<PAGE> 1
FORM 10Q
Securities and Exchange Commission
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 000-24477
TITAN MOTORCYCLE COMPANY OF AMERICA
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 86-0776876
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2222 West Peoria Avenue, Phoenix, Arizona 85029
------------------------------------------ ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 861-6977
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of shares of common stock, par value $.001,
Outstanding as of November 14, 2000: 21,407,579
<PAGE> 2
TITAN MOTORCYCLE CO. OF AMERICA
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2000 and
January 1, 2000
Condensed Consolidated Statements of Operations for the thirty-nine
weeks ended September 30, 2000 and October 2, 1999 and for the
thirteen-weeks ended September 30, 2000 and October 2, 1999
Condensed Consolidated Statements of Cash Flow for the thirty-nine
weeks ended September 30, 2000 and October 2, 1999
Notes to Condensed Consolidated Financial Statements
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PART II. OTHER INFORMATION
ITEM 2. Other Information
ITEM 6. Exhibits and Reports on Form 8-K
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TITAN MOTORCYCLE CO. OF AMERICA
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
September 30, 2000 January 1, 2000
------------------ ---------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash $ 150,866 $ 33,700
Accounts receivable, net 1,588,251 1,228,311
Accounts receivable - related party 425,000 999,252
Inventories, net 8,658,932 17,451,996
Prepaid expenses 87,206 351,482
------------ ------------
Total current assets 10,910,255 20,064,741
Property and equipment, net 1,709,699 2,013,905
Other assets 46,885 17,318
Trademarks 84,346 85,481
------------ ------------
Total assets $ 12,751,185 $ 22,181,445
============ ============
Liabilities, Redeemable Preferred Stock and Stockholders' Deficit
Current liabilities:
Bank Overdraft $ -- $ 305,538
Accounts payable 3,933,467 3,891,287
Accrued expenses 996,060 2,158,985
Repurchase liability 765,407
Note Payable - Line of Credit 4,094,164 9,779,731
Current portion of notes payable 941,784 627,825
------------ ------------
Total current liabilities 10,730,882 16,763,366
Notes payable 1,906,428 2,647,169
Subordinated debentures 600,475
------------ ------------
Total liabilities 13,237,785 19,410,535
Redeemable Preferred Stock
Cumulative preferred stock, 1,230 shares outstanding 708,674 3,536,739
Stockholders' deficit
Preferred stock, 10,000,000 shares authorized, 5,799 shares outstanding 4,615,620 --
Common stock, par value $.001; 90,000,000 shares authorized, 19,403,650
shares outstanding 19,404 17,162
Additional paid in capital 12,579,402 9,098,252
Unearned compensation (24,213) (31,475)
Accumulated deficit (18,385,487) (9,849,768)
------------ ------------
Total stockholders' deficit (1,195,274) (765,829)
------------ ------------
Total liabilities and stockholders' deficit $ 12,751,185 $ 22,181,445
============ ============
</TABLE>
The accompanying footnotes are an integral part to these financial statements
<PAGE> 4
TITAN MOTORCYCLE CO. OF AMERICA
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended Thirty-Nine Weeks Ended
September 30, 2000 October 2, 1999
----------------------- -----------------------
<S> <C> <C>
Sales, net $ 23,865,851 $ 21,942,382
Cost of goods sold 24,817,435 19,537,794
------------ ------------
Gross profit (951,584) 2,404,588
Operating expenses:
Selling, general and administrative 5,763,713 3,973,378
Research and development 68,886 229,827
------------ ------------
Total operating expenses 5,832,599 4,203,205
------------ ------------
Income (loss) from operations (6,784,183) (1,798,617)
Other income (expense):
Other expense (115,794) (41,987)
Finance costs (290,031) --
Interest expense (1,345,709) (669,585)
------------ ------------
Total other income (expense) (1,751,534) (711,572)
------------ ------------
Income (loss) before income taxes (8,535,717) (2,510,189)
Income taxes -- 5,172
------------ ------------
Net loss (8,535,717) (2,515,361)
Amortization of beneficial conversion feature (1,047,368) --
Preferred dividends (247,234) --
------------ ------------
Net loss available to common stockholders $ (9,830,319) $ (2,515,361)
