As filed with the Securities and Exchange Commission on August 17, 2007

Registration No. 333-         

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933


TITAN MACHINERY INC.

(Exact name of registrant as specified in its charter)

North Dakota

 

5080

 

45-0357838

(State or other jurisdiction of incorporation or organization)

 

(Primary Standard Industrial Classification Code Number)

 

(I.R.S. Employer
Identification No.)

 


4876 Rocking Horse Circle
Fargo, ND 58104-6049
(701) 356-0130

(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)


David J. Meyer
Chairman and Chief Executive Officer
Titan Machinery Inc.
4876 Rocking Horse Circle
Fargo, ND 58104-6049
(701) 356-0130

(Name, address, including zip code, and telephone number, including area code, of agent for service)


Copies to:

Robert K. Ranum

W. Morgan Burns

Alexander Rosenstein

Jonathan R. Zimmerman

Fredrikson & Byron, P.A.

Faegre & Benson LLP

200 South Sixth Street

2200 Wells Fargo Center

Suite 4000

90 South Seventh Street

Minneapolis, MN 55402-1425

Minneapolis, MN 55402-1425

(612) 492-7000

(612) 766-7000

 


Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. o

If this Form is a post effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

CALCULATION OF REGISTRATION FEE

Title of Each Class of
Securities to be Registered

 

 

 

Proposed Maximum

Aggregate Offering

Price(1)(2)

 

 

 

Amount of 

Registration Fee

 

Common stock, par value $0.01 per share

 

 

 

 

$

35,000,000

 

 

 

 

 

$

1,075

 

 

 

(1)              In accordance with Rule 457(o) under the Securities Act of 1933, the number of shares being registered and the proposed maximum offering price per share are not included in this table.

(2)              Estimated solely for the purpose of computing the registration fee pursuant to Rule 457(o) under the Securities Act.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 




SUBJECT TO COMPLETION, DATED AUGUST 17, 2007

The information in this prospectus is not complete and may be changed. We may not sell these securities until our registration statement filed with the Securities and Exchange Commission is effective. The prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

GRAPHIC

              Shares

Common Stock

$          per share

Titan Machinery Inc. is offering                           shares and selling stockholders are offering                      shares. This is our initial public offering and no public market currently exists for our shares. We anticipate that the initial public offering price will be between $           and $           per share. We have applied to have our common stock approved for quotation on the Nasdaq Global Market under the symbol “TITN.”

 

 

 

Per Share

 

 

 

Total

 

Initial public offering price

 

 

 

$

 

 

 

 

$

 

 

Underwriting discount

 

 

 

$

 

 

 

 

$

 

 

Proceeds, before expenses, to Titan Machinery Inc.

 

 

 

$

 

 

 

 

$

 

 

Proceeds, before expenses, to the selling stockholders

 

 

 

$

 

 

 

 

$

 

 

 

The underwriters have a 30-day option to purchase up to              additional shares of common stock from us and up to an additional                           shares from the selling stockholders at the initial public offering price less the underwriting discount to cover over-allotments, if any.

This investment involves risk. See “Risk Factors” beginning on page 8.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

Craig-Hallum Capital Group

Robert W. Baird & Co.

 

The date of this prospectus is                                              , 2007.




GRAPHIC

 




TABLE OF CONTENTS

 

PAGE

 

Summary

 

 

1

 

 

Risk Factors

 

 

8

 

 

Information Regarding Forward-Looking Statements

 

 

19

 

 

Use of Proceeds

 

 

20

 

 

Dividend Policy

 

 

20

 

 

Capitalization

 

 

21

 

 

Dilution

 

 

22

 

 

Selected Financial Data

 

 

23

 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

25

 

 

Business

 

 

40

 

 

Management

 

 

56

 

 

Executive Compensation

 

 

60

 

 

Certain Relationships and Related Party Transactions

 

 

67

 

 

Principal and Selling Stockholders

 

 

72

 

 

Description of Capital Stock

 

 

74

 

 

Shares Eligible for Future Sale

 

 

78

 

 

Underwriting

 

 

80

 

 

Legal Matters

 

 

82

 

 

Experts

 

 

82

 

 

Where You Can Find More Information

 

 

82

 

 

Index to Financial Statements

 

 

F-1

 

 

 

You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. This prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any state where the offer or sale is not permitted. The information in this prospectus is complete and accurate as of the date on the front cover of this prospectus, but the information may have changed since that date.

All trademarks, trade names and service marks appearing in this prospectus are the property of their respective owners.




We obtained industry and market data used throughout this prospectus through our research, surveys and studies conducted by third parties and industry and general publications. We have not independently verified market and industry data from third-party sources. While we believe internal company surveys are reliable and market definitions are appropriate, neither these surveys nor these definitions have been verified by any independent sources.




SUMMARY

This summary highlights information contained elsewhere in this prospectus. You should read this entire prospectus carefully, including the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the notes thereto accompanying this prospectus, before making an investment in our common stock. As used in this prospectus, the terms “company,” “we,” “our,” and “us” refer to Titan Machinery Inc. except where the context otherwise requires. All references to Titan Machinery Inc. also include references to its predecessor entities where the context requires.

Our Company

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

The agricultural equipment we sell and service includes machinery and attachments for uses ranging from large-scale farming to home and garden use. The construction equipment we sell and service includes heavy construction and light industrial machinery for commercial and residential construction, road and highway construction and mining applications. We offer our customers a one-stop solution for their equipment needs through:

·        new and used equipment sales;

·        parts sales;

·        repair and maintenance services; and

·        equipment rental and other activities.

The new equipment and parts we sell are supplied primarily by CNH Global N.V., or CNH, a majority-owned subsidiary of Fiat-S.p.A. CNH is a leading manufacturer and supplier of agricultural and construction equipment, primarily through the Case IH Agriculture, New Holland Agriculture, Case Construction and New Holland Construction brands. We acquire used equipment for resale through trade-ins from our customers and selective purchases. We sell parts and provide in-store and on-site repair and maintenance services. We rent equipment and provide other ancillary services such as equipment transportation, GPS signal subscriptions and finance and insurance products.

Throughout our 27 year operating history we have built an extensive, geographically contiguous network of 34 full service stores and two outlet stores located in the upper Midwest. We have a successful history of growth through acquisitions, including 13 acquisitions consisting of 29 stores operating in four states since January 1, 2003. We have a well-established track record of successfully integrating acquired stores, retaining acquired-store employees and maintaining acquired-store customer relationships. We expect that acquisitions will continue to be an important component of our growth.

For the six months ended July 31, 2007, our net revenue increased      % to $        million from $         million for the six months ended July 31, 2006. For the six months ended July 31, 2007, our net income increased       % to $        million from $         million for the six months ended July 31, 2006. The improvement in our profitability resulted from                                          .

1




Titan Operating Model

We believe the Titan Operating Model is a key element to our continued success. Through the Titan Operating Model, we empower leadership and share best practices at the store level while realizing efficiencies at the corporate level. We believe exceptional customer service is most efficiently delivered through accountable store employees who are supported by centralized administrative, finance and marketing functions. Our executives work closely with our store managers to develop the managers’ industry knowledge and ensure these managers acheive operational excellence in line with our management philosophy.

Our Industry

Our business is driven by the demand for agricultural equipment, which is purchased primarily for the production of food, fiber, feed grain and renewable energy. Agriculture equipment is also purchased for home and garden applications and maintenance of commercial, residential and government properties. Farmers are currently enjoying historically strong economic fundamentals, which is driven in part by growing global demand for agricultural commodities, due in part to renewable energy and economic growth in developing countries. U.S. annual net farm income since 2000 has averaged $61 billion, compared to average annual net farm income during the 1990s of $48 billion, as adjusted for inflation. In 2006, U.S. net farm income was $60.6 billion and the USDA projects this amount to grow to an annual average of $66.7 billion for the next 10 years, as adjusted for inflation. The USDA paid $21.1 billion in farm subsidies in 2005, $5.2 billion of which were paid to farmers in the states in which we operate stores: Iowa, Minnesota, North Dakota and South Dakota. Total revenue for U.S. farm and garden equipment dealers was $55.4 billion in 2006 and is projected to grow to $58.2 billion by 2012, as adjusted for inflation.

In addition, our business is impacted by the demand for construction equipment, which is purchased primarily for private and government commercial, residential and infrastructure construction, as well as for demolition, maintenance, mining and forestry operations. Demand for construction equipment in our markets is primarily driven by public infrastructure spending, including roads and highways, sewer and water. The Federal Highway Administration allocations to public infrastructure spending in the states in which we operate stores will increase from $1.3 billion, or 3.9% of federal funding, in 2005 to $1.6 billion, or 4.3% of federal funding, in 2009, as adjusted for inflation. Total revenue for U.S. construction equipment dealers was $72.4 billion in 2006 and is projected to grow to $78.3 billion by 2012, as adjusted for inflation.

Our Business Strengths

We believe the Titan Operating Model is our primary business strength. In addition, we believe our business has the following key strengths:

Leading North American Equipment Provider with Significant Scale.    We are the world’s largest retail dealer of Case IH Agriculture equipment and a major retailer of New Holland Agriculture, Case Construction and New Holland Construction equipment in the U.S. We believe our size and large, contiguous geographic market provide us with several competitive advantages, including inventory management, a large distribution network, our ability to use expanded sales channels to offer alternative purchasing options to our customers, and our ability to capitalize on crop diversification and disparate weather conditions throughout the large geographic area in which we operate stores.

Customer Focus at the Local Level.    As part of the Titan Operating Model, we centralize general and administrative functions and finance and marketing resources. This strategy enables our store employees to focus exclusively on their customers and eliminates redundant operating expenses. We believe this operating structure, which is focused on serving our customers on a local level, will allow us to increase market share.

2




Superior Customer Service to Attract and Retain Customers.    We believe our ability to respond quickly to our customers’ demands is a key to profitable growth. Our executives are committed to maintaining a customer-focused culture. We spend significant time and resources training our employees to effectively service our customers in each of our local markets, which we believe will increase our revenue.

