### **UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, DC  20549**

 

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**FORM 10-Q**

 

**QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF**

**THESECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended October 31, 2007**

 

**Commission File No. 000-1409171**

 

**TITAN MACHINERY INC.**

(Exact name of registrant as specified in itscharter)

 

| **Delaware**                                                     | ** ** | **No. 45-0357838**             |
|------------------------------------------------------------------|------------|-------------------------------------|
| (State  or Other Jurisdiction of  Incorporation or Organization) |       | (IRS  Employer  Identification No.) |

 

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

(Address ofPrincipal Executive Offices)

 

**Registrant’s telephonenumber (701) 356-0130**

 

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Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

YES  x     NO  o

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer or a non-accelerated filer.  See definition “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):

 

Large accelerated filer  o     Acceleratedfiler  o     Non-acceleratedfiler  x

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).YES o     NO  x

 

The number of shares outstanding of the registrant’s common stock as ofJanuary 1, 2008 was: Common Stock, $0.00001 par value, 13,364,148 shares.

 

 

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**TITAN MACHINERY INCORPORATED**

**QUARTERLY REPORT ON FORM 10-Q**

 

**Table of Contents**

 
| **PART I.**  | **FINANCIAL INFORMATION**                             |                                                                                        |
|-------------------|-------------------------------------------------------|---------------------------------------------------------------------------------------------|
|              |                                                  |
|              | ITEM 1.                                               | FINANCIAL STATEMENTS                                                                        |   |
|              |                                                  |
|              | Balance Sheets as of October 31, 2007 and        |                                                                                        |
|              | January 31, 2007                                 |                                                                                        |
|              |                                                  |                                                                                        |
|              | Statements of Operations for  the three               |                                                                                        |
|              | and nine months ended  October 31, 2007 and 2006 |                                                                                        |
|              |                                                  |                                                                                        |
|              | Statements of Cash Flows for  the nine                |                                                                                        |
|              | months ended October 31,  2007 and 2006          |                                                                                        |
|              |                                                  |                                                                                        |
|              | Notes to 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                                                    |   |
|              |                                                  |                                                                                        |   |
|              | 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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**PART I. – FINANCIAL INFORMATION**

 

**ITEM 1.           FINANCIAL STATEMENTS**

 

**TITAN MACHINERY INC.**

**BALANCE SHEETS**

 
| ** **                                                                                                                                                                               | ** ** | **October 31,** | ** **  | **January 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|-------------|----------------------|------------|
| ** **                                                                                                                                                                               | ** ** | **2007**             | ** **  | **2007**             | ** ** |
| ** **                                                                                                                                                                               | ** ** | **(Unaudited)**      | ** **  | ** **           | ** ** |
| **ASSETS**                                                                                                                                                                               |       |                 |        |                 |       |
| ** **                                                                                                                                                                               |       |                 |        |                 |       |
| CURRENT ASSETS                                                                                                                                                                           |       |                 |        |                 |       |
| Cash                                                                                                                                                                                     |       | $                    | 3,797,574   |                 | $          | 7,572,000 |   |
| Receivables, net                                                                                                                                                                         |       | 19,714,499           |        | 10,921,049           |       |
| Inventories                                                                                                                                                                              |       | 146,048,648          |        | 106,253,862          |       |
| Prepaid expenses                                                                                                                                                                         |       | 582,165              |        | 186,137              |       |
| Deferred income  taxes                                                                                                                                                                   |       | 462,000              |        | 462,000              |       |
|                                                                                                                                                                                     |       |                 |        |                 |       |
| Total current  assets                                                                                                                                                                    |       | 170,604,886          |        | 125,395,048          |       |
|                                                                                                                                                                                     |       |                 |        |                 |       |
| INTANGIBLES AND  OTHER ASSETS                                                                                                                                                            |       |                 |        |                 |       |
| Parts inventory  in excess of amounts expected to be sold currently                                                                                                                      |       | 1,234,400            |        | 1,062,000            |       |
| Goodwill                                                                                                                                                                                 |       | 6,618,917            |        | 3,736,147            |       |
| Intangible  assets, net of accumulated amortization                                                                                                                                      |       | 356,913              |        | 168,876              |       |
| Other                                                                                                                                                                                    |       | 326,208              |        | 334,907              |       |
|                                                                                                                                                                                     |       | 8,536,438            |        | 5,301,930            |       |
|                                                                                                                                                                                     |       |                 |        |                 |       |
| PROPERTY AND  EQUIPMENT,                                                                                                                                                                 |       |                 |        |                 |       |
| net of  accumulated depreciation                                                                                                                                                         |       | 13,510,509           |        | 8,175,105            |       |
|                                                                                                                                                                                     |       |                 |        |                 |       |
|                                                                                                                                                                                     |       | $                    | 192,651,833 |                 | $          | 138,872,083 |   |
|                                                                                                                                                                                     |       |                 |        |                 |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                           |       |                 |        |                 |       |
|                                                                                                                                                                                     |       |                 |        |                 |       |
| CURRENT  LIABILITIES                                                                                                                                                                     |       |                 |        |                 |       |
| Accounts payable                                                                                                                                                                         |       | $                    | 9,570,009   |                 | $          | 4,227,830 |   |
| Floor plan notes  payable                                                                                                                                                                |       | 111,689,595          |        | 84,698,775           |       |
| Current  maturities of long-term debt                                                                                                                                                    |       | 4,486,762            |        | 2,823,609            |       |
| Customer  deposits                                                                                                                                                                       |       | 9,881,916            |        | 4,608,345            |       |
| Accrued expenses                                                                                                                                                                         |       | 3,852,852            |        | 2,287,677            |       |
| Income taxes  payable                                                                                                                                                                    |       | 999,594              |        | 377,729              |       |
|                                                                                                                                                                                     |       |                 |        |                 |       |
| Total current  liabilities                                                                                                                                                               |       | 140,480,728          |        | 99,023,965           |       |
|                                                                                                                                                                                     |       |                 |        |                 |       |
| LONG-TERM  LIABILITIES                                                                                                                                                                   |       |                 |        |                 |       |
| Long-term debt,  less current maturities                                                                                                                                                 |       | 11,056,822           |        | 6,787,598            |       |
| Accrued interest  on subordinated debt                                                                                                                                                   |       | 354,705              |        | 330,441              |       |
| Deferred income  taxes                                                                                                                                                                   |       | 1,118,807            |        | 925,000              |       |
| Other long term  liabilities                                                                                                                                                             |       | 283,109              |        | —               |       |
|                                                                                                                                                                                     |       | 12,813,443           |        | 8,043,039            |       |
|                                                                                                                                                                                     |       |                 |        |                 |       |
| SUBORDINATED  DEBENTURES                                                                                                                                                                 |       | 16,807,424           |        | 16,746,836           |       |
|                                                                                                                                                                                     |       |                 |        |                 |       |
| REDEEMABLE  SECURITIES                                                                                                                                                                   |       |                 |        |                 |       |
| Series A  Convertible Preferred stock - par value $.00001, authorized-2,000,000 shares;  outstanding-341,672 shares at October 31, 2007 and January 31, 2007              |       | 1,260,209            |        | 1,193,594            |       |
| Series B  Convertible Preferred stock - par value $.00001, authorized-2,000,000 shares;  outstanding-125,001 shares at October 31, 2007 and January 31, 2007              |       | 512,167              |        | 486,112              |       |
| Series D  Convertible Preferred stock - par value $.00001, authorized-323,533 shares;  outstanding- 323,533 shares at October 31, 2007 and No shares at  January 31, 2007 |       | 2,426,497            |        | —               |       |
|                                                                                                                                                                                     |       | 4,198,874            |        | 1,679,706            |       |
| STOCKHOLDERS’  EQUITY                                                                                                                                                               |       |                 |        |                 |       |
| Common stock,  par value $.00001 per share, authorized- 30,000,000 shares; outstanding -  4,346,667 at October 31, 2007 and 4,344,753, at January 31, 2007                     |       | 43                   |        | 43                   |       |
| Additional  paid-in-capital                                                                                                                                                              |       | 637,219              |        | 514,864              |       |
| Retained  earnings                                                                                                                                                                       |       | 17,714,103           |        | 12,863,630           |       |
|                                                                                                                                                                                     |       | 18,351,365           |        | 13,378,537           |       |
|                                                                                                                                                                                     |       |                 |        |                 |       |
|                                                                                                                                                                                     |       | $                    | 192,651,833 |                 | $          | 138,872,083 |   |

 

See Notes toFinancial Statements

 

1

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**TITAN MACHINERY INC.**

**STATEMENTS OF OPERATIONS(UNAUDITED)**

 
| ** **                               | ** ** | **Three Months Ended** | ** **  | **Nine Months Ended** | ** ** |
|------------------------------------------|------------|----------------------------------|-------------|---------------------------------|------------|
| ** **                               | ** ** | **October, 31**             | ** **  | **October, 31**            | ** ** |
| ** **                               | ** ** | **2007**                         | ** **  | **2006**                        | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                               | ** ** | ** **                       | ** **  | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| REVENUE                                  |       |                             |        |                            |       |   |   |   |   |
| Equipment                                |       | $                                | 103,371,870 |                            | $          | 57,997,123 |   | $ | 225,854,237 |   | $ | 153,085,350 |   |
| Parts                                    |       | 18,384,291                       |        | 12,945,245                      |       | 45,560,354 |   | 34,174,261 |   |
| Service                                  |       | 7,897,554                        |        | 5,960,297                       |       | 20,938,351 |   | 16,466,429 |   |
| Other, including  trucking and rental    |       | 2,517,573                        |        | 2,246,664                       |       | 5,456,925 |   | 4,890,129 |   |
| TOTAL REVENUE                            |       | 132,171,288                      |        | 79,149,330                      |       | 297,809,866 |   | 208,616,169 |   |
|                                     |       |                             |        |                            |       |   |   |   |   |
| COST OF REVENUE                          |       |                             |        |                            |       |   |   |   |   |
| Equipment                                |       | $                                | 93,799,249  |                            | $          | 53,270,517 |   | 204,331,911 |   | 139,462,491 |   |
| Parts                                    |       | 13,651,728                       |        | 8,819,755                       |       | 33,667,873 |   | 24,495,647 |   |
| Service                                  |       | 2,843,191                        |        | 2,182,551                       |       | 7,730,777 |   | 6,136,520 |   |
| Other, including  trucking and rental    |       | 1,492,985                        |        | 1,638,023                       |       | 3,534,343 |   | 3,566,030 |   |
| TOTAL COST OF  REVENUE                   |       | 111,787,152                      |        | 65,910,846                      |       | 249,264,903 |   | 173,660,688 |   |
|                                     |       |                             |        |                            |       |   |   |   |   |
| GROSS PROFIT                             |       | 20,384,136                       |        | 13,238,484                      |       | 48,544,963 |   | 34,955,481 |   |
|                                     |       |                             |        |                            |       |   |   |   |   |
| OPERATING  EXPENSES                      |       | $                                | 14,380,458  |                            | $          | 10,411,813 |   | 35,832,842 |   | 27,462,688 |   |
|                                     |       |                             |        |                            |       |   |   |   |   |
| INCOME FROM  OPERATIONS                  |       | 6,003,678                        |        | 2,826,671                       |       | 12,712,121 |   | 7,492,793 |   |
|                                     |       |                             |        |                            |       |   |   |   |   |
| OTHER INCOME  (EXPENSE)                  |       |                             |        |                            |       |   |   |   |   |
| Interest and  other income               |       | $                                | 119,830     |                            | $          | 105,378 |   | 204,464 |   | 308,080 |   |
| Floorplan  interest expense              |       | (973,696                         | )           | (968,819                        | )          | (2,805,050 | ) | (2,435,895 | ) |
| Subordinated  debt interest expense      |       | (445,440                         | )           | (368,278                        | )          | (1,324,432 | ) | (1,186,480 | ) |
| Interest expense  other                  |       | (245,024                         | )           | (155,735                        | )          | (631,296 | ) | (407,545 | ) |
|                                     |       |                             |        |                            |       |   |   |   |   |
| INCOME BEFORE  INCOME TAXES              |       | 4,459,347                        |        | 1,439,217                       |       | 8,155,807 |   | 3,770,954 |   |
|                                     |       |                             |        |                            |       |   |   |   |   |
| PROVISION FOR  INCOME TAXES              |       | (1,745,000                       | )           | (612,000                        | )          | (3,212,663 | ) | (1,514,000 | ) |
|                                     |       |                             |        |                            |       |   |   |   |   |
| NET INCOME                               |       | $                                | 2,714,347   |                            | $          | 827,217 |   | $ | 4,943,144 |   | $ | 2,256,954 |   |
|                                     |       |                             |        |                            |       |   |   |   |   |
| ADJUSTMENTS TO  INCOME:                  |       |                             |        |                            |       |   |   |   |   |
| Amortization of  syndication fees        |       | (5,296                           | )           | (5,296                          | )          | (15,889 | ) | (15,889 | ) |
| Unpaid  accumulated preferred dividends  |       | $                                | (25,594     | )                               | $          | (25,594 | ) | (76,782 | ) | (76,782 | ) |
|                                     |       |                             |        |                            |       |   |   |   |   |
| INCOME AVAILABLE  TO COMMON STOCKHOLDERS |       | $                                | 2,683,457   |                            | $          | 796,327 |   | $ | 4,850,473 |   | $ | 2,164,283 |   |
|                                     |       |                             |        |                            |       |   |   |   |   |
| EARNINGS PER  SHARE - BASIC              |       | $                                | 0.62        |                            | $          | 0.18 |   | $ | 1.12 |   | $ | 0.50 |   |
| EARNINGS PER  SHARE - DILUTED            |       | $                                | 0.36        |                            | $          | 0.13 |   | $ | 0.72 |   | $ | 0.36 |   |
|                                     |       |                             |        |                            |       |   |   |   |   |
| WEIGHTED AVERAGE  SHARES - BASIC         |       | 4,345,710                        |        | 4,344,753                       |       | 4,345,391 |   | 4,344,753 |   |
| WEIGHTED AVERAGE  SHARES - DILUTED       |       | 7,675,831                        |        | 6,885,705                       |       | 7,238,714 |   | 6,876,681 |   |