============ ============
Loss per common share -- basic and diluted $ (0.54) $ (0.15)
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
TITAN MOTORCYCLE CO. OF AMERICA
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirteen Weeks Ended
September 30, 2000 October 2, 1999
-------------------- --------------------
<S> <C> <C>
Sales, net $ 4,719,430 $ 5,845,472
Cost of goods sold 6,859,375 5,478,383
----------- -----------
Gross profit (2,139,945) 367,089
Operating expenses:
Selling, general and administrative 2,101,159 1,524,290
Research and development -- 116,425
----------- -----------
Total operating expenses 2,101,159 1,640,715
----------- -----------
Income (loss) from operations (4,241,104) (1,273,626)
Other income (expense):
Other expense (119,318) (39,304)
Finance costs (105,031) --
Interest expense (825,556) (245,697)
----------- -----------
Total other income (expense) (1,049,905) (285,001)
----------- -----------
Loss before income taxes (5,291,009) (1,558,627)
Income taxes -- --
----------- -----------
Net income (loss) (5,291,009) (1,558,627)
Preferred dividends (89,761) --
----------- -----------
Net loss available to common stockholders $(5,380,770) $(1,558,627)
=========== ===========
Loss per common share - basic and diluted $ (0.28) $ (0.09)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
TITAN MOTORCYCLE CO. OF AMERICA
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Thirty-nine Weeks Ended Thirty-nine Weeks Ended
September 30, 2000 October 2, 1999
----------------------- -----------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(8,535,717) $(2,515,361)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 308,356 216,044
Stock compensation expense 7,262 7,264
Net change in balance sheet accounts
Accounts receivable 214,312 (902,086)
Inventories 8,303,410 (4,414,700)
Prepaid expenses 264,277 --
Other assets (29,567) (247,176)
Accounts payable 531,834 376,219
Accrued expenses (24,829) 306,596
----------- -----------
Net cash provided by (used in) operating expenses 1,039,338 (7,173,200)
----------- -----------
Cash Flows from Investing Activities:
Purchase of property and equipment (3,018) (1,087,044)
Purchase of trademarks -- (7,487)
----------- -----------
Net cash used in investing activities (3,018) (1,094,531)
----------- -----------
Cash Flows from Financing Activities:
Bank overdraft (305,538) 637,016
Proceeds from issuance of note payable 250,000 --
Issuance of common stock 1,050,000 1,813,257
Issuance of preferred stock 2,490,085 3,536,693
Proceeds from warrants 691,143 --
Issuance of debentures 590,723 --
Net change in line of credit (5,685,567) 2,285,159
Payments on Notes payable -- 1,000,000
----------- -----------
Net cash provided by (used in) financing activities (919,154) 9,272,125
----------- -----------
Net increase in cash 117,166 1,004,394
Cash and cash equivalents at beginning of year 33,700 8,398
----------- -----------
Cash and cash equivalents at end of period $ 150,866 $ 1,012,792
=========== ===========
Supplemental Cash Flow Information:
Cash paid for:
Interest 1,015,232 1,019,364
Non-cash investing and financing activities
Inventory in exchange for payables 83,167 --
Advertising 296,425 --
Legal Fees 110,062 --
Note payable and accrued interest converted
to common stock 1,049,471 --
Conversion of preferred stock to common
stock 284,537 --
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 7
TITAN MOTORCYCLE CO. OF AMERICA
Notes to the Consolidated Financial Statements
September 30, 2000 and October 2, 1999
NOTE 1 - CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed, consolidated financial statements have been prepared
by the Company without audit. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to present fairly
the financial position, results of operations and cash flows at September 30,
2000 and for all periods presented have been recorded.
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission and generally accepted accounting
principles for interim financial information. It is suggested that these
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's year ended January 1,
2000 audited consolidated financial statements. The results of operations for
the period ended September 30, 2000 are not necessarily indicative of the
operating results for the full year.