Unique Entrepreneurial Culture to Attract and Retain Superior Employees.    We created a unique entrepreneurial culture that empowers our employees to make decisions and act within the parameters of a proven operating process and system. The balance we maintain between our entrepreneurial spirit and standardized operations enables us to attract and retain superior employees who can work independently yet consistently throughout our company based on defined objectives and frequent feedback. Further, this entrepreneurial culture strengthens our relationships with customers who expect to deal with employees who have a level of autonomy. We believe this culture positions our company for continued growth.

Diverse and Stable Customer Base to Avoid Market Volatility.    We believe our large and diverse customer base of over 25,000 customers in fiscal 2007 limits our exposure to risks associated with customer concentration and fluctuations in local market conditions.

Efficient Management Reporting Systems.    Our management information systems provide the data and reports that facilitate our ability to make rapid and informed decisions, as well as facilitate training and foster development of management personnel.

Experienced Management Team to Implement our Growth Strategy.    Our executive team is led by David Meyer, our Chairman and Chief Executive Officer, and Peter Christianson, our President and Chief Financial Officer, who have approximately 32 and 28 years, respectively, of industry experience. Our store managers and field marketers also have extensive industry knowledge and experience.

Our Growth Strategy

We believe our business strengths will enable us to grow our business as we implement the following growth strategies:

Increase Market Share and Same-Store Sales.    We focus on increasing our share of the equipment sold in our markets because our market share impacts current period revenue and compounds our revenue over the life of the equipment sold through recurring parts and service business. We seek to generate same-store sales growth and increase market share through significant marketing and advertising programs, supporting evolving technologies that are difficult for smaller dealers to support, maintaining state-of-the-art service facilities and mobile service trucks and maximizing parts and equipment availability for our customers.

Make Selective Acquisitions to Grow Our Business.    The agricultural and construction equipment industries are fragmented and consist of many relatively small, independent businesses servicing discrete local markets. We believe a favorable climate for dealership consolidation exists due to several factors, including the competitiveness of our industry, growing dealer capitalization requirements and lack of succession alternatives. We intend to evaluate and pursue acquisitions with the objectives of entering new markets, consolidating distribution within our established network and strengthening our competitive position. We also look to add construction stores in local markets in which we sell agriculture equipment but do not have construction dealership agreements with CNH. We have a track record of completing and integrating acquisitions and have successfully used acquisitions to enter new markets, as demonstrated by the expansion of our agricultural business from the Red River valley region into the western portion of the corn belt and our entry into and expansion of our construction equipment business in the four states in which we also sell agriculture equipment.

3




Integrate New Dealers into the Titan Operating Model.    We have developed the Titan Operating Model to optimize the performance and profitability of each of our stores. Upon consummation of each acquisition, we integrate acquired stores into our operations by implementing the Titan Operating Model and seeking to enhance each acquired store’s performance within its target market.

Risk Factors

Our business is subject to a number of risks discussed under the heading “Risk Factors” and elsewhere in this prospectus. The principal risks facing our business include, among others, our substantial dependence upon our relationship with CNH, termination and other provisions in our agreements with CNH, economic conditions in the agriculture and construction industries, the availability of financing for the equipment we sell, our ability to execute our acquisition strategy, and competition in our industry. There are also several risks relating to this offering and the ownership of our common stock. You should carefully consider these factors, as well as all of the other information set forth in this prospectus.

Corporate Information

We were incorporated as a North Dakota corporation in 1980 and intend to reincorporate in Delaware prior to the consummation of this offering. Our executive offices are located at 4876 Rocking Horse Circle, Fargo, ND 58104-6049. Our telephone number is (701) 356-0130. We maintain a web site at titanmachinery.com. Our web site and the information contained on our web site shall not be deemed to be part of this prospectus.

The Offering

Common stock offered by us

 

               shares

Common stock offered by the selling stockholders

 

               shares

Common stock to be outstanding after this offering

 

               shares

Over-allotment option

 

The underwriters have a 30-day option to purchase up to                 additional shares of common stock from us and up to an additional               shares from the selling stockholders.

Initial public offering price

 

               per share

Use of proceeds

 

We intend to use the net proceeds from this offering to fund future acquisitions of dealerships, for working capital and general corporate purposes, to pay accrued cash dividends upon the conversion of all of our outstanding preferred stock and to repay outstanding debt. We will not receive any proceeds from the sale of shares by the selling stockholders. See “Use of Proceeds” for additional information.

Proposed Nasdaq Global Market symbol

 

TITN

 

4




Unless otherwise indicated, the number of shares of our common stock that will be outstanding immediately after this offering is 7,111,910 shares, which includes 4,356,190 shares outstanding as of July 31, 2007, 1,113,739 shares to be issued upon the conversion, concurrent with this offering, of our outstanding preferred stock into the same number of shares of common stock, and 1,641,981 shares to be issued upon the exchange, concurrent with this offering, of certain outstanding convertible subordinated debentures and excludes:

·        conversion of certain outstanding subordinated convertible debentures into 666,667 shares of common stock;

·        188,333 shares of common stock issuable upon the exercise of then outstanding stock options (of which 10,001 are exercisable) at a weighted average exercise price of $5.77 per share;

·        200,000 shares of common stock issuable upon the exercise of stock options authorized to be granted concurrent with this offering to David Meyer, our Chairman and Chief Executive Officer, and Peter Christianson, our President and Chief Financial Officer, at an exercise price equal to the public offering price of the shares issued in this offering;

·        394,493 shares of common stock issuable upon the exercise of then outstanding warrants (all of which are exercisable) at a weighted average exercise price of $4.13 per share; and

·        611,667 shares of common stock reserved and available for future issuances under our 2005 Equity Incentive Plan.

Except as otherwise noted, all information in this prospectus assumes:

·        no exercise of the underwriters’ over-allotment option;

·        the conversion of all of our outstanding preferred stock upon the closing of this offering into 790,206 shares of common stock and the payment of accrued cash dividends in the amount of $             on this preferred stock (assuming the dividends are paid on             2007);

·        the conversion of 323,533 shares of Series D preferred stock issued on August 1, 2007, which convert into the same number of shares of common stock;

·        exchange of certain outstanding subordinated convertible debentures for 1,641,981 shares of common stock;

·        our reincorporation under Delaware law and the filing of our certificate of incorporation in Delaware prior to the completion of this offering; and

·        an initial public offering price of $       per share, the mid-point of the range set forth on the cover of this prospectus.

5




Summary Financial Data

The following tables set forth, for the periods and dates indicated, our summary financial data. The summary financial data as of and for our fiscal years ended January 31, 2005, 2006, and 2007 have been derived from our audited financial statements included elsewhere in this prospectus. The summary financial data as of and for the six months ended July 31, 2006 and 2007 have been derived from our unaudited financial statements included elsewhere in this prospectus. The unaudited financial statements have been prepared on the same basis as our audited financial statements and, in the opinion of our management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for those periods. The results included here and elsewhere in this prospectus are not necessarily indicative of future performance.

 

 

Year ended January 31,

 

Six months ended July 31,

 

 

 

2005

 

2006

 

2007

 

2006

 

2007

 

 

 

 

 

(unaudited)

 

 

 

(in thousands, except per share data)

 

Statement of Operations Data:

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

Equipment

 

$

119,850

 

$

175,549

 

$

220,958

 

$

 

 

$

 

 

Parts

 

25,058

 

31,099

 

42,619

 

 

 

 

 

Service

 

13,141

 

16,572

 

21,965

 

 

 

 

 

Other

 

4,134

 

5,250

 

7,056

 

 

 

 

 

 

 

162,183

 

228,470

 

292,598

 

 

 

 

 

Cost of revenue

 

 

 

 

 

 

 

 

 

 

 

Equipment

 

109,023

 

$

160,814

 

$

200,558

 

$

 

 

$

 

 

Parts

 

18,402

 

22,459

 

29,909

 

 

 

 

 

Service

 

5,236

 

6,404

 

8,183

 

 

 

 

 

Other

 

3,119

 

4,081

 

5,337

 

 

 

 

 

 

 

135,780

 

193,758

 

243,987

 

 

 

 

 

Gross profit

 

26,403

 

34,712

 

48,611

 

 

 

 

 

Operating expenses

 

22,596

 

26,978

 

37,399

 

 

 

 

 

Income from operations

 

3,807

 

7,734

 

11,212

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

Interest and other income

 

144

 

88

 

349

 

 

 

 

 

Floorplan interest expense

 

(1,009

)

(2,296

)

(3,294

)

 

 

 

 

Other interest expense

 

(684

)

(1,058

)

(2,097

)

 

 

 

 

Income before income taxes

 

2,258

 

4,468

 

6,170

 

 

 

 

 

Provision for income taxes

 

(911

)

(1,721

)

(2,450

)

 

 

 

 

Income from continuing operations

 

1,347

 

2,747

 

3,720

 

 

 

 

 

Discontinued operations

 

(75

)

 

 

 

 

 

 

Net income

 

$

1,272

 

$

2,747

 

$

3,720

 

$

 

 

$

 

 

Net income per share

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.27

 

$

0.58

 

$

0.78

 

$

 

 

$

 

 

Diluted

 

$

0.21

 

$

0.41

 

$

0.52

 

$

 

 

$

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

Basic

 

4,660

 

4,734

 

4,772

 

 

 

 

 

Diluted

 

6,098

 

6,637

 

7,213

 

 

 

 

 

Non-GAAP Data:

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBIT (unaudited)

 

$

2,942

 

$

5,526

 

$

8,267

 

$

 

 

$

 

 

 

6




The adjusted EBIT measure presented consists of income from operations after (1) interest and other income and (2) floorplan interest expense. We are providing adjusted EBIT, a non-GAAP financial measure, along with GAAP measures, as a measure of income from operations because we believe interest and other income and floorplan interest expense are driven by decisions related to operating our business compared to other items of interest expense, which are associated with capitalizing our business. We believe that adjusted EBIT is meaningful information about our business operations that investors should consider along with our GAAP financial information.  We use adjusted EBIT for planning purposes, including the preparation of internal operating budgets.

