.25% at January 1, 2000) which is
due monthly. The line of credit has a $10 million maximum capacity with
an outstanding balance of approximately $9.8 million at January 1,
2000. The principal was due April 10, 2000. In April 2000, the Company
obtained an extension for 90 days. (see Note 14). Borrowings under the
asset-based line of credit are collateralized by a first priority
security interest in substantially all of the Company's assets and are
senior to all other borrowings. The unused line of credit bears
interest at a rate of .25% per year due monthly. This financing
agreement contains certain financial covenants and precludes capital
expenditures in excess of $500,000 per year. During the year, the
Company violated certain covenants related to this debt.
Notes Payable - Unsecured
At January 1, 2000, the Company was obligated under an unsecured note
payable for $2,799,980. The current portion of the obligation at
January 1, 2000 was $600,00. Approximately $1.8 million and $1.0
million bears interest at 8% and 12%, respectively. Payments of
principal and interest were scheduled to begin on January 1, 2000 with
the balance to be paid off evenly over three years, or as jointly
agreed by the parties. The note and any accrued interest may be
converted to common stock, upon mutual agreement by both parties, at
any time after January 1, 2000. Accrued interest on the notes at
January 1, 2000, approximated $553,000. In April 2000, the Company
agreed to issue 724,638 shares of restricted common stock in payment of
all accrued interest and principal then due ($600,000) as of January 1,
2000. (See Note 14)
28
<PAGE> 29
Mortgage Note Payable
In September 1999, the Company obtained a loan totaling approximately
$400,000 for the purchase of real property in Germany. The loan is
collateralized by real property, with payments of principle and
interest (amortized over twenty-five years) of $2,300 due monthly. As
of January 1, 2000, the outstanding balance of the loan was
approximately $398,000.
6. INCOME TAXES
The income tax rate on earnings (loss) before cumulative effect of
change in accounting principle differed from the Federal statutory rate
as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------
<S> <C> <C>
Federal income tax rate 34.0% 34.0%
State income tax rate, net of federal benefit 6.0% 6.0%
Non-deductible expenses .-- % 7.6%
Effect of valuation allowance <40.0%> <47.6%>
------------------------------------
Effective income tax rate 0% 0%
====================================
</TABLE>
The income tax effects of loss carryforwards, tax credit carryforwards
and temporary differences between financial and tax reporting give rise
to the deferred income assets and liabilities. Management believes it
more likely than not that the Company will not realize its tax assets,
and as such, a full valuation allowance is recorded. Deferred income
tax assets (liabilities) at January 1, 2000, consist of the following:
<TABLE>
<S> <C>
Current:
Allowance for bad debts and sales returns $ 99,800
Inventories 283,000
-----------
$ 382,800
Long-term
Property and equipment $ (109,000)
Net operating loss carryforwards 3,175,000
Other 406,000
-----------
$ 3,854,800
Valuation Allowance (3,854,800)
-----------
Net deferred tax asset --
===========
</TABLE>
As of January 1, 2000, the Company has federal and state net operating
loss carryforwards of approximately $8.4 and $5.8 million,
respectively. The federal net operating loss carryforwards expire in
2019, while the state net operating loss carryforwards expire in 2004.
29
<PAGE> 30
7. SHAREHOLDER'S EQUITY
Common Stock
In February 1999, the Company sold 700,000 shares of its common stock for $2.25
per share. In connection with this transaction, the Company received proceeds,
net of related offering costs, of $1,349,250. Additionally, in March 1999, the
Company issued 23,647 shares of common stock in a non-cash exchange for
marketing services.
Series A Redeemable Preferred Stock
In September 1999, the Company sold 4,000 shares of Series A redeemable,
convertible preferred stock for $4 million. The preferred shares receive
mandatory dividends at 6% annually, payable quarterly. The Company can elect to
pay the dividends in cash, or issue additional shares of Series A preferred
stock at $1,000 per share. The preferred stock is non-voting, and has dividend
and liquidation preference. Beginning in October 1999, each preferred share is
convertible into common shares for $2.6812 per share. The conversion price
resets periodically after 12 months at the lower of 90% of the average market
price for the 10 day period preceding the reset date or 130% of the previous
conversion price. The Company received net proceeds of approximately $3.8
million.
The preferred stock contains conditions for redemption which are not solely
within the control of the issuer. As a result, these shares have been classified
as mandatorily redeemable.
Warrants
During September 1999, in connection with the issuance of the Series A Preferred
Shares, the Company issued warrants to purchase 372,967 shares of the Company's
common stock at a purchase price of $3.21744 per share. A portion of the
proceeds from the sale of the Series A Preferred Shares has been allocated to
the warrants based upon fair value calculated using the Black Sholes Model.
These warrants expire on September 17, 2004.
8. RELATED PARTY TRANSACTIONS AND BALANCES
The Company has transactions in the normal course of business with affiliated
dealerships that are partially owned by majority shareholders of the Company. In
1999 and 1998, sales to these affiliated dealerships were approximately
$5,117,000 and $6,261,000, respectively. At January 1, 2000, accounts receivable
from these affiliated dealerships were approximately $999,000.
30
<PAGE> 31
9. COMMITMENTS AND CONTINGENCIES
Going Concern
The accompanying financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
For the two years ended January 1, 2000, the Company has incurred a net
loss of approximately $8.1 million and net income of approximately
$237,000, respectively. The Company has a cash balance of approximately
$34,000 and an accumulated deficit of approximately $9.8 million as of
January 1, 2000. In addition, amounts owed under the Company's line of
credit are due and payable in July 2000. These factors, among others,
may indicate that the Company will be unable to continue as a going
concern for a reasonable period of time.
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's plans to resolve near term cash flow issues include the
following:
- Negotiating a new $15 million line of credit to obtain
additional cash availability;
- A private placement equity financing to provide approximately
$3 - 5 million in cash flow, less offering costs; and
- Projected improvement of operating results.
Management believes that if it can finalize the financing alternatives
that it is pursuing, together with its planned improvement in operating
results for 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 the Company will generate sufficient
cash flow, attain profitability, or that additional financing will be
available to the Company on acceptable terms or when necessary.
31
<PAGE> 32
Operating Lease Commitments
The Company leases its office, certain vehicles, and manufacturing and
warehouse space. Total rent expense for 1999 and 1998 was approximately
$725,000 and $387,000, respectively. Future minimum lease payments
required under the operating lease agreements are as follows:
<TABLE>
<S> <C>
2000 $ 835,845
2001 $ 842,401
2002 $ 730,261
2003 $ 690,330
2004 and thereafter $ 174,405
</TABLE>
The Company provides a limited warranty on its motorcycles. The
warranty period is thirty-six or forty-eight months, depending on
model. The Company bears the costs of warranty work for the first six
months. The remaining warranty period is covered by a warranty
insurance policy that is purchased, by the Company, from an insurance
carrier.