NOTE 2 - INVENTORY
The composition of inventory as of September 30, 2000 and January 1, 2000 is as
follows:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Raw materials and supplies $ 9,623,040 $ 10,607,330
WIP 80,928 2,461,800
Finished goods 1,694,764 4,382,866
------------ ------------
Total inventories 11,398,732 17,451,996
Inventory reserves (2,739,800) --
------------ ------------
$ 8,658,932 $ 17,451,996
============ ============
</TABLE>
The Company intends to sell approximately $4,000,000 of excess raw materials
inventory outside the normal course of business. As of September 30, 2000
approximately $650,000 has been sold at a loss of approximately $325,000. A
reserve of approximately $1,854,000 has been established at September 30, 2000
to provide for estimated losses on disposal, which is included in cost of goods
sold.
<PAGE> 8
NOTE 3 - EARNINGS PER SHARE
In accordance with the disclosure requirements of Statement of Financial
Accounting Standards No. 128, Earnings Per Share, a reconciliation of the
numerator and denominator of basic and diluted EPS is provided as follows:
<TABLE>
<CAPTION>
Thirty-nine Weeks Ended Thirty-nine Weeks Ended
September 30, 2000 October 2, 1999
------------------------------------------- -----------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net loss $ (8,535,717) 18,307,067 $ (0.47) $ (2,515,361) 17,147,333 $ (0.15)
Amortization of beneficial
conversion feature $ (1,047,368) 18,307,067 $ (0.06) $ -- -- $ --
Preferred dividends $ (247,234) 18,307,067 $ (.01) $ -- -- $ --
Net Income (Loss) available
to common shareholders $ (9,830,319) 18,307,067 $ (0.54) $ (2,515,361) 17,147,333 $ (0.15)
-----------------------------------------------------------------------------------------------
Diluted EPS
Net Income (Loss) available
to common shareholders $ (9,830,319) 18,307,067 $ (0.54) $ (2,515,361) 17,147,333 $ (0.15)
===============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Thirteen-Weeks Ended Thirteen-Weeks Ended
September 30, 2000 October 2, 1999
------------------------------------------ ---------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------------------------------------ ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net loss $(5,291,009) 18,920,448 $(0.28) $(1,558,627) 17,147,333 $(0.09)
Preferred dividends $ (89,761) 18,920,448 $(0.00) $ -- -- $ --
Net Income (Loss) available
to common shareholders $(5,380,770) 18,920,448 $(0.28) $(1,558,627) 17,147,333 $(0.09)
--------------------------------------------------------------------------------------------
Diluted EPS
Net Income (Loss) available
to common shareholders $(5,380,770) 18,920,448 $(0.28) $(1,558,627) 16,652,744 $(0.09)
============================================================================================
</TABLE>
<PAGE> 9
NOTE 4 - GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis of accounting, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
The Company incurred a net loss of ($8,535,717) for the thirty-nine weeks ending
September 30, 2000. For the year ending January 1, 2000 the Company incurred a
net loss ($8,060,282). As of September 30, 2000 and January 1, 2000, the Company
had cash balances of $150,866 and $33,700, respectively, and an accumulated
deficit of ($18,385,487) as of September 30, 2000. Additionally, as of September
30, 2000, the Company has an outstanding balance on its credit line of
$4,094,164 that matures on March 31, 2001 (see Note 6). These factors, among
other things, raise substantial doubt about the Company's ability to
continue as a going concern.
The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability of assets and classification of
liabilities that may be necessary should the Company be unable to continue as a
going concern.
Management is pursuing various options in order to provide necessary financing.
Management's plan to resolve near term cash flow issues include the following
options:
- Negotiate a new line of credit with additional cash availability;
- A private placement equity financing
- Reduction in operating costs.
Management believes if it can finalize the financing options that it is pursuing
together with its projected improvement in operating results for the remainder
of fiscal 2000, the Company will generate sufficient resources to ensure
uninterrupted performance of its operating obligations as currently structured
and anticipated. The Company's continuance as a going concern is dependent upon
its ability to generate sufficient cash flow to meet its obligations in a timely
manner, to obtain additional financing as required, and ultimately to attain
profitability. There can be no assurance, however, that these sources will be
available to the Company on acceptable terms or when necessary.
<PAGE> 10
NOTE 5 - ISSUANCE OF CONVERTIBLE DEBENTURES
On August 14, 2000, in a private placement, the Company sold $750,000 in 12%
Convertible Debentures. The Convertible Debentures include warrants to purchase
1,025,160 shares of the Company's common stock.
