Mail Stop 3720
March 23, 2006
Mr. Curtis Okumura
Chief Executive Officer, President, Director
and Principal Financial and Accounting Officer
Titan Global Holdings, Inc.
44358 Old Warm Springs Boulevard
Fremont, California 94538
Re: Titan Global Holdings, Inc.
Form 10-KSB for Fiscal Year Ended August 31, 2005
Filed January, 23, 2006
Forms 10-QSB for Fiscal Quarter Ended November 30, 2005
File No. 0-32847
Dear Mr. Okumura:
We have reviewed your filing and have the following
comments.
We have limited our review to only your financial statements and
related disclosures and do not intend to expand our review to
other
portions of your documents. Please address the following comments
in
future filings. If you disagree, we will consider your
explanation
as to why our comment is inapplicable or a future revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may or may not raise additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K for Fiscal Year Ended August 31, 2005
Restatement, page 2
1. We note that on December 31, 2005 you entered into an agreement
with Farwell for the rescission of the stock purchase agreement
and
as a result have restated your financial statement for the year
ended
August 31, 2005. In this regard, please tell us why the
restatement
is appropriate instead of accounting for rescission as of the date
you agreed to it. Please refer to your basis in accounting
literature.
Risks related to the Company`s current financing arrangements,
page
23
2. We note that you are not currently in compliance with your
obligation to have a registration statement registering shares of
common stock issuable to Laurus. In addition, you state that your
failure to comply with the Laurus registration obligation
constitutes
an event of default which entitles Laurus an amount in cash equal
to
1.0% for each thirty day period, on a daily basis, of the original
principal amount of the convertible notes. In this regard, tell
us
whether you have accrued for this liability. If you have not
accrued
for this liability, please explain your reasoning, citing
accounting
literature used. In addition, disclose in the footnotes to your
financial statements all information required by SFAS 5.
Critical Accounting Policies, page 38
3. You state that "the Company has excess capacity in its
manufacturing facilities. Currently, the Company is not
capitalizing
any costs related to this excess capacity as the recoverability of
such costs is not certain." Please tell us what costs you are not
capitalizing and your basis in the accounting literature for not
capitalizing these costs. Also, tell us and disclose why long
lived
assets associated with these manufacturing facilities were not
impaired under FAS 144.
4. Please disclose the estimates and assumptions used to test long
lived assets and intangibles. This disclosure should supplement,
not
duplicate, the description of your accounting policies that are
already disclosed in the notes to the financial statements.
Further, critical accounting estimates and assumptions are
based
on matters that are highly uncertain. For this reason, you
are
required to analyze their specific sensitivity to change,
based
on other outcomes that are reasonably likely to occur and would
have
a material effect on financial condition or operating performance
and provide quantitative as well as qualitative disclosure
when
quantitative information is reasonably available and will
provide
material information for investors. Revise to include
sensitivity analysis and other quantitative information that is
reasonably available.
For additional guidance, please refer the Commission`s
Interpretive
Release on Management`s Discussion and Analysis of Financial
Condition and Results of Operation which is located on our website
at: http://www.sec.gov/rules/interp/33-8350.htm.
3. Summary of Significant Accounting Policies:
Consolidation Policy, page 48
5. It appears that Oblio Telecom, Inc. (Oblio) is a variable
interest
entity in accordance with FIN 46R. As such, tell us how you
determined that you are the primarily beneficiary and should
consolidate Oblio. Please provide us with your detailed analysis
of
FIN 46R for Oblio. In addition tell us your business reason for
not
purchasing Oblio on your own.
Revenue Recognition, page 49
6. With regard to your prepaid phone cards please tell us and
disclose if you recognize revenue on a gross or net basis per EITF
99-19. Provide us with your analysis of EITF 99-19. If you
recognize revenue on a gross basis, tell us why recognizing
revenue
upon the shipment and activation of the prepaid cards is
appropriate.
4. Mergers and Acquisitions, page 53
7. We note your reference to the independent valuation expert in
regard to the allocation of the purchase price. While you are not
required to make reference to the independent valuation, when you
do
you should also disclose the name of the expert. Your disclosure
should explain the methods and significant assumptions used in the
valuation. Please revise in future filings.
8. You state that since MVNO was a new initiative after the fiscal
year ended August 31, 2005, Oblio had no amortization of the
intangible asset allocated to the MVNO contract of $17,742.
Please
tell us and disclose more information on the MVNO contract and
assumptions used to value this asset. Refer to your basis in
accounting literature.