The majority of the Company's customers finance their purchases from
the Company using a third party wholesale financing company. The
Company and wholesale financing companies have entered into an
agreement whereby, if one of the Company's dealers defaults on its
obligation to the finance company, the finance company repossesses the
motorcycle, and if the motorcycle is in "like-new" condition, then the
Company is obligated to repurchase the motorcycle. To date, the Company
has experienced only de minimus repurchases under this agreement
Supplier Concentration
Certain parts are critical in order to keep the Company production
lines running without serious delay. Although management has
alternative suppliers for parts identified as critical, there can be no
assurance that the parts will be available at the time and price
required. Any prolonged delay in receipt of critical parts could have a
material adverse impact on the Company's financial positions and
results of operations.
10. EMPLOYEE BENEFIT PLAN
On January 1, 1999, the Company established a 401(k) Profit Sharing
Plan for all employees of the Company that have completed six months of
service and are 21 years of age. The Company provides a discretionary
match of the employee contributions. In fiscal 1999, the Company
matched 20% of eligible employee contributions up to 6% of eligible
wages in 1999 with the issuance of Company common stock.
32
<PAGE> 33
11. STOCK OPTIONS AND AWARDS
The Company has adopted the disclosure only provision of Statement of
Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation (SFAS 123) and follows Accounting Principle Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) in accounting
for options issued to employees. During 1999, the Company recognized
$7,266 in compensation costs related to stock option grants.
The Titan Motorcycle Co. of America Stock Option and Incentive Plan
(the "Plan"), provides for the grant of incentive stock options,
non-qualified stock options, stock appreciation rights, restricted
stock, dividend equivalents and performance shares.
A summary of the Company's stock option activity and related information is as
follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
Weighted Weighted
Shares Average Shares Average
Under Option Exercise Price Under Option Exercise
Price
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning balance outstanding 925,000 $2.69 422,000 $2.50
Granted 545,000 $2.78 618,000 $2.91
Exercised -- --
Cancelled 250,000 $3.64 115,000 $3.17
--------- ---------
Ending balance outstanding 1,220,000 $2.71 925,000 $2.69
--------- ---------
Exercisable at end of year 585,773 $2.61 280,667 $2.54
--------- ---------
Shares available for future grants 4,780,000 5,075,000
========= =========
</TABLE>
33
<PAGE> 34
The following table summarizes additional information about the Company's
stock options outstanding as of January 1, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Weighted Average Weighted
Shares Average Remaining Shares Average
Under Exercise Contractual Under Exercise
Option Price Life Option Price
------------------------------------------------------------------------
Range of exercise price:
<S> <C> <C> <C> <C> <C>
$1.50 - $2.00 50,000 $1.80 9.79 years 50,000 $1.80
$2.01 - $2.50 584,000 $2.34 8.11 years 328,190 $2.48
$2.51 - $3.00. 468,000 $2.96 8.36 years 204,283 $3.00
$3.01 - $3.50 15,000 $3.27 9.87 years -- --
$3.51 - $4.00 103,000 $4.00 9.09 years 3,300 $4.00
------------------------------------------------------------------------
1,220,000 $2.71 8.38 years 585,773 $2.61
</TABLE>
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its stock option plan under the fair value based method
of that Statement. The fair value for these options was estimated at
the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions, risk free interest rate of
5.84%, no common dividend, volatility factor of 55%, and an expected
average life of the option of five years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the options.
The pro forma information for 1999 and 1998 follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------
<S> <C> <C>
Net income (loss) $(8,060,282) $237,479
Pro forma compensation expense 381,156 320,098
Pro forma net income (loss) $(8,441,438) $(82,619)
</TABLE>
Had the Company elected to adopt the recognition provisions of SFAS No.
123, net loss and net income per share would have been reduced by $.02
and $.01 for 1999 and 1998, respectively.
34
<PAGE> 35
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair
values of the Company's financial instruments at January 1, 2000. The
fair value of the financial instruments is the amount at which the
instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidated sale.
<TABLE>
<CAPTION>
Carrying Fair
Value Value
------------------------------------------
<S> <C> <C>
Liabilities
Line of credit $9,779,731 $9,779,331
Mortgage note $ 339,232 $ 339,232
Unsecured note payable $2,779,980 $2,448,960
</TABLE>
The interest rate on the line of credit is variable, and therefore, the
carrying value approximates fair value. The fair value of the unsecured
notes payable and mortgage note was calculated using a discounted cash
flow approach. It was assumed that the conversion feature would not be
exercised. The discount rate was 12%.
13. 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:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS FISCAL 99 FISCAL 98
----------------------------------------------------------------------------
Income(loss) before cumulative effect of
change in accounting principle, net
of tax $(8,060,282) 17,092,068 $(0.47) $198,876 16,416,823 $0.01
Income applicable to cumulative
effect of change in accounting
principle -- -- $ -- 38,603 -- $ --
Net income (loss) available to common
shareholders $(8,060,282) 17,092,068 $(0.47) $237,479 -- $0.01
EFFECTS OF DILUTIVE SECURITIES
Common stock options -- -- $ -- -- 306,471 $ -
DILUTED EPS
Net income (loss) available to common
shareholders $(8,060,282) 17,092,068 $(0.47) $237,479 16,723,294 $0.01
</TABLE>
The dilutive effect of stock options is not included in the 1999 calculation of
diluted earnings per share as its inclusion would be anti-dilutive.
35
<PAGE> 36
14. SUBSEQUENT EVENTS
Series B Convertible Preferred Stock
In March 2000, Titan sold to two thousand shares of newly authorized
Series B Convertible Preferred Stock. Gross proceeds for the private
placement transaction totaled $2,000,000 with net proceeds of
approximately $1,800,000.
Series B Convertible Preferred Stock is convertible into a maximum of
3,436,000 shares of the Company's common stock. For the first year
after issuance, the Series B Convertible Preferred Stock is convertible
at a fixed conversion price of $1.75. Thereafter, the conversion price
is adjusted every six months to the lesser of:
- the prior conversion price, or
- the average market price for the ten days prior to the
adjustment date.
Additionally, with the preferred shares, the Company issued warrants
for the purchase of 250,000 shares of the Company's common stock. Titan
also issued warrants for the purchase of an additional 12,500 shares of
common stock to a third party as partial compensation for their
assistance in placing the Series B Convertible Preferred Stock. The
exercise price of these warrants is $2.00 per share, with an expiration
date of March 9, 2005.
Issuance of common stock
Subsequent to is fiscal year ending January 1, 2000, Titan made three
separate private placements to three non-U.S. investors as defined in
Regulation S promulgated by the Securities and Exchange Commission.
Pursuant to these transactions, Titan has agreed to issue 543,480
shares of its restricted common stock for the aggregate sum of
$750,000.
In April 2000, the Company agreed to issue 724,638 shares of restricted
common stock in payment of the required annual installment payment of
all accrued interest and principle due as of January 1, 2000 on notes
payable with a private lender. The total amount of principle and
interest paid with the issuance of the preferred shares totaled
approximately $1,050,000.
36
<PAGE> 37
Amended and Restated Loan and Security Agreement
In April 2000, the Company signed an agreement which extends 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 May 1, 2000. The borrowing base has also been reduced as
defined in the agreement.
Although management anticipates it will be able to obtain a new line of
credit from another financial institution, there can be no assurance
that it will be able to obtain the financing on acceptable terms and
conditions or when necessary.
37
<PAGE> 38
ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES.