The warrants are exercisable at a price equal to 105% of the market price for
the Company's common stock as of the closing date or $0.64 per share and expire
on August 31, 2005 and are subject to terms and conditions as described in the
agreement. The Company allocated approximately $159,000 related to the value
of the warrants.
The holder of this debenture is entitled, at its option, to convert this
Debenture at any time into shares of common stock of the Company at a conversion
price equal to the lower of the fixed conversion price or the variable
conversion price. The fixed conversion price is equal to 70% of the average of
the closing bid price of the Company's common stock for the five trading days
immediately preceding the closing date. The variable conversion price is equal
to 70% of the average of the five lowest closing bid prices (which need not be
consecutive days) of the Company's common stock during the 22 trading days
immediately preceding the applicable conversion date, resulting in a beneficial
conversion feature at the issue date. The number of shares of Common stock
underlying the Debentures is subject to adjustment for stock splits, stock
dividends, combinations, capital reorganizations and similar events relating to
the Company's common stock.
Upon issuance, the Company allocated approximately $590,000 to the beneficial
conversion feature, which was fully amortized at the date of issuance and is
reflected in the accompanying financial statements as interest expense.
The Debentures are collateralized against substantially all of the Company's
assets, subject to subordinating a senior security interest in favor of the
holder of the Company's credit line.
The Debentures are convertible into a maximum of 3,500,235 shares of the
Company's common stock, unless shareholder approval is obtained, at the lower of
a fixed or variable conversion price as defined in the agreement.
As a condition to the sale of the Debentures, the Company was required to obtain
consent from its existing holders of Series A, Series B and Series C Convertible
Preferred Stock. In exchange for this consent, the Company amended certain
provisions of the related agreements. The effect of these amendments was to
accelerate the shareholder's ability to convert at a variable conversion price,
which in each case is based upon the then current market price, as defined in
the amendment.
Given that the price of the Company's common stock has declined significantly
since the closing of the Series A, Series B and Series C Convertible Preferred
Stock, the amended variable
<PAGE> 11
conversion feature may result in a substantially increased number of shares of
common stock to be issued upon conversion.
NOTE 6 - RELATED PARTY REPURCHASE OF INVENTORY
In July 2000, the Company was notified of default and cancellation of flooring
for the affiliated dealerships and under the terms of the Company's wholesale
financing agreement with the flooring company, was required to repurchase
approximately $1.3 million in motorcycles sold to the affiliated dealerships and
held in inventory.
The loss related to this transaction has been included in the second quarter of
2000 financial statements. Additionally, a reduction of $1.3 million dollars in
sales and cost of sales, and a payable to the flooring company for $1.3 million
has also been established. The Company has receivables totaling $425,000 from
affiliates are secured by a cash deposit held by the bank.
In connection with the repurchase of the $1.3 million in motorcycles, the
Company has entered into a Forebearance Agreement with the commercial finance
company that required the Company to repurchase the related motorcycles over a
maximum three-month period with required minimum payments in three equal
installments. The final installment of approximately $436,000 was paid in
October 2000.
NOTE 7 - SUBSEQUENT EVENTS
CREDIT LINE EXTENSION AND AMENDMENT
In October 2000, the Company signed an agreement that extended a line of credit
due in September until March 31, 2001. The extension agreement contains certain
restrictive covenants and fees as defined in the agreement. The Lender has
imposed certain raw material inventory limits as well as a minimum income from
operations provisions, as adjusted, for certain reserves, per the agreement.
Lender reserves the right to certain remedies in the event of default. No notice
of default has been issued to the Company.
The agreement contains certain maximum inventory levels at specified dates as
defined in the agreement. In the event that inventory levels exceed defined
limits, the lender reserves the right to require the Company to retain a
liquidation company to work with the Company to meet required inventory levels.
REPURCHASE OBLIGATION
In October 2000, the Company was notified that it would be required to
repurchase approximately $330,000 in motorcycles as required under the terms of
a wholesale financing agreement with a flooring company. Accordingly, a
reduction of $330,000 in sales, cost of sales and a payable to the flooring
company for $330,000 has been established in the accompanying financial
statements. Management does not expect a material loss on disposal of these
motorcycles.