Adjusted EBIT is a non-GAAP measure that has limitations because it does not include all items of income and expense that impact our operations. This non-GAAP financial measure is not prepared in accordance with, and should not be considered an alternative to, measurements required by GAAP, such as operating income, net income, cash flow from continuing operating activities or any other measure of performance or liquidity derived in accordance with GAAP. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP measures.

The following is a reconciliation of our income from continuing operations to adjusted EBIT:

 

 

Year ended January 31,

 

Six months ended July 31,

 

 

 

2005

 

2006

 

2007

 

2006

 

2007

 

 

 

 

 

 

 

 

 

(unaudited)

 

 

 

(dollars in thousands)

 

Income from operations

 

$

3,807

 

$

7,734

 

$

11,212

 

$

           

 

$

 

 

Interest and other income

 

144

 

88

 

349

 

 

 

 

 

Floorplan interest expense

 

(1,009

)

(2,296

)

(3,294

)

 

 

 

 

Adjusted EBIT

 

$

2,942

 

$

5,526

 

$

8,267

 

$

 

 

$

 

 

 

 

 

Year ended January 31,

 

 

 

July 31,

 

 

 

2005

 

2006

 

2007

 

 

 

2007

 

 

 

 

 

 

 

 

 

 

 

(unaudited)

 

 

 

(dollars in thousands)

 

Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

1,108

 

$

8,671

 

$

7,572

 

 

 

$

 

 

Inventories

 

67,826

 

83,074

 

107,316

 

 

 

 

 

Goodwill and intangibles, net

 

1,227

 

1,587

 

3,905

 

 

 

 

 

Total assets

 

79,106

 

105,073

 

138,793

 

 

 

 

 

Floorplan notes payable

 

51,617

 

61,908

 

84,699

 

 

 

 

 

Long-term debt

 

8,440

 

18,585

 

24,823

 

 

 

 

 

Total liabilities

 

70,889

 

93,820

 

123,847

 

 

 

 

 

Total stockholders’ equity

 

8,216

 

11,253

 

14,946

 

 

 

 

 

 

7




RISK FACTORS

An investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors and all the other information contained in this prospectus before you decide to buy our common stock. If any of the following risks related to our business actually occurs, our business, financial condition and operating results would be adversely affected. The market price of our common stock could decline due to any of these risks and uncertainties related to our business, or related to an investment in our common stock, and you may lose part or all of your investment.

Risks Related to Our Business

We are substantially dependent upon our relationship with Case New Holland N.V.

We are an authorized dealer of Case New Holland N.V., or CNH, agricultural and construction equipment and parts. In fiscal 2007, CNH supplied approximately 77% of the new equipment we sold and represented a significant portion of our parts revenue. Our acquisition strategy contemplates the acquisition of additional CNH geographic areas of responsibility and store locations in both the agricultural and construction equipment areas. We depend on CNH for floorplan financing to purchase a substantial portion of our inventory. In addition, CNH provides a significant percentage of the financing used by our customers to purchase CNH equipment from us. CNH also provides incentive programs and discount programs from time to time that enable us to price our products more competitively. In addition, CNH conducts promotional and marketing activities on national, regional and local levels. Due to our substantial dependence on CNH, our success depends, in significant part, on (i) the overall reputation and success of CNH; (ii) the availability and terms of floorplan financing and customer financing from CNH; (iii) the incentive and discount programs provided by CNH and its promotional and marketing efforts for its industrial and agricultural products; (iv) the goodwill associated with CNH trademarks; (v) the introduction of new and innovative products by CNH; (vi) the manufacture and delivery of competitively-priced, high quality equipment and parts by CNH in quantities sufficient to meet our customers’ requirements on a timely basis; (vii) the quality, consistency and management of the overall CNH dealership system; and (viii) the ability of CNH to manage its risks and costs, including those associated with being a multinational company. If CNH does not provide, maintain or improve any of the foregoing, or if CNH were sold or reduced or ceased operations, there could be a material adverse effect on our financial condition and results of operations.

CNH may terminate its dealership agreements with us or change the terms of those agreements, which could adversely affect our business.

Under our dealership agreements with CNH, CNH entities have the right to terminate these agreements immediately in certain circumstances, and, in some cases, for any reason 90 days following written notice. Furthermore, CNH entities may change the terms of their agreements with us, among other things, to change our sales and service areas and/or the product, pricing or delivery terms. CNH routinely conducts evaluations of dealership standards, customer satisfaction surveys and market share studies, the results of which can impact the relationships with its dealers. CNH uses the evaluation results to increase or decrease the pricing to dealers, or limit or expand the availability of financing, warranty reimbursements or other marketing incentives. If CNH were to change the terms of any or all of these agreements in a manner that adversely affects us, our business may be harmed, and if CNH were to terminate all or any of its dealer agreements with us, our business would be severely harmed.

Restrictions in our CNH dealership agreements may significantly affect our operations and growth.

We operate our stores pursuant to CNH’s customary dealership agreements. These agreements impose a number of restrictions and obligations on us with respect to our operations, including our

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obligations to actively promote the sale of CNH equipment within our designated geographic areas of responsibility, fulfill the warranty obligations of CNH, provide services to our customers, maintain sufficient parts inventory to service the needs of our customers, maintain inventory in proportion to the sales potential in each sales and service geographic area of responsibility, maintain adequate working capital and maintain stores only in authorized locations. Prior consent of CNH is required for any change in control and for our acquisition of other CNH dealerships. There can be no assurances that CNH will give any such consent. The restrictions and obligations in our CNH dealership agreements limit our flexibility in operating our current stores and acquiring new stores, which could have an adverse effect on our operations and growth.

Our agricultural equipment dealer appointments are not exclusive to the geographic areas we serve, which could adversely affect our operations and financial condition.

CNH could appoint other agricultural equipment dealers in close proximity to our existing stores. The sales and service geographic areas of responsibility assigned to our dealerships can be enlarged or reduced by CNH upon 30 days’ prior written notice. CNH and other agricultural equipment dealers can also sell in our sales and service geographic areas of responsibility. To the extent CNH appoints other agricultural equipment dealers within our markets, enlarges or reduces the sales and service geographic areas of responsibility relating to our stores, amends the dealership agreements or imposes new or different terms or conditions under the dealer agreements, our operations and financial condition could be adversely affected.

If our expansion plans are unsuccessful, we may not achieve our planned revenue growth.

We believe a significant portion of our future growth will depend on our ability to acquire additional dealerships. Our ability to continue to grow through the acquisition of additional CNH geographic areas of responsibility and store locations or other businesses will be dependent upon the availability of suitable acquisition candidates at acceptable costs, our ability to compete effectively for available acquisition candidates and the availability of capital to complete the acquisitions. In addition, CNH’s consent is required for the acquisition of any CNH dealership, and the consent of Bremer Bank National Association is required for the acquisition of any dealership. CNH typically evaluates management, performance and capitalization of a prospective acquirer in determining whether to consent to the sale of a CNH dealership. There can be no assurance that CNH or Bremer will consent to any or all acquisitions of dealerships that we may propose.

Once an acquisition is completed, we face many other risks commonly encountered with growth through acquisitions. These risks include incurring significantly higher than anticipated capital expenditures and operating expenses; failing to assimilate the operations and personnel of the acquired dealerships; disrupting our ongoing business; dissipating our management resources; failing to maintain uniform standards, controls and policies; and impairing relationships with employees and customers as a result of changes in management. Fully integrating an acquired dealership into our operations and realization of the full benefit of our strategies, operating model and systems may take several years. There can be no assurance that we will be successful in overcoming these risks or any other problems encountered with such acquisitions. To the extent we do not successfully avoid or overcome the risks or problems related to acquisitions, our results of operations and financial condition could be adversely affected. Future acquisitions also will have a significant impact on our financial position and capital needs, and could cause substantial fluctuations in our quarterly and yearly results of operations. Acquisitions could include significant goodwill and intangible assets, which may result in future impairment charges that would reduce our stated earnings.

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Our business may be adversely affected if we are unable to manage growth.

We have grown significantly in recent years and expect to continue to grow through internal growth and acquisitions. Management has expended, and expects to continue to expend, significant time and effort in evaluating, completing and integrating acquisitions and opening new stores. There can be no assurance that our systems, procedures and controls will be adequate to support our expanding operations. Any future growth will also impose significant added responsibilities on our executives, including the need to identify, recruit and integrate new senior level managers and executives. There can be no assurance we will be able to identify and retain such additional management. If we are unable to manage growth efficiently and effectively, or are unable to attract and retain additional qualified management, there could be a material adverse effect on our financial condition and results of operations.

We may need additional capital, which may not be available on acceptable terms, which could adversely affect our growth and results of operations.

We intend to finance our operations, as well as our expansion plans, with cash generated from operations, through the incurrence or assumption of indebtedness, and through issuances of equity or debt securities, including the issuance of the common stock in this offering. Each of these sources of funding carries risks. Using cash to complete acquisitions and finance internal growth could substantially limit our financial flexibility. Using debt could result in limitations on our operating and financial flexibility. Using equity may result in significant dilution of our existing stockholders’ interests in our company. Further, investors in new equity or debt securities may be granted rights different from, and perhaps superior to, the rights granted to the holders of our common stock. Such rights include, but are not limited to, voting rights, liquidation preferences, dividends, registration rights and contractual rights that affect the economic and ownership terms of the equity. If we are unable to obtain additional capital on acceptable terms, our acquisition activities and internal growth may be limited. To the extent we are limited in our ability to make acquisitions or to grow internally for any reason, our growth, financial condition and results of operations would be adversely affected.

Substantial inventory financing is required for the equipment we sell but may not be available, which could adversely affect our growth and results of operations.

The sale of agricultural and construction equipment requires substantial inventories of equipment and parts to be maintained at each store to facilitate sales to customers on a timely basis. We generally purchase our inventories of equipment with the assistance of floorplan financing programs through CNH and other lenders. As we grow, whether internally or through acquisitions, our inventory requirements will increase and, as a result, our financing requirements also will increase. Certain financing has been guaranteed by David Meyer, our Chairman and Chief Executive Officer. To the extent that such guarantees were to be revoked or otherwise unavailable, we may not be able to maintain or obtain inventory financing. In the event that our available financing sources are not maintained or are insufficient to satisfy our future requirements, we would be required to obtain financing from other sources. There can be no assurance that additional or alternative financing could be obtained on commercially reasonable terms. To the extent such additional financing cannot be obtained on commercially reasonable terms, our growth and results of operations could be adversely affected.