 

2

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**TITAN MACHINERY INC.**

**STATEMENTS OF CASH FLOWS (UNAUDITED)**

** **
| ** **                                                                                                            | ** ** | **Nine Months Ended October 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                                                                                            | ** ** | **2007**                                              | ** ** | **2006** | ** ** |
|                                                                                                                  |       |                                                  |       |   |   |
| OPERATING ACTIVITIES                                                                                                  |       |                                                  |       |   |   |
| Net income                                                                                                            |       | $                                                     | 4,943,144  |   | $ | 2,256,954 |   |
| Adjustments to  reconcile net income to net cash from operations                                                      |       |                                                  |       |   |   |
| Depreciation                                                                                                          |       | 1,524,460                                             |       | 1,161,196 |   |
| Amortization                                                                                                          |       | 89,370                                                |       | 114,086 |   |
| Gain on sale of  equipment                                                                                            |       | (37,377                                               | )          | (36,930 | ) |
| Stock  compensation expense                                                                                           |       | 122,355                                               |       | 58,107 |   |
| Changes in  assets and liabilities, net of purchase of agricultural dealerships assets  and assumption of liabilities |       |                                                  |       |   |   |
| Receivables                                                                                                           |       | (7,773,134                                            | )          | (3,801,135 | ) |
| Inventories                                                                                                           |       | (7,008,344                                            | )          | 5,827,348 |   |
| Prepaid expenses                                                                                                      |       | (399,922                                              | )          | (247,070 | ) |
| Credit plan  reserves and other                                                                                       |       | 8,699                                                 |       | (148,226 | ) |
| Floor plan notes  payable                                                                                             |       | 4,145,204                                             |       | 3,014,055 |   |
| Accounts payable                                                                                                      |       | 2,484,048                                             |       | 3,998,049 |   |
| Customer  deposits                                                                                                    |       | 4,930,354                                             |       | (2,817,317 | ) |
| Accrued expenses                                                                                                      |       | 1,565,175                                             |       | (692,322 | ) |
| Income taxes                                                                                                          |       | 445,529                                               |       | (244,160 | ) |
|                                                                                                                  |       |                                                  |       |   |   |
| NET CASH FROM  OPERATING ACTIVITIES                                                                                   |       | 5,039,559                                             |       | 8,442,635 |   |
|                                                                                                                  |       |                                                  |       |   |   |
| INVESTING  ACTIVITIES                                                                                                 |       |                                                  |       |   |   |
| Property and  equipment purchases                                                                                     |       | (5,527,513                                            | )          | (1,710,395 | ) |
| Net proceeds  from sale of equipment                                                                                  |       | 103,174                                               |       | 111,225 |   |
| Payment for  intangible asset                                                                                         |       | (216,819                                              | )          | — |   |
| Purchase of  equipment dealerships net of cash purchased                                                              |       | (4,950,478                                            | )          | (12,088,053 | ) |
|                                                                                                                  |       |                                                  |       |   |   |
| NET CASH USED  FOR INVESTING ACTIVITIES                                                                               |       | (10,591,636                                           | )          | (13,687,223 | ) |
|                                                                                                                  |       |                                                  |       |   |   |
| FINANCING  ACTIVITIES                                                                                                 |       |                                                  |       |   |   |
| Net change in  non-manufacturer floor plan payable                                                                    |       | (3,462,099                                            | )          | (3,094,423 | ) |
| Proceeds from  long-term debt borrowings and subordinated debentures                                                  |       | 9,115,964                                             |       | 3,982,662 |   |
| Proceeds from  fixed asset financing-acquisitions                                                                     |       | —                                                |       | 1,631,000 |   |
| Principal payments  on long-term debt                                                                                 |       | (4,183,588                                            | )          | (909,597 | ) |
| Net change in  subordinated debt interest accrual                                                                     |       | 24,264                                                |       | (259,496 | ) |
| Net change in  other long term liabilities                                                                            |       | 283,109                                               |       | — |   |
| Proceeds from  issuance of warrants                                                                                   |       | —                                                |       | 113,000 |   |
|                                                                                                                  |       |                                                  |       |   |   |
| NET CASH FROM FINANCING  ACTIVITIES                                                                                   |       | 1,777,651                                             |       | 1,463,146 |   |
|                                                                                                                  |       |                                                  |       |   |   |
| NET CHANGE IN  CASH                                                                                                   |       | (3,774,426                                            | )          | (3,781,442 | ) |
|                                                                                                                  |       |                                                  |       |   |   |
| CASH AT  BEGINNING OF PERIOD                                                                                          |       | 7,572,000                                             |       | 8,671,420 |   |
|                                                                                                                  |       |                                                  |       |   |   |
| CASH AT END OF  PERIOD                                                                                                |       | $                                                     | 3,797,574  |   | $ | 4,889,978 |   |

 

3

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** **
| ** **                                                                                                   | ** ** | **Nine Months Ended October 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                                                                                   | ** ** | **2007**                                              | ** ** | **2006** | ** ** |
| ** **                                                                                                   | ** ** | ** **                                            | ** ** | ** ** | ** ** |
| SUPPLEMENTAL  DISCLOSURES OF CASH FLOW INFORMATION                                                           | ** ** | ** **                                            | ** ** | ** ** | ** ** |
| Cash paid during  the year                                                                                   |       |                                                  |       |   |   |
| Income taxes,  net of refunds                                                                                |       | $                                                     | 2,590,798  |   | $ | 1,634,612 |   |
| Interest                                                                                                     |       | 4,806,047                                             |       | 3,995,016 |   |
|                                                                                                         |       |                                                  |       |   |   |
| SUPPLEMENTAL  DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES                                      |       |                                                  |       |   |   |
| Dividends on  preferred redeemable stock charged to retained earnings                                        |       | $                                                     | 76,782     |   | $ | 76,782 |   |
| Purchase of  equipment through issuance of long-term debt                                                    |       | $                                                     | —     |   | $ | 872,308 |   |
|                                                                                                         |       |                                                  |       |   |   |
| Acquisition of  agricultural equipment dealership assets in exchange for cash and assumption  of liabilities |       |                                                  |       |   |   |
| Accounts  receivable                                                                                         |       | $                                                     | (1,020,316 | ) | $ | (22,731 | ) |
| Inventories                                                                                                  |       | (14,847,239                                           | )          | (17,047,973 | ) |
| Property and  equipment                                                                                      |       | (1,398,148                                            | )          | (1,731,225 | ) |
| Goodwill                                                                                                     |       | (2,882,770                                            | )          | (2,371,000 | ) |
| Floor plan notes  payable                                                                                    |       | 8,196,113                                             |       | 7,846,626 |   |
| Accounts payable                                                                                             |       | 2,858,131                                             |       | 212,661 |   |
| Long term debt                                                                                               |       | 1,000,000                                             |       | — |   |
| Income taxes  payable                                                                                        |       | 176,336                                               |       | 123,548 |   |
| Deferred income  taxes                                                                                       |       | 193,807                                               |       | 396,000 |   |
| Accrued expenses                                                                                             |       | 347,110                                               |       | 506,041 |   |
| Issuance of  preferred stock                                                                                 |       | 2,426,498                                             |       | — |   |
|                                                                                                         |       |                                                  |       |   |   |
| Cash paid for  dealerships                                                                                   |       | $                                                     | (4,950,478 | ) | $ | (12,088,053 | ) |

 

 

4

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TITAN MACHINERYINC.

NOTES TO FINANCIALSTATEMENTS

(UNAUDITED)

 

**NOTE 1 -****BUSINESSACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES**

 

*Basisof Presentation*

 

The unaudited financialstatements included herein have been prepared pursuant to the rules andregulations of the Securities and Exchange Commission for interimreporting.  Accordingly, they do notinclude all the information and footnotes required by accounting principlesgenerally accepted in the United States of America for complete financialstatements. In the opinion of management, all adjustments (consisting of normalrecurring adjustments) considered necessary for a fair presentation have beenincluded. Operating results for the nine month period ended October 31,2007 are not necessarily indicative of the results that may be expected for theyear ended January 31, 2008.  Theinformation contained in the balance sheet as of January 31, 2007 wasderived from the Company’s audited financial statements for the year thenended.

 

*Estimates*

 

The preparation of financialstatements in conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenue and expenses during the reporting period.Actual results could differ from those estimates.

 

*Natureof Business*

 

Titan Machinery Inc. isengaged in the retail sale, service and rental of agricultural and industrialmachinery through stores in North Dakota, South Dakota, Minnesota, and Iowa.

 

*RedeemableSecurities*

 

The Company does not havesole control over the redemption features of our Convertible Preferred stockand therefore classifies all such stock as Redeemable Securities, which isexcluded from Stockholders’ Equity. The Company determined the redemptionof these instruments to be probable based upon the Company’s decision to file aregistration statement and initiate a public offering.  Accordingly, theCompany accrued all accumulated dividends on Preferred stock as an increase toRedeemable Securities.

 

*LeaseAccounting*

 

TheCompany periodically purchases equipment from its primary supplier which issubsequently sold to and leased back from a financing group.  The Company records the sale of the equipmentat the time units are sold to the financing group.  Under the sale leaseback program, the leaseperiod is four months or less and lease expense is recognized over the leasingperiod.  The Company recognizes theentire sales transaction and gross profit on these units at the time of sale tothe financing group due to the short leaseback period.

 

5

----

 

*RecentlyIssued Accounting Pronouncements*

 

In June 2006, the FASBissued Financial Interpretation No. 48, Accounting for Uncertainty inIncome Taxes – an interpretation of FASB Statement No. 109 (FIN 48). ThisInterpretation prescribes a recognition threshold and measurement attribute forthe financial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return. It also provides guidance on recognition,classification, interest and penalties, accounting in interim periods,disclosure, and transition. For the Company, the Statement is effective forfiscal years beginning after December 15, 2006. The Company adopted FIN 48as of February 1, 2007.  Theadoption of FIN 48 had no impact on the Company’s financial position, resultsof operations, or cash flows.