<PAGE> 12
TITAN MOTORCYCLE COMPANY OF AMERICA
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
13 WEEK PERIOD ENDED SEPTEMBER 30, 2000, COMPARED WITH 13 WEEK PERIOD ENDED
OCTOBER 2, 1999
OVERALL
Net Sales for the thirteen-week period ended September 30, 2000 of $4.7 million
were $1.1 million, or 19%, lower than net sales for the comparable period in
1999. The Company recorded a net loss of ($5,291,009), or ($0.28) per share in
2000 compared with net loss of ($1,558,627) or ($0.09) per share for 1999.
RESULTS OF OPERATIONS
MOTORCYCLE UNIT SHIPMENTS AND NET SALES
<TABLE>
<CAPTION>
2000 1999 INCREASE % CHANGE
---- ---- -------- --------
<S> <C> <C> <C> <C>
Motorcycle Units 191 246 (55) (22%)
Net Sales (in $000's):
Motorcycles $ 4,328 $ 5,616 ($ 1,288) (23%)
Motorcycle Parts and Accessories $ 391 $ 229 $ 162 71%
Total Motorcycles and Parts $ 4,719 $ 5,845 ($ 1,126) (19%)
</TABLE>
As indicated in the above chart, the Company's business continues to consist
primarily of motorcycle sales. A small amount of business has been done in Parts
and Accessories. Parts and Accessories sales approximated 8% of revenues.
The decrease in motorcycle shipments is primarily due to cash flow constraints
causing production issues. Cash flow issues continue to restrict the ability to
obtain parts and meet production requirements.
GROSS PROFIT
<TABLE>
<CAPTION>
2000 1999 DECREASE % CHANGE
---- ---- -------- --------
<S> <C> <C> <C> <C>
Gross Profit (Loss) (In $000's) ($2,139) $367 ($2,506) (683%)
Gross Margin % ( 45.3%) 6.3% (51.6%)
</TABLE>
In the thirteen-weeks ended September 30, 2000 gross profit and gross margin
percent were lower than the comparable period in 1999 due primarily to
production inefficiencies as a result of
<PAGE> 13
lower than anticipated volumes due to cash flow constraints. In addition, the
Company increased its reserve for the planned liquidation of excess raw
materials by $1,854,000.
Failure to generate sufficient cash flow to pay vendors in a timely manner
resulted in lower than expected materials cost savings and limited potential
margin improvement planned by management. The lower than planned volumes in the
third quarter impacted labor and overhead utilization resulting in a decline in
gross profit margin.
OPERATING EXPENSES
<TABLE>
<CAPTION>
2000 1999 INCREASE % CHANGE
---- ---- -------- --------
<S> <C> <C> <C> <C>
Operating Expenses (In $000's) $2,101 $1,641 $460 28%
Operating Expense as % of Sales 45% 28% 17%
</TABLE>
Total operating expenses for the thirteen-week period ended September 30, 2000
increased by $460,000 over the same period in 1999 against a decrease in sales
of approximately 19% due primarily to an increase in bad debt expense.
Although management has taken certain steps to reduce operating expenses,
including reduction in staffing, consolidation in facilities and general cost
reduction efforts, the impact of these efforts will be reflected in the final
quarter of fiscal 2000.
Included in interest expense is approximately $590,000 related to the beneficial
conversion feature for the Convertible Debentures.
CONSOLIDATED INCOME TAXES
The Company's effective tax rate was 0.0% in both the thirteen-week period ended
September 30, 2000 and the comparable period ended October 2, 1999 as a result
of losses in 2000 and use of tax loss carryforwards in 1999. The Company's
ability to use its tax loss carry forwards may be limited due to IRS Section 382
limitations.
39 WEEK PERIOD ENDED SEPTEMBER 30, 2000 COMPARED WITH 39 WEEK PERIOD ENDED
OCTOBER 2, 1999.
OVERALL
Net Sales for the thirty-nine week period ended September 30, 2000 of $23.9
million were $2.0 million, or 9%, higher than net sales for the comparable
period in 1999. The Company recorded a net loss of ($8,535,717), or $(0.54) per
share in 2000 compared with net loss of ($2,515,361) or $(0.15) per share for
1999.
