UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

FORM 10-Q

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

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 31, 2007

Commission File No. 000-1409171

TITAN MACHINERY INC.

(Exact name of registrant as specified in its charter)

4876 Rocking Horse Circle
Fargo, ND 58104-6049

(Address of Principal Executive Offices)

Registrant’s telephone number (701) 356-0130

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES  x     NO  o

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

Large accelerated filer  o     Accelerated filer  o     Non-accelerated filer  x

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

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

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TITAN MACHINERY INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 -BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The unaudited financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting.  Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine month period ended October 31, 2007 are not necessarily indicative of the results that may be expected for the year ended January 31, 2008.  The information contained in the balance sheet as of January 31, 2007 was derived from the Company’s audited financial statements for the year then ended.

Estimates

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

Nature of Business

Titan Machinery Inc. is engaged in the retail sale, service and rental of agricultural and industrial machinery through stores in North Dakota, South Dakota, Minnesota, and Iowa.

Redeemable Securities

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

Lease Accounting

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

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NOTE 2 -INVENTORIES

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

NOTE 3 -LINE OF CREDIT

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

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

Long-term debt maturities are as follows:

NOTE 5 -FLOOR PLAN NOTES PAYABLE

Floor plan notes payable with a bank and manufacturers carry various interest rates ranging from 8.00 percent to 9.5 percent and are secured by substantially all assets of the company and a personal guaranty by our chief executive officer. Repayment terms vary by individual notes, but generally payments are made from sales proceeds or rental revenue from the related inventories.

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NOTE 6 -       SUBORDINATED DEBENTURES

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

(2)  The Titan Income Holdings debentures were issued with an offering completed April 2005.  Titan Income Holdings is a limited liability limited partnership in which one of its general partners is Adam Smith Companies,affiliated with Tony Christianson, a director.  Titan Income Holdings were distributed to 15 investors, including Gordon Paul Anderson, a director, who holds a 2.5% interest, and James Irwin, a director, who holds a 4.9% interest through the Irwin Revocable Trust.

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

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

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

NOTE 7 -       COMMON STOCK OPTIONS AND WARRANTS

Common Stock Warrants

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

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

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

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

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The following is a summary of the status of options outstanding and exercisable at October 31, 2007 under the fixed share-based payment plan:

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

NOTE 8 -       BUSINESS COMBINATIONS

The Company continued to implement its strategy of consolidating agriculture dealerships in desired market areas. Below is a summary of the acquisitions completed in the nine month period ended October 31, 2007. In certain of the business combination transactions the Company recognized goodwill. Factors contributing to the recognition of goodwill include an evaluation of enterprise value, historical financial performance, estimated industry potential within the market, and, the market territory relationship to other existing and future planned Company locations.  Operating results for each acquisition are included in the Company’s Statement of Operations from the date of acquisition.  Pro forma results are not presented as the acquisitions are not considered material, individually or in aggregate, to the Company.

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NOTE 9 -       FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is generally defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced liquidation sale. Quoted market prices are generally not available for the Company’s financial instruments. Accordingly, fair values are based on judgments regarding anticipated cash flows, future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates involve uncertainties and matters of judgment, and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. As explained in Note 1, actual results could differ from the estimates.

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

NOTE 10 -     SUBSEQUENT EVENTS

On November 13, 2007, the Company entered into an agreement to purchase the assets of an agricultural equipment dealership in Mandan, North Dakota, for approximately $1.9 million in cash.

On November 26, 2007, Notice of Early Conversion under the recapitalization agreement was given by C.I. Farm Power on a convertible debenture in the aggregate amount of $1.69 million.  The convertible debenture was converted into shares of common stock in accordance with the recapitalization agreement.  As a result of this conversion, the Company will recognize debt conversion costs of $1.2 million in the Company’s quarter ending January 31, 2008.

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

On December 10, 2007, the holder of 240,938 stock warrants exercised their right to convert such warrants into common stock.  The Company received $1.1 million in proceeds from the holder of these warrants as a result of the exercise.

On December 11, 2007, the Company received approximately $42.0 million (net of underwriter fees of $3.2 million and estimated offering expenses of approximately $1.0 million) as a result of its public offering of approximately 5.4 million shares of common stock priced at $8.50 per share.

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

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On December 11, 2007, the Company, in conjunction with its public offering, retired approximately $9.4 million in subordinated debentures using the proceeds from its public offering.  As a result of retiring this debt, the Company will recognize debt repayment costs of $1.1 million in the Company’s quarter ending January 31, 2008.

On January 2, 2008, the Company entered into an agreement to purchase the assets of two related agricultural equipment dealerships in Avoca, Iowa and Greenfield, Iowa, for approximately $3.8 million in cash.

ITEM 2.   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 our interim consolidated financial statements and related notes included in Item 1 of Part 1 of this Quarterly Report, and the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Registration Statement on Form S-1, as amended, filed in connection with our initial public offering.

Critical Accounting Policies

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

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.

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