 

In September 2006, theFASB issued 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 appliesunder other accounting pronouncements that require or permit fair valuemeasurements, but does not require any new fair value measurements.  SFAS No. 157 is effective for the fiscalyear beginning after November 15, 2007. The Company is in the process of evaluating the effect that the adoptionof this standard will have on the Company’s financial statements.

 

In February 2007, theFASB issued SFAS No. 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.  SFAS 159 is effective forfiscal years beginning after November 15, 2007.  The Company is in the process of evaluatingthe effect that the adoption of this standard will have on the Company’sfinancial statements.

 

InDecember 2007, the FASB issued SFAS No. 141 (Revised 2007), BusinessCombinations (“SFAS 141R”).  SFAS 141(Revised) provides additional guidance on improving the relevance,representational faithfulness, and comparability of the financial informationthat a reporting entity provides in its financial reports about a businesscombination and its effects.  SFAS 141(Revised) applies prospectively to business combinations for which theacquisition date is on or after the beginning of the first annual reportingperiod beginning on or after December 15, 2008.  The Company is in the process of evaluatingthe effect that the adoption of this standard will have on the Company’sfinancial statements.

 

InDecember 2007, the FASB issued SFAS No. 160, Noncontrolling Interestsin Consolidated Financial Statements. SFAS 160 applies to all entities that prepare consolidated financialstatements and have an outstanding noncontrolling interest in one or moresubsidiaries.  SFAS 160 amends ARB 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, andinterim periods 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.

 

*EarningsPer Share*

 

Basicearnings per share were computed by dividing income available to commonshareholders by the weighted average number of shares of common stockoutstanding during the three and nine month periods.  Accumulated preferred dividends, which wereunpaid as of October 31, 2007, were subtracted from net income to arriveat income available to common shareholders.

 

Dilutedearnings per share were computed by dividing income available to commonshareholders plus assumed conversions by the weighted-average common sharesoutstanding after adjusting for potential dilution related to the conversion ofall dilutive securities into common stock. All potentially dilutive securities were included in the computation ofdiluted earnings per share in the current period ending October 31, 2007.

 

6

----

 

Thecomponents of basic earnings per share are as follows:

 
| ** **                                     | ** ** | **Three Months Ended October 31,** | ** ** | **Nine Months Ended October 31,** | ** ** |
|------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                     | ** ** | **2007**                                               | ** ** | **2006**                                              | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                           |       |                                                   |       |                                                  |       |   |   |   |   |
| Basic - Earnings Per Share |       |                                                   |       |                                                  |       |   |   |   |   |
| Net Income                                     |       | $                                                      | 2,714,347  |                                                  | $          | 827,217 |   | $ | 4,943,144 |   | $ | 2,256,954 |   |
| Less:  Amortization of syndication fees        |       | (5,296                                                 | )          | (5,296                                                | )          | (15,889 | ) | (15,889 | ) |
| Less: Preferred  stock dividends - unpaid      |       | (25,594                                                | )          | (25,594                                               | )          | (76,782 | ) | (76,782 | ) |
| Income available  to common shareholders       |       | $                                                      | 2,683,457  |                                                  | $          | 796,327 |   | $ | 4,850,473 |   | $ | 2,164,283 |   |
|                                           |       |                                                   |       |                                                  |       |   |   |   |   |
| Basic weighted-average  shares outstanding     |       | 4,345,710                                              |       | 4,344,753                                             |       | 4,345,391 |   | 4,344,753 |   |
|                                           |       |                                                   |       |                                                  |       |   |   |   |   |
| Basic - Earnings  Per Share                    |       | $                                                      | 0.62       |                                                  | $          | 0.18 |   | $ | 1.12 |   | $ | 0.50 |   |

 

Thecomponents of diluted earnings per share are as follows:

 
| ** **                                                        | ** ** | **Three Months Ended October 31,** | ** ** | **Nine Months Ended October 31,** | ** ** |
|-------------------------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                                        | ** ** | **2007**                                               | ** ** | **2006**                                              | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                              |       |                                                   |       |                                                  |       |   |   |   |   |
| Diluted - Earnings Per Share                  |       |                                                   |       |                                                  |       |   |   |   |   |
| Income available  to common shareholders                          |       | $                                                      | 2,683,457  |                                                  | $          | 796,327 |   | $ | 4,850,473 |   | $ | 2,164,283 |   |
| Plus: Income  impact of assumed conversions                       |       |                                                   |       |                                                  |       |   |   |   |   |
| Preferred stock  dividends - unpaid                               |       | 25,594                                                 |       | 25,594                                                |       | 76,782 |   | 76,782 |   |
| Preferred stock  - amortization of syndication fees               |       | 5,296                                                  |       | 5,296                                                 |       | 15,889 |   | 15,889 |   |
| Interest on  convertible debentures net of tax effect             |       | 80,581                                                 |       | 80,581                                                |       | 241,743 |   | 241,743 |   |
| Income available  to common shareholders plus assumed conversions |       | $                                                      | 2,794,928  |                                                  | $          | 907,798 |   | $ | 5,184,887 |   | $ | 2,498,697 |   |
|                                                              |       |                                                   |       |                                                  |       |   |   |   |   |
| Diluted  weighted-average shares outstanding:                     |       |                                                   |       |                                                  |       |   |   |   |   |
| Basic  weighted-average shares outstanding                        |       | 4,345,710                                              |       | 4,344,753                                             |       | 4,345,391 |   | 4,344,753 |   |
| Plus:  Incremental shares from assumed conversions                |       |                                                   |       |                                                  |       |   |   |   |   |
| Convertible  debentures                                           |       | 2,308,648                                              |       | 2,006,667                                             |       | 2,107,327 |   | 2,006,667 |   |
| Convertible  preferred shares                                     |       | 790,206                                                |       | 466,673                                               |       | 574,517 |   | 466,673 |   |
| Warrants                                                          |       | 168,443                                                |       | 49,103                                                |       | 153,720 |   | 43,291 |   |
| Options                                                           |       | 62,824                                                 |       | 18,509                                                |       | 57,759 |   | 15,297 |   |
| Diluted  weighted-average shares outstanding                      |       | 7,675,831                                              |       | 6,885,705                                             |       | 7,238,714 |   | 6,876,681 |   |
|                                                              |       |                                                   |       |                                                  |       |   |   |   |   |
| Diluted - EPS                                                     |       | $                                                      | 0.36       |                                                  | $          | 0.13 |   | $ | 0.72 |   | $ | 0.36 |   |

 

 

7

----

 

**NOTE 2 -****INVENTORIES**

 
| ** **                    | ** ** | **October 31,** | ** **  | **January 31,** | ** ** |
|-------------------------------|------------|----------------------|-------------|----------------------|------------|
| ** **                    | ** ** | **2007**             | ** **  | **2007**             | ** ** |
| New equipment                 |       | $                    | 88,616,156  |                 | $          | 48,431,945 |   |
| Used equipment                |       | 37,200,883           |        | 41,913,153           |       |
| Parts, tires and  attachments |       | 17,482,754           |        | 14,292,319           |       |
| Work in process               |       | 2,748,854            |        | 1,616,445            |       |
|                          |       | $                    | 146,048,648 |                 | $          | 106,253,862 |   |

 

Inaddition to the above amounts, the Company has estimated that a portion of itsparts inventory will not be sold in the next operating cycle. Accordingly,these balances have been classified as noncurrent assets.  Parts inventory is valued at the lower ofaverage cost or market, and parts inventory not expected to be sold in the nextoperating cycle has been reported separately. Work in process is valued at theaverage cost of parts inventory plus the standard cost of labor incurred onservice work in process at year end.

 

**NOTE 3 -****LINEOF CREDIT**

 

TheCompany had no amount outstanding on the line of credit at October 31,2007 and January 31, 2007. The agreement provides for available borrowingsof $12,000,000 and carries a variable interest rate of prime minus .25% (7.50%at October 31, 2007) with monthly interest payments due, and has amaturity date of August 1, 2008. The line is secured by substantially allassets of the Company and a personal guaranty - by our chief executive officer.

 

8

----

 

**NOTE 4 -LONG TERM DEBT**

 
| ** **                                                                                                                                                                                                                               | ** ** | **October 31,** | ** ** | **January 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|----------------------|------------|
| ** **                                                                                                                                                                                                                               | ** ** | **2007**             | ** ** | **2007**             | ** ** |
| ** **                                                                                                                                                                                                                               | ** ** | ** **           | ** ** | ** **           | ** ** |
| Variable rate  note payable to Bremer Bank, (8.25% at July 31, 2007), due in monthly  installments of $128,500, including interest, to August 2011, secured by  substantially all assets and stockholder guarantees            |       | $                    | 7,780,122  |                 | $          | 5,892,701 |   |
|                                                                                                                                                                                                                                     |       |                 |       |                 |       |
| Variable rate  note payable to CNH, (8.55% at October 31, 2007), due in monthly  installments of $28,408 maturing July 2012. Secured by rental fleet  equipment. Variable interest rate at prime +.30%                         |       | 2,048,629            |       | —               |       |
|                                                                                                                                                                                                                                     |       |                 |       |                 |       |
| 6.5% to Aberdeen  Equipment Co., principal and interest payment of $34,206 due quarterly,  balance due July 13, 2011, unsecured                                                                                                     |       | 963,797              |       | —               |       |
|                                                                                                                                                                                                                                     |       |                 |       |                 |       |
| Variable rate  note to CNH,(9.10% at October 31, 2007) monthly payments of $43,142,  maturing May 2009, secured by parts. Variable interest rate at prime +  1.6%                                                              |       | 819,695              |       | 1,164,831            |       |
|                                                                                                                                                                                                                                     |       |                 |       |                 |       |
| Non-interest  bearing note to CNH, monthly payments of $37,434 maturing April 2009,  secured by parts. Variable interest rate at CNH schedule 9 cost of funds rate  beginning May 2008                                         |       | 723,977              |       | —               |       |
|                                                                                                                                                                                                                                     |       |                 |       |                 |       |
| Variable rate  note payable to Bremer Bank, (8.25% at October 31, 2007), due in monthly  installments of $11,742, including interest, to January 2014, secured by  substantially all assets and stockholder guarantees         |       | —               |       | 750,000              |       |
|                                                                                                                                                                                                                                     |       |                 |       |                 |       |
| Non-interest  bearing note to CNH, monthly payments of $27,147 maturing October 2009,  secured by parts. Variable interest rate at CNH schedule 9 cost of funds rate  beginning November 2008                                  |       | 651,520              |       | —               |       |
|                                                                                                                                                                                                                                     |       |                 |       |                 |       |
| Non-interest  bearing note to CNH, monthly payments of $50,786, maturing June 2008  secured by parts                                                                                                                                |       | 406,289              |       | 1,126,235            |       |
|                                                                                                                                                                                                                                     |       |                 |       |                 |       |
| Non-interest  bearing note to CNH, monthly payments of $17,974 maturing June 2008  secured by parts                                                                                                                                 |       | 431,380              |       | —               |       |
|                                                                                                                                                                                                                                     |       |                 |       |                 |       |
| Variable rate  notes payable to CNH, (9.00% at October 31, 2007) due in quarterly quarterly  installments of $29,986, including interest. Balance due July 2008. Secured  by equipment. Variable interest rate at prime + 1.5% |       | 569,734              |       | —               |       |
|                                                                                                                                                                                                                                     |       |                 |       |                 |       |
| Fixed rate notes  payable to Ford Motor Credit, (5.99% to 9.85%) due in monthly installments of  $3,803, including interest, to August 2009, secured by vehicles                                                                    |       | 226,963              |       | 268,680              |       |
|                                                                                                                                                                                                                                          |            |                      |            |                      |            |  |  |

 