<PAGE> 14
RESULTS OF OPERATIONS
MOTORCYCLE UNIT SHIPMENTS AND NET SALES
<TABLE>
<CAPTION>
2000 1999 INCREASE % CHANGE
---- ---- -------- --------
<S> <C> <C> <C> <C>
Motorcycle Units 941 788 153 19%
Net Sales (in $000's):
Motorcycles $22,924 $21,299 $ 1,625 8%
Motorcycle Parts and Accessories $ 942 $ 643 $ 299 47%
Total Motorcycles and Parts $23,866 $21,942 $ 1,924 9%
</TABLE>
As indicated in the above chart, the Company's business continues to consist
primarily of motorcycle sales. A small amount of business has been done in Parts
and Accessories. Parts and Accessories sales approximated 4% of revenues.
The increase in motorcycle shipments was due to increased sales in the second
quarter of fiscal 2000 as compared to the previous year. Sales were constrained
in the third quarter 2000 due to part supply issues as a result of cash flow
constraints.
GROSS PROFIT
<TABLE>
<CAPTION>
2000 1999 DECREASE % CHANGE
---- ---- -------- --------
<S> <C> <C> <C> <C>
Gross Profit (In $000's) ($ 952) $ 2,405 ($ 3,357) (140%)
Gross Margin % (4.0%) 11.0% (14.6%)
</TABLE>
In the thirty-nine weeks ended September 30, 2000, gross profit decreased
$3,356,172 or 140%, as compared to the comparable period in 1999. The gross
profit margin was (4.0%) as compared with 11.0% in 1999.
The Company's gross profit margin was negatively impacted during third quarter
of 2000 due to parts acquisition issues encountered as a result of cash flow
constraints. Failure to generate cash flow sufficient to pay vendors in a
timelier manner resulted in lower materials cost savings and potential margin
improvement. In addition, the Company increased its reserve for the planned
liquidation of excess raw materials by $1,854,000.
OPERATING EXPENSES
<TABLE>
<CAPTION>
2000 1999 INCREASE % CHANGE
---- ---- -------- --------
<S> <C> <C> <C> <C>
Operating Expenses (In $000's) $ 5,833 $ 4,203 $ 1,630 39%
Operating Expense as % of Sales 24.4% 19.2% 5.2%
</TABLE>
Total operating expense for the thirty-nine week period ended September 30, 2000
increased $1,629,394 or 39%, over the comparable period in 1999. Operating
expenses, as a percentage of sales, were 24.4% for the thirty-nine week period
ended September 30, 2000 as compared to 19.2% for the previous year's comparable
period.
<PAGE> 15
Included in interest expense is approximately $590,000 related to the beneficial
conversion feature for the Convertible Debentures.
Although management has taken certain steps to reduce operating expenses,
including reduction in staffing, consolidation in facilities and general cost
reduction efforts, the impact of these efforts will be reflected in the final
quarter of fiscal 2000.
CONSOLIDATED INCOME TAXES
The Company's effective tax rate was 0.0% in both the thirty-nine week period
ended September 30, 2000 and the comparable period ended October 2, 1999 as a
result of losses in 1999 and use of tax loss carryforwards in 1999. The
Company's ability to use its tax loss carry forwards may be limited due to IRS
Section 382 limitations.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $1,039,338 of cash from operating activities in the
thirty-nine week period ended September 30, 2000 compared with uses of $7.2
million in the comparable period in 1999. The change in cash used for operating
expenses is due primarily to reduction in inventory of approximately $8.8
million for the thirty-nine week period. Capital expenditures totaled $3,018 in
the thirty-nine week period ending September 30, 2000 compared with $1,094,531
for the comparable period in 1999.
Cash provided through the issuance and sale of common and preferred stock
totaled $4.2 million for the first three quarters in fiscal 2000 as compared to
$5.4 million for the same period in 1999. Additionally, the Company had a net
reduction in borrowings under its line of credit of $5.7 million in 2000 as
compared with a net increase of $2.3 million in 1999. A more detailed
description of cash flows can be found in the attached financial statements.
