Tableof Contents

 

 

 

### **UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, DC  20549**

 

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**FORM 10-Q**

 

**QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF**

**THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended October 31,2008**

**Commission File No. 000-1409171**

 

**TITAN MACHINERY INC.**

(Exact name of registrant asspecified in its charter)

 

| **Delaware**                                                      | ** ** | **No. 45-0357838**              |
|-------------------------------------------------------------------|------------|--------------------------------------|
| (State  or Other Jurisdiction of

Incorporation  or Organization) | ** ** | (IRS  Employer

Identification  No.) |

 

**4876Rocking Horse CircleFargo, ND 58104-6049**

(Addressof Principal Executive Offices)

 

**Registrant’stelephone number (701) 356-0130**

 

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Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Exchange Act of 1934 during the preceding 12 months (orfor 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  o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer or a smaller reporting company. Seethe definitions of “large accelerated filer”, “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.

 
| Large accelerated filer  o        |   | Accelerated filer  o         |
|---------------------------------------------|--------|----------------------------------------|
|                                        |   |                                   |
| Non-accelerated filer o                     |   | Smaller reporting company  x |
| (Do not check if smaller reporting company) |   |                                   |

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).YES o  NO  x

 

The number of sharesoutstanding of the registrant’s common stock as of December 1, 2008 was:Common Stock, $0.00001 par value, 17,646,483 shares.

 

 

 

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**TITAN MACHINERY INC.**

**QUARTERLY REPORT ON FORM 10-Q**

 

**Table of Contents**

 
|               |                       |                                                                                                                                               |   | **Page No.** |
|--------------------|----------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|
| **PART I.**   | **FINANCIAL  INFORMATION** |                                                                                                                                               |   |
|               |                       |                                                                                                                                               |   |              |
| ITEM 1.            |                       | FINANCIAL STATEMENTS                                                                                                                               |   |              |
|               |                       |                                                                                                                                               |   |              |
|               |                       | Consolidated  Balance Sheets as of October 31, 2008 and January 31, 2008                                                                 |   |              |
|               |                       |                                                                                                                                               |   |              |
|               |                       | Consolidated  Statements of Operations for the three and nine months ended October 31,  2008 and 2007                                         |   |              |
|               |                       |                                                                                                                                               |   |              |
|               |                       | Consolidated  Statements of Stockholders’ Equity for the fiscal year ended January 31,  2008 and nine months ended October 31, 2008 |   |              |
|               |                       |                                                                                                                                               |   |              |
|               |                       | Consolidated Statements of Cash Flows for the nine  months ended October 31, 2008 and 2007                                                    |   |              |
|               |                       |                                                                                                                                               |   |              |
|               |                       | Notes to Consolidated Financial Statements                                                                                                         |   |              |
|               |                       |                                                                                                                                               |   |              |
| ITEM 2.            |                       | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                                        |   |              |
|               |                       |                                                                                                                                               |   |              |
| ITEM 3.            |                       | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                                        |   |              |
|               |                       |                                                                                                                                               |   |              |
| ITEM 4.            |                       | CONTROLS AND  PROCEDURES                                                                                                                           |   |              |
|               |                       |                                                                                                                                               |   |              |
| **PART II.**  | **OTHER INFORMATION**      |                                                                                                                                               |   |
|               |                       |                                                                                                                                               |   |              |
| ITEM 1.            |                       | LEGAL  PROCEEDINGS                                                                                                                                 |   |              |
|               |                       |                                                                                                                                               |   |              |
| ITEM 1A.           |                       | RISK FACTORS                                                                                                                                       |   |              |
|               |                       |                                                                                                                                               |   |              |
| ITEM 2.            |                       | UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                                                       |   |              |
|               |                       |                                                                                                                                               |   |              |
| ITEM 3.            |                       | DEFAULTS  UPON SENIOR SECURITIES                                                                                                                   |   |              |
|               |                       |                                                                                                                                               |   |              |
| ITEM 4.            |                       | SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                                               |   |              |
|               |                       |                                                                                                                                               |   |              |
| ITEM 5.            |                       | OTHER  INFORMATION                                                                                                                                 |   |              |
|               |                       |                                                                                                                                               |   |              |
| ITEM 6.            |                       | EXHIBITS                                                                                                                                           |   |              |
|               |                       |                                                                                                                                               |   |              |
| Signatures         |                       |                                                                                                                                               |   |              |
|               |                       |                                                                                                                                               |   |              |
| Exhibit Index |                       |                                                                                                                                               |   |              |

 

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Tableof Contents

 

**PART I. – FINANCIALINFORMATION**

 

**ITEM 1.          FINANCIAL STATEMENTS**

 

**TITAN MACHINERY INC.**

**CONSOLIDATED BALANCE SHEETS**

** **
| ** **                                                                                                                                                                          | ** ** | **October 31,** | ** **  | **January 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|-------------|----------------------|------------|
| ** **                                                                                                                                                                          | ** ** | **2008**             | ** **  | **2008**             | ** ** |
| ** **                                                                                                                                                                          | ** ** | **(Unaudited)**      | ** **  | ** **           | ** ** |
| **ASSETS**                                                                                                                                                                          |       |                 |        |                 |       |
|                                                                                                                                                                                |       |                 |        |                 |       |
| CURRENT ASSETS                                                                                                                                                                      |       |                 |        |                 |       |
| Cash and cash  equivalents                                                                                                                                                          |       | $                    | 41,861,426  |                 | $          | 42,802,505 |   |
| U.S. treasury  bills                                                                                                                                                                |       | 49,903,760           |        | —               |       |
| Total cash, cash  equivalents and U.S. treasury bills                                                                                                                               |       | 91,765,186           |        | 42,802,505           |       |
|                                                                                                                                                                                |       |                 |        |                 |       |
| Receivables, net                                                                                                                                                                    |       | 20,685,208           |        | 22,061,275           |       |
| Inventories                                                                                                                                                                         |       | 234,688,943          |        | 145,766,866          |       |
| Prepaid expenses                                                                                                                                                                    |       | 365,617              |        | 215,312              |       |
| Income taxes  receivable                                                                                                                                                            |       | —               |        | 1,074,216            |       |
| Deferred income  taxes                                                                                                                                                              |       | 1,301,000            |        | 1,027,000            |       |
|                                                                                                                                                                                |       |                 |        |                 |       |
| Total current  assets                                                                                                                                                               |       | 348,805,954          |        | 212,947,174          |       |
|                                                                                                                                                                                |       |                 |        |                 |       |
| INTANGIBLES AND  OTHER ASSETS                                                                                                                                                       |       |                 |        |                 |       |
| Parts inventory  in excess of amounts expected to be sold currently                                                                                                                 |       | 2,080,000            |        | 1,480,000            |       |
| Goodwill                                                                                                                                                                            |       | 10,166,051           |        | 8,271,133            |       |
| Intangible  assets, net of accumulated amortization                                                                                                                                 |       | 418,965              |        | 337,242              |       |
| Other                                                                                                                                                                               |       | 397,249              |        | 311,581              |       |
|                                                                                                                                                                                |       | 13,062,265           |        | 10,399,956           |       |
| PROPERTY AND  EQUIPMENT, net of accumulated depreciation                                                                                                                            |       | 26,257,764           |        | 16,022,336           |       |
|                                                                                                                                                                                |       |                 |        |                 |       |
|                                                                                                                                                                                |       | $                    | 388,125,983 |                 | $          | 239,369,466 |   |
|                                                                                                                                                                                |       |                 |        |                 |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                      |       |                 |        |                 |       |
|                                                                                                                                                                                |       |                 |        |                 |       |
| CURRENT  LIABILITIES                                                                                                                                                                |       |                 |        |                 |       |
| Accounts payable                                                                                                                                                                    |       | $                    | 14,596,431  |                 | $          | 9,244,064 |   |
| Floorplan notes  payable                                                                                                                                                            |       | 171,375,535          |        | 105,847,648          |       |
| Current  maturities of long-term debt                                                                                                                                               |       | 1,109,274            |        | 5,653,840            |       |
| Customer  deposits                                                                                                                                                                  |       | 11,155,883           |        | 19,309,533           |       |
| Accrued expenses                                                                                                                                                                    |       | 8,060,286            |        | 6,137,842            |       |
| Income taxes payable                                                                                                                                                                |       | 2,687,261            |        | —               |       |
|                                                                                                                                                                                |       |                 |        |                 |       |
| Total current  liabilities                                                                                                                                                          |       | 208,984,670          |        | 146,192,927          |       |
|                                                                                                                                                                                |       |                 |        |                 |       |
| LONG-TERM  LIABILITIES                                                                                                                                                              |       |                 |        |                 |       |
| Long-term debt,  less current maturities                                                                                                                                            |       | 2,707,158            |        | 13,082,795           |       |
| Deferred income  taxes                                                                                                                                                              |       | 2,777,000            |        | 1,865,000            |       |
| Other long term  liabilities                                                                                                                                                        |       | 3,293,047            |        | 811,689              |       |
|                                                                                                                                                                                |       | 8,777,205            |        | 15,759,484           |       |
|                                                                                                                                                                                |       |                 |        |                 |       |
| SUBORDINATED  DEBENTURES                                                                                                                                                            |       | —               |        | 1,300,000            |       |
|                                                                                                                                                                                |       |                 |        |                 |       |
| STOCKHOLDERS’  EQUITY                                                                                                                                                          |       |                 |        |                 |       |
| Common stock,  par value $.00001 per share, authorized - 25,000,000 shares; issued and  outstanding - 17,639,722 at October 31, 2008 and 13,440,654, at  January 31, 2008 |       | 176                  |        | 134                  |       |
| Additional  paid-in-capital                                                                                                                                                         |       | 137,522,187          |        | 58,179,695           |       |
| Retained  earnings                                                                                                                                                                  |       | 32,841,745           |        | 17,937,226           |       |
|                                                                                                                                                                                |       | 170,364,108          |        | 76,117,055           |       |
|                                                                                                                                                                                |       |                 |        |                 |       |
|                                                                                                                                                                                |       | $                    | 388,125,983 |                 | $          | 239,369,466 |   |

 

See Notes to Consolidated Financial Statements

 

1

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**TITAN MACHINERY INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS (UNAUDITED)**