We lease most of our dealership sites from related parties, and if we are unable to obtain commercially reasonable terms and conditions from these related parties or unrelated third parties in the future, our growth and financial condition may be adversely affected.

We lease 24 of our 34 dealership sites from entities affiliated with David Meyer, our Chairman and Chief Executive Officer, Tony Christianson, one of our directors, or Peter Christianson, our President and Chief Financial Officer. We expect that we may lease future dealership sites we acquire from parties

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related to our affiliates. There is no guarantee that related parties will offer us commercially reasonable terms and conditions or that unrelated third parties will provide alternate dealership sites on commercially reasonable terms and conditions. If we cannot obtain commercially reasonable terms and conditions on leases for our current or future dealership sites from entities related to Messrs. Meyer, Tony Christianson or Peter Christianson, or from unrelated third parties, our growth and financial condition may be adversely affected.

Failure to properly manage inventories of equipment would have a significant adverse effect on our operations.

Our success is significantly dependent upon our ability to manage the supply and cost of new and used equipment. The pricing of equipment can be highly volatile and subject to negotiation, particularly in the used equipment market. Pricing for and sales of used equipment can be significantly affected by the limited market for such equipment. Further, liquidation prices of used agricultural and construction equipment can have significant fluctuations due to economic cycles, utilization trends and degree of specialization. We are dependent upon the ability of our management and buyers to negotiate acceptable purchase prices, to affect a proper balance of new and used equipment and to manage the amount of equipment in inventory to assure quick turnover. Our failure to manage our inventory and equipment costs could materially adversely affect our results of operations and financial condition.

An industry oversupply of used and rental equipment may adversely affect our operations.

In recent years, short-term lease programs and commercial rental agencies for agricultural and construction equipment have expanded significantly in North America. Nationwide rental conglomerates have become sizeable purchasers of new equipment and can have a significant impact on industry sales and margins, particularly in light construction equipment. When equipment comes off of lease or is replaced with newer equipment by rental agencies, there may be a significant increase in the availability of late-model used equipment. An oversupply of used equipment could adversely affect demand for, or the market prices of, new and used equipment. In addition, a decline in used equipment prices could have an adverse effect on residual values for leased equipment, which could adversely affect our financial performance.

We are subject to the effects of downturn in general economic and weather conditions.

Our business, and particularly our sale of new equipment, is dependent on a number of factors relating to general national and regional economic conditions, including agricultural and construction industry cycles, which typically tend to be different from each other; economic recessions; customer business cycles; and customer confidence in the regional and national economies. Further, weather conditions can have a significant impact on the success of regional agricultural and construction markets and therefore the economic conditions of the regions in which we operate stores. Accordingly, our financial condition and results of operations may be materially and adversely affected by any general downward economic pressures or adverse cyclical trends or weather conditions.

Our business could be harmed by adverse changes in the agricultural industries and governmental agricultural policy.

Our business depends to a great extent upon general activity levels in the agricultural industries. There are many factors which could adversely affect these industries and result in a decrease in the amount of agricultural equipment that our customers purchase, including changes in farm income and farmland value, the level of worldwide farm output and demand for farm products, commodity prices, animal diseases and crop pests, and limits on agricultural imports. The nature of the agricultural equipment industries is such that a downturn in demand can occur suddenly, resulting in excess inventories,

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un-utilized production capacity and reduced prices for new and used equipment. These downturns may be prolonged and our revenue and profitability would be harmed.

Furthermore, changes in governmental agricultural policy could adversely affect sales of agricultural equipment. Government subsidies influence demand for agricultural equipment. Proposals for a new farm bill and the 2008 USDA budget, if adopted, may reduce the amount of payments to individual farmers. We cannot predict the outcome of these proposals, and to the extent that these proposals reduce payments to individual farmers, these proposals, if adopted, could reduce demand for agricultural equipment and we could experience a decline in revenue.

Our business could be harmed by adverse changes in the construction industry.

A downturn in construction or industrial activity may lead to a decrease in the demand for the construction equipment we sell. The factors that could decrease the demand for construction equipment include a reduction in spending levels by customers, reduction in public spending on infrastructure, declining real estate values in the regions in which we operate and a slowdown of the general economy over the long-term. If construction or industrial activity declines in the U.S. or in the geographic regions in which we operate, resulting in a decrease in the demand for construction equipment, our revenue and profitability will be harmed.

Our results of operations may fluctuate from period to period due to interest rate adjustments and seasonality.

The ability to finance affordable purchases, of which the interest rate charged is a significant component, is an important part of a customer’s decision to purchase agricultural or construction equipment. Interest rate increases may make equipment purchases less affordable for customers and, as a result, our revenue and profitability may decrease as we manage excess inventory and reduce prices for equipment. To the extent we cannot pass on our increased costs of inventory to our customers, our net income may decrease. Partially as a result of the foregoing, our results of operations have in the past and in the future are expected to continue to fluctuate from quarter to quarter and year to year.

We generally experience a lower volume of equipment sales in our first fiscal quarter, due to the crop growing season and winter weather patterns in the Midwest. Typically, farmers purchase agricultural equipment immediately prior to planting or harvesting crops, which occurs during our second and third quarters, or at the end of the calendar year. As a result, sales of agricultural equipment generally are lower in our first fiscal quarter. Winter weather in the Midwest also limits construction and, therefore, also typically results in lower sales of industrial equipment in the first and fourth quarter. A significant increase in the severity of weather cycles could increase the volatility of our results of operations and impact our financial condition. In addition, if we acquire any businesses in geographic areas other than where we currently have operations, we may be affected more by the above-mentioned or other seasonal and equipment buying trends.

Our potential inability to improve and expand our internet sales could harm our business.

If we are unable to improve and adapt our websites and related web-based technologies in a timely manner or at all, or such websites and technologies experience systems interruptions or are not aligned with market expectations or preferences, our revenue growth could be adversely affected. We have only recently begun offering sales of agricultural and construction equipment through our website. The internet is a rapidly evolving environment, and the technology used in internet-related products and services changes rapidly. We must continually modify our solutions to adapt to emerging internet standards and practices, technological advances and changing user preferences. Ongoing enhancement of our websites and related internet technology will entail significant expense and technical risk. If we fail to use new

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technologies effectively or fail to adapt our websites and related internet technology on a timely and cost-effective basis, our business may be adversely affected.

Disruptions in our information technology systems, including our customer relationship management system, could adversely affect our operating results by limiting our capacity to effectively monitor and control our operations.

Our information technology systems facilitate our ability to monitor and control our operations and adjust to changing market conditions, enabling us to make rapid and informed decisions. Any disruption in any of these systems, including our customer relationship management system, or the failure of any of these systems to operate as expected could, depending on the magnitude of the problem, adversely affect our operating results by limiting our capacity to effectively monitor and control our operations and adjust to changing market conditions.

We have limited operating experience in the construction equipment industry.

We began selling construction equipment in 2002. Our management’s primary experience is in the agricultural equipment industry and we have limited experience in construction equipment sales. We are subject to competition from other construction equipment dealers who may have more established reputations than we do. Our inability to successfully operate or expand our construction equipment business could adversely affect our results of operations and growth.

We face strong and growing competition that could adversely affect our results of operation and growth.

We anticipate that both our agricultural and construction equipment operations will continue to face strong, and perhaps increasing, competition. The agricultural and construction equipment sales and distribution industries are highly competitive and fragmented, with large numbers of companies operating on a regional or local scale. Our competitors range from multi-location, regional operators to single-location, local dealers and include dealers and distributors of competing equipment brands. In sales of agricultural equipment, we compete with dealers of equipment from suppliers such as AGCO Corporation and Deere & Company. In sales of construction equipment, we compete with dealers of equipment from suppliers such as Caterpillar, Inc., Deere & Company, Komatsu Ltd., Ingersoll-Rand Company Limited and Volvo. Our stores also compete with other CNH dealerships. Some of these competitors may be larger and have substantially greater capital resources than us. Our competitors may seek to compete aggressively on the basis of pricing or inventory availability due to decreased margins on our sales. To the extent we choose to match our competitors’ downward pricing, it could have a material adverse impact on our results of operations. To the extent we choose not to match or remain within a reasonable competitive distance from our competitors’ pricing, it could also have an adverse impact on our results of operations, as we may lose sales volume. In addition, to the extent CNH’s competitors provide their dealers with more innovative and/or higher quality products, better customer financing, or have more effective marketing efforts, our ability to compete and financial condition and results of operations could be adversely affected.

We are substantially dependent on our Chief Executive Officer and President, the loss and replacement of whom could have a material adverse effect on our business.

We believe our success will depend to a significant extent upon the efforts and abilities of David Meyer, our Chairman and Chief Executive Officer, and Peter Christianson, our President and Chief Financial Officer. The employment relationships with both Mr. Meyer and Mr. Christianson are terminable by us or each of them at any time for any reason. The loss of the services of one or both of these persons and other key employees could have a material adverse effect on our operating results.

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Our success is substantially dependent on our ability to attract and retain qualified employees, the loss and replacement of whom could have a material adverse effect on our business.

Our success depends on the employment of skilled management, effective dealership managers, sales and marketing and product/services development personnel. The loss of any of this personnel would require our remaining personnel to divert immediate and substantial attention to seeking a replacement. We face significant competition for individuals with the skills required to develop, market and support our products and services. If we fail to recruit and retain sufficient numbers of these highly skilled employees, we may not be able to achieve our growth objectives and our business could be adversely affected.

We are subject to product liability risks that could adversely affect our financial condition and reputation.

Products sold or serviced by us may expose us to potential liabilities for personal injury or property damage claims relating to the use of such products. There can be no assurance that we will not be subject to or incur any liability for such claims in the future. While we maintain product liability insurance, there can be no assurance that such insurance will be adequate to cover product liability claims. There also can be no assurance that such insurance will continue to be available on economically reasonable terms. An uninsured or partially insured claim for which indemnification is not provided could have a material adverse effect on our financial condition. Furthermore, if any significant claims are made against us or against CNH or any of our other suppliers, our business may be adversely affected by any resulting negative publicity.

