PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Titan Technologies, Inc.
See the accompanying notes to the financial statements.
See the accompanying notes to the financial statements.
See the accompanying notes to the financial statements.
See the accompanying notes to the financial statements.
Titan Technologies, Inc.
Notes to the Unaudited Condensed Financial Statements
April 30, 2010
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) for interim financial information and Rule 8.03 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included.
The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. For further information, refer to the financial statements of the Company included in the Company’s Form 10-K for the year ended July 31, 2009 as filed with the Commission on November 13, 2009.
Recently Adopted Accounting Standards
The Company evaluates the pronouncements of various authoritative accounting organizations, primarily the Financial Accounting Standards Board (“FASB”), the SEC, and the Emerging Issues Task Force (“EITF”), to determine the impact of new pronouncements on US GAAP and the impact on the Company.
In June, 2009, FASB established the Accounting Standards Codification (“ASC”) as the single source of authoritative US GAAP to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative US GAAP for SEC registrants. The ASC is a new structure which took existing accounting pronouncements and organized them by accounting topic. The ASC did not change current US GAAP, but was intended to simplify user access to all authoritative US GAAP by providing all the relevant literature related to a particular topic in one place. All previously existing accounting standards were superseded and all other accounting literature not included in the ASC is considered non-authoritative. New acc ounting standards issued subsequent to June 30, 2009 will be communicated by the FASB through Accounting Standards Updates (ASU's). The ASC was effective during the period ended October 31, 2009. Adoption of the ASC did not have an impact on the Company’s consolidated financial position, results of operations or cash flows.
The Company has recently adopted the following new accounting standards:
Titan Technologies, Inc.
Notes to the Unaudited Condensed Financial Statements
April 30, 2010
Subsequent Events - In May, 2009, the ASC guidance for subsequent events was updated to establish accounting and reporting standards for events that occur after the balance sheet date but before financial statements are issued. The guidance was amended in February, 2010 via ASU No. 2010-09. The standard sets forth: (i) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet in its financial statements, and (iii) the disclosures that an entity should make about events or transactions occurring after the balance sheet date in its financial statements. The amended ASU was effective immediately and its adoption had no impact on the Company’s financial position, results of operations or cash flows.
Fair Value Measurements – In January 2010, ASU No. 2010-06 amended existing disclosure requirements about fair value measurements by adding required disclosures about items transferring into and out of levels 1 and 2 in the fair value hierarchy; adding separate disclosures about purchase, sales, issuances, and settlements relative to level 3 measurements; and clarifying, among other things, the existing fair value disclosures about the level of disaggregation. The ASU was adopted during the period ended January 31, 2010, and its adoption had no impact on the Company’s financial position, results of operations or cash flows.
Recently Issued Accounting Standards Updates.
The following accounting standards updates were recently issued and have not yet been adopted by the Company. These standards are currently under review to determine their impact on the Company’s financial position, results of operations, or cash flows.
ASU No. 2010-11 was issued in March 2010, and clarifies that the transfer of credit risk that is only in the form of subordination of one financial instrument to another is an embedded derivative feature that should not be subject to potential bifurcation and separate accounting. This ASU will be effective for the first fiscal quarter beginning after June 15, 2010, with early adoption permitted.
ASU No. 2010-13 was issued in April 2010, and will clarify the classification of an employee share based payment award with an exercise price denominated in the currency of a market in which the underlying security trades. This ASU will be effective for the first fiscal quarter beginning after December 15, 2010, with early adoption permitted.
There were various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's financial position, results of operations or cash flows.
Titan Technologies, Inc.
Notes to the Unaudited Condensed Financial Statements
April 30, 2010
Note 2. Earnings Per Share
Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During the periods presented, common stock equivalents were not considered, as their effect would be anti-dilutive.
Note 3. Going Concern
The Company's financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
The Company has experienced losses from operations as a result of its investment necessary to achieve its operating plan, which is long-range in nature. For the nine months ended April 30, 2010 the Company had a net loss of ($109,224) and had working capital and stockholders' deficits of ($744,204) and ($718,595), respectively. In addition, the Company has no revenue producing operations.
The Company's ability to continue as a going concern is contingent upon its ability to secure financing and attain profitable operations. In addition, the Company's ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered in a highly regulated industry.
The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
Note 4. Stockholders' (Deficit)
During the nine months ended April 30, 2010, the Company sold 400,000 shares of common stock for cash proceeds aggregating $22,000.