** **
| ** **                               | ** ** | **Three Months Ended  October 31,** | ** **  | **Nine Months Ended  October 31,** | ** ** |
|------------------------------------------|------------|----------------------------------------------------|-------------|---------------------------------------------------|------------|
| ** **                               | ** ** | **2008**                                           | ** **  | **2007**                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                     |       |                                               |        |                                              |       |   |   |   |   |
| REVENUE                                  |       |                                               |        |                                              |       |   |   |   |   |
| Equipment                                |       | $                                                  | 167,950,651 |                                              | $          | 103,371,870 |   | $ | 386,704,792 |   | $ | 225,854,237 |   |
| Parts                                    |       | 29,794,106                                         |        | 18,384,291                                        |       | 74,910,572 |   | 45,560,354 |   |
| Service                                  |       | 12,893,719                                         |        | 7,897,554                                         |       | 32,625,688 |   | 20,938,351 |   |
| Other, including  trucking and rental    |       | 3,321,691                                          |        | 2,517,573                                         |       | 7,206,523 |   | 5,456,924 |   |
| TOTAL REVENUE                            |       | 213,960,167                                        |        | 132,171,288                                       |       | 501,447,575 |   | 297,809,866 |   |
|                                     |       |                                               |        |                                              |       |   |   |   |   |
| COST OF REVENUE                          |       |                                               |        |                                              |       |   |   |   |   |
| Equipment                                |       | 148,677,637                                        |        | 93,799,249                                        |       | 343,581,874 |   | 204,331,911 |   |
| Parts                                    |       | 20,638,082                                         |        | 13,651,728                                        |       | 53,121,067 |   | 33,667,873 |   |
| Service                                  |       | 5,018,963                                          |        | 2,843,191                                         |       | 12,343,742 |   | 7,730,777 |   |
| Other, including  trucking and rental    |       | 2,279,329                                          |        | 1,492,984                                         |       | 5,026,585 |   | 3,534,342 |   |
| TOTAL COST OF  REVENUE                   |       | 176,614,011                                        |        | 111,787,152                                       |       | 414,073,268 |   | 249,264,903 |   |
|                                     |       |                                               |        |                                              |       |   |   |   |   |
| GROSS PROFIT                             |       | 37,346,156                                         |        | 20,384,136                                        |       | 87,374,307 |   | 48,544,963 |   |
|                                     |       |                                               |        |                                              |       |   |   |   |   |
| OPERATING  EXPENSES                      |       | 23,153,447                                         |        | 14,380,458                                        |       | 60,805,415 |   | 35,832,842 |   |
|                                     |       |                                               |        |                                              |       |   |   |   |   |
| INCOME FROM  OPERATIONS                  |       | 14,192,709                                         |        | 6,003,678                                         |       | 26,568,892 |   | 12,712,121 |   |
|                                     |       |                                               |        |                                              |       |   |   |   |   |
| OTHER INCOME  (EXPENSE)                  |       |                                               |        |                                              |       |   |   |   |   |
| Interest and  other income               |       | 496,656                                            |        | 119,829                                           |       | 1,257,434 |   | 204,464 |   |
| Floorplan  interest expense              |       | (782,701                                           | )           | (973,696                                          | )          | (2,082,167 | ) | (2,805,050 | ) |
| Subordinated  debt interest expense      |       | —                                             |        | (445,440                                          | )          | (20,917 | ) | (1,324,432 | ) |
| Interest expense  other                  |       | (46,763                                            | )           | (245,024                                          | )          | (568,723 | ) | (631,296 | ) |
|                                     |       |                                               |        |                                              |       |   |   |   |   |
| INCOME BEFORE  INCOME TAXES              |       | 13,859,901                                         |        | 4,459,347                                         |       | 25,154,519 |   | 8,155,807 |   |
|                                     |       |                                               |        |                                              |       |   |   |   |   |
| PROVISION FOR  INCOME TAXES              |       | (5,675,000                                         | )           | (1,745,000                                        | )          | (10,250,000 | ) | (3,212,663 | ) |
|                                     |       |                                               |        |                                              |       |   |   |   |   |
| NET INCOME                               |       | $                                                  | 8,184,901   |                                              | $          | 2,714,347 |   | $ | 14,904,519 |   | $ | 4,943,144 |   |
|                                     |       |                                               |        |                                              |       |   |   |   |   |
| ADJUSTMENTS TO  INCOME:                  |       |                                               |        |                                              |       |   |   |   |   |
| Amortization of  syndication fees        |       | —                                             |        | (5,296                                            | )          | — |   | (15,889 | ) |
| Unpaid  accumulated preferred dividends  |       | —                                             |        | (25,594                                           | )          | — |   | (76,782 | ) |
|                                     |       |                                               |        |                                              |       |   |   |   |   |
| INCOME AVAILABLE  TO COMMON STOCKHOLDERS |       | $                                                  | 8,184,901   |                                              | $          | 2,683,457 |   | $ | 14,904,519 |   | $ | 4,850,473 |   |
|                                     |       |                                               |        |                                              |       |   |   |   |   |
| EARNINGS PER  SHARE - NOTE 1             |       |                                               |        |                                              |       |   |   |   |   |
|                                     |       |                                               |        |                                              |       |   |   |   |   |
| EARNINGS PER  SHARE - BASIC              |       | $                                                  | 0.47        |                                              | $          | 0.62 |   | $ | 0.94 |   | $ | 1.12 |   |
| EARNINGS PER  SHARE - DILUTED            |       | $                                                  | 0.45        |                                              | $          | 0.36 |   | $ | 0.91 |   | $ | 0.72 |   |
|                                     |       |                                               |        |                                              |       |   |   |   |   |
| WEIGHTED AVERAGE  SHARES - BASIC         |       | 17,553,416                                         |        | 4,345,710                                         |       | 15,864,415 |   | 4,345,391 |   |
| WEIGHTED AVERAGE  SHARES - DILUTED       |       | 18,041,197                                         |        | 7,675,831                                         |       | 16,373,629 |   | 7,238,714 |   |

 

See Notes to ConsolidatedFinancial Statements

 

2

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**TITAN MACHINERY INC.**

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)**

** **
| ** **                                                                                           | ** ** | **Common Stock** | ** ** | **Additional** | ** ** | ** **  | ** ** | ** **   | ** ** |
|------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|----------------|------------|-------------|------------|--------------|------------|
| ** **                                                                                           | ** ** | **Shares**            | ** ** | ** **     | ** ** | **Paid-In** | ** ** | **Retained** | ** ** | ** ** | ** ** |
| ** **                                                                                           | ** ** | **Outstanding**       | ** ** | **Amount**     | ** ** | **Capital** | ** ** | **Earnings** | ** ** | **Total** | ** ** |
|                                                                                                 |       |                  |       |           |       |        |       |         |       |   |   |
| BALANCE, JANUARY  31, 2007                                                                           |       | 4,344,753             |       | $              | 43         |        | $          | 514,864      |       | $ | 12,863,630 |   | $ | 13,378,537 |   |
| Common stock  issued in initial public offering                                                      |       | 5,442,395             |       | 55             |       | 41,793,588  |       | —       |       | 41,793,643 |   |
| Issuance of  shares for stock acquisition                                                            |       | 235,294               |       | 2              |       | 1,999,997   |       | —       |       | 1,999,999 |   |
| Issuance of  shares for conversion of debt/conversion of redeemable securities/exercise of  warrants |       | 3,339,792             |       | 33             |       | 13,729,791  |       | —       |       | 13,729,824 |   |
| Stock based  compensation expense                                                                    |       | 78,420                |       | 1              |       | 141,455     |       | —       |       | 141,456 |   |
| Unpaid  accumulated dividends                                                                        |       | —                |       | —         |       | —      |       | (87,791      | )          | (87,791 | ) |
| Amortization of  syndication fees                                                                    |       | —                |       | —         |       | —      |       | (51,311      | )          | (51,311 | ) |
| Net income                                                                                           |       | —                | ** ** | **—**     |       | —      |       | 5,212,698    |       | 5,212,698 |   |
|                                                                                                 |       |                  |       |           |       |        |       |         |       |   |   |
| BALANCE, JANUARY  31, 2008                                                                           |       | 13,440,654            |       | 134            |       | 58,179,695  |       | 17,937,226   |       | 76,117,055 |   |
| Common stock  issued in follow-on offering                                                           |       | 4,180,000             |       | 42             |       | 78,814,792  |       | —       |       | 78,814,834 |   |
| Common stock  issued on grant of restricted stock and exercise of stock options                      |       | 19,068                |       | —         |       | 40,004      |       | —       |       | 40,004 |   |
| Stock based  compensation expense                                                                    |       | —                |       | —         |       | 487,696     |       | —       |       | 487,696 |   |
| Net income                                                                                           |       | —                | ** ** | **—**     |       | —      |       | 14,904,519   |       | 14,904,519 |   |
|                                                                                                 |       |                  |       |           |       |        |       |         |       |   |   |
| BALANCE, OCTOBER  31, 2008                                                                           |       | 17,639,722            |       | $              | 176        |        | $          | 137,522,187  |       | $ | 32,841,745 |   | $ | 170,364,108 |   |

 

See Notes to Consolidated Financial Statements

 

3

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Table ofContents

 

**TITAN MACHINERY INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)**

 
| ** **                                                                                                                       | ** ** | **Nine Months Ended October 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                                                                                                       | ** ** | **2008**                                              | ** ** | **2007** | ** ** |
|                                                                                                                             |       |                                                  |       |   |   |
| OPERATING  ACTIVITIES                                                                                                            |       |                                                  |       |   |   |
| Net income                                                                                                                       |       | $                                                     | 14,904,519 |   | $ | 4,943,144 |   |
| Adjustments to  reconcile net income to net cash from operations                                                                 |       |                                                  |       |   |   |
| Depreciation                                                                                                                     |       | 2,770,439                                             |       | 1,524,460 |   |
| Amortization                                                                                                                     |       | 168,277                                               |       | 89,370 |   |
| Gain on sale of  equipment                                                                                                       |       | (35,894                                               | )          | (37,377 | ) |
| Deferred income  taxes                                                                                                           |       | 68,016                                                |       | — |   |
| Stock based  compensation expense                                                                                                |       | 487,696                                               |       | 122,355 |   |
| Other                                                                                                                            |       | (55,668                                               | )          | — |   |
| Changes in  assets and liabilities, net of purchase of equipment dealerships assets and  assumption of liabilities               |       |                                                  |       |   |   |
| Receivables                                                                                                                      |       | 2,631,143                                             |       | (7,773,134 | ) |
| Inventories                                                                                                                      |       | (14,066,176                                           | )          | (7,008,344 | ) |
| Prepaid expenses                                                                                                                 |       | (150,305                                              | )          | (399,922 | ) |
| Net change in  other assets                                                                                                      |       | (30,000                                               | )          | 8,699 |   |
| Floorplan notes  payable                                                                                                         |       | 4,637,363                                             |       | 4,145,203 |   |
| Accounts payable                                                                                                                 |       | 5,002,779                                             |       | 2,484,048 |   |
| Other long-term  liabilities                                                                                                     |       | 2,481,358                                             |       | 283,109 |   |
| Customer  deposits                                                                                                               |       | (8,545,082                                            | )          | 4,930,354 |   |
| Accrued expenses                                                                                                                 |       | 1,879,306                                             |       | 1,565,175 |   |
| Income taxes                                                                                                                     |       | 3,761,477                                             |       | 445,529 |   |
|                                                                                                                             |       |                                                  |       |   |   |
| NET CASH  PROVIDED BY OPERATING ACTIVITIES                                                                                       |       | 15,909,248                                            |       | 5,322,669 |   |
|                                                                                                                             |       |                                                  |       |   |   |
| INVESTING  ACTIVITIES                                                                                                            |       |                                                  |       |   |   |
| Purchase of U.S.  treasury bills, net of sales                                                                                   |       | (49,903,760                                           | )          | — |   |
| Property and  equipment purchases                                                                                                |       | (6,072,004                                            | )          | (5,527,513 | ) |
| Net proceeds  from sale of equipment                                                                                             |       | 288,106                                               |       | 103,174 |   |
| Payment for  intangible asset                                                                                                    |       | —                                                |       | (216,819 | ) |
| Purchase of  equipment dealerships, net of cash purchased                                                                        |       | (26,396,064                                           | )          | (4,950,478 | ) |
|                                                                                                                             |       |                                                  |       |   |   |
| NET CASH USED  FOR INVESTING ACTIVITIES                                                                                          |       | (82,083,722                                           | )          | (10,591,636 | ) |
|                                                                                                                             |       |                                                  |       |   |   |
| FINANCING  ACTIVITIES                                                                                                            |       |                                                  |       |   |   |
| Proceeds from  follow-on offering of common stock net of underwriting discount of $4,389,000  and other direct costs of $396,166 |       | 78,814,834                                            |       | — |   |
| Net change in  non-manufacturer floorplan payable                                                                                |       | 3,602,661                                             |       | (3,462,099 | ) |
| Proceeds from  long-term debt borrowings and subordinated debentures                                                             |       | 691,431                                               |       | 9,115,964 |   |
| Principal  payments on long-term debt and subordinated debentures                                                                |       | (17,915,535                                           | )          | (4,183,588 | ) |
| Other                                                                                                                            |       | 40,004                                                |       | 24,264 |   |
|                                                                                                                             |       |                                                  |       |   |   |
| NET CASH  PROVIDED BY FINANCING ACTIVITIES                                                                                       |       | 65,233,395                                            |       | 1,494,541 |   |
|                                                                                                                             |       |                                                  |       |   |   |
| NET CHANGE IN  CASH AND CASH EQUIVALENTS                                                                                         |       | (941,079                                              | )          | (3,774,426 | ) |
|                                                                                                                             |       |                                                  |       |   |   |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF PERIOD                                                                                |       | 42,802,505                                            |       | 7,572,000 |   |
|                                                                                                                             |       |                                                  |       |   |   |
| CASH AND CASH  EQUIVALENTS AT END OF PERIOD                                                                                      |       | $                                                     | 41,861,426 |   | $ | 3,797,574 |   |

 

See Notes to Consolidated Financial Statements

 

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**CONSOLIDATEDSTATEMENTS OF CASH FLOWS (UNAUDITED)**

 
| ** **                                                                                                                                                      | ** ** | **Nine Months Ended October 31,** | ** **  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|-------------|
| ** **                                                                                                                                                      | ** ** | **2008**                                              | ** **  | **2007** | ** ** |
|                                                                                                                                                            |       |                                                  |        |   |   |
| SUPPLEMENTAL  DISCLOSURES OF CASH FLOW INFORMATION                                                                                                              | ** ** | ** **                                            | ** **  | ** ** | ** ** |
| Cash paid during  the period                                                                                                                                    |       |                                                  |        |   |   |
| Income taxes,  net of refunds                                                                                                                                   |       | $                                                     | 6,178,000   |   | $ | 2,590,798 |   |
| Interest                                                                                                                                                        |       | 2,763,160                                             |        | 4,806,047 |   |
|                                                                                                                                                            |       |                                                  |        |   |   |
| SUPPLEMENTAL  DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES                                                                                         |       |                                                  |        |   |   |
| Dividends on  preferred redeemable stock charged to retained earnings                                                                                           |       | $                                                     | —      |   | $ | 76,782 |   |
| Property and  equipment purchased with long-term debt                                                                                                           |       | $                                                     | 268,709     |   | $ | — |   |
| Acquisition of  equipment dealership assets in exchange for cash and assumption of  liabilities including purchase accounting adjustments on prior acquisitions |       |                                                  |        |   |   |
| Accounts  receivable                                                                                                                                            |       | $                                                     | (1,255,076  | ) | $ | (1,020,316 | ) |
| Inventories                                                                                                                                                     |       | (25,644,469                                           | )           | (14,847,239 | ) |
| Property and  equipment                                                                                                                                         |       | (6,917,366                                            | )           | (1,398,148 | ) |
| Intangible asset                                                                                                                                                |       | (250,000                                              | )           | — |   |
| Goodwill                                                                                                                                                        |       | (1,894,918                                            | )           | (2,882,770 | ) |
| Accounts payable                                                                                                                                                |       | 349,588                                               |        | 2,858,131 |   |
| Floorplan notes  payable                                                                                                                                        |       | 7,476,431                                             |        | 8,196,113 |   |
| Customer  deposits                                                                                                                                              |       | 391,432                                               |        | — |   |
| Accrued expenses                                                                                                                                                |       | 43,138                                                |        | 347,110 |   |
| Income taxes  payable                                                                                                                                           |       | 242,254                                               |        | 176,336 |   |
| Long term debt                                                                                                                                                  |       | 735,192                                               |        | 1,000,000 |   |
| Deferred income  taxes, net                                                                                                                                     |       | 327,730                                               |        | 193,807 |   |
| Issuance of  preferred stock                                                                                                                                    |       | —                                                |        | 2,426,498 |   |
|                                                                                                                                                            |       |                                                  |        |   |   |
| Cash paid for  dealerships                                                                                                                                      |       | $                                                     | (26,396,064 | ) | $ | (4,950,478 | ) |

 

See Notes to Consolidated Financial Statements

 

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TITAN MACHINERYINC.