We are subject to risks associated with government regulation that could have a material adverse effect on our operations and financial condition.

We are subject to numerous federal, state and local rules and regulations, including regulations promulgated by the Environmental Protection Agency and similar state agencies with respect to storing, shipping, disposing, discharging and manufacturing hazardous materials and hazardous and non-hazardous waste. These activities are associated with the repair and maintenance of equipment at our stores. There can be no assurance that current regulatory requirements will not have an adverse impact on our operations, that unforeseen environmental incidents will not occur or that past contamination or non-compliance with environmental laws will not be discovered on properties on which our stores are or have been located, any of which could have a material adverse effect on our financial condition.

Risks Relating to this Offering and Ownership of Our Common Stock

Because there has not been a public market for our common stock and our stock price may be volatile, you may not be able to resell your shares at or above the initial public offering price.

Prior to this offering, you could not buy or sell our common stock publicly. We cannot predict the extent to which investors’ interests will lead to an active trading market for our common stock or whether the market price of our common stock will be volatile following this offering. If an active trading market does not develop, you may have difficulty selling any of our common stock that you buy. The initial public offering price for our common stock was determined by negotiations between representatives of the underwriters and us and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell our common stock at prices equal to or greater than the price you paid in this offering. In addition, the stock markets have been extremely volatile. In addition to the factors discussed elsewhere in this section, the following factors, most of which are outside of our control, could cause the market price of our common stock to decrease significantly from the price you pay in this offering:

·        variations in our quarterly operating results;

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·        decreases in market valuations of similar companies; and

·        fluctuations in stock market prices and volumes.

In addition, securities class action litigation often has been initiated when a company’s stock price has fallen below the company’s initial public offering price soon after the offering closes or following a period of volatility in the market price of the company’s securities. If class action litigation is initiated against us, we would incur substantial costs and our management’s attention would be diverted from our operations. All of these factors could cause the market price of our stock to decline, and you may lose some or all of your investment.

If equity research analysts do not publish research or reports about our business or if they issue unfavorable research or downgrade our common stock, the price of our common stock could decline.

The trading market for our common stock will rely in part on the research and reports that equity research analysts publish about us and our business. We do not control these analysts. Equity research analysts may elect not to provide research coverage of our common stock, which may adversely affect the market price of our common stock. If equity research analysts do provide research coverage of our common stock, the price of our common stock could decline if one or more of these analysts downgrade our common stock or if they issue other unfavorable commentary about us or our business. If one or more of these analysts ceases coverage of our company, we could lose visibility in the market, which in turn could cause our stock price to decline.

Future sales of our common stock by our existing stockholders could cause our stock price to decline.

If our stockholders sell substantial amounts of our common stock in the public market, the market price of our common stock could decrease significantly. The perception in the public market that our stockholders might sell shares of our common stock could also depress the market price of our common stock. All of our existing stockholders prior to this offering are subject to lock-up agreements that restrict their ability to transfer their shares of our common stock. In addition, we intend to file registration statements with the SEC covering any shares of our common stock acquired upon option exercises prior to the closing of this offering and all of the shares subject to options outstanding, but not exercised, as of the closing of this offering upon the closing of this offering. The market price of shares of our common stock may decrease significantly when the restrictions on resale by our existing stockholders lapse and our stockholders, warrant holders and option holders are able to sell shares of our common stock into the market. A decline in the price of shares of our common stock might impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities, and may cause you to lose part or all of your investment in our shares of common stock.

We have broad discretion in the use of the proceeds of this offering and may apply the proceeds in ways with which you do not agree.

Our net proceeds from this offering will be used, as determined by management in its sole discretion, for working capital and general corporate purposes, including possible acquisitions of dealers of CNH products. We have not, however, determined the allocation of these net proceeds among the various uses described in this prospectus. Our management will have broad discretion over the use and investment of these net proceeds, and, accordingly, you will have to rely upon the judgment of our management with respect to our use of these net proceeds, with only limited information concerning management’s specific intentions. You will not have the opportunity, as part of your investment decision, to assess whether we use the net proceeds from this offering appropriately. We may place the net proceeds in investments that do not produce income or that lose value, which may cause our stock price to decline.

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Our directors and executive officers will continue to have substantial control over us after this offering and could limit your ability to influence the outcome of key transactions, including changes of control.

We anticipate that our executive officers and directors and entities affiliated with them will, in the aggregate, beneficially own        % of our outstanding common stock following the completion of this offering, assuming the underwriters do not exercise their over-allotment option. Our executive officers, directors and affiliated entities, if acting together, would be able to control or influence significantly all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other significant corporate transactions. These stockholders may have interests that differ from yours, and they may vote in a way with which you disagree and that may be adverse to your interests. In particular, David Meyer, our Chairman and Chief Executive Officer, will own over        % of our outstanding capital stock following the completion of this offering. As such, he alone is able to exercise significant influence over matters requiring approval by the stockholders, including the election of directors and approval of significant corporate transactions. The concentration of ownership of our common stock may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and may affect the market price of our common stock. This concentration of ownership of our common stock may also have the effect of influencing the completion of a change in control that may not necessarily be in the best interests of all of our stockholders.

Our charter documents and Delaware law may inhibit a takeover that stockholders consider favorable.

We intend to reincorporate in Delaware prior to the consummation of this offering. Upon the closing of this offering, provisions of our certificate of incorporation and bylaws and applicable provisions of Delaware law may delay or discourage transactions involving an actual or potential change in our control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests. These provisions:

·        permit our board of directors to issue up to 5,000,000 shares of preferred stock, with any rights, preferences and privileges as they may designate, including the right to approve an acquisition or other change in our control;

·        provide that the authorized number of directors may be changed by resolution of the board of directors;

·        provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;

·        divide our board of directors into three classes;

·        provide that directors may only be removed for cause by the holders of at least two-thirds of the voting power of the shares eligible to vote for directors;

·        require that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and not be taken by written consent;

·        provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide notice in writing in a timely manner, and also specify requirements as to the form and content of a stockholder’s notice; and

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·        do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose).

In addition, Section 203 of the Delaware General Corporation Law generally limits our ability to engage in any business combination with certain persons who own 15% or more of our outstanding voting stock or any of our associates or affiliates who at any time in the past three years have owned 15% or more of our outstanding voting stock. These provisions may have the effect of entrenching our management team and may deprive you of the opportunity to sell your shares to potential acquirers at a premium over prevailing prices. This potential inability to obtain a control premium could reduce the price of our common stock. See “Description of Capital Stock—Anti-Takeover Provisions.”

You will experience immediate and substantial dilution in the net tangible book value of the common stock you purchase in this offering.

If you purchase shares of our common stock in this offering, you will experience immediate dilution of $         per share (assuming an offering price of $         per share), because the price that you pay will be substantially greater than the adjusted net tangible book value per share of common stock that you acquire. This dilution is due in large part to the fact that our earlier investors paid substantially less than the price of the shares being sold in this offering when they purchased their shares of our capital stock. In addition, if outstanding options to purchase our common stock are exercised, you will experience additional dilution. See “Dilution.”

We can issue shares of preferred stock without stockholder approval, which could adversely affect the rights of common stockholders.

Our charter documents permit us to establish the rights, privileges, preferences and restrictions, including voting rights, of future series of our preferred stock and to issue such stock without approval from our stockholders. The rights of holders of our common stock may suffer as a result of the rights granted to holders of preferred stock that may be issued in the future. In addition, we could issue preferred stock to prevent a change in control of our company, depriving common stockholders of an opportunity to sell their stock at a price in excess of the prevailing market price.

We will incur increased costs as a result of having publicly traded common stock.

We will incur significant legal, accounting, reporting and other expenses as a result of having publicly traded common stock that we do not currently incur. We also anticipate that we will incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, as amended, as well as rules implemented by the SEC and the Nasdaq Global Market. We expect these rules and regulations to increase our legal and financial compliance costs, make some activities more time-consuming and costly, and divert our management’s attention away from the operation of our business. We also expect these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, we may experience more difficulty attracting and retaining qualified individuals to serve on our board of directors or as executive officers. We cannot predict or estimate the amount of additional costs we may incur as a result of these requirements or the timing of such costs. Furthermore, our current management does not have prior experience in running a public company. The costs of becoming public and the diversion of management’s time and attention may have a material adverse effect on our business, financial condition and results of operations.

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Our internal controls over financial reporting may not be effective and our independent registered public accounting firm may not be able to certify as to their effectiveness, which could have a significant and adverse effect on our business and reputation.

We will be required to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and rules and regulations of the SEC thereunder for fiscal 2009. If we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. We cannot be certain as to the timing of completion of our evaluation, testing and any remedial actions or their impact on our operations. If we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, our independent registered public accounting firm may not be able to certify as to the effectiveness of our internal control over financial reporting, we may be unable to report our financial results accurately or in a timely manner and we may be subject to sanctions or investigation by regulatory authorities, such as the SEC. As a result, there could be a negative reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. We may be required to incur costs in improving our internal control system and the hiring of additional personnel. Any such action could negatively affect our results of operations.

We do not intend to declare dividends on our stock after this offering.

We currently intend to retain all future earnings for the operation and expansion of our business and, therefore, do not anticipate declaring or paying cash dividends on our common stock in the foreseeable future. Any payment of cash dividends on our common stock will be at the discretion of our board of directors and will depend upon our results of operations, earnings, capital requirements, financial condition, future prospects, contractual restrictions and other factors deemed relevant by our board of directors. Therefore, you should not expect to receive dividend income from shares of our common stock.

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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve risks and uncertainties. In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements involve known and unknown risks, uncertainties and other factors that may cause our results or our industry’s actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information.

These important factors include those that we discuss under the heading “Risk Factors.” You should read these risk factors and the other cautionary statements made in this prospectus as being applicable to all related forward-looking statements wherever they appear in this prospectus. We cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. You should read this prospectus completely. Other than as required by law, we undertake no obligation to update these forward-looking statements, even though our situation may change in the future.