Effective December 28, 1998, the registrant dismissed Jones, Jensen & Company
(herein referred to as the "former accountants") as the independent accountants
who are engaged to audit the registrant's financial statements. This decision to
change accountants was not based upon any disagreement with the former
accountants.
The former accountants' report on the financial statements of the registrant for
either of the past two years has not contained an adverse opinion or a
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope, or accounting principles.
During the registrant's two most recent fiscal years, and any subsequent interim
period preceding the dismissal of the former accountants, there have been no
disagreements with the former accountants on any matter of accounting principles
or practices, or financial statement disclosure, which disagreements, if not
resolved to the satisfaction of the former accountants, would have caused them
to make references to the subject matter of the disagreements in connection with
their report.
Further, during the registrant's two most recent fiscal years, and any
subsequent interim period preceding the dismissal of the former accountants, the
former accountants have not advised the registrant (a) that the internal
controls necessary for the registrant to develop reliable financial statements
do not exist; (b) that information has come to the accountants' attention that
has led them to no longer be able to rely on management's representations, or
that has made them unwilling to be associated with the financial statements
prepared by management; (c) or the need to expand significantly the scope of
their audit; (d) that information has come to the former accountants' attention
that, if further investigated, may materially impact the fairness or reliability
of either a previously issued audit report or the underlying financial
statements issued or to be issued covering the fiscal period subsequent to the
date of the most recent financial statements covered by an audit report
(including information that may prevent them from rendering an unqualified audit
report on those financial statements), or cause them to be unwilling to rely on
management's representations or be associated with the registrant's financial
statements; or (e) that information has come to the former accountants'
attention that they have concluded materially impacts the fairness or
reliability of either, (i) a previously issued audit report or the underlying
financial statements, or (ii) the financial statements issued or to be issued
covering the fiscal periods subsequent to the date of the most recent financial
statements covered by an audit report (including information that, unless
resolved to the former accountants' satisfaction, would prevent them from
rendering an unqualified audit report on those financial statements).
The registrant engaged as its new independent accountants, the firm of
PricewaterhouseCoopers LLP. The effective date of the engagement of
PricewaterhouseCoopers LLP was December 22, 1998.
38
<PAGE> 39
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Each director and executive officer of Titan had a single failure to file a Form
4 report in fiscal year 1999, which is defined as a known failure to file. The
change in stock ownership necessitating the Form 4 filings occurred as a
consequence of the grant of common stock options in October, 1999. In December,
1999, an individual director acquired 1,200 shares of Titan common stock in a
market transaction and failed to file a Form 4 report regarding the transaction.
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS HELD PERIOD OF SERVICE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Francis S. Keery 57 Chairman of the Board and CEO Since December 1994
- -------------------------------------------------------------------------------------------------------
Patrick Keery 31 President and Director Since December 1994
- -------------------------------------------------------------------------------------------------------
Barbara S. Keery 56 Vice President, Secretary and Since December 1994
Director
- -------------------------------------------------------------------------------------------------------
Harry H. Birkenruth 67 Director Since August 1998
- -------------------------------------------------------------------------------------------------------
H.B. Tony Turner 62 Director Since August 1998
- -------------------------------------------------------------------------------------------------------
Robert P. Lobban 45 Chief Financial Officer Since November 1997
- -------------------------------------------------------------------------------------------------------
</TABLE>
The Board of Directors of the Company held four meetings in fiscal year 1999 and
one meeting to date in fiscal year 2000. All directors were present at these
meetings.
Each of the members of the Board of Directors of the Company serve for a one
year term, or until their successors are elected. Mr. Birkenruth and Mr. Turner
have accepted appointments to serve as the only members of the audit and
compensation committees of Titan's Board of Directors. The standing audit and
compensation committees were established in the latter half of the fiscal year
1998, and held no formal meetings in that year. These committees have met twice
each in fiscal year 1999. The compensation committee has been charged with the
responsibility of evaluating and establishing compensation for the management of
the Company. The audit committee has been charged with the responsibility of
communicating with the auditors of the Company, and evaluating the accounting
controls, functions and systems of the Company. The audit committee also
evaluated the corporate opportunities referred to below in the Related
Transactions section of this Proxy Statement.
None of the directors, officers or 5% owners of the stock of the Company is
involved in any significant legal proceedings adverse to the Company.
39
<PAGE> 40
THE KEY MEMBERS OF TITAN'S MANAGEMENT TEAM ARE INTRODUCED BELOW.
FRANK (FRANCIS S.) KEERY - CHAIRMAN AND CEO
Frank Keery, age 57, currently resides with his wife, Barbara Keery, in Phoenix,
Arizona.
Mr. Frank Keery received a B.S. degree in Electrical Engineering from the
University of Detroit in 1966 and an MBA degree from Western New England
University in 1969.
Subsequent to completion of his formal education, Mr. Frank Keery has held
various management and administrative positions. For 17 years Mr. Keery worked
with Rogers Corporation, an AMEX listed corporation, involved in the manufacture
and marketing of specialty materials, components and systems to the automotive
and electronics markets internationally. In this capacity he served variously as
an executive in charge of new division startups, manufacturing management,
operation "turnarounds", and international sales from approximately 1969 to
1986. Most of these assignments carried full profit and loss responsibilities of
independent units.
From 1986 to 1994, Mr. Frank Keery was primarily employed in multiple positions
as an outside and in-house business consultant. In 1989 to 1991 he was the CEO
for Swanson Manufacturing, Inc.
For the three-year period ending in August 1994, Frank Keery was CEO of the
Company Store, a privately held mail order company with annual sales of
approximately Eighty Million Dollars ($80,000,000).
From August 1994 to the present, Mr. Keery has been chairman of Paragon Custom
Cycles, which later became Titan Motorcycle of America. In this capacity he has
used his management and marketing experience as the chairman of the board and
CEO.
PATRICK KEERY - PRESIDENT/DIRECTOR
Patrick Keery, age 31, resides in Scottsdale, Arizona. He is the son of Frank
and Barbara Keery, who also serve as directors of the Company.
Mr. Keery has been President of Titan since inception, and owned and operated
its predecessor entity, Paragon Custom Cycles. Mr. Patrick Keery brings unique
skills in the assembly, design and engineering of custom built motorcycles.
Mr. Patrick Keery is a 1992 graduate of Arizona State University where he
obtained a B.S. degree in finance.
Since 1993, Mr. Keery operated and was the owner and manager of Paragon Custom
Cycles doing custom design, assembly and rebuilding of essentially large
displacement motorcycles until he became the President of the reorganized
Company in December of 1995.
40
<PAGE> 41
During the period of 1992 to 1993, Mr. Patrick Keery worked as a financial
analyst for the George S. May International Co., a consulting firm specializing
in providing services to small to medium capital companies.
Mr. Keery is heavily involved in developing the Company's dealer network and
overseeing the sales and marketing efforts. He continues to play a lead role in
motorcycle styling and product development.
BARBARA KEERY - VICE PRESIDENT/SECRETARY/DIRECTOR
Barbara Keery, age 57, currently resides with her husband, Frank Keery, in
Phoenix, Arizona.