NOTES TOCONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

**NOTE 1 -  BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTINGPOLICIES**

 

*Basisof Presentation*

 

The unaudited financialstatements included herein have been prepared pursuant to the rules andregulations of the Securities and Exchange Commission for interim reporting. Accordingly,they do not include all the information and footnotes required by accountingprinciples generally accepted in the United States of America for completefinancial statements. In the opinion of management, all adjustments (consistingof normal recurring accruals) considered necessary for a fair presentation havebeen included. Operating results for the nine-month period ended October 31,2008 are not necessarily indicative of the results that may be expected for theyear ended January 31, 2009.  Theinformation contained in the balance sheet as of January 31, 2008 wasderived from the Company’s audited financial statements for the year thenended.

 

*Nature of Business*

 

Titan Machinery Inc. (the“Company”) is engaged in the retail sale, service and rental of agriculturaland industrial machinery through stores in North Dakota, South Dakota,Minnesota, Nebraska and Iowa.

 

*Estimates*

 

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenue and expenses during thereporting period. Actual results could differ from those estimates.

 

*Principles of Consolidation*

 

The consolidatedfinancial statements include the accounts of the Company and its wholly-ownedsubsidiary, Transportation Solutions, LLC. All significant accounts,transactions and profits between the consolidated companies have beeneliminated in consolidation.

 

*Cash, Cash Equivalents and U.S. Treasury Bills*

 

The Company considers allhighly liquid investments with original maturities of three months or less ontheir acquisition date to be cash equivalents. The Company accounts forinvestments with original maturities greater than three months, but less thanone year, at the date of purchase as short-term marketable securities.

 

As of October 31,2008 short-term marketable securities consist entirely of U.S. Treasury Bills.These investments are classified as held to maturity as the Company has boththe positive intent and ability to hold to maturity. The investments arecarried at amortized cost, which due to the short-term nature of theinvestments, approximates fair value.

 

*Recently Issued Accounting Pronouncements*

 

In September 2006, the Financial AccountingStandards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”)No. 157, Fair Value Measurements (“SFAS 157”).  This standard defines fair value, establishesa framework for measuring fair value, and expands disclosures about fair valuemeasurements. This standard applies under other accounting pronouncements thatrequire or permit fair value measurements, but does not require any new fairvalue measurements. The Company adopted SFAS 157 effective February 1,2008. The adoption of SFAS 157 for financial assets and liabilities held by theCompany did not have a material effect on the Company’s financial statements ornotes thereto.

 

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In February 2008,the FASB issued FSP FAS 157-2, Effective Date of FASB Statement No. 157 (“FSPFAS 157-2”), which permits a one year deferral of the application of SFAS 157for all non-financial assets and non-financial liabilities, except those thatare recognized or disclosed at fair value in the financial statements on arecurring basis (at least annually). The Company will adopt SFAS 157 fornon-financial assets and non-financial liabilities on February 1, 2009 anddoes not expect the provisions to have a material effect on its results ofoperations, financial position or cash flows.

 

In October 2008, the FASB issued FSP FAS 157-3,Determining the Fair Value of a Financial Asset When the Market for that Assetis Not Active (“FSP FAS 157-3”), which clarifies the application of SFAS 157 ina market that is not active and provides an example to illustrate keyconsiderations in determining the fair value of a financial asset when themarket for that financial asset is not active. FSP FAS 157-3  was effective uponissuance.  Its adoption did not have a materialeffect on the Company’s consolidated financial statements.

 

In February 2007,the FASB issued SFAS 159, The Fair Value Option for Financial Assets andFinancial Liabilities (“SFAS 159”).  SFAS159 provides companies with an option to report selected financial assets andliabilities at fair value and establishes presentation and disclosurerequirements designed to facilitate comparisons between companies that choosedifferent measurement attributes for similar types of assets andliabilities.  The Company has elected notto apply the fair value option to the specified financial assets andliabilities, and accordingly, the adoption of SFAS No. 159 had nofinancial statement impact.

 

In December 2007,the FASB issued SFAS No. 141 (Revised 2007), Business Combinations (“SFAS141R”).  SFAS 141R provides additionalguidance on improving the relevance, representational faithfulness, andcomparability of the financial information that a reporting entity provides inits financial reports about a business combination and its effects.  SFAS 141R applies prospectively to businesscombinations for which the acquisition date is on or after the beginning of thefirst annual reporting period beginning on or after December 15,2008.  The Company is in the process ofevaluating the effect that the adoption of this standard will have on theCompany’s financial statements.

 

In December 2007,the FASB issued SFAS No. 160, Noncontrolling Interests in ConsolidatedFinancial Statements (“SFAS 160”).  SFAS160 applies to all entities that prepare consolidated financial statements andhave an outstanding noncontrolling interest in one or more subsidiaries.  SFAS 160 amends Accounting Research Bulletin No. 51to establish accounting and reporting standards for the noncontrolling interestin a subsidiary and for the deconsolidation of a subsidiary.  SFAS 160 is effective for fiscal years, and interimperiods within those fiscal years, beginning on or after December 15,2008.   The Company is in the process ofevaluating the effect that the adoption of this standard will have on theCompany’s financial statements.

 

On December 21, 2007the SEC staff issued Staff Accounting Bulletin No. 110 (“SAB 110”), which,effective January 1, 2008, amends and replaces SAB 107, Share-BasedPayment. SAB 110 expresses the views of the SEC staff regarding the use of a “simplified”method in developing the expected life assumption in accordance with FASBStatement No. 123(R), Share-Based Payment. The use of the “simplified”method was scheduled to expire on December 31, 2007. SAB 110 extends theuse of the “simplified” method in certain situations. The SEC staff does notexpect the “simplified” method to be used when sufficient information regardingexercise behavior, such as historical exercise data or exercise informationfrom external sources, becomes available. The Company plans to track and capture employee exercise behavior in thefuture as a basis for our valuation assumptions.  The Company currently uses simplifiedestimates due to the limited number of options exercised.

 

*EarningsPer Share*

 

Basic earnings per sharewere computed by dividing income available to common stockholders by theweighted average number of shares of common stock outstanding during therespective periods.  Accumulatedpreferred dividends and amortization of syndication fees were subtracted from netincome to arrive at income available to common stockholders.  Nonvested restricted stock is excluded fromthe calculation of basic weighted-average shares outstanding.

 

Diluted earnings pershare were computed by dividing income available to common stockholders plusassumed conversions by the weighted-average common shares outstanding afteradjusting for potential dilution related to the conversion of all dilutivesecurities into common stock.  Allpotentially dilutive securities were included in the computation of dilutedearnings per share.

 

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The components of basicearnings per share are as follows:

 
| ** **                                         | ** ** | **Three Months Ended October 31,** | ** ** | **Nine Months Ended October 31,** | ** ** |
|----------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------|------------|
| **Basic - Earnings Per Share** | ** ** | **2008**                                               | ** ** | **2007**                                              | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                               |       |                                                   |       |                                                  |       |   |   |   |   |
| Net Income                                         |       | $                                                      | 8,184,901  |                                                  | $          | 2,714,347 |   | $ | 14,904,519 |   | $ | 4,943,144 |   |
| Less:  Amortization of syndication fees            |       | —                                                 |       | (5,296                                                | )          | — |   | (15,889 | ) |
| Less: Preferred  stock dividends - unpaid          |       | —                                                 |       | (25,594                                               | )          | — |   | (76,782 | ) |
| Income available  to common stockholders           |       | $                                                      | 8,184,901  |                                                  | $          | 2,683,457 |   | $ | 14,904,519 |   | $ | 4,850,473 |   |
|                                               |       |                                                   |       |                                                  |       |   |   |   |   |
| Basic  weighted-average shares outstanding         |       | 17,553,416                                             |       | 4,345,710                                             |       | 15,864,415 |   | 4,345,391 |   |
|                                               |       |                                                   |       |                                                  |       |   |   |   |   |
| Basic - Earnings  Per Share                        |       | $                                                      | 0.47       |                                                  | $          | 0.62 |   | $ | 0.94 |   | $ | 1.12 |   |

 

The components of dilutedearnings per share are as follows:

 
| ** **                                                        | ** ** | **Three Months Ended October 31,** | ** ** | **Nine Months Ended October 31,** | ** ** |
|-------------------------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------|------------|
| **Diluted - Earnings Per Share**              | ** ** | **2008**                                               | ** ** | **2007**                                              | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                              |       |                                                   |       |                                                  |       |   |   |   |   |
| Income available  to common stockholders                          |       | $                                                      | 8,184,901  |                                                  | $          | 2,683,457 |   | $ | 14,904,519 |   | $ | 4,850,473 |   |
| Plus: Income  impact of assumed conversions                       |       |                                                   |       |                                                  |       |   |   |   |   |
| Amortization of  syndication fees                                 |       | —                                                 |       | 5,296                                                 |       | — |   | 15,889 |   |
| Preferred stock  dividends - unpaid                               |       | —                                                 |       | 25,594                                                |       | — |   | 76,782 |   |
| Interest on  convertible debentures, net of tax effect            |       | —                                                 |       | 80,581                                                |       | — |   | 241,743 |   |
| Income available  to common stockholders plus assumed conversions |       | $                                                      | 8,184,901  |                                                  | $          | 2,794,928 |   | $ | 14,904,519 |   | $ | 5,184,887 |   |
|                                                              |       |                                                   |       |                                                  |       |   |   |   |   |
| Diluted  weighted-average shares outstanding:                     |       |                                                   |       |                                                  |       |   |   |   |   |
| Basic  weighted-average shares outstanding                        |       | 17,553,416                                             |       | 4,345,710                                             |       | 15,864,415 |   | 4,345,391 |   |
| Plus:  Incremental shares from assumed conversions                |       |                                                   |       |                                                  |       |   |   |   |   |
| Convertible  debentures                                           |       | —                                                 |       | 2,308,648                                             |       | — |   | 2,107,327 |   |
| Convertible  preferred shares                                     |       | —                                                 |       | 790,206                                               |       | — |   | 574,517 |   |
| Restricted Stock                                                  |       | 86,306                                                 |       | 9,573                                                 |       | 85,522 |   | 10,847 |   |
| Warrants                                                          |       | 110,530                                                |       | 168,443                                               |       | 112,210 |   | 153,720 |   |
| Options                                                           |       | 290,945                                                |       | 53,251                                                |       | 311,482 |   | 46,912 |   |
| Diluted  weighted-average shares outstanding                      |       | 18,041,197                                             |       | 7,675,831                                             |       | 16,373,629 |   | 7,238,714 |   |
|                                                              |       |                                                   |       |                                                  |       |   |   |   |   |
| Diluted - EPS                                                     |       | $                                                      | 0.45       |                                                  | $          | 0.36 |   | $ | 0.91 |   | $ | 0.72 |   |

 

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**NOTE 2 -  INVENTORIES**

 
| ** **                    | ** ** | **October 31,  2008** | ** **  | **January 31,  2008** | ** ** |
|-------------------------------|------------|----------------------------|-------------|----------------------------|------------|
| New equipment                 |       | $                          | 151,769,202 |                       | $          | 78,409,999 |   |
| Used equipment                |       | 48,842,337                 |        | 44,478,010                 |       |
| Parts, tires and  attachments |       | 30,397,325                 |        | 20,462,680                 |       |
| Work in process               |       | 3,680,079                  |        | 2,416,177                  |       |
|                          |       |                       |        |                       |       |
|                          |       | $                          | 234,688,943 |                       | $          | 145,766,866 |   |

 

In addition to the aboveamounts, the Company has estimated that a portion of its parts inventory willnot be sold in the next operating cycle. Accordingly, these balances have beenclassified as noncurrent assets.