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USE OF PROCEEDS

We estimate that the net proceeds from our sale of shares of common stock in this offering will be approximately $          million, or approximately $          million if the underwriters exercise their over-allotment option in full. This estimate is based upon an assumed initial public offering price of $         per share, the mid-point of our filing range, less estimated underwriting discounts and commissions and offering expenses payable by us.

We intend to use these net proceeds as follows:

·        to fund future acquisitions of dealerships;

·        for general corporate purposes, including working capital needs;

·        to pay accrued cash dividends in the aggregate amount of $                  upon the conversion of all of our outstanding preferred stock (assuming the dividends are paid on             , 2007); and

·        to repay subordinated debentures in the aggregate principal amount of $142,424. These debentures mature in November 2012 and accrue interest at a rate of 5% per annum.

In addition, we may use up to $10 million of the net proceeds to repay outstanding indebtedness under outstanding subordinated indebtedness issued to Titan Income Holdings, LLLP and CNH Capital America, LLC. The subordinated debentures issued to Titan Income Holdings were issued April 15, 2005 in an aggregate principal amount of $1.8 million, accrue interest at a rate of 10.5% per annum and mature in April 2012. The subordinated note issued to CNH Capital was issued January 31, 2006 in an aggregate principal amount of $7.5 million, accrues interest at a rate of 10.5% per annum and matures in April 2012.

We reserve the right to modify the use of proceeds for other purposes in the event of changes in our business plan. Pending the uses described above, we intend to invest the net proceeds of this offering in short- to medium-term, investment-grade, interest-bearing securities.

DIVIDEND POLICY

We have not historically paid any dividends on our common stock. Following the completion of this offering, we intend to retain our future earnings, if any, to finance the expansion and growth of our business. We do not expect to pay cash dividends on our common stock in the foreseeable future. Payment of future cash dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, outstanding indebtedness and plans for expansion and restrictions imposed by lenders, if any. Currently, our credit facilities restrict our ability to pay cash dividends. Upon the consummation of this offering, we will pay accrued cash dividends in the aggregate amount of $                   upon the conversion of all of our outstanding preferred stock.

20




CAPITALIZATION

The following table sets forth our capitalization as of July 31, 2007:

·        on an actual basis;

·        on a pro forma basis to reflect (1) the conversion of all preferred stock outstanding as of August 1, 2007 into 1,113,739 shares of common stock immediately prior to the completion of this offering, (2) the exchange of certain subordinated convertible debentures into 1,641,981 shares of common stock immediately prior to the completion of this offering and (3) the payment of accrued cash dividends on the preferred stock in the amount of $                   (assuming the dividends are paid on       , 2007); and

·        on a pro forma as adjusted basis to reflect the conversions and exchange described above, as well as our sale of shares in this offering at an assumed initial public offering price of $        per share (the mid-point of the initial public offering price range), after deducting estimated underwriting discounts and commissions and offering expenses, and the application of the net proceeds from our sale of common stock in this offering.

You should read this information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes appearing elsewhere in this prospectus.

 

 

As of July 31, 2007

 

 

 

Actual

 

Pro
Forma

 

Pro Forma
As Adjusted

 

 

 

(dollars in thousands)

 

Cash

 

$

 

 

 

$

 

 

 

 

$

 

 

 

Floorplan notes payable(1)

 

$

 

 

 

$

 

 

 

 

$

 

 

 

Long-term debt:

 

 

 

 

 

 

 

 

 

 

 

Senior variable rate term note

 

 

 

 

 

 

 

 

 

 

 

Subordinated debentures

 

 

 

 

 

 

 

 

 

 

 

Convertible subordinated debentures

 

 

 

 

 

 

 

 

 

 

 

Other debt

 

 

 

 

 

 

 

 

 

 

 

Total long-term debt

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

Series D convertible preferred stock, $.00001 par value, 323,533 shares authorized, no shares issued and outstanding, actual, and no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

 

 

 

 

 

 

 

 

Series C convertible preferred stock, $.00001 par value, 2,000,000 shares authorized, no shares issued and outstanding, actual, and no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

 

 

 

 

 

 

 

 

Series B convertible preferred stock, $.00001 par value, 2,000,000 shares authorized, 125,001 shares issued and outstanding actual, and no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

 

 

 

 

 

 

 

 

Series A convertible preferred stock, $.00001 par value, 2,000,000 shares authorized, 341,672 shares issued and outstanding actual, and no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

 

 

 

 

 

 

 

 

Undesignated preferred stock, $.00001 par value, 5,000,000 authorized, no shares issued and outstanding, actual, pro forma and pro forma as adjusted

 

 

 

 

 

 

 

 

Common stock $.00001 par value, 30,000,000 shares authorized, 4,356,240 shares issued and outstanding, actual, 30,000,000 authorized, 6,788,377 shares issued and outstanding pro forma, and 30,000,000 authorized,                  shares issued and outstanding pro forma as adjusted

 

 

 

 

 

 

 

 

Additional paid-in capital

 

 

 

 

 

 

 

 

 

 

 

Retained earnings

 

 

 

 

 

 

 

 

 

 

 

Syndication fees

 

 

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

 

 

 

 

 

 

 

 

 

 

Total capitalization

 

$

 

 

 

$

 

 

 

 

$

 

 

 


(1)              Approximately $                      of floorplan notes were interest-bearing.

21




DILUTION

If you invest in our common stock, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the adjusted net tangible book value per share of our common stock immediately after completion of this offering. Our net tangible book value as of July 31, 2007 was $            million, or $            per share of common stock, not taking into account the conversion of our outstanding convertible preferred stock, the conversion or exchange of certain convertible subordinated debentures into and for common stock or the exercise of outstanding options and warrants. Net tangible book value per share is equal to our total tangible assets (total assets less intangible assets) less our total liabilities (including our preferred stock) divided by the number of shares of common stock outstanding. The pro forma net tangible book value of our common stock as of July 31, 2007 was approximately $            million, or approximately $            per share, based on the number of shares outstanding as of July 31, 2007, after giving effect to the conversion of all outstanding convertible preferred stock into shares of common stock immediately prior to the closing of this offering, the conversion and exchange of certain convertible subordinated debentures into and for common stock upon the closing of this offering and the payment of accrued cash dividends on the preferred stock in the amount of $                .

After giving effect to our sale of shares at an assumed initial public offering price of $      per share (the mid-point of the initial public offering price range), deducting estimated underwriting discounts and commissions and offering expenses, and applying the net proceeds from this sale, the pro forma as adjusted net tangible book value of our common stock, as of July 31, 2007, would have been approximately $             million, or $            per share. This amount represents an immediate increase in net tangible book value to our existing stockholders of $               per share and an immediate dilution to new investors of $            per share. The following table illustrates this per share dilution:

Assumed initial public offering price per share

 

 

 

$

     

 

Pro forma net tangible book value per share as of July 31, 2007

 

$

     

 

 

 

Increase per share attributable to new investors

 

$

     

 

 

 

Pro forma as adjusted net tangible book value per share after this offering

 

 

 

$

     

 

Dilution per share to new investors

 

 

 

$

     

 

 

If the underwriters exercise their over-allotment option in full, there will be an increase in pro forma as adjusted net tangible book value to existing stockholders of $           per share and an immediate dilution in pro forma net tangible book value to new investors of $              per share.

The following table summarizes, as of July 31, 2007, on a pro forma as adjusted basis, the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by our existing stockholders and by new investors, based upon an assumed initial public offering price of $           per share (the mid-point of the initial public offering price range) and before deducting estimated underwriting discounts and commissions and offering expenses payable by us.

 

 

Shares Purchased

 

Total Consideration

 

Average Price

 

 

 

Number

 

Percent

 

Amount

 

Percent

 

Per Share

 

Existing stockholders

 

 

     

 

 

 

 

%

 

 

$

     

 

 

 

 

%

 

 

$

     

 

 

New investors

 

 

     

 

 

 

 

%

 

 

$

     

 

 

 

 

%

 

 

$

     

 

 

Total

 

 

     

 

 

 

100

%

 

 

$

     

 

 

 

100

%

 

 

$

     

 

 

 

Because the exercise prices of our outstanding options and warrants are significantly below the assumed initial public offering price of $      per share (the midpoint of the offering range on the cover page of this prospectus), investors purchasing common stock in this offering will suffer additional dilution when and if these options and warrants are exercised.

22




SELECTED FINANCIAL DATA

You should read the following selected financial data together with our financial statements and the related notes appearing at the end of this prospectus and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which follows immediately after this section. We derived the statement of operations data for the years ended January 31, 2003, 2004, 2005, 2006 and 2007, and the balance sheet data as of those dates, from our audited financial statements, which for the years ended January 31, 2005, 2006 and 2007 are contained elsewhere in this prospectus. Those statements were audited by Eide Bailly LLP, our independent registered public accounting firm. The statement of operations data for the six months ended July 31, 2006 and 2007, and the balance sheet data as of July 31, 2007, are derived from our unaudited financial statements included elsewhere in this prospectus. Our management believes that the unaudited financial statements contain all adjustments needed to present fairly the information included in those statements, and that the adjustments made consist only of normal recurring adjustments. Our results are not necessarily indicative of the results we may achieve in any future period.