The Company has a compensatory stock option plan. Under the plan, the Company may grant options for up to 1,350,000 shares of common stock. The Board of Directors shall determine the exercise price and term of the options. The options vest on the date granted. All options outstanding at April 30, 2010 were granted to employees or directors in the fiscal year ended July 31, 2005 and expire in the fiscal year ending July 31, 2015.
Titan Technologies, Inc.
Notes to the Unaudited Condensed Financial Statements
April 30, 2010
Summarized information relative to the Company's stock option is as follows:
| | | Number of | | | Weighted Average | |
| | | Shares | | | Exercise Price | |
| | | | | | | | | |
| Outstanding at July 31, 2009 | | | 1,050,000 | | | $ | 0.12 | |
| Granted | | | - | | | | - | |
| Exercised | | | - | | | | - | |
| Forfeited | | - | | | | - | |
| Forfeit/cancelled | | | (900,000 | ) | | | - | |
| Outstanding at April 30, 2010 | | | 150,000 | | | $ | 0.12 | |
Note 5. Licensing Agreements
On April 2, 2004, and as modified on October 30, 2004, the Company entered into an Agreement with a group of investors, to provide for the construction of three tire recycling plants to be built in Mexico. During the year ended July 31, 2005, the Company received a non-refundable deposit of $180,000, which was originally recorded as deferred revenue. Under the terms of the agreement, the Company was to receive a payment of $500,000. $300,000 was to be credited to licensing fees, ($100,000 for each of the three initial recycling plants), and the remaining $200,000 for an exclusive right to license the Titan technology in Mexico. The original Agreement was extended from September 30, 2004 to March 31, 2005, whereupon it was terminated effective March 31, 2005, due to non-performance by the licensee. As more fully discussed below, the $1 80,000 previously paid to Titan under this agreement was recognized as revenue, and credit has been given to the successor investor, PPT Holding, Ltd. ("PPT"), in this amount.
Effective February 9, 2006, the Registrant executed a License Agreement with PPT, a Texas Limited Partnership and successor to the investor group discussed above, for the exclusive right to build recycling facilities in Mexico, utilizing Titan’s patented tire recycling technology (the “Mexican License”). The Agreement provides for the initial construction of three facilities within three years, commencing initially on or about September 15, 2006, which date has been verbally extended to the date on which PPT has obtained the necessary building permit for its first plant in Nuevo Laredo, Mexico, and has secured sufficient financing to commence construction of the plant. PPT has obtained the building permit for the first plant, but has not secured sufficient financing to commence construction. Upon commencement of the construction of the first plant, PPT will become obligated to pay Titan an initial installment of $300,000 of the remaining $900,000 for the license fee for the first plant. The Agreement also calls for a $200,000 payment for the exclusive license, for PPT to utilize Titan's tire recycling technology in Mexico, which amount has been previously received, as stated above.
Titan Technologies, Inc.
Notes to the Unaudited Condensed Financial Statements
April 30, 2010
The Mexican License provides for a $1,000,000 license fee for each plant, payable as follows: (i) a deposit of $100,000 paid by April 30, 2006; (ii) $300,000 payable upon commencement of construction; (iii) $300,000 upon completion of construction; and (iv) $300,000 upon reaching full capacity. During the year ended July 31, 2006, PPT and its predecessor paid Titan $320,000, and PPT received credit for the $180,000 previously paid by its predecessor. Therefore, the total initial $500,000 requirement, including the $300,000 deposit for the first three plants as well as $200,000 for the exclusive license for the Republic of Mexico, has been satisfied. An additional $50,000 was received during the fiscal year ended July 31, 2007. Another $150,000 was received during the fiscal year ended July 31, 2009, which is incl uded in deferred revenue. Since construction has not yet commenced, the balance of the deposit of $520,000 is presented as deferred revenue at April 30, 2010.
The Mexican License further provides that Licensee will pay Titan royalty payments equal to $4.00 per ton of tires processed in the recycling plants in Mexico after full capacity is reached. Failure by PPT to make the required royalty payments for first three plants could result in Titan terminating the License Agreement and loss of the exclusive license for Mexico and all monies paid to date by PPT and its predecessor.
Additionally, Titan has agreed to purchase a seven percent (7%) ownership interest in PPT for $100,000, of which $75,000 was paid during fiscal 2005 pursuant to previous agreements that were subsequently deemed void. Titan has been given credit for its previous payments, towards the purchase of its investment in PPT. Since PPT is in the organizational stages, the final $25,000 paid in fiscal 2006 is presented as a deposit at April 30, 2010 and is included in other assets in the accompanying financial statements.