 

**NOTE 3 -  LINES OFCREDIT/FLOORPLAN NOTES PAYABLE**

 

*Operating Line of Credit*

 

The Company had noamount outstanding on the line of credit with Bremer Bank National Association(“Bremer Bank”) at October 31, 2008 and January 31, 2008. The agreementprovides for available borrowings of $25,000,000 and carries a variableinterest rate of prime minus .25%, and has a maturity date of August 1,2009. The agreement contains certain financial covenants which impose minimumlevels of current ratio, debt service coverage, and inventory turnover ratioand a maximum level of debt to tangible net worth ratio. As of October 31,2008, the Company was in compliance with all of these financial covenants andhad $24,750,000 in available borrowings under this line of credit. The line issecured by substantially all assets of the Company.

 

On August 1,2008, Bremer Bank issued the Company a standby letter of credit in the amountof $250,000 to our insurance carrier for deductible retention. This reduced theamount of borrowings available on its line of credit by $250,000. Thisagreement expires on August 1, 2009.

 

*Floorplan Lines of Credit*

 

The Company hasfloorplan lines of credit for equipment purchases totaling $313,625,000 withvarious manufacturers and a bank, including a $300,000,000 Wholesale FloorplanCredit Facility with CNH Capital America LLC (“CNH”). As of October 31,2008, the Company had approximately $149,679,000 in available borrowingsremaining under these lines of credit. Under covenants of the CNH creditfacility, the Company has agreed, among other things, to maintain variousfinancial ratio levels and to submit certain financial information. As of October 31,2008, the Company was in compliance with all floorplan financial covenants.

 

Floorplan notespayable relating to these credit facilities totaled approximately $163,946,000of the total floorplan notes payable balance of $171,375,535 outstanding as of October 31,2008 and $98,543,886 of the total floorplan notes payable balance of $105,847,648outstanding as of January 31, 2008. These floorplan notes carried variousinterest rates ranging from 1.35 to 10.35% as of October 31, 2008 and 6.2to 9.5% as of January 31, 2008, and are secured by substantially allassets of the Company. Repayment terms vary by individual notes, but generallypayments are made from sales proceeds or rental revenue from the relatedinventories.

 

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**NOTE 4 -  LONG-TERM DEBT**

 
| ** **                                                                                                                                                                                                     | ** ** | **October 31,  2008** | ** ** | **January 31,  2008** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| Variable rate  notes payable to CNH Capital America LLC (CNH), variable rates at prime to  prime plus 1.6%, varying monthly installment payments maturing  August 2012, secured by rental fleet equipment |       | $                          | 1,089,929  |                       | $          | 1,952,440 |   |
|                                                                                                                                                                                                           |       |                       |       |                       |       |
| Non-interest  bearing notes to CNH, in varying monthly installments, various maturity dates  through February 2010, secured by parts                                                                      |       | 534,242                    |       | 1,162,146                  |       |
|                                                                                                                                                                                                           |       |                       |       |                       |       |
| Fixed rate notes  payable to Ford Motor Credit and GMAC, (5.99% to 9.85%), due in monthly  installments including interest and various maturity dates through  September 2013, secured by vehicles        |       | 497,821                    |       | 291,428                    |       |
|                                                                                                                                                                                                           |       |                       |       |                       |       |
| Fixed rate note  to Avoca Implement and Greenfield Implement 10.0%, monthly payments of  $18,920, matures January 2011, secured by equipment                                                              |       | 641,989                    |       | 759,080                    |       |
|                                                                                                                                                                                                           |       |                       |       |                       |       |
| Fixed rate note  to Textron Financial, 7.09%, monthly payments of $4,969, matures  January 2018, secured by a company asset                                                                               |       | 533,742                    |       | 549,583                    |       |
|                                                                                                                                                                                                           |       |                       |       |                       |       |
| Other, 6.5% -  7.25%, various maturity dates through January 2015, secured by equipment                                                                                                                   |       | 518,709                    |       | —                     |       |
|                                                                                                                                                                                                           |       |                       |       |                       |       |
| Notes paid in  full during nine month period ended October 31, 2008                                                                                                                                       |       | —                     |       | 14,021,958                 |       |
|                                                                                                                                                                                                           |       |                       |       |                       |       |
|                                                                                                                                                                                                           |       | 3,816,432                  |       | 18,736,635                 |       |
| Less current  maturities                                                                                                                                                                                       |       | (1,109,274                 | )          | (5,653,840                 | )          |
|                                                                                                                                                                                                           |       |                       |       |                       |       |
|                                                                                                                                                                                                           |       | $                          | 2,707,158  |                       | $          | 13,082,795 |   |

 

Long-term debt maturitiesare as follows:

 
| **12 Months Ending October 31,** | ** ** | **Amount** | ** ** |
|------------------------------------------------------|------------|------------|------------|
|                                                 |       |       |       |
| 2009                                                 |       | $          | 1,109,274  |   |
| 2010                                                 |       | 695,740    |       |
| 2011                                                 |       | 815,139    |       |
| 2012                                                 |       | 572,357    |       |
| 2013                                                 |       | 140,900    |       |
| Thereafter                                           |       | 483,022    |       |
|                                                 |       | $          | 3,816,432  |   |

 

**NOTE 5 -  SUBORDINATED DEBENTURES**

 

During the first quarterof the current fiscal year the Company repaid all $1,300,000 subordinateddebentures that were outstanding as of January 31, 2008.

 

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**NOTE 6 -  STOCKWARRANTS, STOCK OPTIONS AND RESTRICTED STOCK**

 

*CommonStock Warrants*

 

In April 2003, theCompany issued stock warrants to Cherry Tree Securities, LLC, whose chairman isa director of the Company, for 11,917 shares of common stock at an exerciseprice of $3.00 per share. The warrants terminate on April 7, 2013.  In August 2004, the Company issued anadditional 6,071 stock warrants to Cherry Tree Securities at an exercise priceof $3.50 per share.  These warrantsterminate on July 1, 2014.

 

In addition, the Companyissued stock warrants in April 2005 to an outside party for 115,650 sharesof common stock at an exercise price of $3.50 per share. These warrants expireon April 7, 2013.

 

The following is asummary of outstanding stock purchase warrants as of October 31, 2008:

 
| **Issue Date** | ** ** | **Number** | ** ** | **Exercise  Price** | ** ** | **Fair Value  Assigned** | ** ** | **Purpose of Issuance** | ** ** |
|---------------------|------------|------------|------------|---------------------|------------|-------------------------------|------------|-----------------------------------|------------|
| April 2003     |       | 11,917     |       | $                   | 3.00       |                          | $          | 11,200                            |       | Facilitate preferred stock issuance |   |
| August 2004    |       | 6,071      |       | $                   | 3.50       |                          | $          | 6,600                             |       | Facilitate preferred stock issuance |   |
| April 2005     |       | 115,650    |       | $                   | 3.50       |                          | $          | 126,000                           |       | Subordinated debt financing transaction |   |
|                |       | 133,638    |       |                |       |                          |       |                              |       |

 

Outstanding stockwarrants are valued using the Black-Scholes option pricing model. Assumptionsused to value the warrants are similar to those used in valuing the stockoptions as described below. Warrants issued in conjunction with a debt offeringare valued and classified as Additional Paid-In Capital per AccountingPrinciples Board No. 14 *Accounting for ConvertibleDebt and Debt Issued with Stock Purchase Warrants*.

 

*StockAward Plans*

 

TheCompany implemented the 2005 Equity Incentive Plan, a stock-based compensationplan (the “Plan”), during the year ended January 31, 2006. In August 2007,the Plan was amended to increase the number of shares available under the Planfrom 500,000 to 1,000,000 shares. The purpose of the Plan is to provideincentive compensation to participants for services that have been or will beperformed for continuing as employees or members of the Board of Directors ofthe Company. Under the Plan, the Company may grant incentive stock options,non-qualified stock options and restricted stock for up to 1,000,000 shares of commonstock under all forms of awards. The Company accounts for stock options andrestricted stock using the fair value method under SFAS 123(R). Shares issuedfor stock-based awards may be either authorized but unissued shares, or sharesof treasury stock acquired in the open market.

 

Compensation cost chargedto operations under the equity incentive plan was $487,696 for the nine monthsended October 31, 2008 and $122,355 for the nine months ended October 31,2007. The income tax benefit recognized from all stock based compensationarrangements was $198,700 for the nine months ended October 31, 2008 and$47,800 for the nine months ended October 31, 2007.

 

*StockOptions*

 

The Company grants stockoptions as part of its long-term incentive compensation to employees and members of the Board of Directors of theCompany. Stock options vest over a period of four to six years for employeesand immediately for members of the Board of Directors and have contractualterms of five to ten years.

 

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Thefollowing table summarizes stock option activity for the nine months ended October 31,2008:

 
| ** **                                    | ** ** | **Number of  Options** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|-----------------------------------------------|------------|-----------------------------|------------|----------------------------------------|------------|---------------------------------|------------|
|                                          |       |                        |       |                                   |       |                            |       |
| Outstanding at  January 31, 2008         |       | 483,252                     |       | $                                      | 7.43       |                            |       |   |
| Granted                                       |       | 158,500                     |       | 20.86                                  |       |                            |       |
| Exercised                                     |       | (6,667                      | )          | 6.00                                   |       |                            |       |
| Forfeited                                     |       | (16,665                     | )          | 7.50                                   |       |                            |       |
| Outstanding at  October 31, 2008         |       | 618,420                     |       | $                                      | 10.89      |                            | $          | 2,281,045 |   |
|                                          |       |                        |       |                                   |       |                            |       |
| Options  exercisable at October 31, 2008 |       | 71,587                      |       | $                                      | 4.85       |                            | $          | 538,728 |   |

 

The aggregate intrinsicvalue of stock options exercised was $151,669 for the nine months ended October 31,2008. There were no options exercised for the nine months ended October 31,2007. The weighted average grant date fair value of stock options granted was$8.98 and $3.24 for the nine months ended October 31, 2008 and 2007.

 

Thefair value of each stock option granted is estimated using the Black-Scholespricing model. The following assumptions were made in estimating fair value:

 
| ** **                | ** ** | **For the Nine Months Ended October 31,** | ** ** |
|---------------------------|------------|-------------------------------------------------------------------------|------------|
| **Assumption**            | ** ** | **2008**                                                                | ** ** | **2007** | ** ** |
| Dividend Yield            |       | 0                                                                       | %          | 0 | % |
| Risk-free  interest rate  |       | 3.0 - 3.6                                                               | %          | 4.9 | % |
| Expected life of  options |       | 6.75 - 8 years                                                          |       | 10 years |   |
| Expected  volatility      |       | 34 - 38                                                                 | %          | 22 | % |

 

Prior to the Company’sinitial public offering the expected volatility was based upon management’sbest estimate of the value of the shares based upon the Company’s internalmarket. Due to the limited historical stock price data available since ourinitial public offering, the Company currently estimates its volatility using ablended rate based on quoted market prices of our stock and other similarcompanies determined by Company management. The expected life of options isestimated consistent with the “simplified” method identified in SAB 107, theuse of which was extended by SAB 110. The simplified method calculates theexpected term as the average of the vesting and contractual terms of the award.The risk-free interest rate assumption is based on observed interest ratesappropriate for the term of the options. The Company uses historical data toestimate pre-vesting option forfeitures and records share-based compensationexpense only for those awards that are expected to vest. The Company recognizesthe fair value of stock options as compensation expense ratably over thevesting period of the award.

 

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The following is asummary of information related to options outstanding and exercisable at October 31,2008:

 
| ** **                          | ** ** | **Options Outstanding** | ** ** | **Options Exercisable**                                     | ** ** |
|-------------------------------------|------------|------------------------------|------------|------------------------------------------------------------------|------------|
| **Range of  Exercise  Prices** | ** ** | **Number**                   | ** ** | **Weighted  Average  Remaining  Contractual  Life (Years)** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Number** | ** ** | **Weighted  Average  Remaining  Contractual  Life (Years)** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
| $                                   | 4.00-4.50  |                         | 124,920    |                                                             | 7.6        |   | $ | 4.46 |   | 61,586 |   | 7.6 |   | $ | 4.42 |   |
| 7.50-9.35                           |       | 335,000                      |       | 7.6                                                              |       | 8.56 |   | 10,001 |   | 8.7 |   | 7.50 |   |
| 11.57-16.40                         |       | 25,000                       |       | 9.7                                                              |       | 13.50 |   | — |   | — |   | — |   |
| 21.21-26.84                         |       | 133,500                      |       | 9.7                                                              |       | 22.24 |   | — |   | — |   | — |   |
|                                |       | 618,420                      |       | 8.2                                                              |       | 10.89 |   | 71,587 |   | 7.8 |   | 4.85 |   |
|                                     |            |                              |            |                                                                  |            |  |  |  |  |  |  |  |  |  |  |  |

 

As of October 31,2008 there was $2,214,083 of unrecognized compensation cost on non-vested stockoptions that is expected to be recognized over a weighted-average period of 4.9years.

 

*RestrictedStock*

 

The Company grantsrestricted shares of common stock in addition to stock options as part of itslong-term incentive compensation to employees and members of the Board of Directors of the Company. The fair value ofrestricted stock awards is determined based on the closing market price of ourstock on the business day prior to the date of grant. Restricted stock awardsvest over a period of three to six years for employees and over one year formembers of the Board of Directors.