 

 

Year ended January 31,

 

Six months ended July 31,

 

 

 

     2003     

 

     2004     

 

     2005     

 

     2006     

 

     2007     

 

       2006       

 

       2007       

 

 

 

 

 

(unaudited)

 

 

 

(in thousands, except per share data)

 

Statement of Operations Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equipment

 

 

$ 43,591

 

 

 

$ 66,091

 

 

 

$ 119,850

 

 

 

$ 175,549

 

 

 

$ 220,958

 

 

 

$              

 

 

 

$              

 

 

Parts

 

 

13,764

 

 

 

18,897

 

 

 

25,058

 

 

 

31,099

 

 

 

42,619

 

 

 

 

 

 

 

 

 

 

Service

 

 

7,415

 

 

 

9,940

 

 

 

13,141

 

 

 

16,572

 

 

 

21,965

 

 

 

 

 

 

 

 

 

 

Other

 

 

1,788

 

 

 

2,527

 

 

 

4,134

 

 

 

5,250

 

 

 

7,056

 

 

 

 

 

 

 

 

 

 

 

 

 

66,558

 

 

 

97,455

 

 

 

162,183

 

 

 

228,470

 

 

 

292,598

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equipment

 

 

39,903

 

 

 

60,287

 

 

 

109,023

 

 

 

$ 160,814

 

 

 

$ 200,558

 

 

 

 

 

 

 

 

 

 

Parts

 

 

10,148

 

 

 

13,401

 

 

 

18,402

 

 

 

22,459

 

 

 

29,909

 

 

 

 

 

 

 

 

 

 

Service

 

 

2,994

 

 

 

3,717

 

 

 

5,236

 

 

 

6,404

 

 

 

8,183

 

 

 

 

 

 

 

 

 

 

Other

 

 

1,144

 

 

 

1,864

 

 

 

3,119

 

 

 

4,081

 

 

 

5,337

 

 

 

 

 

 

 

 

 

 

 

 

 

54,189

 

 

 

79,269

 

 

 

135,780

 

 

 

193,758

 

 

 

243,987

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

12,369

 

 

 

18,186

 

 

 

26,403

 

 

 

34,712

 

 

 

48,611

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

11,130

 

 

 

16,609

 

 

 

22,596

 

 

 

26,978

 

 

 

37,399

 

 

 

 

 

 

 

 

 

 

Income from operations

 

 

1,239

 

 

 

1,577

 

 

 

3,807

 

 

 

7,734

 

 

 

11,212

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other income

 

 

144

 

 

 

48

 

 

 

144

 

 

 

88

 

 

 

349

 

 

 

 

 

 

 

 

 

 

Other interest expense

 

 

(701

)

 

 

(1,346

)

 

 

(1,693

)

 

 

(3,354

)

 

 

(5,391

)

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

682

 

 

 

279

 

 

 

2,258

 

 

 

4,468

 

 

 

6,170

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

(266

)

 

 

(115

)

 

 

(911

)

 

 

(1,721

)

 

 

(2,450

)

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

 

416

 

 

 

164

 

 

 

1,347

 

 

 

2,747

 

 

 

3,720

 

 

 

 

 

 

 

 

 

 

Discontinued operations

 

 

 

 

 

 

 

 

(75

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

$   416

 

 

 

$   164

 

 

 

$ 1,272

 

 

 

$ 2,747

 

 

 

$ 3,720

 

 

 

$              

 

 

 

$              

 

 

Net income per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

$  0.10

 

 

 

$  0.04

 

 

 

$   0.27

 

 

 

$   0.58

 

 

 

$   0.78

 

 

 

$              

 

 

 

$              

 

 

Diluted

 

 

$  0.07

 

 

 

$  0.03

 

 

 

$   0.21

 

 

 

$   0.41

 

 

 

$   0.52

 

 

 

$              

 

 

 

$              

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

4,341

 

 

 

4,512

 

 

 

4,660

 

 

 

4,734

 

 

 

4,772

 

 

 

 

 

 

 

 

 

 

Diluted

 

 

5,681

 

 

 

5,856

 

 

 

6,098

 

 

 

6,637

 

 

 

7,213

 

 

 

 

 

 

 

 

 

 

 

23




 

 

 

 

Year ended January 31,

 

 

Six months
ended
July 31,

 

 

 

 

2003

 

 

 

2004

 

 

 

2005

 

 

 

2006

 

 

 

2007

 

 

2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(unaudited)

 

 

 

 

(dollars in thousands)

 

 

Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

 

$ 1,681

 

 

 

$ 1,937

 

 

 

$ 1,108

 

 

 

$ 8,671

 

 

 

$ 7,572

 

 

 

$              

 

 

Receivables

 

 

2,312

 

 

 

3,084

 

 

 

4,969

 

 

 

5,794

 

 

 

10,921

 

 

 

 

 

 

Inventories

 

 

38,592

 

 

 

34,381

 

 

 

66,569

 

 

 

81,631

 

 

 

106,254

 

 

 

 

 

 

Prepaid expenses

 

 

34

 

 

 

50

 

 

 

45

 

 

 

33

 

 

 

186

 

 

 

 

 

 

Deferred income taxes

 

 

243

 

 

 

288

 

 

 

321

 

 

 

423

 

 

 

462

 

 

 

 

 

 

Goodwill and intangibles, net

 

 

1,273

 

 

 

1,280

 

 

 

1,227

 

 

 

1,587

 

 

 

3,905

 

 

 

 

 

 

Property and equipment

 

 

2,370

 

 

 

2,235

 

 

 

3,559

 

 

 

5,327

 

 

 

8,175

 

 

 

 

 

 

Other assets

 

 

1,067

 

 

 

1,413

 

 

 

1,308

 

 

 

1,607

 

 

 

1,318

 

 

 

 

 

 

Total assets

 

 

$ 47,572

 

 

 

$ 44,668

 

 

 

$ 79,106

 

 

 

$ 105,073

 

 

 

$ 138,793

 

 

 

 

 

 

Accounts payable

 

 

$ 2,835

 

 

 

$ 3,316

 

 

 

$ 3,227

 

 

 

$ 5,488

 

 

 

$ 4,228

 

 

 

$              

 

 

Line of credit

 

 

1,500

 

 

 

400

 

 

 

2,644

 

 

 

 

 

 

 

 

 

 

 

 

Notes payable

 

 

757

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Floorplan notes payable(1)

 

 

27,277

 

 

 

20,721

 

 

 

51,617

 

 

 

61,908

 

 

 

84,699

 

 

 

 

 

 

Current maturities of long-term
debt

 

 

631

 

 

 

1,139

 

 

 

1,113

 

 

 

1,532

 

 

 

2,824

 

 

 

 

 

 

Customer deposits

 

 

908

 

 

 

3,641

 

 

 

2,135

 

 

 

4,015

 

 

 

4,608

 

 

 

 

 

 

Accrued expenses

 

 

603

 

 

 

914

 

 

 

1,023

 

 

 

1,942

 

 

 

2,287

 

 

 

 

 

 

Income taxes payable

 

 

14

 

 

 

61

 

 

 

691

 

 

 

350

 

 

 

378

 

 

 

 

 

 

Total current liabilities

 

 

$ 34,525

 

 

 

$ 30,192

 

 

 

62,450

 

 

 

75,235

 

 

 

99,024

 

 

 

 

 

 

Long-term liabilities

 

 

4,043

 

 

 

4,442

 

 

 

4,948

 

 

 

4,405

 

 

 

8,043

 

 

 

 

 

 

Subordinated debentures

 

 

3,492

 

 

 

3,492

 

 

 

3,492

 

 

 

14,180

 

 

 

16,780

 

 

 

 

 

 

Total stockholders’ equity

 

 

5,512

 

 

 

6,542

 

 

 

8,216

 

 

 

11,253

 

 

 

14,946

 

 

 

 

 

 

 

 

 

$ 47,572

 

 

 

$ 44,668

 

 

 

$ 79,106

 

 

 

$ 105,073

 

 

 

$ 138,793

 

 

 

$              

 

 


(1)    Approximately 40% of floorplan notes payable are interest bearing.

24




MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Selected Financial Data and our financial statements and the accompanying notes. Our actual results could differ materially from those anticipated in the forward-looking statements included in this discussion as a result of certain factors, including, but not limited to, those discussed in “Risk Factors” and “Information Regarding Forward-Looking Statements” included elsewhere in this prospectus.

Overview

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

The agricultural equipment we sell and service includes machinery and attachments for uses ranging from large-scale farming to home and garden use. The construction equipment we sell and service includes heavy construction and light industrial machinery for commercial and residential construction, road and highway construction and mining applications.

We offer our customers a one-stop solution for their equipment needs through new and used equipment sales, parts sales, repair and maintenance services and equipment rental and other activities. The new equipment and parts we sell are supplied primarily by CNH. CNH is a leading manufacturer and supplier of agricultural and construction equipment, primarily through the Case IH Agriculture, New Holland Agriculture, Case Construction and New Holland Construction brands. Sales of new CNH products accounted for approximately 77% of our new equipment revenue in fiscal 2007 with no other supplier accounting for more than 3%. We acquire used equipment for resale through trade-ins from our customers and selective purchases. We sell parts and provide in-store and on-site repair and maintenance services. We rent equipment and provide other ancillary services such as equipment transportation, GPS signal subscriptions and finance and insurance products.

Throughout our 27-year operating history we have built an extensive, geographically contiguous network of 34 full service stores and two outlet stores located in the upper Midwest. We have a successful history of growth through acquisitions, including 13 acquisitions consisting of 29 stores operating in four states since January 1, 2003. We have a well-established track record of successfully integrating acquired stores, retaining acquired-store employees and maintaining acquired-store customer relationships.

Certain External Factors Affecting our Business

We are subject to a number of factors that affect our business as discussed in the sections entitled “Risk Factors” and “Information Regarding Forward-Looking Statements.”   Certain of the external factors include, but are not limited to, the following:

Seasonality

We generally experience a lower volume of equipment sales in our first fiscal quarter. The seasonality of our operations is due to the crop-growing season and weather patterns in the Midwest. If we acquire businesses in geographic areas other than where we currently have operations, we may be affected more by the above-mentioned or other seasonal and equipment buying trends.

Economic Cyclicality

Sales of equipment, particularly new units, historically have fluctuated with general economic cycles. During economic downturns, equipment retailers tend to experience similar periods of decline and

25




recession as the general economy. The impact of an economic downturn on retailers is generally less than the impact on manufacturers due to the sale of parts and service by retailers to maintain customer equipment.

Customer Spending Levels

Sales of equipment depend upon customers’ ability and willingness to make capital expenditures and their access to capital. Accordingly, our operations are impacted by fluctuations in customers’ spending levels on capital expenditures.

Inflation

Inflation has not had a material impact upon operating results and we do not expect it to have such an impact in the future. To date, in those instances in which we have experienced cost increases, we have been able to increase selling prices to offset such increases. There can be no assurance, however, that our business will not be affected by inflation or that we can continue to increase our selling prices to offset increased costs and remain competitive.