Effective August 23, 2006, the Company entered into another licensing agreement with an unrelated investor group, Ally Investments, LLC (“Ally”), for the use of Titan's recycling patents and technology within the states of Texas, Louisiana, Mississippi and Oklahoma, and received a non-refundable deposit in the amount of $100,000, which amount was included in deferred revenue at July 31, 2008. The licensing fee agreement provided for a licensing fee for each plant of $1,600,000 upon securing both a construction site and construction financing, and production royalties of 1.5% of gross revenues derived from the sale of all products generated using Titan technology, upon reaching full capacity.
Titan Technologies, Inc.
Notes to the Unaudited Condensed Financial Statements
April 30, 2010
On December 12, 2007, the Company and Ally entered into a Second Amendment to License Agreement that modified the original License Agreement in the following respects:
| | 1. | The Territory was expanded from the four states to the entire United States. |
| | 2. | The license fee of $1,600,000 and the royalty payment of 1.5% of all products produced was amended to a ten (10%) percent membership interest in each of the single purpose entities formed to own and operate each plant beyond the first plant (the second and each subsequent plant). |
| | 3. | The obligation to pay the initial license fee for the first plant of $1,600,000 remains unchanged, but the obligation to commence construction of the first plant, as amended on February 23, 2007, to commence, on or before December 31, 2007, and be in operation, no later than December 31, 2008 was modified to require that construction of the first plant commence when (i) government agencies have granted construction approval and (ii) Ally has obtained financing to build the first plant. As of April 30, 2010, construction had not commenced. |
| | 4. | The termination of the Exclusive License was also modified to provide that the exclusive license for the U.S. will terminate if Ally should fail to commence to obtain a permit and prepare a feasibility study for the next plant within twelve (12) months after the previous plant has reached full capacity. |
Also on December 12, 2007, the Registrant and Ally entered into a Memorandum of Understanding regarding Plastics Scrap, including but not limited to the following terms:
| | 1. | The grant of an exclusive license for Titan's Technology and patents for the recycling of scrap electronics throughout the United States. |
| | 2. | A license fee of $500,000 each to the Registrant and Adherent Technologies, upon Ally securing sufficient funding and government approvals to commence construction of the first plastics recycling plant. |
| | 3. | The grant to the Registrant of a ten (10%) percent ownership in each entity established to own and operate a plastics recycling plant anywhere in the U.S. |
| | 4. | A research and development time table for testing a sample of constituent materials and development of a plastics recycling plant in the U.S. |
| | 5. | A commitment by Ally to fund and commence construction of the first plastics recycling plant in the U.S. within four years after delivery of the first sample of test material by Ally to Titan. |
Titan Technologies, Inc.
Notes to the Unaudited Condensed Financial Statements
April 30, 2010
This agreement expired on December 31, 2008 and the non-refundable deposit of $100,000 was recognized as income. On September 30, 2009, an agreement was reached to reinstate the terms of the original contract with a termination date of September 30, 2010.
Note 6. Shareholder Note Payable
On April 1, 2010 the Company borrowed $15,000 from a shareholder, as evidenced by a promissory note in that amount. The note bears interest at 8.0% per annum and is due on or before July 1, 2010. On April 30, 2010 the Company borrowed an additional $15,000 from the same shareholder, and signed a second promissory note for $15,000. This note also bears interest at 8.0% per annum and is due on or before July 31, 2010. At the Company's election, the April 30, 2010 note may be paid by the transfer of 300,000 shares of the Company's common stock to this shareholder. Two officers have agreed to donate the 300,000 shares (150,000 shares each) to the Company if the Company elects to pay the second note in shares of its common stock.
Note 7. Subsequent Events
The Company has evaluated all transactions subsequent to the balance sheet date of April 30, 2010, through the date of issuance of these financial statements and has determined that there are no subsequent events that require disclosure.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
The following narrative describes the financial condition of Titan Technologies, Inc. (“we”, “our” or the “Company”) at April 30, 2010 and compares it to our financial condition at fiscal year end July 31, 2009. It also discusses our results of operations for the three and nine months ended April 30, 2010 and April 30, 2009. This discussion and analysis should be read in conjunction with the information contained in our annual report on Form 10-K for the fiscal year ended July 31, 2009, including the audited financial statements and notes included therein. The financial statements included in this report, including our balance sheet at April 30, 2010, the statements of operations for the three months and nine months ended April 30, 2010 and 2009 and our st atements of cash flows for the nine months ended April 30, 2010 and 2009, are unaudited.
Results of Operations
As a result of activities by management, general and administrative expense decreased by $85,738 (45%) to $104,236 for the nine months ended April 30, 2010 compared to the nine months ended April 30, 2009 primarily because certain employees and a contractor agreed to forego both payment and accrual of compensation during this period.