 

The following tablesummarizes restricted stock activity for the nine months ended October 31,2008:

 
| ** **                            | ** ** | **Shares** | ** ** | **Weighted  Average  Grant Date  Fair Value** | ** ** | **Weighted  Average  Remaining  Contractual  Term** | ** ** |
|---------------------------------------|------------|------------|------------|---------------------------------------------------------|------------|-----------------------------------------------------|------------|
| Outstanding at  January 31, 2008 |       | 76,506     |       | $                                                       | 7.86       |                                                | 3.2        |   |
| Granted                               |       | 14,365     |       | 20.40                                                   |       |                                                |       |
| Forfeited                             |       | (1,964     | )          | 9.95                                                    |       |                                                |       |
| Issued                                |       | (2,715     | )          | 4.87                                                    |       |                                                |       |
| Outstanding at  October 31, 2008 |       | 86,192     |       | 9.99                                                    |       | 2.2                                                 |       |
|                                       |            |            |            |                                                         |            |                                                     |            |  |

 

The Company recognizescompensation expense ratably over the vesting period of the restricted stock. Theweighted average grant date fair value of restricted stock granted was $20.40and $7.50 during the nine months ended October 31, 2008 and 2007. As of October 31,2008, there was $502,419 of unrecognized compensation cost on non-vestedrestricted stock that is expected to be recognized over a weighted-averageperiod of 2.2 years.

 

**NOTE 7 -  BUSINESS COMBINATIONS**

 

The Company continued toimplement its strategy of consolidating dealerships in desired market areas.Below is a summary of the acquisitions completed for the nine months ended October 31,2008. In certain of its business combination transactions the Companyrecognizes goodwill. Factors contributing to the recognition of goodwillinclude an evaluation of enterprise value, historical financial performance,estimated industry potential within the market and the market territoryrelationship to other existing and future planned Company locations. Pro formaresults are not presented as the acquisitions are not 

 

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considered material,individually or in aggregate, to the Company. The results of operations of theacquired entities disclosed below have been included in the Company’sconsolidated results of operations since each of the respective dates ofacquisition.

 

*CeresEquipment*

 

On February 1, 2008,the Company acquired certain assets of Ceres Equipment, Inc. TheDealership is located in Roseau, Minnesota and is contiguous to existingmarkets. The acquisition increases the Company’s market share in the northwestarea of Minnesota. The total cash purchase price for the dealership was$3,940,380. The Company expects the allocation of the purchase price to befinalized during the fiscal year ending January 31, 2009.

 

*QuadCounty Implement*

 

On May 1, 2008, theCompany acquired 100% of the outstanding stock of Quad County Implement, Inc.and subsequently merged the acquired entity into our Company. The Dealership islocated in Blairstown, Iowa and is contiguous to existing markets. Theacquisition increases the Company’s market share in central Iowa. The totalcash purchase price for the dealership was $2,000,000. The Company expects theallocation of the purchase price to be finalized within one year of theacquisition date.

 

*Mid-LandEquipment Company*

 

On May 28, 2008, theCompany acquired certain assets of Mid-Land Equipment Company, L.C. Theacquired entity consisted of six construction equipment stores located in DesMoines, Davenport, Clear Lake and Cedar Rapids, Iowa, and Omaha and Lincoln,Nebraska. These stores are contiguous to existing markets in South Dakota andoverlay the existing agricultural locations in Iowa. The total cash purchaseprice for the dealership was $14,389,029. The Company expects the allocation ofthe purchase price to be finalized within one year of the acquisition date.

 

*Wolf’sFarm Equipment*

 

On September 12,2008, the Company acquired certain assets of Wolf’s Farm Equipment, Inc. TheDealership is located in Kintyre, North Dakota and is contiguous to existingmarkets. The total cash purchase price for the dealership was $585,885. TheCompany expects the allocation of the purchase price to be finalized within oneyear of the acquisition date.

 

*PioneerGarage*

 

On October 1, 2008,the Company acquired certain assets of Pioneer Garage, Inc. The acquiredentity consisted of three agricultural equipment stores located in Pierre,Highmore, and Miller, South Dakota. These stores are contiguous to existingmarkets in South Dakota. The total cash purchase price for the dealership was$5,480,770. The Company expects the allocation of the purchase price to befinalized within one year of the acquisition date.

 

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The allocation of thepurchase price in the above business combinations is presented in the followingtable:

 
| ** **               | ** ** | ** **    | ** ** | ** **    | ** ** | ** **    | ** ** | ** **           | ** ** | ** **  | ** ** | **Prior**       | ** ** | ** ** | ** ** |
|--------------------------|------------|---------------|------------|---------------|------------|---------------|------------|----------------------|------------|-------------|------------|-----------------|------------|------------|------------|
| ** **               | ** ** | ** **    | ** ** | **Quad**      | ** ** | **Mid-Land**  | ** ** | ** **           | ** ** | ** **  | ** ** | **Acquisition** | ** ** | ** ** | ** ** |
| ** **               | ** ** | **Ceres**     | ** ** | **County**    | ** ** | **Equipment** | ** ** | **Wolf’s Farm** | ** ** | **Pioneer** | ** ** | **Purchase**    | ** ** | ** ** | ** ** |
| ** **               | ** ** | **Equipment** | ** ** | **Implement** | ** ** | **Company**   | ** ** | **Equipment**        | ** ** | **Garage**  | ** ** | **Adjustments** | ** ** | **Total**  | ** ** |
| Receivables              |       | $             | —     |          | $          | 336,043       |       | $                    | 918,633    |        | $          | —          |       | $          | 400        |   | $ | — |   | $ | 1,255,076 |   |
| Inventories              |       | 3,407,622     |       | 4,730,248     |       | 10,086,937    |       | 385,570              |       | 7,100,612   |       | (66,520         | )          | 25,644,469 |       |
| Deferred income  taxes   |       | —        |       | —        |       | —        |       | —               |       | —      |       | 26,275          |       | 26,275     |       |
| Property and  equipment  |       | 472,600       |       | 516,725       |       | 4,354,291     |       | 173,550              |       | 1,400,200   |       | —          |       | 6,917,366  |       |
| Intangible Assets        |       | —        |       | —        |       | —        |       | —               |       | 250,000     |       | —          |       | 250,000    |       |
| Goodwill                 |       | 233,178       |       | 236,659       |       | 259,076       |       | 26,765               |       | 1,098,995   |       | 40,245          |       | 1,894,918  |       |
|                     |       |          |       |          |       |          |       |                 |       |        |       |            |       |       |       |
|                     |       | $             | 4,113,400  |          | $          | 5,819,675     |       | $                    | 15,618,937 |        | $          | 585,885         |       | $          | 9,850,207  |   | $ | — |   | $ | 35,988,104 |   |
|                     |       |          |       |          |       |          |       |                 |       |        |       |            |       |       |       |
| Accounts payable         |       | $             | —     |          | $          | 263,607       |       | $                    | 81,981     |        | $          | —          |       | $          | 4,000      |   | $ | — |   | $ | 349,588 |   |
| Floorplan notes  payable |       | —        |       | 2,213,067     |       | 1,147,927     |       | —               |       | 4,115,437   |       | —          |       | 7,476,431  |       |
| Customer deposits        |       | 173,020       |       | 218,412       |       | —        |       | —               |       | —      |       | —          |       | 391,432    |       |
| Accrued expenses         |       | —        |       | 43,138        |       | —        |       | —               |       | —      |       | —          |       | 43,138     |       |
| Income taxes  payable    |       | —        |       | 242,254       |       | —        |       | —               |       | —      |       | —          |       | 242,254    |       |
| Long-term debt           |       | —        |       | 485,192       |       | —        |       | —               |       | 250,000     |       | —          |       | 735,192    |       |
| Deferred income  taxes   |       | —        |       | 354,005       |       | —        |       | —               |       | —      |       | —          |       | 354,005    |       |
|                     |       |          |       |          |       |          |       |                 |       |        |       |            |       |       |       |
|                     |       | $             | 173,020    |          | $          | 3,819,675     |       | $                    | 1,229,908  |        | $          | —          |       | $          | 4,369,437  |   | $ | — |   | $ | 9,592,040 |   |
|                     |       |          |       |          |       |          |       |                 |       |        |       |            |       |       |       |
| Consideration  given     |       | $             | 3,940,380  |          | $          | 2,000,000     |       | $                    | 14,389,029 |        | $          | 585,885         |       | $          | 5,480,770  |   | $ | — |   | $ | 26,396,064 |   |

 

Of the total goodwill of$1,894,918 recorded in the acquisition transactions during the nine monthsended October 31, 2008, $1,658,259 is expected to be deductible for taxpurposes.

 

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| **ITEM  2.** | **MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION  AND RESULTS OF OPERATIONS** |
|--------------|-------------------------------------------------------------------------------------------------|

** **

Thefollowing discussion and analysis of our financial condition and results ofoperations should be read in conjunction with our interim consolidatedfinancial statements and related notes included in Item 1 of Part 1 ofthis Quarterly Report, and the audited consolidated financial statements andnotes thereto and Management’s Discussion and Analysis of Financial Conditionand Results of Operations contained in our Annual Report on Form 10-K forthe year ended January 31, 2008.

 

**Critical Accounting Policies**

** **

Therehave been no material changes in our Critical Accounting Policies, as disclosedin our Annual Report on Form 10-K for the year ended January 31,2008.

 

**Overview**

** **

Weown and operate one of the largest networks of full service agricultural andconstruction equipment stores in North America. We are the world’s largestretail dealer of Case IH Agriculture equipment and a major retail dealer of NewHolland Agriculture, Case Construction and New Holland Construction equipmentin the U.S. We sell and rent agricultural and construction equipment, sellparts, and service the equipment operating in the areas surrounding our stores.

 

Our net income was $8.2million, or $0.45 per diluted share, in the quarter ended October 31,2008, compared to $2.7 million, or $0.36 per diluted share, in the quarterended October 31, 2007.  Significantfactors impacting the quarter were:

 

***·***                  Strong revenue growth due to acquisitions andincreased same-store sales;

*** ***

***·***                  Increase in gross profits primarily due to increasedrevenues and stronger margins on equipment sales;

*** ***

***·***                  Increase in operating expenses primarily due toacquisitions and increased revenues; and

*** ***

***·***                  Significantly higher diluted weighted average sharesresulting from our two offerings, which negatively impacts earnings per sharecomparisons to the prior year.

*** ***

**Results of Operations**

** **

Comparative financialdata for each of our four sources of revenue are expressed below. The resultsfor these periods include the operating results of the acquisitions made duringthese periods. The period-to-period comparisons included below are notnecessarily indicative of future results:

 

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| ** **                            | ** ** | **Three Months Ended October 31,** | ** ** | **Nine Months Ended October 31,** | ** ** |
|---------------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|
| ** **                            | ** ** | ** **                              | ** ** | ** **                             | ** ** | **Percent** | ** ** | ** ** | ** ** | ** ** | ** ** | **Percent** | ** ** |
| ** **                            | ** ** | **2008**                                | ** ** | **2007**                               | ** ** | **Change** | ** ** | **2008** | ** ** | **2007** | ** ** | **Change** | ** ** |
| ** **                            | ** ** | **(dollars in thousands)**              | ** ** | ** **                             | ** ** | **(dollars in thousands)** | ** ** | ** ** | ** ** |
| Equipment                             |       |                                    |       |                                   |       |   |   |   |   |   |   |   |   |
| Revenue                               |       | $                                       | 167,950    |                                   | $          | 103,372 |   | 62.5 | % | $ | 386,705 |   | $ | 225,854 |   | 71.2 | % |
| Cost of revenue                       |       | 148,678                                 |       | 93,799                                 |       | 58.5 | % | 343,582 |   | 204,332 |   | 68.1 | % |
| Gross profit                          |       | $                                       | 19,272     |                                   | $          | 9,573 |   | 101.3 | % | $ | 43,123 |   | $ | 21,522 |   | 100.4 | % |
|                                  |       |                                    |       |                                   |       |   |   |   |   |   |   |   |   |
| Parts                                 |       |                                    |       |                                   |       |   |   |   |   |   |   |   |   |
| Revenue                               |       | $                                       | 29,794     |                                   | $          | 18,384 |   | 62.1 | % | $ | 74,910 |   | $ | 45,560 |   | 64.4 | % |
| Cost of revenue                       |       | 20,638                                  |       | 13,652                                 |       | 51.2 | % | 53,121 |   | 33,668 |   | 57.8 | % |
| Gross profit                          |       | $                                       | 9,156      |                                   | $          | 4,732 |   | 93.5 | % | $ | 21,789 |   | $ | 11,892 |   | 83.2 | % |
|                                  |       |                                    |       |                                   |       |   |   |   |   |   |   |   |   |
| Service                               |       |                                    |       |                                   |       |   |   |   |   |   |   |   |   |
| Revenue                               |       | $                                       | 12,894     |                                   | $          | 7,897 |   | 63.3 | % | $ | 32,626 |   | $ | 20,939 |   | 55.8 | % |
| Cost of revenue                       |       | 5,019                                   |       | 2,843                                  |       | 76.5 | % | 12,344 |   | 7,731 |   | 59.7 | % |
| Gross profit                          |       | $                                       | 7,875      |                                   | $          | 5,054 |   | 55.8 | % | $ | 20,282 |   | $ | 13,208 |   | 53.6 | % |
|                                  |       |                                    |       |                                   |       |   |   |   |   |   |   |   |   |
| Other, including  trucking and rental |       |                                    |       |                                   |       |   |   |   |   |   |   |   |   |
| Revenue                               |       | $                                       | 3,322      |                                   | $          | 2,518 |   | 31.9 | % | $ | 7,207 |   | $ | 5,457 |   | 32.1 | % |
| Cost of revenue                       |       | 2,279                                   |       | 1,493                                  |       | 52.6 | % | 5,027 |   | 3,534 |   | 42.2 | % |
| Gross profit                          |       | $                                       | 1,043      |                                   | $          | 1,025 |   | 1.8 | % | $ | 2,180 |   | $ | 1,923 |   | 13.4 | % |