Acquisitions

We have a successful history of growth through acquisitions. Since January 1, 2003, we have completed 13 acquisitions consisting of 29 stores operating in four states. We expect that acquisitions will continue to be an important component of our growth. Acquisitions are typically financed with floorplan debt, long-term debt and cash from operations.

The following is a summary of acquisitions completed during the identified periods.

Fiscal 2008

·        On February 3, 2007, we acquired certain assets of Richland County Implement, Inc., resulting in the addition of a store located in Wahpeton, North Dakota.

·        On April 13, 2007, we acquired certain assets of Aberdeen Equipment Co., Huron Equipment Co. and Redfield Equipment Co., three related dealerships, resulting in the addition of three stores located in Aberdeen, Huron and Redfield, South Dakota.

·        On August 1, 2007, we acquired all of the outstanding stock of Red Power International, Inc., resulting in the addition of two stores located in Ada and Crookston, Minnesota. We subsequently merged Red Power into our company.

Fiscal 2007

·        On March 31, 2006, we acquired all of the outstanding stock of Farm Power, Inc. of Minnesota and its wholly-owned subsidiary, Fergus International, Inc., resulting in the addition of two stores located in Elbow Lake and Fergus Falls, Minnesota. In addition, as of the same date, we purchased the inventory of FPI Leasing, an entity related to Farm Power through common ownership. We subsequently merged Farm Power into our company.

·        On June 15, 2006, we acquired certain assets of Piorier Equipment Company, Inc. and RAJ Equipment, its related entity, resulting in the addition of four stores located in Sioux City, Iowa, Marshall, Minnesota and Rapid City and Sioux Falls, South Dakota.

Fiscal 2006

·        On March 1, 2005, we acquired certain assets of Smith International, Inc., resulting in the addition of a store located in Waverly, Iowa.

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·        On May 16, 2005, we acquired certain assets of H.C. Clark Implement Co., Inc., resulting in the addition of a store located in Aberdeen, South Dakota.

·        On November 1, 2005, we assumed management of the operations of a dealership formerly owned by Walterman Implement, Inc. located in Dike, Iowa. We subsequently acquired certain assets of the dealership and as of December 31, 2006 began to operate it as one of our stores.

·        On November 1, 2005, we acquired certain assets of Vern Anderson, Inc., resulting in the addition of four stores located in Anthon, Cherokee, Kingsley and Le Mars, Iowa.

Fiscal 2005

·        On February 21, 2004, we acquired certain assets of Consolidated Ag Service, Inc., resulting in the addition of three stores located in Graceville, Marshall and Pipestone, Minnesota.

Critical Accounting Policies and Estimates

During the preparation of our financial statements, we are required to make estimates, assumptions and judgments that affect reported amounts. These estimates, assumptions and judgments include those related to bad debts and credit sales, inventories, goodwill and intangibles, income taxes and legal proceedings, revenue recognition, allowance for doubtful accounts, inventory reserves, incentive plan accruals, deferred taxes and stock-based compensation. We update these estimates, assumptions and judgments as appropriate, which in most cases is at least quarterly. We use our technical accounting knowledge, cumulative business experience, judgment and other factors in the selection and application of our accounting policies. While we believe our estimates, assumptions and judgments we use in preparing our financial statements are appropriate, they are subject to factors and uncertainties regarding their outcome and therefore, actual results may materially differ from these estimates. We believe the following are our primary critical accounting policies and estimates.

Revenue Recognition

Revenue on equipment and parts sales is recognized upon delivery of product to customers. Rental and service revenue is recognized at the time the related services are provided. In addition to outright sales of new and used equipment, certain rental agreements may include rent-to-purchase options. Under these agreements, customers are given a period of time to exercise an option to purchase the related equipment, with a portion of the rental payments being applied to the purchase price. This equipment is included in inventory until the purchase option is exercised. Rental revenue is recognized during the rental period, with equipment sales revenue being recognized upon the exercise of the purchase option.

Inventories

New and used machinery are stated at the lower of cost (specific identification method) or market with adjustments for decreases in market value on inventory rented but available for sale being a percentage (80%) of the rental income received on such inventory. Equipment held specifically for lease is reported as inventory held for rental. Parts inventory is valued at the lower of average cost or market, and parts inventory not expected to be sold in the next operating cycle has been reported separately.

Intangible Assets and Goodwill

Goodwill is reviewed for possible impairment at least annually, or more frequently upon the occurrence of events or circumstances that may affect its fair value. As of January 31, 2007, the carrying value of goodwill was not considered impaired. Intangible assets include covenants not-to-compete that are being amortized using the straight-line method over the lives of the related agreements, which range from five to 15 years.

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Key Financial Metrics

In addition to tracking our sales and expenses to evaluate our operational performance, we also monitor certain key financial metrics, including absorption and same-store sales.

Absorption

Absorption is an industry term that refers to the percentage of an equipment dealer’s fixed operating expense covered by the gross margin of its combined parts and service businesses. Absorption in a given period is calculated by dividing our gross profit from parts and service sales in the period by the difference between (i) our operating expenses (including interest on floorplan notes) and (ii) our variable expense of sales commissions on equipment sales in the same period. We believe that absorption is an important management metric because during economic down cycles our customers tend to postpone new and used equipment purchases while continuing to run, maintain and repair their existing equipment. Thus, operating at a high absorption rate enables us to operate profitably throughout economic down cycles. We measure and track absorption on a company-wide basis as well as on a per store basis. For fiscal 2007, our company-wide absorption rate was 75.9% and ranged from 53.1% to 118.5% on a store level basis; for fiscal 2006, our company-wide absorption rate was 74.4% and ranged from 50.7% to 94.3% on a store level basis; and for fiscal 2005, our company-wide absorption rate was 70.8% and ranged from 58.8% to 87.5% on a store level basis.

Same-Store Sales

Same-store sales for any period represent sales by stores that were part of our company for the entire comparable period in the preceding fiscal year. We believe that tracking this metric is important to evaluating the success of the Titan Operating Model on a comparable basis.

Key Financial Statement Components

Revenue

Equipment.    We derive equipment revenue from the sale of new and used agricultural and construction equipment.

Parts.    We derive parts revenue from the sale of parts for equipment that we sell and rent, as well as for other equipment makes. Our parts sales provide us with a relatively stable revenue stream that is less sensitive to the economic cycles that affect our equipment sales.

Services.    We derive services revenue from maintenance and repair services to our customers’ equipment. Our repair and maintenance services provide a high-margin, relatively stable source of revenue through changing economic cycles.

Other.    We derive other revenue from equipment rentals and ancillary equipment support activities such as equipment transportation, GPS signal subscriptions and reselling finance and insurance products.

Cost of Revenue

Equipment.    Cost of equipment revenue is the lower of the acquired cost or the market value of the specific piece of equipment sold.

Parts.    Cost of parts revenue is the lower of the acquired cost or the market value of the parts sold, based on average costing.

Service.    Cost of service revenue represents costs attributable to services provided for the maintenance and repair of customer-owned equipment and equipment then on-rent by customers.

Other.    Costs of other revenue represent costs associated with equipment rental, providing transportation, hauling, parts freight, GPS subscriptions and damage waivers, including, among other items, drivers’ wages, fuel costs, shipping costs and our costs related to damage waiver policies.

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Operating Expenses

Our operating expenses include sales and marketing expenses, sales commissions (which generally are based upon equipment gross profit margins), payroll and related benefit costs, insurance expenses, professional fees, property and other taxes, administrative overhead, and depreciation associated with property and equipment (other than rental equipment).

Floorplan Interest

The cost of financing inventory is an important factor affecting our results of operations. Floorplan financing from CNH Capital represents the primary source of financing for equipment inventories, particularly for equipment supplied by CNH. We also have credit facilities for financing of equipment inventories with Bremer Bank and GE Commercial Distribution Finance Corporation. Historically, approximately 80% to 90% of our inventory has been subject to floorplan financing. CNH regularly offers interest-free periods as well as additional incentives and special offers. As of July 31, 2007, approximately     % of our inventory was subject to non-interest bearing floorplan financing.

Other Interest Expense

Interest expense represents the interest on our outstanding debt instruments, other than floorplan financing facilities.

Results of Operations

Comparative financial data for each of our four sources of revenue for fiscal 2007, 2006 and 2005 and for the six months ended July 31, 2007 and 2006 are expressed below. The results for these periods include the operating results of the acquisitions made during these periods, as described above. The period-to-period comparisons included below are not necessarily indicative of future results.

 

 

Year ended January 31,

 

Six months ended 
July 31,

 

 

 

2005

 

2006

 

2007

 

2006

 

2007

 

 

 

 

 

 

 

 

 

(unaudited)

 

 

 

(dollars in thousands)

 

Equipment

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

119,850

 

$

175,549

 

$

220,958

 

$         

 

$         

 

Cost of revenue

 

109,023

 

160,814

 

200,558

 

 

 

 

 

Gross profit

 

$

10,827

 

$

14,735

 

$

20,400

 

 

 

 

 

Parts

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

25,059

 

$

31,099

 

$

42,619

 

$         

 

$         

 

Cost of revenue

 

18,402

 

22,459

 

29,909

 

 

 

 

 

Gross profit

 

$

6,657

 

$

8,640

 

$

12,710

 

$         

 

$         

 

Service

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

13,141

 

$

16,572

 

$

21,965

 

$         

 

$         

 

Cost of revenue

 

5,236

 

6,404

 

8,183

 

 

 

 

 

Gross profit

 

$

7,905

 

$

10,168

 

$

13,782

 

$         

 

$         

 

Other, including trucking and rental

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

4,134

 

$

5,250

 

$

7,056

 

$         

 

$         

 

Cost of revenue

 

3,120

 

4,081

 

5,337

 

 

 

 

 

Gross profit

 

$

1,014

 

$

1,169

 

$

1,719

 

$         

 

$         

 

 

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The following table sets forth our statements of operations data expressed as a percentage of net revenue for the periods indicated.

 

 

Year ended January 31,

 

Six months ended July 31,