Auditors Say Future of Phoenix-Based Motorcycle Maker is in Doubt
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Story Filed: Tuesday, April 24, 2000 11:51 PM EST
Apr. 20 (The Arizona Republic/KRTBN)--Mounting cash flow problems, exacerbated by a just-reported $8.1 million loss for 1999, has prompted auditors of Titan Motorcycle Co. of America to raise questions about the 6-year-old company's ability to survive.
Also troubling is the recent sale of 340,000 shares of the Phoenix company's stock by Chief Executive Officer Frank Keery and his wife, Barbara, a director. The Keerys each sold 170,000 shares on March 31 at $2.31 per share. After the 1999 loss was reported April 17, the stock was trading at $1.25. The Keerys each now hold 6,592,878 shares.
"I'd be concerned," said Craig Columbus, president of Insiderscores.com, a Scottsdale company that tracks insider trading.
Securities and Exchange Commission regulations prohibit officers from trading stock if they have material information about their company that is not generally known, he said.
Frank Keery said some of the proceeds from the sale were used to secure additional financing for the company.
Founded in 1994, Titan carved out a niche for itself with its high-end, American-made, V-twin engine motorcycles selling for $30,000 to $50,000.
Titan's 1999 loss, which translates to 47 cents per share, contrasts with a $237,000 profit, or 1 cent per share, reported for 1998. Revenue was $26.93 million for the year compared with $27.9 million the year before.
According to a delayed 10K filing with the SEC, the company reported a Jan. 1 cash balance of $34,000 and an accumulated deficit of $9.8 million.
"These factors, among other things, may indicate the company will be unable to continue as a going concern for a reasonable period of time," the company said in the filing.
Titan said it is working on possible solutions that include negotiating a larger line of credit; a private equity placement of $3 million to $5 million; and increased operating efficiencies. In January, the company laid off 40 employees, or about 17 percent of its workforce.
But the introduction of a lower-priced line, produced on an assembly line, left the company vulnerable to production problems. Based on a strong initial demand for its cheaper, $25,000 motorcycles, Titan projected it would sell as many as 1,500 units in 1999.
That would have generated revenue in the $40 million range.
But production delays, related in part to the company's liquidity
problems, resulted in the sale of only 1,001 units, nine fewer than the year before.
The delays, combined with the expense of gearing up for higher production, eroded the company's gross profit margin from 15 percent in 1998 to a negative 1 percent in 1999. Adding to a $338,931 production loss were operating expenses that soared to $6.88 million from $3.48 million the year before.
The company attributed the higher costs to an increase in wages and salaries, and higher advertising and promotional expenses.
CEO Keery characterized 1999 as a year of substantial investment aimed at positioning Titan for growth and profitability.
"While we are clearly disappointed with our 1999 results, we are confident that the company is currently back on track after an extraordinarily difficult year," he said.
Bob Lobban, Titan's chief financial officer, said the company is making progress in its negotiations with new lenders and is optimistic its production problems have been solved. Pending the resolution of the cash flow issue, Lobban estimated the company should show an operating profit in the second quarter of this year.
By Max Jarman
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