 

The following table setsforth our statements of operations data expressed as a percentage of netrevenue for the periods indicated:

 
| ** **                            | ** ** | **Three Months Ended October 31,** | ** ** | **Nine Months Ended October 31,** | ** ** |
|---------------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|
| ** **                            | ** ** | **2008**                                | ** ** | **2007**                               | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                  |       |                                    |       |                                   |       |   |   |   |   |
| Revenue                               |       |                                    |       |                                   |       |   |   |   |   |
| Equipment                             |       | 78.5                                    | %          | 78.2                                   | %          | 77.1 | % | 75.9 | % |
| Parts                                 |       | 13.9                                    | %          | 13.9                                   | %          | 15.0 | % | 15.3 | % |
| Service                               |       | 6.0                                     | %          | 6.0                                    | %          | 6.5 | % | 7.0 | % |
| Other, including  trucking and rental |       | 1.6                                     | %          | 1.9                                    | %          | 1.4 | % | 1.8 | % |
| Total revenue                         |       | 100.0                                   | %          | 100.0                                  | %          | 100.0 | % | 100.0 | % |
|                                  |       |                                    |       |                                   |       |   |   |   |   |
| Cost of revenue                       |       |                                    |       |                                   |       |   |   |   |   |
| Equipment                             |       | 69.5                                    | %          | 71.0                                   | %          | 68.5 | % | 68.6 | % |
| Parts                                 |       | 9.6                                     | %          | 10.3                                   | %          | 10.6 | % | 11.3 | % |
| Service                               |       | 2.3                                     | %          | 2.2                                    | %          | 2.5 | % | 2.6 | % |
| Other, including  trucking and rental |       | 1.1                                     | %          | 1.1                                    | %          | 1.0 | % | 1.2 | % |
| Total cost of  revenue                |       | 82.5                                    | %          | 84.6                                   | %          | 82.6 | % | 83.7 | % |
|                                  |       |                                    |       |                                   |       |   |   |   |   |
| Gross profit                          |       | 17.5                                    | %          | 15.4                                   | %          | 17.4 | % | 16.3 | % |
|                                  |       |                                    |       |                                   |       |   |   |   |   |
| Operating  expenses                   |       | 10.8                                    | %          | 10.9                                   | %          | 12.1 | % | 12.0 | % |
|                                  |       |                                    |       |                                   |       |   |   |   |   |
| Income from  operations               |       | 6.7                                     | %          | 4.5                                    | %          | 5.3 | % | 4.3 | % |

 

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*Table of Contents*

* *

***Three Months Ended October 31,2008 Compared to Three Months Ended October 31, 2007***

* *

*Revenue*

 
| ** **                            | ** ** | **Three months ended**     | ** ** | **Three months ended**    | ** ** | ** **   | ** ** | **Percent** | ** ** |
|---------------------------------------|------------|----------------------------|------------|---------------------------|------------|--------------|------------|-------------|------------|
| ** **                            | ** ** | **October 31, 2008**  | ** ** | **October 31, 2007** | ** ** | **Increase** | ** ** | **Change**  | ** ** |
| ** **                            | ** ** | **(dollars in thousands)** | ** ** | ** **                | ** ** |
| Total Revenue                         |       | $                          | 213,960    |                      | $          | 132,171      |       | $           | 81,789     |   | 61.9 | % |
| Equipment                             |       | $                          | 167,950    |                      | $          | 103,372      |       | $           | 64,578     |   | 62.5 | % |
| Parts                                 |       | $                          | 29,794     |                      | $          | 18,384       |       | $           | 11,410     |   | 62.1 | % |
| Service                               |       | $                          | 12,894     |                      | $          | 7,897        |       | $           | 4,997      |   | 63.3 | % |
| Other, including  trucking and rental |       | $                          | 3,322      |                      | $          | 2,518        |       | $           | 804        |   | 31.9 | % |

* *

The increase in revenuefor the three months ended October 31, 2008 was due to acquisitionscontributing to current period revenue and same-store sales growth.  Acquisitions contributed $47.3 million intotal revenue, or 57.8% of the total revenue increase, while same-store salesgrowth contributed $34.5 million, or 42.2% of the increase.  Same-store sales increased 26.1% over thesame period of the prior year, which is indicative of the strong market for ourproducts, particularly in the area of equipment sales.  The calculation of same-store sales includesfiscal 2008 third quarter sales of $16.0 million from a special manufacturerleasing program that was discussed in our Quarterly Report on Form 10-Qfor the third quarter of fiscal year 2008. We did not conduct the same program in the current year but do enterinto various other manufacturer programs from time to time.

 

We believe that thecurrent quarter results significantly benefited from a particularly strongagricultural market and believe the same-store sale growth rates achieved inthe current quarter are not indicative of future same-store sale growth rates.

 

*Cost of Revenue*

 
| ** **                            | ** ** | **Three months ended**     | ** ** | **Three months ended**    | ** ** | ** **   | ** ** | **Percent** | ** ** |
|---------------------------------------|------------|----------------------------|------------|---------------------------|------------|--------------|------------|-------------|------------|
| ** **                            | ** ** | **October 31, 2008**  | ** ** | **October 31, 2007** | ** ** | **Increase** | ** ** | **Change**  | ** ** |
| ** **                            | ** ** | **(dollars in thousands)** | ** ** | ** **                | ** ** |
| Total cost of  revenue                |       | $                          | 176,614    |                      | $          | 111,787      |       | $           | 64,827     |   | 58.0 | % |
| Equipment                             |       | $                          | 148,678    |                      | $          | 93,799       |       | $           | 54,879     |   | 58.5 | % |
| Parts                                 |       | $                          | 20,638     |                      | $          | 13,652       |       | $           | 6,986      |   | 51.2 | % |
| Service                               |       | $                          | 5,019      |                      | $          | 2,843        |       | $           | 2,176      |   | 76.5 | % |
| Other, including  trucking and rental |       | $                          | 2,279      |                      | $          | 1,493        |       | $           | 786        |   | 52.6 | % |

 

The increase in cost ofrevenue for the three months ended October 31, 2008 was primarily due toincreased revenue.  Acquisitionscontributed $39.1 million in total cost of revenue, or 60.3% of the increase,while same-store sales growth contributed $25.7 million, or 39.7% of theincrease.  The calculation of same-storesales includes fiscal 2008 third quarter cost of sales of $14.4 million from aspecial manufacturer leasing program that was discussed in the third quarter offiscal year 2008.  As a percentage ofrevenue, cost of revenue was 82.5%, compared to 84.6% for the third quarter offiscal 2008.

 

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* *

*Gross Profit*

 
| ** **                            | ** ** | **Three months ended**     | ** ** | **Three months ended**    | ** ** | ** **   | ** ** | **Percent** | ** ** |
|---------------------------------------|------------|----------------------------|------------|---------------------------|------------|--------------|------------|-------------|------------|
| ** **                            | ** ** | **October 31, 2008**  | ** ** | **October 31, 2007** | ** ** | **Increase** | ** ** | **Change**  | ** ** |
| ** **                            | ** ** | **(dollars in thousands)** | ** ** | ** **                | ** ** |
| Total Gross  Profit                   |       | $                          | 37,346     |                      | $          | 20,384       |       | $           | 16,962     |   | 83.2 | % |
| Equipment                             |       | $                          | 19,272     |                      | $          | 9,573        |       | $           | 9,699      |   | 101.3 | % |
| Parts                                 |       | $                          | 9,156      |                      | $          | 4,732        |       | $           | 4,424      |   | 93.5 | % |
| Service                               |       | $                          | 7,875      |                      | $          | 5,054        |       | $           | 2,821      |   | 55.8 | % |
| Other, including  trucking and rental |       | $                          | 1,043      |                      | $          | 1,025        |       | $           | 18         |   | 1.8 | % |

* *

The $17.0 millionincrease in gross profit for the three months ended October 31, 2008 wasprimarily due to increased revenue as well as stronger margins on equipmentsales.  Acquisitions contributed $8.1million to the gross profit comparison for the three months ending October 31,2008, which was 47.6% of the increase in total gross profit, while increases insame-store sale gross profits provided the remaining $8.9 million, or 52.4%, ofthe gross profit improvement.  Thecalculation of same-store sale gross profits includes fiscal 2008 third quartergross profits of $1.6 million from a special manufacturer leasing program thatwe discussed in our Quarterly Report on Form 10-Q for the third quarter offiscal year 2008.  Gross profit marginswere 17.5% for the third quarter of fiscal 2009, compared to 15.4% for thethird quarter of fiscal 2008.  Thecurrent strong market for our products, particularly equipment, has resulted inimproved margins compared to the prior year.

 

*Operating Expenses*

 
| ** **          | ** ** | **Three months ended**     | ** ** | **Three months ended**    | ** ** | ** **   | ** ** | **Percent** | ** ** |
|---------------------|------------|----------------------------|------------|---------------------------|------------|--------------|------------|-------------|------------|
| ** **          | ** ** | **October 31, 2008**  | ** ** | **October 31, 2007** | ** ** | **Increase** | ** ** | **Change**  | ** ** |
| ** **          | ** ** | **(dollars in thousands)** | ** ** | ** **                | ** ** |
| Operating  Expenses |       | $                          | 23,153     |                      | $          | 14,380       |       | $           | 8,773      |   | 61.0 | % |
|                     |            |                            |            |                           |            |              |            |             |            |  |  |  |

* *

The $8.8 millionincrease in operating expenses was primarily due to the additional costsassociated with acquisitions such as compensation, rent and depreciation.  Other costs contributing to higher operatingexpenses were increased sales commission expenses (resulting from increasedgross profits), increased stock option expense and, to a lesser extent,additional costs associated with being a public company, such as increasedlegal and accounting costs related to regulatory compliance, particularlySarbanes-Oxley compliance.  As a percentageof total revenue, operating expenses remained relatively flat at 10.8% for thethird quarter of fiscal 2009 compared to 10.9% for the third quarter of fiscal2008.  Strong third quarter salesresulted in improved fixed operating expense utilization as a percentage ofsales but much of this was offset by increased commission expense as apercentage of sales, which resulted from stronger current year equipmentmargins.

 

*Other Income (Expense)*

 
| ** **                  | ** ** | **Three months ended**     | ** ** | **Three months ended**    | ** ** | **Increase/**  | ** ** | **Percent** | ** ** |
|-----------------------------|------------|----------------------------|------------|---------------------------|------------|----------------|------------|-------------|------------|
| ** **                  | ** ** | **October 31, 2008**  | ** ** | **October 31, 2007** | ** ** | **(Decrease)** | ** ** | **Change**  | ** ** |
| ** **                  | ** ** | **(dollars in thousands)** | ** ** | ** **                | ** ** |
| Interest and  other income  |       | $                          | 497        |                      | $          | 120            |       | $           | 377        |   | 314.2 | % |
| Floorplan  interest expense |       | $                          | (783       | )                         | $          | (974           | )          | $           | (191       | ) | (19.6 | )% |
| Interest expense            |       | $                          | (47        | )                         | $          | (691           | )          | $           | (644       | ) | (93.2 | )% |

 

Interest and otherincome increased in the current quarter due to the higher level of cash, cashequivalents and U.S. Treasury Bills in the current three month period comparedto the prior year three month period. The decrease in floorplan interest of $0.2 million was primarily due tolower borrowing rates compared to the prior year quarter.  We anticipate favorable floorplan borrowingrates to continue for the remainder of the current fiscal year as compared tothe previous year.  The decrease ininterest expense was primarily due to lower debt levels resulting from theretirement of all subordinated debentures as well as the early extinguishmentof a portion of our long-term debt.  Thisdebt reduction will continue to result in lower interest expense throughoutfiscal 2009 compared to that of fiscal year 2008.