9

----

 
| ** **                                                                                                                                                                               | ** ** | **October 31,** | ** ** | **January 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|----------------------|------------|
| ** **                                                                                                                                                                               | **2007**   | ** **           | **2007**   | ** **           |
| ** **                                                                                                                                                                               | ** ** | ** **           | ** ** | ** **           | ** ** |
| Non-interest  bearing note payable under non-compete agreement, due in monthly installments  which are capped at $3,333 per month, actual payment calculated from related  store profits |       | 216,819              |       | —               |       |
|                                                                                                                                                                                     |       |                 |       |                 |       |
| Fixed rate note  payable to the Northwest Minnesota Foundation, 5.5%, amortized over 10 years,  due August, 2009, unsecured                                                              |       | 162,329              |       | —               |       |
|                                                                                                                                                                                     |       |                 |       |                 |       |
| Variable rate  notes payable (6.5% to 9.5% at October 31, 2007) to Case Credit, balance  due at varying dates through 2010, secured by equipment                                    |       | 131,621              |       | 138,000              |       |
|                                                                                                                                                                                     |       |                 |       |                 |       |
| Fixed rate note  payable to Jorene Larson, 6.25%, monthly payments of $3,193, due 4/1/11,  unsecured                                                                                     |       | 123,000              |       | —               |       |
|                                                                                                                                                                                     |       |                 |       |                 |       |
| Variable rate  note payable to CNH Capital America LLC, (9.5% at October 31, 2007),  through April 2010, payments of $32,252 due annually, secured by  equipment               |       | 96,758               |       | 129,010              |       |
|                                                                                                                                                                                     |       |                 |       |                 |       |
| Variable  interest note payable with related party (8.25% at October 31, 2007. Monthly  interest only payments adjusting to Wells Fargo prime. Matures in  March 2008          |       | 117,000              |       | 117,000              |       |
|                                                                                                                                                                                     |       |                 |       |                 |       |
| Fixed rate note  payable to CNH Capital America LLC, 9.75%, quarterly payment of $3,332 due  beginning November 2007, balloon due August 2008                                  |       | 66,450               |       | —               |       |
|                                                                                                                                                                                     |       |                 |       |                 |       |
| Non-interest  bearing note payable to Fargo Tractor and Equipment, Inc., due in  quarterly installments of $3,750, to January 2009, unsecured                                  |       | 7,500                |       | 18,750               |       |
|                                                                                                                                                                                     |       |                 |       |                 |       |
| Non-interest  bearing note payable under non-compete agreement, due in annual installments  on March 1 of each year through 2007                                                    |       | —               |       | 6,000                |       |
|                                                                                                                                                                                     |       |                 |       |                 |       |
|                                                                                                                                                                                     |       | 15,543,584           |       | 9,611,207            |       |
| Less current  maturities                                                                                                                                                                 |       | (4,486,762           | )          | (2,823,609           | )          |
|                                                                                                                                                                                     |       |                 |       |                 |       |
|                                                                                                                                                                                     |       | $                    | 11,056,822 |                 | $          | 6,787,598 |   |
|                                                                                                                                                                                          |            |                      |            |                      |            |  |  |

 

Undercovenants of the above Bremer Bank note payable and a Bremer Bank floor planagreement, the Company has agreed, among other things, to (1) obtainwritten consent from the bank for non-financed fixed asset expenditures greaterthan $750,000 annually; (2) to comply with equipment and parts inventoryturn ratios; (3) obtain written consent from the bank for anydistributions; and (4) maintain various financial ratio levels.

 

Additionally,under covenants of the above note payable with Case Credit Corporation, theCompany has agreed, among other things, to maintain various financial ratiolevels and to submit certain financial information.

 

10

----

 

As of October 31, 2007, the Company was in compliance with all ofthe above covenants.

 

Long-termdebt maturities are as follows:

 
| **12 Months Ending October 31,** | ** ** | **Amount** | ** ** |
|------------------------------------------------------|------------|------------|------------|
|                                                 |       |       |       |
| 2008                                                 |       | $          | 4,486,762  |   |
| 2009                                                 |       | 3,371,039  |       |
| 2010                                                 |       | 2,508,934  |       |
| 2011                                                 |       | 2,902,216  |       |
| 2012                                                 |       | 2,257,814  |       |
| Thereafter                                           |       | 16,819     |       |
|                                                 |       | $          | 15,543,584 |   |

 

**NOTE 5 -****FLOORPLAN NOTES PAYABLE**

 

Floor plan notes payable with a bank and manufacturers carry variousinterest rates ranging from 8.00 percent to 9.5 percent and are secured bysubstantially all assets of the company and a personal guaranty by our chiefexecutive officer. Repayment terms vary by individual notes, but generallypayments are made from sales proceeds or rental revenue from the relatedinventories.

 

11

----

 

**NOTE 6 -      ****SUBORDINATED DEBENTURES**

 
| ** **                                                                                                                                                                                   | ** ** | **October 31,** | ** ** | **January 31,** | ** **         |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|----------------------|--------------------|
| ** **                                                                                                                                                                                   | ** ** | **2007**             | ** ** | **2007**             | ** **         |
|                                                                                                                                                                                         |       |                 |       |                 |               |
| 10.5% debentures  to CNH Capital America, LLC, $7,500,000 available, interest payments due  quarterly, balance due April 2012, unsecured, subordinated to bank and  manufacturer debt   |       | $                    | 7,296,000  |                 | $                  | 7,248,912 |   |
|                                                                                                                                                                                         |       |                 |       |                 |               |
| 9%-10%  debentures to stockholders, interest payments due annually, balance due  November 2012,unsecured, subordinated to bank and manufacturer debt (1)                                |       | 3,350,000            |       | 3,350,000            |     |
|                                                                                                                                                                                         |       |                 |       |                 |               |
| 7% debentures to  CNH Capital America, LLC, interest payments due annually, balance due  November 2012, unsecured,subordinated to bank and manufacturer debt                            |       | 3,000,000            |       | 3,000,000            |     |
|                                                                                                                                                                                         |       |                 |       |                 |               |
| 10.5% debentures  to Titan Income Holdings, LLLP, $2,000,000 available, interest payments due  quarterly, balance due April 2012, unsecured, subordinated to bank and  manufacturer debt (2) |       | 1,719,000            |       | 1,705,500            |               |
|                                                                                                                                                                                         |       |                 |       |                 |               |
| 10% debentures  to Bernard Smith, former owner of Smith International, interest payments due  annually, balance due March 2010, unsecured, subordinated to bank and  manufacturer debt       |       | 300,000              |       | 300,000              |               |
|                                                                                                                                                                                         |       |                 |       |                 |               |
| 10% debentures  to former owners of Aberdeen division, interest payments due annually,  balance due May 2010, unsecured, subordinated to bank and manufacturer  debt                    |       | 550,000              |       | 550,000              |               |
|                                                                                                                                                                                         |       |                 |       |                 |               |
| 9% debentures to  Vern Anderson, former owner of Vern Anderson Inc, interest payments due  quarterly, balance due December 2010, unsecured, subordinated to bank  and manufacturer debt |       | 450,000              |       | 450,000              |               |
|                                                                                                                                                                                         |       |                 |       |                 |               |
| 5% debentures to  stockholders, interest payments due annually, balance due November 2012,  unsecured, subordinated to bank and manufacturer debt (1)                                   |       | 142,424              |       | 142,424              |               |
|                                                                                                                                                                                         |       |                 |       |                 |               |
|                                                                                                                                                                                         |       | $                    | 16,807,424 |                 | $                  | 16,746,836 |   |

 

----

(1)  These debentures were issued in January 2003 to thefollowing related parties: David Meyer, Chief Executive Officer $536,965; CIFarm Power, affiliated with Peter Christianson, $1,739,292;  Adam Smith Growth Partners, affiliated withTony Christianson, a director, $755,000; David Christianson, the brother ofTony and Peter Christianson, $100,000; Adam Smith Activist Fund, LLC,affiliated with Tony Christianson, $196,500; and Earl Christianson, father ofTony and Peter Christianson $164,667.

 

(2)  The Titan Income Holdings debentures were issued with anoffering completed April 2005. Titan Income Holdings is a limited liability limited partnership inwhich one of its general partners is Adam Smith Companies,affiliated with TonyChristianson, a director.  Titan IncomeHoldings were distributed to 15 investors, including Gordon Paul Anderson, adirector, who holds a 2.5% interest, and James Irwin, a director, who holds a4.9% interest through the Irwin Revocable Trust.

 

12

----

 

Scheduled future maturities of subordinated debentures are as follows:$1,300,000 in the year ending January 31, 2011 and $15,507,424 in the yearending January 31, 2013.

 

Unpaid principal related to the 9%-10% debentures (2003Debentures) to stockholders are convertible to common stock at any time throughNovember 2012. The exercise price is $2.50 per share. In addition, thenotes may not be paid for any other reason than in connection with the sale ofthe Company unless warrants to acquire common stock are issued to the extent ofthe unpaid principal balance on the debentures. The exercise price will be thesame as the conversion price in effect to acquire shares of common stock.  In August 2007, the Company entered into a recapitalizationagreement with and among the holders of the 2003 Debentures.  The Company has requested that the 2003Debenture holders voluntarily convert the 2003 Debentures immediately prior(and subject) to the initial public offering. In order to facilitate the IPO, the Company wishes to effect immediatelyprior to consummation of the IPO a recapitalization having the holders of theconvertible debentures convert the convertible debentures into shares of commonstock.  Under the agreement the holdersagree that the convertible debentures will be converted into 1,641,981 sharesof Common Stock of the Company.  Theadditional shares issued upon conversion will be expensed at fair value.

 

The 7% debentures to CNH Capital America, LLC areconvertible to common stock at any time through November 2012. Theexercise price is $4.50 per share. The notes may not be paid for any otherreason than in connection with the sale of the Company unless warrants toacquire common stock are issued to the extent of the unpaid balance on thedebentures. The exercise price will be the same as the conversion price ineffect to acquire shares of common stock.

 

**NOTE 7 -      ****COMMON STOCK OPTIONS AND WARRANTS**

 

*Common Stock Warrants*

 

InApril 2003, the Company issued stock warrants to Cherry Tree Securities,LLC, whose chairman is a director of the Company, for 11,917 shares of commonstock at an exercise price of $3.00 per share. The warrants terminate on April 7,2013.  In August 2004 the Companyissued an additional 6,071 stock warrants to Cherry Tree Securities at anexercise price of $3.50 per share.  Thesewarrants terminate on July 1, 2014.

 

TheCompany issued stock warrants to an outside party for 115,650 shares of commonstock at an exercise price of $3.50 per share. These warrants expire on April 7,2013.

 

In January 2006 and March 2006,the Company issued stock warrants to a manufacturer for 160,625 and 80,313shares of common stock respectively, at an exercise price of $4.50 per share.These warrants expire on April 7, 2013.

 

The following is a summary ofoutstanding warrants at October 31, 2007:

 
| **Outstanding Warrants** | ** ** |
|-------------------------------|------------|
| ** **                    | ** ** | ** ** | ** ** | **Exercise** | ** ** | **Fair Value** | ** ** | ** ** | ** ** |
| **Issue Date**           | ** ** | **Number** | ** ** | **Price** | ** ** | **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 |   |
| January 2006             |       | 160,625 |   | $ | 4.50 |   | $ | 175,000 |   | Manufacturer debt transaction |   |
| March 2006               |       | 80,313 |   | $ | 4.50 |   | $ | 113,000 |   | Manufacturer debt transaction |   |

 

13

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Outstandingstock warrants are valued using the Black Scholes option pricing model.Assumptions used to value the warrants are similar to those used in valuing thestock options as described below. Warrants issued in conjunction with a debtoffering are valued and classified as Additional Paid-In Capital per APB 14 *Accounting for Convertible Debt and Debt Issued with Stock PurchaseWarrants*.

 

*Stock Options*

 

The Company implemented the2005 Equity Incentive Plan, a stock-based compensation plan, during the yearended January 31, 2006.  In November 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 Board of Director members of theCompany. Under the plan, the Company may grant options for up to 1,000,000shares of common stock under all forms of awards including restricted stock.The Company has elected early adoption of SFAS 123(R) to account for thestock options using the fair value method.