As a result of activities by management, outside services expense decreased by $40,915 (89%) to $4,988 for the nine months ended April 30, 2010 compared to the nine months ended April 30, 2009, primarily due to reduced services by the consultant for the Mexican License during this period.
As a result of activities by management, general and administrative expense decreased by $43,528 (75%) to $14,591 for the three months ended April 30, 2010 compared to the three months ended April 30, 2009, primarily because certain employees and a contractor agreed to forego both payment and accrual of compensation during this period.
As a result of activities by management, outside services expense decreased by $2,085 (85%) to $366 for the three months ended April 30, 2010 compared to the three months ended April 30, 2009, primarily due to reduced services by the consultant for the Mexican License during this period.
Liquidity and Capital Resources
The Company's liquidity decreased in the nine months ended April 30, 2010, as cash decreased by $1,925 since July 31, 2009. Operations used $53,925 compared to the same period of the prior year in which operations used $30,580. Proceeds from the sale of common stock were $22,000 during the nine months ended April 30, 2010 compared to $44,000 for the same period in 2009. $30,000 was borrowed from an investor.
Future financing activities of the Company include primarily the sale of common stock. The Company does not solicit purchasers of its common stock, but believes past experience demonstrates that there will be sufficient unsolicited purchases of common stock to sustain the Company's cash flow needs, especially in light of the expected revenue form licensing activities in the future.
Management has taken the following steps in the past and will consider taking them again, if necessary, to address the financial and operating condition of the Company which it believes will be sufficient to provide the Company with the ability to continue in existence:
| | - Improve marketing efforts for recycling plants and bring plastics recycling technology and coal gasification to a marketable product. |
| | - Reduce operating and administrative expenses, and issue stock and notes payable, where possible for payment of expenses. |
| | - Defer payment of officer’s salaries, if required. |
Management believes that these steps, if taken, will allow the Registrant to continue as a going concern together with results of on going efforts to raise working capital through licensing agreements, and joint ventures. However, there are significant risks associated with the Registrant's business development and there can be no assurance that its efforts will be successful or that it will be able to raise sufficient working capital to survive as a going concern.
ITEM 3. QUANTITATIVE AND QUALITITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
ITEM 4T. CONTROLS AND PROCEDURES
| | (a) | Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Principal Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, as appropriate, to allow timely decisions regarding required discl osure. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of April 30, 2010. |
| | | It should be noted that any system of internal controls, however well designed and operated, can only provide reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. |
| | (b) | Changes in Internal Controls. There were no significant changes in the Company’s internal controls over financial reporting or in other factors that could significantly affect these controls subsequent to the evaluation date that occurred in the most recent fiscal quarter, that have materially affected or are likely to materially affect, our internal control over financial reporting. Our management team will continue to evaluate our internal control over financial reporting throughout the year. |
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the nine months ended April 30, 2010, the Company sold common stock to three investors. The following table illustrates the dates of the transactions, the number of shares and the proceeds of the sale.
| | Date | | Shares Issued | | | Cash Received | |
| | | | | | | | |
| | 08/17/09 | | | 100,000 | | | $ | 6,000 | |
| | 09/04/09 | | | 200,000 | | | | 10,000 | |
| | 09/12/09 | | | 100,000 | | | | 6 000 | |
| | | | | | | | | | |
| | | | | 400,000 | | | $ | 22,000 | |
We relied on Section 4(2) of the Securities Act of 1933 for exemption from the registration requirements of the Securities Act. Each investor was furnished with information concerning our formation and operations, and had the opportunity to verify the information supplied and ask questions of Management. Additionally, we obtained a representation from each of the acquiring persons representing their intent to acquire the securities for the purpose of investment only, and not with a view toward the subsequent distribution thereof. Each of the certificates representing the common stock carries a legend restricting transfer of the securities represented.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
| | (a) | Exhibits: The following exhibits are filed with this report: |
| | 31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Ronald L. Wilder dated June 22, 2010. |
| | 32.1 Certification pursuant to Section 906 of the Sarbanes Oxley Act of 2002 for Ronald L. Wilder, dated June 22, 2010. |
| | (b) | Reports on Form 8-K. State whether any reports on Form 8-K have been filed during the quarter for which this report is filed, listing the items reported, any financial statements files, and the dates of any such reports. None |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | TITAN TECHNOLOGIES, INC. |
| | (Registrant) | | |
| June 25, 2010 | | | |
| | /s/ Ronald L. Wilder |
| | Ronald L. Wilder, President, Chief |
| | Executive Officer, Chief Financial |
| | Officer and Chief Accounting Officer. |