 

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*Provision for Income Taxes*

 
| ** **                  | ** ** | **Three months ended**     | ** ** | **Three months ended**    | ** ** | ** **   | ** ** | **Percent** | ** ** |
|-----------------------------|------------|----------------------------|------------|---------------------------|------------|--------------|------------|-------------|------------|
| ** **                  | ** ** | **October 31, 2008**  | ** ** | **October 31, 2007** | ** ** | **Increase** | ** ** | **Change**  | ** ** |
| ** **                  | ** ** | **(dollars in thousands)** | ** ** | ** **                | ** ** |
| Provision for  income taxes |       | $                          | 5,675      |                      | $          | 1,745        |       | $           | 3,930      |   | 225.2 | % |
|                             |            |                            |            |                           |            |              |            |             |            |  |  |  |

* *

The effective tax rateincreased to 40.9% for the three months ended October 31, 2008 from 39.1%for the three months ended October 31, 2007.  The increase in the effective tax rate fromthe prior year primarily reflects the changing mix of sales originating instates with higher tax rates.  The salesmix change was significantly impacted by current and prior yearacquisitions.  Increases in permanent taxdifferences, such as those arising from the expensing of stock options, alsocontributed to the increase in effective tax rate.

 

***Nine Months Ended October 31,2008 Compared to Nine Months Ended October 31, 2007***

* *

*Revenue*

 
| ** **                            | ** ** | **Nine Months Ended**      | ** ** | **Nine Months Ended** | ** ** | ** **   | ** ** | **Percent** | ** ** |
|---------------------------------------|------------|----------------------------|------------|-----------------------|------------|--------------|------------|-------------|------------|
| ** **                            | ** ** | **October 31, 2008**       | ** ** | **October 31, 2007**  | ** ** | **Increase** | ** ** | **Change**  | ** ** |
| ** **                            | ** ** | **(dollars in thousands)** | ** ** | ** **            | ** ** |
| Total Revenue                         |       | $                          | 501,448    |                  | $          | 297,810      |       | $           | 203,638    |   | 68.4 | % |
| Equipment                             |       | $                          | 386,705    |                  | $          | 225,854      |       | $           | 160,851    |   | 71.2 | % |
| Parts                                 |       | $                          | 74,910     |                  | $          | 45,560       |       | $           | 29,350     |   | 64.4 | % |
| Service                               |       | $                          | 32,626     |                  | $          | 20,939       |       | $           | 11,687     |   | 55.8 | % |
| Other, including  trucking and rental |       | $                          | 7,207      |                  | $          | 5,457        |       | $           | 1,750      |   | 32.1 | % |

 

The increase in revenuefor the nine months ended October 31, 2008 was due to acquisitionscontributing to current period revenue and same-store sales growth.  Acquisitions contributed $135.1 million intotal revenue, or 66.4% of the increase, while same-store sales growthcontributed $68.5 million, or 33.6% of the increase.  Same-store sales increased 25.3% over theprior year, which is indicative of the strong market for our products,particularly in the area of equipment sales. The calculation of same-store sales includes fiscal 2008 third quartersales of $16.0 million from a special manufacturer leasing program that wasdiscussed in our Quarterly Report on Form 10-Q for the third quarter offiscal year 2008.  We did not conduct thesame program in the current year but do enter into various other manufacturerprograms from time to time.

 

We believe that thecurrent year nine month results significantly benefited from a particularlystrong agricultural market and believe the same-store sale growth ratesachieved in the current fiscal year are not indicative of future same-storesale growth rates.

 

*Cost of Revenue*

 
| ** **                            | ** ** | **Nine Months Ended**      | ** ** | **Nine Months Ended**     | ** ** | ** **   | ** ** | **Percent** | ** ** |
|---------------------------------------|------------|----------------------------|------------|---------------------------|------------|--------------|------------|-------------|------------|
| ** **                            | ** ** | **October 31, 2008**  | ** ** | **October 31, 2007** | ** ** | **Increase** | ** ** | **Change**  | ** ** |
| ** **                            | ** ** | **(dollars in thousands)** | ** ** | ** **                | ** ** |
| Total cost of  revenue                |       | $                          | 414,074    |                      | $          | 249,265      |       | $           | 164,809    |   | 66.1 | % |
| Equipment                             |       | $                          | 343,582    |                      | $          | 204,332      |       | $           | 139,250    |   | 68.1 | % |
| Parts                                 |       | $                          | 53,121     |                      | $          | 33,668       |       | $           | 19,453     |   | 57.8 | % |
| Service                               |       | $                          | 12,344     |                      | $          | 7,731        |       | $           | 4,613      |   | 59.7 | % |
| Other, including  trucking and rental |       | $                          | 5,027      |                      | $          | 3,534        |       | $           | 1,493      |   | 42.2 | % |

* *

The increase in cost ofrevenue for the nine months ended October 31, 2008 was primarily due toincreased revenue.  Acquisitionscontributed $111.1 million in total cost of revenue, or 67.4% of the increase,while same-store sales growth contributed $53.7 million, or 32.6% of the increase.  The calculation of same-store sales includesfiscal 2008 third quarter cost of sales of $14.4 million from a specialmanufacturer leasing program that was discussed in the third quarter of fiscalyear 2008.  

 

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*Table of Contents*

* *

*As a percentage of revenue, cost of revenue was 82.6% forthe nine month period of fiscal 2009, compared to 83.7% for the nine months offiscal 2008.*

* *

*Gross Profit*

 
| ** **                            | ** ** | **Nine Months Ended**      | ** ** | **Nine Months Ended**     | ** ** | ** **   | ** ** | **Percent** | ** ** |
|---------------------------------------|------------|----------------------------|------------|---------------------------|------------|--------------|------------|-------------|------------|
| ** **                            | ** ** | **October 31, 2008**  | ** ** | **October 31, 2007** | ** ** | **Increase** | ** ** | **Change**  | ** ** |
| ** **                            | ** ** | **(dollars in thousands)** | ** ** | ** **                | ** ** |
| Total Gross  Profit                   |       | $                          | 87,374     |                      | $          | 48,545       |       | $           | 38,829     |   | 80.0 | % |
| Equipment                             |       | $                          | 43,123     |                      | $          | 21,522       |       | $           | 21,601     |   | 100.4 | % |
| Parts                                 |       | $                          | 21,789     |                      | $          | 11,892       |       | $           | 9,897      |   | 83.2 | % |
| Service                               |       | $                          | 20,282     |                      | $          | 13,208       |       | $           | 7,074      |   | 53.6 | % |
| Other, including  trucking and rental |       | $                          | 2,180      |                      | $          | 1,923        |       | $           | 257        |   | 13.4 | % |

* *

The $38.8 millionincrease in gross profit for the nine months ended October 31, 2008 wasprimarily due to increased revenue.  Acquisitions contributed $24.0 million to thegross profit comparison for the nine months ending October 31, 2008, whichwas 61.9% of the total increase in gross profit, while increases in same-storesale gross profits provided the remaining $14.8 million, or 38.1%, of the grossprofit improvement.  The calculation ofsame-store sale gross profits includes fiscal 2008 third quarter gross profitsof $1.6 million from a special manufacturer leasing program that was discussedin our Quarterly Report on Form 10-Q for the third quarter of fiscal year2008.  Gross profit margins were 17.4%for the nine months ended October 31, 2008, compared to 16.3% in the priornine-month period.  The current strongmarket for our products, particularly equipment, has resulted in improvedmargins compared to the prior year.

 

*Operating Expenses*

 
| ** **          | ** ** | **Nine Months Ended**      | ** ** | **Nine Months Ended**     | ** ** | ** **   | ** ** | **Percent** | ** ** |
|---------------------|------------|----------------------------|------------|---------------------------|------------|--------------|------------|-------------|------------|
| ** **          | ** ** | **October 31, 2008**  | ** ** | **October 31, 2007** | ** ** | **Increase** | ** ** | **Change**  | ** ** |
| ** **          | ** ** | **(dollars in thousands)** | ** ** | ** **                | ** ** |
| Operating  Expenses |       | $                          | 60,805     |                      | $          | 35,833       |       | $           | 24,972     |   | 69.7 | % |
|                     |            |                            |            |                           |            |              |            |             |            |  |  |  |

 

The increase inoperating expenses was primarily due to the additional costs associated withacquisitions such as compensation, rent and depreciation.  Other costs contributing to higher operatingexpenses were increased sales commission expenses (resulting from increasedgross profits), stock option expense and to a lesser extent additional costsassociated with being a public company, such as increased legal and accountingcosts related to regulatory compliance, particularly Sarbanes-Oxley compliance.  As a percentage of total revenue, operatingexpenses remained relatively constant at 12.1% for the first nine months offiscal 2009 compared to 12.0% for the first nine months of fiscal 2008.  Strong current year sales resulted inimproved fixed operating expense utilization as a percentage of sales but muchof this was offset by increased commission expense as a percentage of sales,which resulted from stronger current year equipment margins.

 

*Other Income (Expense)*

 
| ** **                  | ** ** | **Nine Months Ended**      | ** ** | **Nine Months Ended**     | ** ** | **Increase/**  | ** ** | **Percent** | ** ** |
|-----------------------------|------------|----------------------------|------------|---------------------------|------------|----------------|------------|-------------|------------|
| ** **                  | ** ** | **October 31, 2008**  | ** ** | **October 31, 2007** | ** ** | **(Decrease)** | ** ** | **Change**  | ** ** |
| ** **                  | ** ** | **(dollars in thousands)** | ** ** | ** **                | ** ** |
| Interest and  other income  |       | $                          | 1,257      |                      | $          | 204            |       | $           | 1,053      |   | 516.2 | % |
| Floorplan  interest expense |       | $                          | (2,082     | )                         | $          | (2,805         | )          | $           | (723       | ) | (25.8 | )% |
| Interest expense            |       | $                          | (589       | )                         | $          | (1,955         | )          | $           | (1,366     | ) | (69.9 | )% |

* *

Interest and otherincome increased $1.1 million for the nine months ended October 31, 2008due to the higher level of cash, cash equivalents and U.S. treasury bills inthe current nine month period compared to the prior year nine monthperiod.  The decrease in floorplaninterest of $0.7 million was due to lower borrowing rates compared to the prioryear nine months.  We anticipatefavorable floorplan borrowing rates to continue for the remainder of the currentfiscal year as compared to the previous year. The decrease in interest expense of $1.4 million was primarily due tolower debt levels resulting from the retirement of all subordinated debenturesas well as the early extinguishment of a portion of our long-term debt.  This debt reduction will continue to resultin lower interest expense throughout fiscal 2009 compared to that of fiscalyear 2008.

 

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*Provision for Income Taxes*

 
| ** **                  | ** ** | **Nine Months Ended**      | ** ** | **Nine Months Ended**     | ** ** | ** **   | ** ** | **Percent** | ** ** |
|-----------------------------|------------|----------------------------|------------|---------------------------|------------|--------------|------------|-------------|------------|
| ** **                  | ** ** | **October 31, 2008**  | ** ** | **October 31, 2007** | ** ** | **Increase** | ** ** | **Change**  | ** ** |
| ** **                  | ** ** | **(dollars in thousands)** | ** ** | ** **                | ** ** |
| Provision for  income taxes |       | $                          | 10,250     |                      | $          | 3,213        |       | $           | 7,037      |   | 219.0 | % |
|                             |            |                            |            |                           |            |              |            |             |            |  |  |  |

* *

The effective tax rateincreased to 40.7% for the nine months ended October 31, 2008 from 39.4%for the nine months ended October 31, 2007.  The increase in the effective tax rate fromthe prior year primarily reflects the changing mix of sales originating instates with higher tax rates.  The salesmix change was significantly impacted by current and prior yearacquisitions.  Increases in permanent taxdifferences, such as those arising from the expensing of stock options, alsocontributed to the increase in effective tax rate.

 

**Liquidity and Capital Resources**

** **

*Cash Flow from Operating Activities*

* *

For the nine months endedOctober 31, 2008, our cash flow provided by operating activities was $15.9million.  Our cash flow from operationswas primarily the result of our reported net income of $14.9 million, anincrease in long and short-term payables (including income tax payable) of$11.2 million, an increase in accrued expenses of $1.9 million, a decrease inreceivables of $2.6 million, an increase in floorplan notes of $4.6 million andan add-back of non-cash depreciation and amortization of $2.9 million.  This amount was principally offset by adecrease in customer deposits of $8.5 million and an increase in inventories of$14.1 million.  The increase in inventoryis primarily the result of our growth through acquisitions as well as abuild-up of new equipment inventory for the fourth quarter.  The increase in payables is primarily theresult of increased business activity in the current year resulting fromacquisitions and a stronger equipment market.

 

For the nine monthsended October 31, 2007, our cash flow provided by operating activities was$5.3 million.  Our cash flow fromoperations was primarily the result of our reported net income of $4.9 million,an increase in floorplan notes of $4.1 million, an increase in customerdeposits of $4.9 million, an increase in accounts payable and accrued expensesof $4.0 million and an add back of non-cash depreciation and amortization of$1.6 million.  This amount wasprincipally offset by a receivables increase of $7.8 million and an increase ininventory of $7.0 million.