 

The following is a summary ofstock option activity for the nine months ended October 31, 2007:

 
| ** **                               | ** ** | ** **         | ** ** | **Weighted** | ** ** | ** **    | ** ** |
|------------------------------------------|------------|--------------------|------------|--------------|------------|---------------|------------|
| ** **                               | ** ** | ** **         | ** ** | **Average**  | ** ** | **Aggregate** | ** ** |
| ** **                               | ** ** | **Number of** | ** ** | **Exercise** | ** ** | **Intrinsic** | ** ** |
| ** **                               | ** ** | **Options**        | ** ** | **Price**    | ** ** | **Value**     | ** ** |
| Outstanding at  January 31, 2007         |       | 114,917            |       | $            | 3.93       |          | $          | 204,700 |   |
|                                     |       |               |       |         |       |          |       |
| Granted                                  |       | 93,335             |       | 7.07         |       | 302,200       |       |
| Exercised                                |       | —             |       | —       |       |          |       |
| Forfeited                                |       | —             |       | —       |       |          |       |
|                                     |       |               |       |         |       |          |       |
| Outstanding at October  31, 2007         |       | 208,252            |       | $            | 5.34       |          | $          | 506,900 |   |
|                                     |       |               |       |         |       |          |       |
| Options  exercisable at October 31, 2007 |       | 49,086             |       | $            | 4.41       |          | $          | 89,671 |   |

 

The fair value of each option granted is estimatedusing the Black-Scholes option pricing model. The following assumptions weremade in estimating fair value:

 
| **Assumption**           | ** ** | **Fixed Plan** | ** ** |
|--------------------------|------------|---------------------|------------|
| Dividend Yield           |       | 0%                  |       |
| Risk-free  interest rate |       | 4.0 to 4.9%         |       |
| Expected life            |       | 6 - 10 years        |       |
| Expected  volatility     |       | 14 - 22%            |       |

 

Expected volatility is based upon management’s bestestimate of the value of the shares based upon the Company’s internal market.The expected life assumptions for options currently granted is based upon theaverage expected term of service by directors and contractual term of theagreements for employees.

 

14

----

 

The following is a summary of the status of optionsoutstanding and exercisable at October 31, 2007 under the fixedshare-based payment plan:

 
| **Outstanding Options** | ** ** | **Exercisable Options** | ** ** |
|------------------------------|------------|------------------------------|------------|
| ** **                   | ** ** | ** **                   | ** ** | **Weighted** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                   | ** ** | ** **                   | ** ** | **Average** | ** ** | **Weighted** | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **                   | ** ** | ** **                   | ** ** | **Remaining** | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| **Exercise**                 | ** ** | ** **                   | ** ** | **Contractual** | ** ** | **Exercise** | ** ** | ** ** | ** ** | **Exercise** | ** ** |
| **Price**                    | ** ** | **Number**                   | ** ** | **Life** | ** ** | **Price** | ** ** | **Number** | ** ** | **Price** | ** ** |
| $                            | 4.00       |                         | 9,250      |   | 9 years |   | $ | 4.00 |   | 9,250 |   | $ | 4.00 |   |
| 4.50                         |       | 119,002                      |       | 10 years |   | 4.50 |   | 39,836 |   | 4.50 |   |
| 7.50                         |       | 80,000                       |       | 10 years |   | 7.50 |   | — |   | 7.50 |   |
|                              |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |

 

Compensation cost charged to operations under the equityincentive plan for the three months ended October 31, 2007 and 2006 was$14,355 and $0, respectively.  The incometax benefit from all share-based payment arrangements was $5,600 and $0,respectively, for the three month periods ended October 31, 2007, and2006.  Compensation cost charged tooperations under the equity incentive plan for the nine months ended October 31,2007 and 2006 was $122,355 and $58,107, respectively.  The income tax benefit recognized from allshare-based payment arrangements was $47,800 and $22,700, respectively, for thenine month periods ended October 31, 2007, and 2006.  In accordance with Company policy, the shareswere issued from a pool of shares reserved for issuance under the plan. As of October 31,2007, there was $367,900 of unrecognized compensation cost on non-vested awardsrelated to the stock incentive plan. That cost is expected to be recognizedover a weighted-average period of 6 years. Outstanding shares of restricted stock under the plan totaled 10,906 at October 31,2007.

 

**NOTE 8 -      ****BUSINESS COMBINATIONS**

 

TheCompany continued to implement its strategy of consolidating agriculturedealerships in desired market areas. Below is a summary of the acquisitionscompleted in the nine month period ended October 31, 2007. In certain ofthe business combination transactions the Company recognized goodwill. Factorscontributing to the recognition of goodwill include an evaluation of enterprisevalue, historical financial performance, estimated industry potential withinthe market, and, the market territory relationship to other existing and futureplanned Company locations.  Operating resultsfor each acquisition are included in the Company’s Statement of Operations fromthe date of acquisition.  Pro formaresults are not presented as the acquisitions are not considered material,individually or in aggregate, to the Company.

 

15

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*RedPower International*

 

OnAugust 1, 2007, the Company acquired the assets of the related entities ofRed Power International.  The dealershipsare located in Minnesota and contiguous to existing markets.  The acquisition expands the Company’s marketshare in the state. The Company acquired 100% of the common stock of Red PowerInternational, Inc in exchange for 323,533 shares of Series “D”convertible preferred stock issued by the Company.  The transaction was valued at $2.4million.  The allocation of this purchaseprice is presented in the table below. The Company expects the allocation will be finalized during the quarterending January 31, 2008.

 
| Cash                       |   | $         | 176,099   |   |
|----------------------------|--------|-----------|-----------|--------|
| Accounts  receivable       |   | 907,528   |      |
| Inventories                |   | 6,739,824 |      |
| Property and equipment     |   | 625,463   |      |
| Goodwill                   |   | 382,770   |      |
|                       |   | $         | 8,831,684 |   |
|                       |   |      |      |
| Accounts payable           |   | $         | 224,563   |   |
| Floorplan notes  payable   |   | 5,593,369 |      |
| Other  liabilities assumed |   | 587,254   |      |
|                       |   | $         | 6,405,186 |   |

 

*AberdeenEquipment, Huron Equipment, and Redfield Equipment*

 

OnApril 13, 2007, the Company acquired the assets of the related entities ofAberdeen Equipment, Huron Equipment and Redfield Equipment.  The dealerships are located in South Dakotaand contiguous to existing markets.  Theacquisition expands the Company’s market share in the state.  The total cash purchase price was$4,095,864.  The allocation of thispurchase price is presented in the following table:

 
| Accounts  receivable     |   | $         | 112,788   |   |
|--------------------------|--------|-----------|-----------|--------|
| Inventories              |   | 4,648,779 |      |
| Property and  equipment  |   | 600,000   |      |
| Goodwill                 |   | 2,500,000 |      |
|                     |   | $         | 7,861,567 |   |
|                     |   |      |      |
| Accounts payable         |   | $         | 2,383,568 |   |
| Floorplan notes  payable |   | 382,135   |      |
| Long term debt           |   | 1,000,000 |      |
|                     |   | $         | 3,765,703 |   |

 

*RichlandCounty Implement*

 

OnFebruary 20, 2007, the Company acquired the assets of Richland CountyImplement.  The total cash purchase pricewas $1,030,713.  Through the acquisition,the Company increased its market share in existing markets in the Wahpeton areaand gained control of the New Holland dealership.  The allocation of this purchase price ispresented in the following table. The Company expects the allocation will befinalized during the quarter ending January 31, 2008.

 

16

----

 
| Inventories                |   | $         | 3,458,636 |   |
|----------------------------|--------|-----------|-----------|--------|
| Property and  equipment    |   | 172,685   |      |
|                       |   | $         | 3,631,321 |   |
|                       |   |      |      |
| Accounts payable           |   | $         | 250,000   |   |
| Floorplan notes  payable   |   | 2,220,608 |      |
| Other  liabilities assumed |   | 130,000   |      |
|                       |   | $         | 2,600,608 |   |

 

**NOTE 9 -      ****FAIR VALUE OF FINANCIALINSTRUMENTS**

 

Thefair value of a financial instrument is generally defined as the amount atwhich the instrument could be exchanged in a current transaction betweenwilling parties, other than in a forced liquidation sale. Quoted market pricesare generally not available for the Company’s financial instruments.Accordingly, fair values are based on judgments regarding anticipated cashflows, future expected loss experience, current economic conditions, riskcharacteristics of various financial instruments and other factors. Theseestimates involve uncertainties and matters of judgment, and therefore cannotbe determined with precision. Changes in assumptions could significantly affectthe estimates. As explained in Note 1, actual results could differ from theestimates.

 

The carrying amount of cash, receivables, payables,short-term debt and other current liabilities approximates fair value becauseof the short maturity and/or frequent repricing of those instruments. Basedupon current borrowing rates with similar maturities, the fair value of thelong-term debt approximates the carrying value as of October 31, 2007 and January 31,2007.

 

**NOTE 10 -     SUBSEQUENTEVENTS**

 

OnNovember 13, 2007, the Company entered into an agreement to purchase theassets of an agricultural equipment dealership in Mandan, North Dakota, forapproximately $1.9 million in cash.

 

OnNovember 26, 2007, Notice of Early Conversion under the recapitalizationagreement was given by C.I. Farm Power on a convertible debenture in theaggregate amount of $1.69 million.  Theconvertible debenture was converted into shares of common stock in accordancewith the recapitalization agreement.  Asa result of this conversion, the Company will recognize debt conversion costsof $1.2 million in the Company’s quarter ending January 31, 2008.

 

OnDecember 1, 2007, the Company entered into an agreement to purchase thestock in an agricultural equipment dealership in Grand Forks, North Dakota, forapproximately $2.0 million paid for in Titan Machinery common stock.

 

OnDecember 10, 2007, the holder of 240,938 stock warrants exercised theirright to convert such warrants into common stock.  The Company received $1.1 million in proceedsfrom the holder of these warrants as a result of the exercise.

 

OnDecember 11, 2007, the Company received approximately $42.0 million (netof underwriter fees of $3.2 million and estimated offering expenses ofapproximately $1.0 million) as a result of its public offering of approximately5.4 million shares of common stock priced at $8.50 per share.

 

OnDecember 11, 2007, the Company, in conjunction with its public offering,converted all outstanding convertible debt (of approximately $4.7 million) andconvertible preferred shares (of approximately $3.9 million) into common shares.  As a result of a portion of the $4.7 millionof debt converting, the Company will recognize debt conversion costs of $1.2million in the Company’s quarter ending January 31, 2008.

 

17

----

 

OnDecember 11, 2007, the Company, in conjunction with its public offering,retired approximately $9.4 million in subordinated debentures using theproceeds from its public offering.  As aresult of retiring this debt, the Company will recognize debt repayment costsof $1.1 million in the Company’s quarter ending January 31, 2008.

 

OnJanuary 2, 2008, the Company entered into an agreement to purchase theassets of two related agricultural equipment dealerships in Avoca, Iowa andGreenfield, Iowa, for approximately $3.8 million in cash.

 

**ITEM 2.  **MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

** **

The following discussionand analysis of our financial condition and results of operations should beread in conjunction with our interim consolidated financial statements andrelated notes included in Item 1 of Part 1 of this Quarterly Report, and theaudited consolidated financial statements and notes thereto and Management’sDiscussion and Analysis of Financial Condition and Results of Operationscontained in our Registration Statement on Form S-1, as amended, filed inconnection with our initial public offering.

 

**Critical AccountingPolicies**

** **

Our most criticalaccounting policies, which are those that require significant judgment,include: revenue recognition, inventories, intangible assets and goodwill.  A more in-depth description of these can befound in the Management’s Discussion and Analysis of Financial Condition andResults of Operation and Note 1 of the audited financial statements containedin our Registration Statement on Form S-1, as amended, filed in connectionwith our initial public offering.

 

**Overview**

** **

We own and operate oneof the largest networks of full service agricultural and construction equipmentstores in North America. We are the world’s largest retail dealer of Case IHAgriculture equipment and a major retail dealer of New Holland Agriculture,Case Construction and New Holland Construction equipment in the U.S. We selland rent agricultural and construction equipment, sell parts, and service theequipment operating in the areas surrounding our stores.