For the first three quarters of fiscal 2000 and fiscal 1999, the Company
incurred net losses of $8.5 million and $2.5 million, respectively. For the year
ending January 1, 2000, the Company incurred a net loss of approximately $8.1
million. As of September 30, 2000 and January 1, 2000, the Company had cash
balances of approximately $151,000 and $34,000, respectively and an accumulated
deficit of approximately $18.4 million as of September 30, 2000. These factors,
among other things, raise substantial doubt about the Company's ability to
continue as a going concern.
Management is pursuing various options in order to provide necessary financing.
As discussed in Note to the consolidated financial statements, management's
plans to resolve near term cash flow issues include the following transactions:
- Negotiating a new line of credit with additional cash availability;
- A private placement of equity financing
- Projected improvement of operating results.
<PAGE> 16
Management believes if it can finalize the financing alternatives that it is
pursuing, together with its projected improvement in operating results for the
remainder of fiscal 2000, the Company will generate sufficient resources to
ensure uninterrupted performance of its operating obligations as currently
structured and anticipated. The Company's continuance as a going concern is
dependent upon its ability to generate sufficient cash flow to meet its
obligations in a timely manner, to obtain additional financing as required, and
ultimately to attain profitability. There can be no assurance, however, that
these sources will be available to the Company on acceptable terms or when
necessary, or that the Company will be successful in its efforts to improve its
operating results.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995, including statements
regarding the generation of sufficient resources to carry out planned
operations. Forward-looking statements speak only as of the date the statement
is made. These forward-looking statements are based largely on Titan's
expectations and assumptions regarding future events and are subject to a number
of risks and uncertainties, some of which cannot be predicted or quantified and
are beyond Titan's control. Factors that could cause actual results to differ
materially from Titan's expectations include: (i) its inability to replace its
senior credit facility; (ii) its need for further cash infusions coupled with
its inability to meet this need through revenue-generating operations, an
increase in its credit line, or future financings; (iii) its inability to
maintain its listing with Nasdaq; (iv) its history of losses; (v) its dependence
on third-party suppliers and dealers; (vi) complications in establishing and
integrating its new line of motorcycles; and (vii) the possibility that
estimated demand for its motorcycles will fail to grow as quickly as anticipated
or prove unsustainable. In light of these risks and uncertainties, there can be
no assurance that the forward-looking information contained in this news release
will in fact transpire or prove to be accurate. All subsequent written and oral
forward-looking statements attributable to Titan or persons acting on its behalf
are expressly qualified in their entirety by this section.
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter for which this report is filed, the Company filed 5 reports
on Form 8-K:
On July 20, 2000, the Company filed a Current Report on Form 8-K, reporting in
Item 5 the extension of the senior line of credit through September 11,
increased pressure from trade creditors, notice of termination floor financing,
a workforce reduction, the sale of affiliate-owned distributorships, and
notification from Nasdaq that the Company failed to meet continued listing
criteria.
On August 21, 2000, the Company filed a Current Report on Form 8-K, reporting in
Item 5 the sale of its 12% convertible debentures, and the related amendments to
the terms of the Series A, B and C Convertible Preferred Stock and the senior
credit facility.
On August 23, 2000, the Company filed a Current Report on Form 8-K, reporting in
Item 5 the resignations of the Company's two outside directors.
On September 7, 2000, the Company filed a Current Report on Form 8-K, reporting
in Item 5 the amendment to the senior credit facility and the receipt of a
Nasdaq delisting notification for failure to maintain a minimum bid price for
the Company's common stock above $1.00 for 30 consecutive days.
On September 27, 2000, the Company filed a Current Report on Form 8-K that
included an unaudited balance sheet and unaudited income statement giving
effect, on a pro forma basis, to the recharacterization of the Series A and B
Convertible Preferred Stock from mezzanine debt to equity. This report was
required by Nasdaq as part of the Company's plan of compliance for continued
listing.
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
TITAN MOTORCYCLE COMPANY OF AMERICA
(Registrant)
/s/ Francis Keery /s/ November 20, 2000
------------------------
Francis Keery Date
Chairman and CEO
/s/ Dennis E. Rutherford /s/ November 20, 2000
----------------------------
Dennis Rutherford Date
Chief Financial Officer
TITAN MOTORCYCLE CO. OF AMERICA
<PAGE> 19
EXHIBIT INDEX
Exhibit 27 Financial Data Schedule