 

*Cash Flow from Investing Activities*

* *

For the nine monthsended October 31, 2008, cash used for investing activities was $82.1 million.  Our cash used for investing activitiesprimarily consisted of the purchase of U.S. treasury bills of $49.9 million,equipment dealership purchases of $26.4 million and purchases of property andequipment for $6.1 million.  We beganpurchasing U.S. treasury bills in the third quarter of the current year tosafely invest our cash reserves.  Thesecond quarter $14.4 million purchase of the Mid-Land Equipment Company was themost significant cash acquisition for the current year.  Due to our higher cash levels resulting fromour public offering proceeds, the Company has been assuming fewer liabilitiesin recent acquisitions, which therefore have required higher cash payments atthe time of acquisition.

 

For the nine monthsended October 31, 2007, cash used for investing activities was $10.6million.  Our cash used for investingactivities primarily consisted of equipment dealership purchases (net of cashpurchased) of $5.0 million and purchases of property and equipment for $5.5million.

 

*Cash Flow from Financing Activities*

* *

For the nine monthsended October 31, 2008, cash provided from financing activities was $65.2million.  Cash provided by financingactivities was primarily the result of $78.8 million in net proceeds from oursecond quarter follow-on offering and an increase in non-manufacturer floorplanpayable of $3.6 million.  Partiallyoffsetting these proceeds were principal payments on long-term debt andsubordinated debentures of $17.9 million.

 

For the nine monthsended October 31, 2007, cash provided by financing activities was $1.5million.  Cash provided by financingactivities was primarily the result of proceeds from long-term debt borrowingsand subordinated debentures of $9.1 million. Partially offsetting the cash provided by financing activities wereprincipal payments on long-term debt of $4.2 million and a decrease in the netchange in non-manufacturer floorplan payables of $3.5 million.

 

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**Sources of Liquidity**

** **

Our primary sources ofliquidity are cash reserves, cash flow from operations, proceeds from ourpublic offerings, proceeds from the issuance of debt and borrowings under ourcredit facilities.  We expect thatongoing requirements for debt service and capital expenditures will be fundedfrom these sources.

 

**Adequacy of Capital Resources**

** **

Our primary uses of cashhave been to fund our strategic acquisitions, finance the purchase ofinventory, meet debt service requirements and fund operating activities,working capital, payments due under building space operating leases andmanufacturer floorplan payable.

 

Based on our currentoperational performance, we believe our cash flow from operations, the proceedsfrom our public offerings, available cash and available borrowings under theexisting credit facilities will adequately provide our liquidity needs for, ata minimum, the next 12 months.

 

**Certain Information Concerning Off-Balance SheetArrangements**

** **

We do not have anyrelationships with unconsolidated entities or financial partnerships, such asentities often referred to as structured finance or special purpose entities,which would have been established for the purpose of facilitating off-balancesheet arrangements or other contractually narrow or limited purposes. We are,therefore, not exposed to any financing, liquidity, market or credit risk thatcould arise if we had engaged in these relationships. In the normal course ofour business activities, we lease rental equipment and buildings underoperating leases.

#  

# **PRIVATESECURITIES LITIGATION REFORM ACT**

#  

The Private Securities Litigation Reform Act of 1995provides a “safe harbor” for forward-looking statements. Such “forward-looking”information is included in this Quarterly Report on Form 10-Q, includingthe MD&A section, as well as in our Annual Report on Form 10-K for theyear ended January 31, 2008 that was filed with the Securities andExchange Commission, and in other materials filed or to be filed by the Companywith the Securities and Exchange Commission (as well as information included inoral statements or other written statements made or to be made by the Company).

 

Forward-lookingstatements include all statements based on future expectations and specificallyinclude, among other things, all statements relating to (i) our beliefswith respect to market conditions, (ii) our expectations with respect toour floorplan borrowing rates, (iii) our expectations with respect tofunding debt service obligations and capital expenditures, and (iv) ourexpectations and beliefs with respect to the uses and adequacy of our capitalresources.  Any statements that are notbased upon historical facts, including the outcome of events that have not yet occurredand our expectations for future performance, are forward-lookingstatements.  The words “potential,” “believe,”“estimate,” “expect,” “intend,” “may,” “could,” “will,” “plan,” “anticipate,” and similar words and expressions areintended to identify forward-looking statements.  Such statements are based upon the currentbeliefs and expectations of our management. Such forward-looking information involves important risks anduncertainties that could significantly affect anticipated results in the futureand, accordingly, such results may differ from those expressed in anyforward-looking statements made by or on behalf of the Company.  These risks and uncertainties include, butare not limited to, adverse market conditions in the agricultural and equipmentindustries, the continuation of unfavorable conditions in the credit marketsand those matters identified and discussed in our Annual Report on Form 10-Kand in this Quarterly Report on Form 10-Q under the section titled “RiskFactors”.

 

**ITEM 3.****  QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

 

We are exposed to marketrisk from changes in interest rates. Market risk is the potential loss arisingfrom adverse changes in market rates and prices such as interest rates. Forfixed rate debt, interest rate changes affect the fair value of financialinstruments but do not impact earnings or cash flows. Conversely, for floatingrate debt, interest rate changes generally do not affect the fair value but doimpact future earnings and cash flows, assuming other factors are heldconstant.

 

Basedupon balances and interest rates as of October 31, 2008, holding othervariables constant, a one percentage point increase in interest rates for thenext 12-month period would decrease pre-tax earnings and cash flow byapproximately $732,000. Conversely, a one percentage point decrease in interestrates for the next 12-month period would result in an increase to pre-taxearnings and cash flow of approximately $732,000.  At October 31, 2008, we had variablerate floorplan notes payable of 

 

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$171.4 million, of whichapproximately $72.2 million was interest-bearing, variable notes payable andlong-term debt of $1.1 million, and fixed rate notes payable and long-term debtof $2.7 million.

 

Our policy is not toenter into derivatives or other financial instruments for trading orspeculative purposes.

 

**ITEM 4.**** ****CONTROLSAND PROCEDURES**

 

*(a)*                               *Evaluation ofdisclosure controls and procedures*. After evaluating the effectiveness of the Company’sdisclosure controls and procedures pursuant to Rule 13a-15(b) of theSecurities Exchange Act of 1934 (“the Exchange Act”) as of the end of theperiod covered by this quarterly report, our chief executive officer and chieffinancial officer with the participation of the Company’s management, haveconcluded that the Company’s disclosure controls and procedures are effectiveto ensure that information that is required to be disclosed by the Company inreports that it files under the Exchange Act is recorded, processed, summarizedand reported within the time periods specified in the rules of theSecurities Exchange Commission. Our chief executive officer and chief financialofficer, with the participation of the Company’s management, have alsoconcluded that the Company’s disclosure controls and procedures are effectiveto ensure that information required to be disclosed in reports filed orsubmitted under the Exchange Act is accumulated and communicated to management,including our principal executive officer and principal financial officer, toallow timely decisions regarding required disclosures.

 

Basedon evaluations occurring prior to the end of the period covered by thisquarterly report, our chief executive officer and chief financial officerconcluded that certain internal control deficiencies existed.  In light of these deficiencies, managementtook the actions, as discussed below, prior to and during the current fiscalnine months to address such deficiencies.

 

*(b)**                              **Changes in internalcontrols*. Therehas not been any change in the Company’s internal control over financialreporting (as defined in Rules 13a-15(f) as promulgated by theSecurities and Exchange Commission under the Exchange Act) during its mostrecently completed fiscal quarter that has materially affected, or isreasonably likely to materially affect, the Company’s internal control overfinancial reporting.  During the thirdquarter of fiscal 2009, the Company continued to implement the actionsidentified in its Form 10-Q for the Company’s third quarter of fiscal 2008relating to remediating past control deficiencies.

 

### **PART II.- OTHER INFORMATION**

###  

**ITEM 1.              LEGALPROCEEDINGS**

 

We are currently not aparty to any material pending legal proceedings.

 

**ITEM 1A.           RISKFACTORS**

 

In addition to the other information set forth inthis report, including the important information in “Private SecuritiesLitigation Reform Act,” you should carefully consider the “Risk Factors”discussed in our Form 10-K for the year ended January 31, 2008 asfiled with the United States Securities and Exchange Commission.  Those factors, if they were to occur, couldcause our actual results to differ materially from those expressed in ourforward-looking statements in this report, and materially adversely affect ourfinancial condition or future results.  Additional risks and uncertainties notcurrently known to us or that we currently deem to be immaterial mightmaterially adversely affect our actual business, financial condition and/oroperating results.   In addition, you shouldconsider the following risk factor:

 

***Recent economic events, particularly in the credit markets,may adversely affect our business and results of operations.***

 

The agricultural andconstruction equipment industries are affected by macro economic factors,including changes in international, national, regional, and local economicconditions.  Current global economicconditions pose a risk to our business as customers may postpone spending inresponse to tighter credit, negative financial news, downturns inagricultural commodity prices and the housing market and/or declinesin income or asset values, which could have a material negative effect on thedemand for our products.  Our business isalso particularly dependent on our access to the capital and credit markets tofinance acquisitions and manage inventory. The current financial turmoilaffecting the banking system and financial markets have

 

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resulted in a tighteningin the credit markets, a low level of liquidity in many financial markets, andextreme volatility in fixed income, credit, currency and equity markets. Theserecent disruptions in the overall economy and financial markets and the relatedreduction in consumer confidence in the economy, have slowed activity in thecapital markets, negatively affected access to credit on commercially acceptableterms, and may adversely impact the access of us or ourcustomers to credit and the terms of any such credit.  Though the regions in which we operate havenot been impacted by the sub-prime lending market collapse and the resultingtightening of lending standards to the same magnitude as has occurred inother regions or on a national level, any greater extension ofthose conditions to the regions in which we operate may adversely affect ourresults of operations.  Further, anydecreased collectability of accounts receivable or increase in customerinsolvencies could negatively impact our results of operations.  Thenature of the agricultural equipment industries is such that a downturnin demand can occur suddenly, due to tightening credit markets, decreasing commodityprices or demand, adverse weather conditions or other circumstances, resultingin excess inventory, un-utilized production capacity and reduced prices forequipment, which would harm our revenue and profitability. Uncertainty aboutcurrent global economic conditions, agricultural commodity prices and demandand the housing market could also continue to increase the volatility of ourstock price.

 

**ITEM 2.****                                                     UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

 

On December 11,2007, we closed the initial public offering (“IPO”) of our common stock,pursuant to which we sold 5,442,395 shares of our common stock and sellingstockholders sold 1,457,605 shares.  We filed a Registration Statement on Form S-1in connection with the IPO (SEC File No. 333-145526) that was declaredeffective on December 6, 2007, as well as a Registration Statement on Form S-1relating to an increase in the proposed maximum aggregate offering price (SECFile No. 333-147859).  We received net proceeds, after expenses, fromthe IPO of approximately $41.8 million. Offering expenses related to the IPOincluded an underwriting discount of approximately $3.2 million and otheroffering expenses of approximately $1.2 million.  During the nine-monthperiod ended October 31, 2008, we used $1.3 million of the net proceedsfrom the IPO to repay subordinated debt held by former owners of acquireddealerships, $5.5 million to repay term debt held primarily by CNH Capital andformer owners of acquired dealerships, $9.4 million to repay fixed ratelong-term debt from Bremer Bank, $3.9 million to acquire certain assets ofCeres Equipment, Inc., $14.4 million to acquire certain assets of Mid-LandEquipment Company, $2.0 million to acquire the outstanding stock of Quad CountyImplement, $0.6 million to acquire certain assets of Wolf’s Farm Equipment and$5.5 million to acquire certain assets of Pioneer Garage.  After takinginto account the proceeds used as described above, all of the proceeds from ourIPO have been used.

 

**ITEM 3.****                                                     DEFAULTSUPON SENIOR SECURITIES**

 

None.

 

**ITEM 4.****                                                     SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

None.

 

**ITEM 5.****                                                     OTHERINFORMATION**

 

None.

 

**ITEM 6.****                                                     EXHIBITS**

 

(a)                                  Exhibits- See Exhibit Index on page following signatures

 

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**SIGNATURES**

 

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the Company has duly caused this Report to be signed on its behalf by theundersigned, thereunto duly authorized.

 

Dated:  December 15, 2008
|   | **TITAN MACHINERY INC.** |                           |
|--------|--------------------------|--------------------------------|
|   | ** **               |                           |
|   | ** **               |                           |
|   | By                       | /s/  Peter J. Christianson     |   |
|   |                     | Peter  J. Christianson         |   |
|   |                     | Chief  Financial Officer       |   |
|   |                     | (Principal  Financial Officer) |   |

 

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EXHIBIT INDEX

TITAN MACHINERYINCORPORATED

FORM 10-Q

 
| **Exhibit No.** | ** ** | **Description**                                                                                           |
|----------------------|------------|-----------------------------------------------------------------------------------------------------------|
| **31.1               |       | Certification of Chief  Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 |
| **31.2               |       | Certification of Chief  Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 |
| **32.1               |       | Certification of Chief  Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of  2002 |
| **32.2               |       | Certification of Chief  Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of  2002 |

 

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**Filed herewith

 

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