 

18

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**Our net income was $2.7million or $0.36 per diluted share in the quarter ended October 31, 2007,compared to $0.8 million or $0.13 per diluted share in the quarter ended October 31,2006.  Significant factors impacting thequarter were:**

** **

***·***                  Strong revenue growth due to acquisitions, same-storesales and a successful manufacturer leasing program;

*** ***

***·***                  Increase in gross profits due to increased revenues;gross profit margin percent decrease due to higher sales mix of equipment relativeto higher gross margin parts and service revenue; and

*** ***

***·***                  Operating expenses were lower as a percentage ofsales and increased in total dollars.

*** ***

**Results of Operations**

** **

Comparativefinancial data for each of our four sources of revenue are expressed below. Theresults for these periods include the operating results of the acquisitionsmade during these periods. The period-to-period comparisons included below arenot necessarily indicative of future results (dollars in thousands):

 
| ** **                            | ** ** | **Three Months Ended October 31,** | ** ** | **Nine Months Ended October 31,** | ** ** |
|---------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                            | ** ** | **2007**                                               | ** ** | **2006**                                              | ** ** | **% Change** | ** ** | **2007** | ** ** | **2006** | ** ** | **% Change** | ** ** |
| Equipment                             |       |                                                   |       |                                                  |       |   |   |   |   |   |   |   |   |
| Revenue                               |       | $                                                      | 103,372    |                                                  | $          | 57,997 |   | 78.2 |   | $ | 225,854 |   | $ | 153,085 |   | 47.5 |   |
| Cost of revenue                       |       | 93,799                                                 |       | 53,270                                                |       | 76.1 |   | 204,332 |   | 139,462 |   | 46.5 |   |
| Gross profit                          |       | $                                                      | 9,573      |                                                  | $          | 4,727 |   | 102.5 |   | $ | 21,522 |   | $ | 13,623 |   | 58.0 |   |
|                                  |       |                                                   |       |                                                  |       |   |   |   |   |   |   |   |   |
| Parts                                 |       |                                                   |       |                                                  |       |   |   |   |   |   |   |   |   |
| Revenue                               |       | $                                                      | 18,384     |                                                  | $          | 12,945 |   | 42.0 |   | $ | 45,560 |   | $ | 34,174 |   | 33.3 |   |
| Cost of revenue                       |       | 13,652                                                 |       | 8,820                                                 |       | 54.8 |   | 33,668 |   | 24,496 |   | 37.4 |   |
| Gross profit                          |       | $                                                      | 4,732      |                                                  | $          | 4,125 |   | 14.7 |   | $ | 11,892 |   | $ | 9,678 |   | 22.9 |   |
|                                  |       |                                                   |       |                                                  |       |   |   |   |   |   |   |   |   |
| Service                               |       |                                                   |       |                                                  |       |   |   |   |   |   |   |   |   |
| Revenue                               |       | $                                                      | 7,897      |                                                  | $          | 5,960 |   | 32.5 |   | $ | 20,939 |   | $ | 16,467 |   | 27.2 |   |
| Cost of revenue                       |       | 2,843                                                  |       | 2,183                                                 |       | 30.2 |   | 7,731 |   | 6,137 |   | 26.0 |   |
| Gross profit                          |       | $                                                      | 5,054      |                                                  | $          | 3,777 |   | 33.8 |   | $ | 13,208 |   | $ | 10,330 |   | 27.9 |   |
|                                  |       |                                                   |       |                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Other, including  trucking and rental |       |                                                   |       |                                                  |       |   |   |   |   |   |   |   |   |
| Revenue                               |       | $                                                      | 2,518      |                                                  | $          | 2,247 |   | 12.1 |   | $ | 5,457 |   | $ | 4,890 |   | 11.6 |   |
| Cost of revenue                       |       | 1,493                                                  |       | 1,638                                                 |       | (8.9 | ) | 3,534 |   | 3,566 |   | (0.9 | ) |
| Gross profit                          |       | $                                                      | 1,025      |                                                  | $          | 609 |   | 68.3 |   | $ | 1,923 |   | $ | 1,324 |   | 45.2 |   |

 

19

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Thefollowing table sets forth our statements of operations data expressed as apercentage of net revenue for the periods indicated (unaudited):

 
| ** **                            | ** ** | **Three Months Ended October 31** | ** ** | **Nine Months Ended October 31,** | ** ** |
|---------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                            | ** ** | **2007**                                              | ** ** | **2006**                                              | ** ** | **2007** | ** ** | **2006** | ** ** |
| Revenue                               |       |                                                  |       |                                                  |       |   |   |   |   |
| Equipment                             |       | 78.2                                                  | %          | 73.3                                                  | %          | 75.9 | % | 73.4 | % |
| Parts                                 |       | 13.9                                                  | %          | 16.4                                                  | %          | 15.3 | % | 16.4 | % |
| Service                               |       | 6.0                                                   | %          | 7.5                                                   | %          | 7.0 | % | 7.9 | % |
| Other, including  trucking and rental |       | 1.9                                                   | %          | 2.8                                                   | %          | 1.8 | % | 2.3 | % |
| Total revenue                         |       | 100                                                   | %          | 100                                                   | %          | 100 | % | 100 | % |
|                                  |       |                                                  |       |                                                  |       |   |   |   |   |
| Cost of Revenue                       |       |                                                  |       |                                                  |       |   |   |   |   |
| Equipment                             |       | 71.0                                                  | %          | 67.3                                                  | %          | 68.6 | % | 66.9 | % |
| Parts                                 |       | 10.3                                                  | %          | 11.1                                                  | %          | 11.3 | % | 11.7 | % |
| Service                               |       | 2.2                                                   | %          | 2.8                                                   | %          | 2.6 | % | 2.9 | % |
| Other, including  trucking and rental |       | 1.1                                                   | %          | 2.1                                                   | %          | 1.2 | % | 1.7 | % |
| Total cost of  revenue                |       | 84.6                                                  | %          | 83.3                                                  | %          | 83.7 | % | 83.2 | % |
|                                  |       |                                                  |       |                                                  |       |   |   |   |   |
| Gross profit                          |       | 15.4                                                  | %          | 16.7                                                  | %          | 16.3 | % | 16.8 | % |
|                                  |       |                                                  |       |                                                  |       |   |   |   |   |
| Operating  expenses                   |       | 10.9                                                  | %          | 13.2                                                  | %          | 12.0 | % | 13.2 | % |
|                                  |       |                                                  |       |                                                  |       |   |   |   |   |
| Income from  operations               |       | 4.5                                                   | %          | 3.6                                                   | %          | 4.3 | % | 3.6 | % |

 

*Three Months Ended October 31,2007 Compared to Three Months Ended October 31, 2006*

* *

*Revenue*

 
| ** **                            | ** ** | **Three months ended  October 31, 2007** | ** ** | **Three months ended  October 31, 2006** | ** ** | **Increase** | ** ** | **Percent  change** | ** ** |
|---------------------------------------|------------|--------------------------------------------------------------|------------|--------------------------------------------------------------|------------|--------------|------------|---------------------|------------|
| ** **                            | ** ** | **(dollars in thousands)**                         | ** ** |
| Total revenue                         |       | $                                                            | 132,171    |                                                         | $          | 79,149       |       | $                   | 53,022     |   | 67.0 | % |
| Equipment                             |       | $                                                            | 103,372    |                                                         | $          | 57,997       |       | $                   | 45,375     |   | 78.2 | % |
| Parts                                 |       | $                                                            | 18,384     |                                                         | $          | 12,945       |       | $                   | 5,439      |   | 42.0 | % |
| Service                               |       | $                                                            | 7,897      |                                                         | $          | 5,960        |       | $                   | 1,937      |   | 32.5 | % |
| Other, including  trucking and rental |       | $                                                            | 2,518      |                                                         | $          | 2,247        |       | $                   | 271        |   | 12.1 | % |

 

Theincrease in revenue for the three months ended October 31, 2007 was due tothe following three items impacting the current quarter results and not theprior year: acquisitions contributing to current period revenue, salesassociated with a special manufacturer leasing program, and same-store salesgrowth.  Acquisitions contributed $18.1million in total revenue or 34.2% of the increase while the lease sales totaled$16.0 million, or 30.0% of the increase. The remaining increase of $18.9 million is attributable to same-storesales growth of 24.0%, which is reflective of the strong market for ourproducts and our growing market share.

 

20

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Cost of Revenue

 
| ** **                            | ** ** | **Three months ended  October 31, 2007** | ** ** | **Three months ended  October 31, 2006** | ** ** | **Increase** | ** ** | **Percent  change** | ** ** |
|---------------------------------------|------------|--------------------------------------------------------------|------------|--------------------------------------------------------------|------------|--------------|------------|---------------------|------------|
| ** **                            | ** ** | **(dollars in thousands)**                         | ** ** |
| Total cost of  revenue                |       | $                                                            | 111,787    |                                                         | $          | 65,911       |       | $                   | 45,876     |   | 69.6 | % |
| Equipment                             |       | $                                                            | 93,799     |                                                         | $          | 53,270       |       | $                   | 40,529     |   | 76.1 | % |
| Parts                                 |       | $                                                            | 13,652     |                                                         | $          | 8,820        |       | $                   | 4,832      |   | 54.8 | % |
| Service                               |       | $                                                            | 2,843      |                                                         | $          | 2,183        |       | $                   | 660        |   | 30.2 | % |
| Other, including  trucking and rental |       | $                                                            | 1,493      |                                                         | $          | 1,638        |       | $                   | (145       | ) | (8.9 | )% |

 

Theincrease in cost of revenue for the three months ended October 31, 2007was primarily due to the increased revenue. Acquisitions contributed $14.9 million to the cost of revenue for thethree months ending October 31, 2007, while the leasing program addedanother $14.4 million, which was 36.8% and 35.6%, respectively, of the totalincrease in cost of revenue.  Theremainder of the increase is reflective of the increase in same-storesales.  As a percentage of revenue, costof revenue was 84.6% for the third quarter of fiscal 2008, compared to 83.3%for the third quarter of fiscal 2007. This percentage of revenue increase wasattributable to growth in lower margin equipment revenue relative to parts andservices revenue.

 

*Gross Profit*

 
| ** **                            | ** ** | **Three months ended  October 31, 2007** | ** ** | **Three months ended  October 31, 2006** | ** ** | **Increase/  Decrease** | ** ** | **Percent  change** | ** ** |
|---------------------------------------|------------|--------------------------------------------------------------|------------|--------------------------------------------------------------|------------|-------------------------|------------|---------------------|------------|
| ** **                            | ** ** | **(dollars in thousands)**                         | ** ** |
| Total gross  profit                   |       | $                                                            | 20,384     |                                                         | $          | 13,238                  |       | $                   | 7,146      |   | 54.0 | % |
| Equipment                             |       | $                                                            | 9,573      |                                                         | $          | 4,727                   |       | $                   | 4,846      |   | 102.5 | % |
| Parts                                 |       | $                                                            | 4,732      |                                                         | $          | 4,125                   |       | $                   | 607        |   | 14.7 | % |
| Service                               |       | $                                                            | 5,054      |                                                         | $          | 3,777                   |       | $                   | 1,277      |   | 33.8 | % |
| Other, including  trucking and rental |       | $                                                            | 1,025      |                                                         | $          | 609                     |       | $                   | 416        |   | 68.3 | % |

 

The$7.1 million increase in gross profit for the three months ended October 31,2007 was primarily due to the increased revenue.  Acquisitions contributed $3.2 million togross profit for the three months ending October 31, 2007, which was 45.1%of the total increase in gross profit while the leasing sales transactionsadded another $1.6 million.  Same-storegross profits provided the remainder of the gross profit improvement during thethird quarter of fiscal 2008 primarily due to the increase in same-storesales.  Gross profit margins were 15.4%for the third quarter of fiscal 2008, compared to 16.7% for the third quarterof fiscal 2007.  This percentage decreasewas attributable to growth in lower margin equipment revenue relative to partsand services revenue.

 

*Operating Expenses*

 
| ** **          | ** ** | **Three months ended  October 31, 2007** | ** ** | **Three months ended  October 31, 2006** | ** ** | **Increase** | ** ** | **Percent  change** | ** ** |
|---------------------|------------|--------------------------------------------------------------|------------|--------------------------------------------------------------|------------|--------------|------------|---------------------|------------|
| ** **          | ** ** | **(dollars in thousands)**                         | ** ** |
| Operating  expenses |       | $                                                            | 14,380     |                                                         | $          | 10,412       |       | $                   | 3,968      |   | 38.1 | % |
|                     |            |                                                              |            |                                                              |            |              |            |                     |            |  |  |  |

 

Theincrease in operating expenses was primarily due to the additional costsassociated with acquisitions. As a percentage of total revenue, operatingexpenses decreased to 10.9% for the third quarter of fiscal 2008 from 13.2% forthe third quarter of fiscal 2007.   Thisdecrease was primarily driven by the strong sales in the current third quarterresulting in improved fixed operating expense utilization as a percentage ofsales.