Barbara S. Keery received her Masters Degree in Business Education from the
University of Connecticut in 1970 and her Bachelors Degree in Business Education
from the State University of New York at Albany. From 1964 through 1969 she
taught high school administration business courses in South Windsor, Connecticut
and Oak Park, Michigan. As a licensed real estate agent, she served on the
chairman's board of Russ Lyon Realty and was a member of the Scottsdale Million
Dollar Club in 1987 and 1988.
From its inception in 1996, Mrs. Keery has served as the corporate secretary and
Vice-President for the Company. In 1997, a new product line was created for
exclusive Titan clothing and accessories which is administered by Mrs. Keery.
HARRY H. BIRKENRUTH - DIRECTOR
Harry H. Birkenruth, age 68, resides with his wife in Storrs, Connecticut.
Mr. Birkenruth graduated with high honors from the City College of New York in
1953. In 1957 he graduated with distinction from the Harvard Graduate School of
Business Administration. In 1960 Mr. Birkenruth joined Rogers Corporation and
became its Chief Financial Officer in 1967 and served as its Senior Vice
President Polymer Products in 1986. Rogers Corporation is engaged in the sale of
materials and components to the electronics and automotive industries with its
principal place of business in Rogers, Connecticut.
Beginning in 1990, Mr. Birkenruth served as Executive Vice President of Rogers
Corporation and in April 1992 became its President and Chief Executive Officer
until March 31, 1997, when he became Chairman of the Board of Directors of the
company. On June 30, 1998, Mr. Birkenruth retired as Chairman of Rogers
Corporation and continues to serve as a director and consultant to the company.
For the past two years, Mr. Birkenruth has also served as the Vice Chairman of
the Board of Directors of Instrument Manufacturing Company, a company
specializing in electrical cable diagnostic instruments.
41
<PAGE> 42
Mr. Birkenruth has previously served as a member of the Executive Committee and
Board of Directors of the Connecticut Business and Industry Association; a
member of the Board of Overseers of the University of Connecticut's School of
Business; as a Trustee of the Connecticut Policy and Economic Counsel; and has
served several terms as a member of the Board of Trustees and as an incorporator
of the Windham Community Memorial Hospital.
H. B. TONY TURNER - DIRECTOR
Tony Turner, age 63, resides in Paradise Valley, Arizona.
Mr. Turner graduated in 1958 with a Bachelors degree from Duke University. In
1962 he graduated from the Harvard Graduate School of Business Administration.
Subsequent to his graduation from graduate school, Mr. Turner has engaged in a
broad variety of work experiences including as Chairman, President and CEO of
Ardshield, Inc., a leveraged buy-out and investment banking firm (1980-1992);
Executive Vice President and Director of Investment Banking for Shearson Haden
Stone (1978-1980); Vice President in the leveraged buy-out department of
Oppenheimer & Co. (1976-1978); Vice President Finance and Chief Administrative
Officer of N-REN Corp., a privately held fertilizer company; Assistant Secretary
for Administration of the U.S. Department of Commerce (1973-1975); First Vice
President and Director of Mitchum, Jones & Templeton, a regional investment
banking company (1967-1973); Treasurer and Director of Corporate Planning of
Star-Kist Foods, Inc., a subsidiary of H.J. Heinz (1964-1967); and Controller of
a financial corporation of Arizona where he served as the Chief Accounting
Officer of a financial holding company.
ROBERT P. LOBBAN - CHIEF FINANCIAL OFFICER
Mr. Robert P. Lobban, age 45, currently resides in Gilbert, Arizona with his
wife Susan.
Mr. Lobban holds a Masters of Business Administration Degree (M.B.A.) from
Harvard Graduate School of Business which he obtained in 1981. Mr. Lobban
earlier obtained a B.S. degree in Industrial Engineering from Northeastern
University in 1977. He graduated first in his class and was a Magna Cum Laude
graduate.
During the period of his formal education, Mr. Lobban obtained considerable
practical experience in working in full-time positions as an engineer, analyst
and supervisor with such companies as Digital Equipment Corporation, Texas
Instruments, New England Medical Center Hospitals and the Phillips Manufacturing
Company. From 1981 through 1982, he worked as a Controller with the Fiberloys
Division of the Rogers Corporation. From 1982 to 1984 he was the Controller for
the Flexible Interconnections Division of Rogers Corporation in Chandler,
Arizona and was promoted to Administrative Manager with that division from 1984
through 1987. From 1987 through 1988 he worked for Pacific Biosystems, Inc., a
start-up company involved in the medical equipment industry as its Vice
President and Chief Financial Officer.
42
<PAGE> 43
In 1988, he joined Gemini Consulting as a Consultant and was promoted through
several positions to the level of Principal. In these positions, Mr. Lobban was
responsible for leading large teams in multi-million dollar projects to improve
the financial performance of over 30 companies, most in the Fortune 500. Gemini
Consulting of Morristown, New Jersey is an international business consulting
firm. In 1995, he joined the George Group of Dallas, Texas as a Director and
then Vice-President, where he was responsible for managing multiple client
engagements in turnaround/major improvement situations.
During 1997 he became associated full-time with the Company and provides
valuable service as its Chief Financial Officer supervising general accounting,
finance, investor relations, information systems, and human resources as well as
its procurement and materials management functions. He is also charged with
leading the Company's cost reduction efforts.
43
<PAGE> 44
ITEM 10. EXECUTIVE COMPENSATION.
The table set forth below contains information about the remuneration received
and accrued during the last three fiscal years from the Company and its
subsidiaries by the CEO of the Company. None of the employees of the Company
have received salary and bonuses of $100,000 or more in any calendar year.
<TABLE>
<CAPTION>
Name and Year Salary ($) Bonus ($) Other Securities
Principal Annual Underlying
Position Compensation Options or
($) SARs (#)
<S> <C> <C> <C> <C> <C>
Frank Keery 1999 92,158 -0- 4,850 50,000
Chairman/CEO 1998 75,577 1,442 7,907 75,000
1997 61,154 1,154 6,942 0
</TABLE>
In December 1996, the Board of Directors of the Company adopted the Titan
Motorcycle Co. of America Stock Option and Incentive Plan (the "Plan"). Under
the Plan, Incentive Stock Options ("ISOs"), Non-qualified Stock Options, Stock
Appreciation Rights ("SARs"), Restricted Stock, Dividend Equivalents and
Performance Shares may be awarded to key employees of Titan Motorcycle Co. of
America and its subsidiaries.
A committee consisting of at least two Board members is authorized to administer
the Plan and is authorized to select from among eligible employees those persons
who will receive awards, to select the appropriate form of awards and to
determine the terms and conditions of such awards. After taking into
consideration the March 1997 two-for-one forward split of the stock of the
Company, the aggregate number of shares of stock subject to awards under the
Plan may not exceed 6,000,000.
The committee may make awards of ISOs, Non-qualified Stock Options, SARs,
Restricted Stock, Dividend Equivalents and Performance Shares, or any
combination of the foregoing, to officers and other key employees of the Company
and its subsidiaries. For purposes of the Plan, the "key employees" are those
employees who, in the opinion of the Committee, are mainly responsible for the
continued growth, development and financial success of the Company. The
committee is not required to make awards to every individual who is an officer
or key employee, but it may not make any award to any individual who is not an
officer or key employee.