 

21

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*Other Income (Expense)*

 
| ** **                 | ** ** | **Three months ended  October 31, 2007** | ** ** | **Three months ended  October 31, 2006** | ** ** | **Increase/  Decrease** | ** ** | **Percent  change** | ** ** |
|----------------------------|------------|--------------------------------------------------------------|------------|--------------------------------------------------------------|------------|-------------------------|------------|---------------------|------------|
| ** **                 | ** ** | **(dollars in thousands)**                         | ** ** |
| Interest and  other income |       | $                                                            | 120        |                                                         | $          | 105                     |       | $                   | 15         |   | 14.3 | % |
| Floorplan  interest        |       | $                                                            | (974       | )                                                            | $          | (969                    | )          | $                   | (5         | ) | 0.5 | % |
| Interest expense           |       | $                                                            | (691       | )                                                            | $          | (523                    | )          | $                   | (168       | ) | 32.1 | % |

 

Ourfloor plan interest expense for the three months ended October 31, 2007increased marginally over the same period of the prior year.  This increase was due to increased levels offloor plan notes payable but was substantially offset by a higher percentage ofthese short-term notes being non-interest bearing.  The increase in interest expense was due toadditional long-term debt incurred primarily in connection with acquisitions.

 

*Provision for IncomeTaxes*

 
| ** **                  | ** ** | **Three months ended  October 31, 2007** | ** ** | **Three months ended  October 31, 2006** | ** ** | **Increase** | ** ** | **Percent  change** | ** ** |
|-----------------------------|------------|--------------------------------------------------------------|------------|--------------------------------------------------------------|------------|--------------|------------|---------------------|------------|
| ** **                  | ** ** | **(dollars in thousands)**                         | ** ** |
| Provision for  income taxes |       | $                                                            | (1,745     | )                                                            | $          | (612         | )          | $                   | (1,133     | ) | 185.1 | % |
|                             |            |                                                              |            |                                                              |            |              |            |                     |            |  |  |  |

 

Theeffective tax rate as a percentage of income before taxes decreased to 39.1%for the three months ended October 31, 2007 from 42.5% for the threemonths ended October 31, 2006. Our effective tax rate reflects the fullfederal and state statutory rates on taxable income.  The variation in the effective tax ratereflects the changing mix of sales made in states with different tax rates.

 

*Nine Months Ended October 31,2007 Compared to Nine Months Ended October 31, 2006*

* *

*Revenue*

 
| ** **                            | ** ** | **Nine months ended  October 31, 2007** | ** ** | **Nine months ended  October 31, 2006** | ** ** | **Increase** | ** ** | **Percent  change** | ** ** |
|---------------------------------------|------------|-------------------------------------------------------------|------------|-------------------------------------------------------------|------------|--------------|------------|---------------------|------------|
| ** **                            | ** ** | **(dollars in thousands)**                        | ** ** |
| Total revenue                         |       | $                                                           | 297,810    |                                                        | $          | 208,616      |       | $                   | 89,194     |   | 42.8 | % |
| Equipment                             |       | $                                                           | 225,854    |                                                        | $          | 153,085      |       | $                   | 72,769     |   | 47.5 | % |
| Parts                                 |       | $                                                           | 45,560     |                                                        | $          | 34,174       |       | $                   | 11,386     |   | 33.3 | % |
| Service                               |       | $                                                           | 20,939     |                                                        | $          | 16,467       |       | $                   | 4,472      |   | 27.2 | % |
| Other, including  trucking and rental |       | $                                                           | 5,457      |                                                        | $          | 4,890        |       | $                   | 567        |   | 11.6 | % |

 

Theincrease in revenue for the nine months ended October 31, 2007 wasprimarily due to the following three items causing the current nine monthresults to increase over the prior year: acquisitions contributing to currentperiod revenue, sales associated with a special manufacturer leasing program,and same-store sales growth.  Theacquisitions contributed $39.7 million in total revenue or 44.5% of theincrease while the lease program transactions totaled $16.0 million, or 17.9%.The remaining increase of $33.5 million is attributable to same-store salesgrowth of 18.2%, which is reflective of the strong market for our products andour growing market share.

 

22

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*Cost of Revenue*

 
| ** **                            | ** ** | **Nine months ended  October 31, 2007** | ** ** | **Nine months ended  October 31, 2006** | ** ** | **Increase** | ** ** | **Percent  change** | ** ** |
|---------------------------------------|------------|-------------------------------------------------------------|------------|-------------------------------------------------------------|------------|--------------|------------|---------------------|------------|
| ** **                            | ** ** | **(dollars in thousands)**                        | ** ** |
| Total cost of  revenue                |       | $                                                           | 249,265    |                                                        | $          | 173,661      |       | $                   | 75,604     |   | 43.5 | % |
| Equipment                             |       | $                                                           | 204,332    |                                                        | $          | 139,462      |       | $                   | 64,870     |   | 46.5 | % |
| Parts                                 |       | $                                                           | 33,668     |                                                        | $          | 24,496       |       | $                   | 9,172      |   | 37.4 | % |
| Service                               |       | $                                                           | 7,731      |                                                        | $          | 6,137        |       | $                   | 1,594      |   | 26.0 | % |
| Other, including  trucking and rental |       | $                                                           | 3,534      |                                                        | $          | 3,566        |       | $                   | (32        | ) | (0.9 | )% |

 

Theincrease in cost of revenue for thenine months ended October 31, 2007 was primarily due to the increasedrevenue.  Acquisitions contributed $32.6million to the cost of revenue for thecurrent nine month period, while the leasing program added another $14.4million, which is 43.1% and 19.0%, respectively, of the total increase in costof revenue from the same prior fiscal period. The remainder of the increase is reflective of the increase insame-store sales.  As a percentage of revenue, cost of revenue was 83.7%in fiscal 2008, compared to 83.2% in fiscal 2007. This percentage of revenue increasewas attributable to growth in the lower margin equipment revenue relative toparts and services revenue.

 

*Gross Profit*

 
| ** **                            | ** ** | **Nine months ended  October 31, 2007** | ** ** | **Nine months ended  October 31, 2006** | ** ** | **Increase** | ** ** | **Percent  change** | ** ** |
|---------------------------------------|------------|-------------------------------------------------------------|------------|-------------------------------------------------------------|------------|--------------|------------|---------------------|------------|
| ** **                            | ** ** | **(dollars in thousands)**                        | ** ** |
| Total gross  profit                   |       | $                                                           | 48,545     |                                                        | $          | 34,955       |       | $                   | 13,590     |   | 38.9 | % |
| Equipment                             |       | $                                                           | 21,522     |                                                        | $          | 13,623       |       | $                   | 7,899      |   | 58.0 | % |
| Parts                                 |       | $                                                           | 11,892     |                                                        | $          | 9,678        |       | $                   | 2,214      |   | 22.9 | % |
| Service                               |       | $                                                           | 13,208     |                                                        | $          | 10,330       |       | $                   | 2,878      |   | 27.9 | % |
| Other, including  trucking and rental |       | $                                                           | 1,923      |                                                        | $          | 1,324        |       | $                   | 599        |   | 45.2 | % |

 

The$13.6 million increase in gross profit for the nine months ended October 31,2007 compared to the same prior year period was primarily due to increasedrevenue.  Acquisitions contributed $7.1million to gross profit for the current nine month period, which is 52.2% ofthe total increase in cost of revenue while the leasing sales program addedanother $1.6 million.  Same-store grossprofits provided the remainder of the gross profit improvement primarily due tothe increase in same-store sales.  Grossprofit margins were 16.3% for the current nine month period compared to 16.8%in the prior nine month period.  Thispercentage decrease is attributable to the growth in lower margin equipmentrevenue relative to parts and services revenue.

 

*Operating Expenses*

 
| ** **          | ** ** | **Nine months ended  October 31, 2007** | ** ** | **Nine months ended  October 31, 2006** | ** ** | **Increase** | ** ** | **Percent  change** | ** ** |
|---------------------|------------|-------------------------------------------------------------|------------|-------------------------------------------------------------|------------|--------------|------------|---------------------|------------|
| ** **          | ** ** | **(dollars in thousands)**                        | ** ** |
| Operating  expenses |       | $                                                           | 35,833     |                                                        | $          | 27,463       |       | $                   | 8,370      |   | 30.5 | % |
|                     |            |                                                             |            |                                                             |            |              |            |                     |            |  |  |  |

 

Theincrease in operating expenses for the nine months ended October 31, 2007was primarily due to the additional costs associated with acquisitions. As apercentage of total revenue, operatingexpenses decreased to 12.0% for the current nine month period from 13.2% forthe nine month period in the prior year. This decrease was primarily driven by the strong sales in the currentyear resulting in improved fixed operating expense utilization as a percentageof sales.

 

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*Other Income (Expense)*

 
| ** **                  | ** ** | **Nine months ended  October 31, 2007** | ** ** | **Nine months ended  October 31, 2006** | ** ** | **Increase** | ** ** | **Percent  change** | ** ** |
|-----------------------------|------------|-------------------------------------------------------------|------------|-------------------------------------------------------------|------------|--------------|------------|---------------------|------------|
| ** **                  | ** ** | **(dollars in thousands)**                        | ** ** |
| Interest and  other income  |       | $                                                           | 204        |                                                        | $          | 308          |       | $                   | (104       | ) | (33.8 | )% |
| Floorplan  interest expense |       | $                                                           | (2,805     | )                                                           | $          | (2,436       | )          | $                   | (369       | ) | 15.1 | % |
| Interest expense            |       | $                                                           | (1,955     | )                                                           | $          | (1,593       | )          | $                   | (362       | ) | 22.7 | % |

 

Floorplan interest expense increased $0.4 million for the nine months ended October 31,2007 due to higher levels of floor plan debt in the current fiscal yearcompared to that of the prior year.  Thehigher floor plan debt is driven by increased equipment inventory levelsresulting from acquisitions.  The $0.4million increase in interest expense was due to additional long-term debtincurred primarily in connection with acquisitions.

 

*Provision for IncomeTaxes*

 
| ** **                  | ** ** | **Nine months ended  October 31, 2007** | ** ** | **Nine months ended  October 31, 2006** | ** ** | **Increase** | ** ** | **Percent  change** | ** ** |
|-----------------------------|------------|-------------------------------------------------------------|------------|-------------------------------------------------------------|------------|--------------|------------|---------------------|------------|
| ** **                  | ** ** | **(dollars in thousands)**                        | ** ** |
| Provision for  income taxes |       | $                                                           | (3,213     | )                                                           | $          | (1,514       | )          | $                   | (1,699     | ) | 112.2 | % |
|                             |            |                                                             |            |                                                             |            |              |            |                     |            |  |  |  |

 

Theeffective tax rate as a percentage of income before taxes decreased to 39.4%for the nine months ended October 31, 2007 from 40.1% for the same ninemonths of the prior year.  Our effectivetax rate reflects the full federal and state statutory rates on taxableincome.  The variation in the effectivetax rate reflects the changing mix of sales made in states with different taxrates.

 

**Liquidity and CapitalResources**

** **

*Cash Flow from OperatingActivities*

* *

For the nine months endedOctober 31, 2007, our cash flow provided by operating activities was $5.0million.  Our cash flows from operationswere primarily the result of our reported net income of $4.9 million, anincrease in floor plan notes of $4.1 million, an increase in customer depositsof $4.9 million, an increase in accounts payable and accrued expenses of $4.0million and an add back of non-cash depreciation and amortization of $1.6million.  This amount was principallyoffset by an increase in receivables of $7.8 million and an increase in inventoriesof $7.0 million.