An ISO is a stock option that satisfies certain technical requirements specified
in Section 422 of the Internal Revenue Code (the "Code"). Under the Code, ISOs
may only be granted to employees. In order for an option to qualify as an ISO,
the price specified in the option must equal the fair market value of the stock
at the date of the grant, and the option must lapse no later than 10 years from
the date of the grant. As a general rule, the stock subject to ISOs which are
44
<PAGE> 45
first exercisable by an employee in any calendar year may not have a value of
more than $100,000 as of the date of grant. Certain other requirements must also
be met.
A Non-qualified Stock Option is any stock option other than an ISO. These
options are referred to as "non-qualified" because they do not meet the
requirements of, and are not eligible for the favorable tax treatment provided
by Section 422 of the Code. Subject to applicable federal and state securities
laws, non-qualified options can be subject to such terms and conditions as the
committee determines in its discretion. Thus, for example, a Non-qualified Stock
Option could be granted which has an exercise price which is less than the
stock's fair market value on the date of grant.
A Stock Appreciation Right ("SAR") is the right granted to an employee to
receive the appreciation in the value of a share of Company stock over a certain
period of time. Under the Plan, the Company may pay that amount in cash or in
Company stock or in a combination of both. SARs are often issued in conjunction
with a grant of stock options to give the employee the cash necessary to
exercise the option and/or pay the tax attributable to the exercise of the
option (in the case of a Non-qualified Stock Option). Although SARs can be
exercised independently of an option, in such cases, the underlying option
lapses to the extent the SARs are exercised.
The Plan also authorizes the committee to award Restricted Stock to employees.
Under the Restricted Stock feature of the Plan, the employee is granted a
specified number of shares of the Company's stock. However, his ownership with
respect to such stock is subject to certain restrictions, and if the employee
violates any of the restrictions during the period specified by the Committee,
he forfeits his stock. The committee may, in its discretion, impose any
restrictions on an employee's Restricted Stock Award. It may not, however,
require the employee to make any payment for the Restricted Stock.
The Plan authorizes the committee to grant dividend equivalents in connection
with options. Dividend equivalents are rights to receive additional shares of
Company stock at the time of exercise of the option to which such dividend
equivalents apply. Dividend equivalents are always issued in connection with an
option, however, they can be issued at the time the option is granted or after
the option is granted.
Under the Plan, the committee may grant performance share units to an employee
which are to be credited to a performance share account maintained for the
employee. Each performance share unit is deemed to be the equivalent of one
share of Company stock. An award of performance shares does not entitle an
employee to any ownership, dividend, voting, or other rights of a shareholder
until distribution is made in the form of shares of stock. No employee may
receive as performance shares units more than 30 percent of the aggregate number
of shares that can be awarded under the Plan.
As of March 31, 2000, the Company has granted ISOs and Non-qualified Stock
Options for an aggregate of 1,285,000 shares of common stock. No grants have
been made of any of the other categories of awards available under the Plan.
45
<PAGE> 46
Stock options awarded in fiscal year 1999 to Directors and Officers under the
Plan of the Company are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
NAME NUMBER OF DATE AWARDED % OF TOTAL EXERCISE EXPIRATION DATE
SECURITIES OPTIONS/SARS OR BASE
UNDERLYING GRANTED TO PRICE
OPTIONS/SARS EMPLOYEES IN FISCAL ($/SH)
GRANTED (#) YEAR
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Frank Keery 50,000 10/15/99 9.3% $2.125 10/15/09
- ------------------------------------------------------------------------------------------------------------------
Patrick Keery 30,000 10/15/99 5.6% $2.125 10/15/09
- ------------------------------------------------------------------------------------------------------------------
Barbara Keery 15,000 10/15/99 2.8% $2.125 10/15/09
- ------------------------------------------------------------------------------------------------------------------
Robert Lobban 30,000 10/15/99 5.6% $2.125 10/15/09
- ------------------------------------------------------------------------------------------------------------------
Harry H. Birkenruth 25,000 10/13/99 4.6% $1.80 10/13/09
10,000 10/15/99 1.9% $2.125 10/15/09
- ------------------------------------------------------------------------------------------------------------------
H.B. Tony Turner 25,000 10/13/99 4.6% $1.80 10/13/09
10,000 10/15/99 1.9% $2.125 10/15/09
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE> 47
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of March 31, 2000, the Company had 17,181,187 shares of common stock
outstanding. The chart below sets forth the ownership, or claimed ownership, of
certain individuals and entities. This chart discloses those persons known by
the Board of Directors to have, or to claim to have, beneficial ownership of
more than 5% of the outstanding shares of the common stock of the Company as of
March 15, 2000; of all directors and executive officers of the Company; and of
the directors and officers of the Company as a group.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
NAME AND ADDRESS OF BENEFICIAL NUMBER OF SHARES PERCENT OF CLASS
OWNER BENEFICIALLY OWNED
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Francis S. Keery
8973 N. 45th Street 3,374,772(2) 21.11%
Phoenix, AZ 85028
- -----------------------------------------------------------------------------------------
Patrick Keery
8973 N. 45th Street 2,978,549(3) 17.19%
Phoenix, AZ 85028
- -----------------------------------------------------------------------------------------
Barbara S. Keery
12460 N. 116th Street 3,329,756(4) 19.36%
Scottsdale, AZ 85259
- -----------------------------------------------------------------------------------------
Harry H. Birkenruth
81 Ball Hill Road 35,000(5) *(7)
Storrs, CT 06268
- -----------------------------------------------------------------------------------------
H.B. Tony Turner
6116 East Yucca Road 36,200(5) *(7)
Paradise Valley, AZ 85253
- -----------------------------------------------------------------------------------------
</TABLE>
- -----------------------------
(2) Includes 225,000 shares underlying unexercised employee options.
(3) Includes 150,000 shares underlying unexercised employee options.
(4) Includes 16,650 shares underlying unexercised employee options.
(5) Includes 35,000 shares underlying unexercised options.
47
<PAGE> 48
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
NAME AND ADDRESS OF BENEFICIAL NUMBER OF SHARES PERCENT OF CLASS
OWNER BENEFICIALLY OWNED
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Robert P. Lobban
1326 E. Treasure Cove Dr. 37,000(6) *(7)
Gilbert, AZ 85234
- -----------------------------------------------------------------------------------------
Officers and Directors 10,090,077 57.09%
as a group (6 members)
- -----------------------------------------------------------------------------------------
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Prior to the formation of Titan Motorcycle Co. of America, Patrick Keery and
Frank Keery had been conducting the business of after-market customizations of
Harley Davidson(TM) motorcycles in the Phoenix area. This dealership is owned by
the President and the CEO of the Company, and an independent third party. The
dealership sells the products of the Company under the standard dealership
contract of the Company without any special concessions or contract provisions.
In early 1998, the CEO and the President of the Company joined with a
third-party investor to purchase the Los Angeles, California and Las Vegas,
Nevada dealerships of the Company. The third-party investor, is a principal of
an investment banking firm that has assisted the Company in capital raising
functions and has an outstanding unsecured loan with Titan of approximately $2.8
million. These three individuals have formed a limited liability company known
as BPF, LLC. The Los Angeles and Las Vegas dealerships have required significant
capital infusions, at a time when the Company was unable to invest in any of its
dealerships.
During the second quarter of 1999, BPF, LLC purchased American Biker Houston of
Houston, Texas. This purchase was made after independent directors of Titan
voted to forego such purchase on behalf of the Company. American Biker was a
Titan retail dealer and continues as a dealer for Titan under the new name of
Titan of Houston.
These dealerships are continuing to sell the products of the Company (as well as
other non-Titan products) under the standard dealership contract of the Company
without any special concessions or contract provisions.
In its fiscal year 1999 ending January 1, 2000, the referenced Phoenix Titan
dealership accounted for approximately 42% of total affiliated dealership sales.
During the same period, the three dealerships now owned by BPF, LLC accounted
for approximately 58% of the total.
- --------------------------------------------------------------------------------
(6) Includes 30,000 shares underlying unexercised employee options.
(7) Represents less than one percent.
48
<PAGE> 49
<TABLE>
<CAPTION>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
Page
<S> <C> <C>
Audited year end financial statements for the years
ended January 1, 2000 and January 2, 1999...............................................
3.1 Restated Articles of Incorporation of Titan (incorporated by
reference from Form 10-SB (Film No. 98648988) filed by Titan
with the Commission on June 16, 1998).
3.2 By-Laws of Titan as amended and restated on September 10, 1999
(incorporated by reference to Exhibit 3 to the Company's
Current Report on Form 8-K filed October 1, 1999).
4.1 Specimen of Common Stock Certificate (incorporated by
reference from Form 10-SB (Film No. 98648988) filed by Titan
with the Commission on June 16, 1998).
4.2 Certificate of Designations of the Series A Convertible
Preferred Stock (incorporated by reference to Exhibit 4.1 to
the Company's Current Report on Form 8-K filed October 1,
1999).
4.3 Warrant issued to Advantage Fund II Ltd., dated September 17,
1999 (incorporated by reference to Exhibit 4.2 to the
Company's Current Report on Form 8-K filed October 1, 1999).
4.4 Warrant issued to Koch Investment Group Limited, dated
September 17, 1999 (incorporated by reference to Exhibit 4.3
to the Company's Current Report on Form 8-K filed October 1,
1999).
4.5 Warrant issued to Reedland Capital Partners, dated September
17, 1999 (incorporated by reference to Exhibit 4.4 to the
Company's Form S-3 Registration Statement filed on October 15,
1999).
4.6 Warrant issued to Mr. Richard Cohn, dated September 17, 1999
(incorporated by reference to Exhibit 4.5 to the Company's
Form S-3 Registration Statement filed on October 15, 1999).
4.7 Warrant issued to Intellect Capital Corp., dated September 17,
1999 (incorporated by reference to Exhibit 4.6 to the
Company's Form S-3 Registration Statement filed on October 15,
1999).
</TABLE>
49
<PAGE> 50
<TABLE>
<S> <C> <C>
4.8 Registration Rights Agreement with Advantage Fund II Ltd.,
dated September 15, 1999 (incorporated by reference to Exhibit
4.5 to the Company's Current Report on Form 8-K filed October
1, 1999).
4.9 Registration Rights Agreement with Koch Investment Group
Limited, dated September 15, 1999 (incorporated by reference
to Exhibit 4.6 to the Company's Current Report on Form 8-K
filed October 1, 1999).
4.10 Certificate of Designations of the Series B Convertible
Preferred Stock (incorporated by reference to Exhibit 4.1 to
the Company's Current Report on Form 8-K filed March 24,
2000).
4.11 Warrant issued to Advantage Fund II Ltd., dated March 9, 2000
(incorporated by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-K filed March 24, 2000).
4.12 Warrant issued to Koch Investment Group Limited, dated March
9, 2000 (incorporated by reference to Exhibit 4.3 to the
Company's Current Report on Form 8-K filed March 24, 2000).
4.13 Warrant issued to Reedland Capital Partners, dated March 9,
2000 (incorporated by reference to Exhibit 4.4 to the
Company's Form S-3 Registration Statement filed on March 24,
2000).
4.14 Registration Rights Agreement with Advantage Fund II Ltd.,
dated March 7, 2000 (incorporated by reference to Exhibit 4.5
to the Company's Current Report on Form 8-K filed March 24,
2000).
4.15 Registration Rights Agreement with Koch Investment Group
Limited, dated March 7, 2000 (incorporated by reference to
Exhibit 4.6 to the Company's Current Report on Form 8-K filed
March 24, 2000).
10.1 Subscription Agreement with Advantage Fund II Ltd., dated as
of September 15, 1999 (incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K filed October
1, 1999).
10.2 Subscription Agreement with Koch Investment Group Limited,
dated as of September 15, 1999 (incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K filed
October 1, 1999).
10.3 Modification and Partial Payment Agreement with Oxford
International Management dated April 13, 2000 ......................................
</TABLE>
50
<PAGE> 51
<TABLE>
<S> <C> <C>
10.4 Subscription Agreement with Advantage Fund II Ltd., dated as
of March 7, 2000 (incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K filed March 24,
2000).
10.5 Subscription Agreement with Koch Investment Group Limited,
dated as of March 7, 2000 (incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K filed
March 24, 2000).
10.6 1997 Stock Option and Incentive Plan of Titan (Incorporated by
reference from Form 10-SB (Film No. 98648988) filed by Titan
with the Commission on June 16, 1998).
11 Statement regarding computation of per share earnings ..............................
16 Letter on change in certifying accountant ..........................................
23 Consent of PricewaterhouseCoopers LLP...............................................
24 Powers of Attorney .................................................................
27 Financial Data Schedule.............................................................
</TABLE>
51
<PAGE> 52
(b) REPORTS ON FORM 8-K
On October 1, 1999, the Company filed its current report on Form 8-K
regarding its Series A Convertible Preferred Stock.
On March 24, 2000, the Company filed its current report on Form 8-K
regarding its Series B Convertible Preferred Stock.
52
<PAGE> 53
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
Titan Motorcycle Company of America
Date: April 17, 2000 By: /s/ Frank S. Kerry
-------------- ------------------
Frank S. Keery
Chief Executive Officer
Date: April 17, 2000 By: /s/ Robert P. Lobban
-------------- -----------------------
Robert P. Lobban
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ Frank S. Keery
______________________________________________ April 17, 2000
Frank S. Keery, Chairman of the Board
/s/ Patrick Keery
______________________________________________ April 17, 2000
Patrick Keery, Director
/s/ Barbara Keery
______________________________________________ April 17, 2000
Barbara Keery, Director
______________________________________________
Harry H. Birkenruth, Director
/s/ Tony Turner
______________________________________________ April 17, 2000
H.B. Tony Turner, Director
53
<PAGE> 54
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
Page
<S> <C>
Audited year end financial statements for the years
ended January 1, 2000 and January 2, 1999.
3.1 Restated Articles of Incorporation of Titan (incorporated by
reference from Form 10-SB (Film No. 98648988) filed by Titan
with the Commission on June 16, 1998).
3.2 By-Laws of Titan as amended and restated on September 10, 1999
(incorporated by reference to Exhibit 3 to the Company's
Current Report on Form 8-K filed October 1, 1999).