 

Forthe nine months ended October 31, 2006, our cash flow provided byoperating activities was $8.4 million. Our cash flows from operations were primarily the result reported netincome of $2.3 million, a decrease in inventories of $5.8 million, an increasein floor plan notes of $3.0 million and an increase in accounts payable of $4.0million.  This amount was principallyoffset by an increase in receivables of $3.8 million and a decrease in customerdeposits of $2.8 million.

 

*Cash Flow from InvestingActivities*

* *

Forthe nine months ended October 31, 2007, cash used for investing activitieswas $10.6 million.  Our cash used forinvesting activities primarily consisted of equipment dealership purchases (netof cash purchased) of $5.0 million and purchases of property and equipment for$5.5 million.

 

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For the nine monthsended October 31, 2006, cash used for investing activities was $13.7million.  Our cash used for investingactivities primarily consisted of equipment dealership purchases (net of cashpurchased) of $12.1 million and purchases of property and equipment for $1.7million.

 

*Cash Flow from Financing Activities*

* *

For the nine monthsended October 31, 2007, cash provided by financing activities was $1.8million.  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 floor plan payables of $3.5 million.

 

For the nine monthsended October 31, 2006, 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 $4.0 million and proceeds from fixed assetfinancing related to acquisitions of $1.6 million.  Partially offsetting the cash provided byfinancing activities were principal payments on long-term debt of $0.9 millionand a decrease in the net change in non-manufacturer floor plan payables of$3.1 million.

 

**Sources of Liquidity**

** **

Our primary sources ofliquidity are cash flow from operations, proceeds from our public offering,proceeds from the issuance of debt and our borrowings under the Bremer, CNHCapital, and GE credit facilities. We expect that ongoing requirements for debtservice and capital expenditures will be funded from 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 floor plan payable.

 

Based on our currentoperational performance, we believe our cash flow from operations, the proceedsfrom our public offering, 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 under operating leases.

 

# **Information Regarding Forward-Looking Statements**

#  

The Private Securities Litigation Reform Act of 1995provides a “safe harbor” for forward-looking statements. Such “forward-looking”information is included in this Form 10-Q, including the MD&A section,as well as in our Registration Statement on Form S-1, as amended, that wasfiled with the Securities and Exchange Commission, and in other materials filedor to be filed by the Company with the Securities and Exchange Commission (aswell as information included in oral statements or other written statementsmade 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 our beliefs that ourmarket share is growing and our expectations and beliefs with respect to theuses and adequacy of our capital resources. Any statements that are not based upon historical facts, including theoutcome of events that have not yet occurred and our expectations for futureperformance, are forward-looking statements. The words “potential,” “believe,” “estimate,” “expect,” “intend,” “may,”“could,”  “will,” “plan,” “anticipate,”and similar words and expressions are intended to identify forward-lookingstatements.  Such statements are basedupon the current beliefs and expectations of our management.  Such forward-looking information involvesimportant risks and uncertainties that could significantly affect anticipatedresults in the future and, accordingly, such results may differ from thoseexpressed in any forward-looking statements made by or on behalf of theCompany.  These risks and uncertaintiesinclude our ability to successfully implement our acquisition strategy andsuccessfully integrate newly-acquired dealerships, the accuracy of management’sestimates and beliefs regarding the strength of the agriculture andconstruction industries within our geographic footprint, and the accuracy ofmanagement’s beliefs with respect to the uses and adequacy of our capitalresources, as well as those matters identified and discussed in ourRegistration Statement on Form S-1, as amended, filed in connection withour initial public offering under the section titled “Risk Factors”.

 

25

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**ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK**

 

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 market valuebut do impact future earnings and cash flows, assuming other factors are heldconstant. During fiscal 2007, we renegotiated and/or signed several new creditfacilities. Many of these credit agreements are floating rate facilities nowcontaining minimum rates of interest to be charged. We have also entered intofixed rate financing. Based upon balances and interest rates as of October 31,2007, holding other variables constant, a one percentage point increase ininterest rates for the next 12-month period would decrease pre-tax earnings andcash flow by approximately $561,000. Conversely, a one percentage pointdecrease in interest rates for the next 12-month period would result in anincrease to pre-tax earnings and cash flow of approximately $561,000. At October 31,2007, we had variable rate floorplan notes payable of $111.7 million, of whichapproximately $44.6 million was interest-bearing, variable notes payable andlong-term debt of $11.6 million, and fixed rate notes payable and long-termdebt of $20.8 million.

 

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

 

**ITEM 4.**CONTROLS ANDPROCEDURES**

 

*(a)*                               *Evaluation of disclosurecontrols and procedures*. After evaluating the effectiveness of the Company’s disclosurecontrols and procedures pursuant to Rule 13a-15(b) of the SecuritiesExchange Act of 1934 (“the Exchange Act”) as of the end of the period coveredby this quarterly report, our chief executive officer and chief financialofficer with the participation of the Company’s management, have concluded thatthe Company’s disclosure controls and procedures are effective to ensure thatinformation that is required to be disclosed by the Company in reports that itfiles under the Exchange Act is recorded, processed, summarized and reportedwithin the time periods specified in the rules of the Securities ExchangeCommission. Our chief executive officer and chief financial officer with theparticipation of the Company’s management, have also concluded that theCompany’s disclosure controls and procedures are effective to ensure thatinformation required to be disclosed in reports filed or submitted under theExchange Act is accumulated and communicated to management, including ourprincipal executive officer and principal financial officer, to allow timelydecisions regarding required disclosures.

 

Basedon evaluations occurring prior to the end of the period covered by this quarterlyreport, our chief executive officer and chief financial officer concluded thatcertain internal control deficiencies existed. In light of these deficiencies, management took the actions discussedbelow prior to and during the third quarter to address such deficiencies.

 

*(b)**                              **Changes in internal controls*. During the nine months ended October 31,2007, we have taken the actions set forth below that management believesappropriately address past control deficiencies.

 

1.     The Companystrengthened its accounting close procedures to ensure timely and propergeneral ledger reconciliations and to include numerous review activitiesincluding the formation of a Disclosure Committee.  The Company also engaged the services of ourindependent auditors to conduct an Agreed Upon Procedures engagement to analyzeour current quarter-end closing procedures.

2.     The Companydirected appropriate accounting personnel to pursue continuing education andtraining to improve their skill and abilities and to become more qualified inthe financial reporting function.

3.     The Companyhired a chief accounting officer.

4.     The Companyengaged external consultants to provide recommendations to improve ourprocesses and internal control structure.

 

Exceptas otherwise described herein, there has not been any change in our internalcontrol over financial reporting (as defined in Rules 13a-15(f) aspromulgated by the Securities and Exchange Commission under the Act) during ourmost recently completed fiscal quarter that has materially affected, or isreasonably likely to materially affect, our internal control over financialreporting.

 

26

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

###  

**ITEM 1.              LEGAL PROCEEDINGS**

 

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

 

**ITEM 1A.           RISK FACTORS**

 

In addition to the otherinformation set forth in this Quarterly Report, including the importantinformation in the “Information Regarding Forward-Looking Statements” section, youshould carefully consider the “Risk Factors” discussed in our RegistrationStatement on Form S-1, as amended, as filed with the United StatesSecurities and Exchange Commission on December 5, 2007.  Those factors, if they were to occur, couldcause our actual results to differ materially from those expressed in ourforward-looking statements in this Quarterly Report, and materially adverselyaffect our financial condition or future results.  Although we are not aware of any otherfactors that we currently anticipate will cause our forward-looking statementsto differ materially from our future actual results, or materially affect theCompany’s financial condition or future results, additional risks anduncertainties not currently known to us or that we currently deem to beimmaterial might materially adversely affect our actual business, financialcondition and/or operating results.

 

There have been nomaterial changes to the risk factors described in our Registration Statement onForm S-1 as amended, filed in connection with our initial public offering.

 

**ITEM 2.              UNREGISTERED SALES OF EQUITYSECURITIES AND USE OF PROCEEDS**

 

On August 1, 2007,we issued an aggregate of 323,533 shares of Series D Preferred Stock toindividuals affiliated with Red Power International, Inc., each of whom isan accredited investor, in connection with our acquisition of Red Power’s CaseIH and New Holland dealership in Crookston, Minnesota.  We believe the transaction was exempt fromthe registration requirements of the Securities Act by virtue of Section 4(2) thereofand Regulation D promulgated thereunder, based on the limited number ofofferees in the offering, representations and warranties made by the offereesin the particular transactions, or the identity of such offerees as accreditedinvestors.

 

On December 11, 2007, we closed the initial public offering of ourcommon stock, pursuant to which we sold 5,442,395 shares of our common stockand selling stockholders sold 1,457,605 shares. We filed a Registration Statement on Form S-1 in connection with the IPO(SEC File No. 333-145526) that was declared effective on December 6, 2007, aswell as a Registration Statement on Form S-1 relating to an increase in theproposed maximum aggregate offering price (SEC File No. 333-147859).  We received net proceeds, after expenses,from the IPO of approximately $42 million. Offering expenses related to the IPOincluded an underwriting discount of approximately $3.2 million and otheroffering expenses of approximately $1.0 million.  We used $441,027 of the proceeds from the IPOto pay accrued cash dividends upon the conversion of all of our outstandingpreferred stock, $142,424 to repay subordinated debentures, and $7.5 million torepay the subordinated note issued to CNH Capital issued January 31, 2006.  We intend to use the remaining proceeds fromthe IPO  to fund potential acquisitionsof CNH agricultural and construction equipment dealerships and for generalcorporate purposes, including working capital needs. 

 

**ITEM 3.              DEFAULTS UPON SENIOR SECURITIES**

 

None.

 

**ITEM 4.              SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

 

None.

 

**ITEM 5.              OTHER INFORMATION**

 

On January 10,2008, the Company’s Compensation Committee approved the Titan Machinery Inc.Fiscal 2009 Non-Employee  DirectorCompensation Plan.  The plan provides fora $20,000 annual cash retainer, an annual grant of $20,000 of restricted stockpriced as of the last day of the prior fiscal year with one-year vesting periodand a requirement to hold such shares of stock until no longer serving as adirector of the Company, a $1,000 cash fee per board or committee meetingattended in person ($500 for teleconferences), and the reimbursement ofreasonable expenses incurred in connection with serving as a director of theCompany.  This plan replaces in itsentirety the Titan Machinery Inc. Non-Employee Director Compensation Plan filedas Exhibit 10.4 to the Company’s Registration Statement on Form S-1,as amended, filed in connection with the Company’s initial publicoffering.  A copy of the plan is attachedas Exhibit 10.1 to this Quarterly Report and the terms of the plan areincorporated by reference into this Item 5 as if fully set forth herein.

 

27

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On January 10,2008, the Company’s Compensation Committee approved the Titan Machinery Inc.Fiscal 2008 Executive Bonus Plan.  Theplan provides for a cash bonus to the Company’s named executive officers of upto 200% of our Chief Executive Officer’s and President and Chief FinancialOfficer’s annual base salaries and up to 70% of our Vice President, Finance andTreasurer’s annual base salary if certain company financial targets andindividual performance goals are met.  Acopy of the plan is attached as Exhibit 10.2 to this Quarterly Report andthe terms of the plan are incorporated by reference into this Item 5 as iffully set forth herein.

 

**ITEM 6.              EXHIBITS**

 

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

 

28

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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:  January 11, 2008

 
|   | **TITAN MACHINERY INC.** |
|--------|--------------------------|
|   |                     |   |   |
|   |                     |   |   |
|   | By                       |   | /s/ Peter J.  Christianson |
|   |                     |   | Peter J. Christianson |
|   |                     |   | President and Chief  Financial Officer |
|   |                     |   | (Principal Financial  Officer) |

 

29

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EXHIBIT INDEX

TITAN MACHINERYINCORPORATED

FORM 10-Q

 
| **Exhibit No.** |   | **Description**                                                                                                         |
|----------------------|--------|-------------------------------------------------------------------------------------------------------------------------|
| **10.1               |   | Titan Machinery Inc.  Fiscal 2009 Non-Employee Director Compensation Plan                                               |
| **10.2               |   | Titan Machinery Inc.  Fiscal 2008 Executive Bonus Plan                                                                  |
| **31.1               |   | Certification of  President and 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  President and 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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