4.1 Specimen of Common Stock Certificate (incorporated by
reference from Form 10-SB (Film No. 98648988) filed by Titan
with the Commission on June 16, 1998).
4.2 Certificate of Designations of the Series A Convertible
Preferred Stock (incorporated by reference to Exhibit 4.1 to
the Company's Current Report on Form 8-K filed October 1,
1999).
4.3 Warrant issued to Advantage Fund II Ltd., dated September 17,
1999 (incorporated by reference to Exhibit 4.2 to the
Company's Current Report on Form 8-K filed October 1, 1999).
4.4 Warrant issued to Koch Investment Group Limited, dated
September 17, 1999 (incorporated by reference to Exhibit 4.3
to the Company's Current Report on Form 8-K filed October 1,
1999).
4.5 Warrant issued to Reedland Capital Partners, dated September
17, 1999 (incorporated by reference to Exhibit 4.4 to the
Company's Form S-3 Registration Statement filed on October 15,
1999).
4.6 Warrant issued to Mr. Richard Cohn, dated September 17, 1999
(incorporated by reference to Exhibit 4.5 to the Company's
Form S-3 Registration Statement filed on October 15, 1999).
4.7 Warrant issued to Intellect Capital Corp., dated September 17,
1999 (incorporated by reference to Exhibit 4.6 to the
Company's Form S-3 Registration Statement filed on October 15,
1999).
</TABLE>
49
<PAGE> 55
4.8 Registration Rights Agreement with Advantage Fund II Ltd.,
dated September 15, 1999 (incorporated by reference to Exhibit
4.5 to the Company's Current Report on Form 8-K filed October
1, 1999).
4.9 Registration Rights Agreement with Koch Investment Group
Limited, dated September 15, 1999 (incorporated by reference
to Exhibit 4.6 to the Company's Current Report on Form 8-K
filed October 1, 1999).
4.10 Certificate of Designations of the Series B Convertible
Preferred Stock (incorporated by reference to Exhibit 4.1 to
the Company's Current Report on Form 8-K filed March 24,
2000).
4.11 Warrant issued to Advantage Fund II Ltd., dated March 9, 2000
(incorporated by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-K filed March 24, 2000).
4.12 Warrant issued to Koch Investment Group Limited, dated March
9, 2000 (incorporated by reference to Exhibit 4.3 to the
Company's Current Report on Form 8-K filed March 24, 2000).
4.13 Warrant issued to Reedland Capital Partners, dated March 9,
2000 (incorporated by reference to Exhibit 4.4 to the
Company's Form S-3 Registration Statement filed on March 24,
2000).
4.14 Registration Rights Agreement with Advantage Fund II Ltd.,
dated March 7, 2000 (incorporated by reference to Exhibit 4.5
to the Company's Current Report on Form 8-K filed March 24,
2000).
4.15 Registration Rights Agreement with Koch Investment Group
Limited, dated March 7, 2000 (incorporated by reference to
Exhibit 4.6 to the Company's Current Report on Form 8-K filed
March 24, 2000).
10.1 Subscription Agreement with Advantage Fund II Ltd., dated as
of September 15, 1999 (incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K filed October
1, 1999).
10.2 Subscription Agreement with Koch Investment Group Limited,
dated as of September 15, 1999 (incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K filed
October 1, 1999).
10.3 Modification and Partial Payment Agreement with Oxford
International Management dated April 13, 2000.
50
<PAGE> 56
10.4 Subscription Agreement with Advantage Fund II Ltd., dated as
of March 7, 2000 (incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K filed March 24,
2000).
10.5 Subscription Agreement with Koch Investment Group Limited,
dated as of March 7, 2000 (incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K filed
March 24, 2000).
10.6 1997 Stock Option and Incentive Plan of Titan (Incorporated by
reference from Form 10-SB (Film No. 98648988) filed by Titan
with the Commission on June 16, 1998).
11 Statement regarding computation of per share earnings.....
16 Letter on change in certifying accountant.................
24 Powers of Attorney........................................
27 Financial Data Schedule...................................
51
<PAGE> 1
EXHIBIT 10.1
MODIFICATION AND PARTIAL PAYMENT AGREEMENT
This Agreement is made this 13th day of April, 2000, by and between Titan
Motorcycle Co. of America, a Nevada corporation ("Titan"), and Oxford
International Management ("Oxford").
1. WHEREAS, on or about December 9, 1996, Titan executed a
promissory note (the "Note") payable to Oxford in the
principal amount of $2,000,000 with interest accruing at the
rate of Eight Percent (8%);
2. WHEREAS, the parties to this Agreement are parties to a
December 16, 1997 Modification of Promissory Note Agreement
relating to the Note;
3. WHEREAS, on the first day of January, 2000, the first of three
annual principal payments under the Note fell due in the
amount of $600,000 and an additional $449,591 dollars of
accrued interest was also due on January 1, 2000; and
4. WHEREAS, the parties hereto agree to satisfy the January 1,
2000 principal payment and all interest accrued to such date.
NOW, for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
Titan shall satisfy the January 1, 2000 principal payment and all
interest accrued to January 1, 2000 on the Note, as modified by the
December 16, 1997 Modification Agreement, by issuing to Oxford, a total
of 724,638 shares (the "Shares") of restricted common stock. The Shares
shall be issued pursuant to Regulation S as promulgated by the United
States Securities & Exchange Commission.
Upon the issuance and delivery of the Shares to Oxford, the next
payment due under the Note, as modified, is the January 1, 2001
installment, together with interest accruing thereon. The final
installment is to be paid on January 1, 2002, together with interest
accruing thereon.
This Agreement is executed in reliance upon the transaction exemption
afforded by Regulation S as promulgated by the United States Securities
and Exchange Commission ("SEC"). Oxford warrants and represents as
follows:
<PAGE> 2
(a) Oxford is not a U.S. person as that term is defined under
Regulation S.
(b) At the time this partial payment agreement was first agreed to, the
Oxford representative negotiating this transaction was outside the
United States and is outside of the United States as of the date of the
execution and delivery of this Agreement.
(c) Oxford is purchasing the Shares for its own account and not on
behalf of any U.S. person; the sale has not been pre-arranged with a
purchaser in the United States; and all offers and resales of the
securities shall only be made in compliance with the provisions of
Regulation S.
(d) This transaction is made in compliance with all of the laws of the
Country of the principal place of business of Oxford, and of any
political subdivision thereof, and the customary practices and
documentation of such jurisdictions.
(e) Oxford is not an entity organized under foreign law by a U.S.
person, as defined in Regulation S Rule 902(o), for the purpose of
investing in unregistered securities, unless Oxford was organized and
is owned by accredited investors, as defined in Regulation D, Rule
501(a), who are not natural persons, estates or trusts.
(f) This transaction is not a purchase pursuant to a fiduciary account
where a U.S. person, as defined in Regulation S Rule 902(o), has
discretion to make investment decisions for the account.
(g) All offers and sales of the Shares by Oxford prior to the
expiration of a one year distribution compliance period shall only be
made pursuant to registration of securities under the Securities Act of
1933 (the "1933 Act"), or pursuant to an exemption from registration.
All offers and sales after the expiration of the distribution
compliance period shall be made only pursuant to such a registration or
to an exemption from registration. The distribution compliance period
referred to herein shall begin on the date of this Agreement.
(h) All offering documents received by Oxford include statements to the
effect that (a) the Shares have not been registered under the 1933 Act
and may not be offered or sold in the United States or to U.S. persons
unless the Shares are registered under the Securities Act of 1933 or an
exemption from the registration requirements is available; and (b)
hedging transactions involving the shares may not be conducted unless
in compliance with the 1933 Act, and Rule 144 promulgated thereunder.
<PAGE> 3
(i) Oxford acknowledges that the purchase of the Shares involves a high
degree of risk and further acknowledges that it can bear the economic
risk of the purchase of the shares, including the total loss of its
investment.
(j) Oxford understands that the Shares are being offered and sold to it
in reliance on specific exemptions from the registration requirements
of United States Federal and State securities laws and that Titan is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of Oxford set forth
herein in order to determine the applicability of such exemptions and
the suitability of Oxford to acquire the shares.
The Shares, when issued, will bear a restrictive legend and the
Company's transfer agent will be instructed that resales of the Shares
into the United States may only be made by registration or appropriate
exemption from registration after a one year distribution compliance
period beginning on the date of this Agreement.
(a) The principal exemption from registration that may be available for
the resale of the Shares into the markets of the United States is Rule
144, promulgated by the SEC under the Securities Act of 1933. Rule 144
provides, among other things, that a person holding restricted
securities for a period of one year may sell every three months, in
brokers' transactions, an amount equal to one percent of the Company's
outstanding shares of common stock, or the average weekly reported
volume of trading during the four calendar weeks preceding the filing
of a notice of proposed sale, whichever is greater. Rule 144 also
provides that, after holding such securities for a period of two years,
a nonaffiliate of the Company may resell shares of stock freely,
subject to no limitations or conditions.
b) Any resales of the Shares are to be made in compliance with Rule 905
of Regulation S. Rule 905 provides that, unless the Shares are sold
pursuant to paragraph 4(a) above or other applicable exemption, Shares
acquired from the issuer, a distributor, or any of their respective
affiliates in a transaction subject to the conditions of Rule 901 or
Rule 903 are deemed to be "restricted securities" as defined in Rule
144. Resales of any such restricted securities by the offshore
purchaser must be made in accordance with Rule 144, the registration
requirements of the 1933 Act or an exemption therefrom. Any "restricted
securities," as defined in Rule 144 will continue to be deemed to be
restricted securities, notwithstanding that they were acquired in a
resale transaction made pursuant to Rule 901 or Rule 904 of Regulation
S.
<PAGE> 4
(c) Oxford agrees that the Shares will only be sold in accordance
with the 1933 Act or Regulation S, and will require any
purchaser of the Shares from Oxford to enter into a similar
agreement. Oxford acknowledges that Titan and its transfer
agent will refuse to register any transfer of the Shares
unless made in accordance with the registration or exemptive
provisions of the 1933 Act, or in accordance with Regulation
S. Each distributor selling securities to a distributor, a
dealer (as defined in section 2(a)(12) of the 1933 Act), or a
person receiving a selling concession, fee or other
remuneration, prior to a one-year distribution compliance
period, shall send a confirmation or other notice to the
purchaser stating that the purchaser is subject to the same
restrictions on offers and sales that apply to a distributor.
TITAN MOTORCYCLE CO. OF AMERICA
By: /s/
------------------------------------
Its: CEO
OXFORD INTERNATIONAL MANAGEMENT
By: /s/ Felisa Bajuilat
------------------------------------
Its: Secretary, Director
<PAGE> 1
EXHIBIT 11
Statement regarding Computation of Per Share Earnings
<TABLE>
<S> <C>
Common Stock outstanding as of January 2, 1999 16,437,333
Weighted average number of shares issued 654,735
----------
Weighted average number of shares
outstanding as of January 1, 2000 17,092,068
==========
</TABLE>
<PAGE> 1
Exhibit 16
[JONES, JENSEN & COMPANY LLC LETTERHEAD]
April 17, 2000
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Ladies and Gentleman:
We were previously the independent accountants for Titan Motorcycle Co. of
America. On December 28, 1998, we were dismissed as the independent accountants
of Titan Motorcycle Co. of America.
We have read Titan Motorcycle Co. of America's statements included under Item 4
of its 2000 Form 10-KSB dated April 17, 2000, and we agree with such statements.
Very truly yours,
/s/ Jones, Jensen & Company
Jones, Jensen & Company
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 of Titan Motorcycle Co. of America of our report dated
April 14, 2000 relating to the financial statements and financial statement
schedules, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
/s/ PricewaterhouseCoopers LLP
- ------------------------------
Phoenix, Arizona
April 14, 2000
2
<PAGE> 1
EXHIBIT 24
Power of Attorney of Director and/or Officer
The undersigned director of Titan Motorcycle Co. of America, does hereby make,
constitute and appoint Frank S. Keery and Robert P. Lobban, and either of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director of said Corporation to an Annual
Report on Form 10-K or other applicable form, and all amendments thereto, to be
filed by said Corporation with the Securities and Exchange Commission,
Washington, D.C., under the Securities Act of 1934, as amended, with all
exhibits thereto and other supporting documents, granting unto said
attorneys-in-fact, and either of them, full power and authority to do and
perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand this
___ day of March, 2000.
/s/ Tony Turner
---------------------------------
H.B. Tony Turner
Power of Attorney of Director and/or Officer
The undersigned director of Titan Motorcycle Co. of America, does hereby make,
constitute and appoint Frank S. Keery and Robert P. Lobban, and either of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director of said Corporation to an Annual
Report on Form 10-K or other applicable form, and all amendments thereto, to be
filed by said Corporation with the Securities and Exchange Commission,
Washington, D.C., under the Securities Act of 1934, as amended, with all
exhibits thereto and other supporting documents, granting unto said
attorneys-in-fact, and either of them, full power and authority to do and
perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand
this ___ day of March, 2000.
-------------------------------
Harry H. Birkenruth
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U S DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> JAN-01-2000
<EXCHANGE-RATE> 1
<CASH> 33,700
<SECURITIES> 0
<RECEIVABLES> 2,474,563
<ALLOWANCES> 0
<INVENTORY> 17,451,996
<CURRENT-ASSETS> 20,064,742
<PP&E> 2,643,480
<DEPRECIATION> (629,575)
<TOTAL-ASSETS> 22,181,445
<CURRENT-LIABILITIES> 16,763,366
<BONDS> 2,647,169
3,536,739
0
<COMMON> 17,162
<OTHER-SE> (782,991)
<TOTAL-LIABILITY-AND-EQUITY> (765,829)
<SALES> 26,939,692
<TOTAL-REVENUES> 27,913,025
<CGS> 27,278,623
<TOTAL-COSTS> 27,278,623
<OTHER-EXPENSES> 6,885,039
<LOSS-PROVISION> 247,000
<INTEREST-EXPENSE> 933,526
<INCOME-PRETAX> (8,060,282)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,060,282)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,060,282
<EPS-BASIC> (0.47)
<EPS-DILUTED> (0.47)
</TABLE>