Loans and Notes Payable, page 57
Laurus Loans, page 57
9. Please tell us how you have applied the guidance in EITF Issue
00-
19 in evaluating whether the debt conversion feature for the
secured
convertible term note issued to Laurus is an embedded derivative
that
you should separate from the debt host and account for at fair
value
under SFAS 133. It appears that this note may not meet the
definition of conventional convertible debt in paragraph 4 of EITF
Issue 00-19 since the note has a feature wherein the conversion
price
is reset if you issue shares at a price less than the fixed
conversion price in the note. As a result, you would be required
to
analyze the conversion feature under paragraphs 12-32 of EITF 00-
19.
In this regard, we note that your registration rights agreement
requires you to file a registration statement that is declared
effective by the SEC and to keep the registration statement
continuously effective for a preset time period, or else you are
required to pay a liquidated damages payment equal to 1.0% of the
product of the original principal amount of the note per month
until
the event is cured, with no cap on the maximum penalty that could
be
incurred. Additionally, you will incur these liquidated damages
if
your common stock is not listed or quoted, or is suspended from
trading for the periods outlined in the agreement. We note the
EITF
recently deliberated the impact of these liquidated damages
clauses
and the effect on the accounting and classification of instruments
subject to the scope of EITF 00-19 in EITF 05-4 The Effect of a
Liquidated Damages Clause on a Freestanding Financial Instrument
Subject to Issue No. 00-19. The EITF has not reached a consensus
on
this issue and has deferred deliberation until the FASB addresses
certain questions which could impact a conclusion on this issue.
However, in the meantime, please tell us how considered the
guidance
in EITF 05-4 and the different views on this issue as outlined in
Issue Summary No. 1 to EITF 05-4 in analyzing the registration
rights
agreement and in considering whether you are required to bifurcate
the conversion option from the debt host.
In addition, it appears that the warrants issued to Laurus are
also
subject to the same registration rights agreement noted above for
the
secured convertible debt. As a result, we note the accounting and
classification of these freestanding instruments may also be
impacted
depending on your view as to the appropriate accounting for the
instruments under EITF 00-19 and your consideration of EITF 05-4.
Please advise.
Capital Source Loans, page 61
10. We refer to your statement that the fair value of the
63,750,000
shares of stock of $14,312,000 was capitalized loan fees and are
being amortized over the 15 month life of the Term Note B. Tell
us
where this is recorded in your financial statements. If this
relates
to the 66,000,000 shares rescinded per the restatement, please
revise
or advise.
Other Loans, page 63
11. We note that on August 12, 2005 you entered into an 18-month
promissory note in the amount of $2,500. You also state in your
Form
10-K that certain events of default related to this note occurred
subsequent to year end and have been waived by the holders. In
this
regard, tell us whether you have classified this note a current or
long term in your Form 10-Q for the fiscal quarter ended November
30,
2005. If you classified the note as long term, please explain.
Refer to your basis in accounting literature.
8. Commitments and Contingencies, page 67
Contingencies, page 68
12. We note your statement that you believe that you do not have
any
material asset retirement obligations or environmental remediation
liabilities related to leased manufacturing facilities. You also
state that due to your lack of experience with facility closures
and
the related asset retirements, you are unable to estimate an asset
retirement obligation. It appears to us that these two statements
contradict each other. Please explain and revise your disclosure.
19. Stockholders` Equity, page 68
13. We note that adjustment #1 is for $160,000 and your
explanation
states that the Company received $667,000 during the fiscal year
ended August 31, 2004 and offset the value of these warrants as
financing costs related to the offering. Please tell us in
detail,
citing the appropriate accounting literature, how you accounted
for
this transaction. Also tell us why $507,000 was recorded as
deferred
compensation. Please provide us with the journal entries used.
14. Your adjustment #4 states that on July 29, 2003, Irrevocable
Children`s Trust (ITC), the Company`s largest shareholder, issued
1,000,000 warrants to purchase shares of common stock owned by ITC
at
$0.50 per share to each Mr. Bob Ciri and Mr. Andrew Glashow as
part
of employment agreements to serve as your CEO and President,
respectively. The fair value of the options was amortized and
expensed over the term of the employment contracts. Given that
the
warrants were issued by ITC, please tell us why you recorded these
warrants on your financial statements and include in your response
references to the appropriate accounting literature. In addition,
provide us with your journal entries for this entire transaction,
including your repurchase of $50,000.
Form 10-QSB for the Fiscal Quarter ended November 30, 2005
Note 5. CapitalSource Default
15. Please tell us if you are accruing the $6,500 per day non-
compliance fee. If not, tell us why and refer to your basis in
the
accounting literature.
Operating Expenses, page 18
16. We note that the increase in general and administrative
expenses
was due in major part to the additional amortization incurred by
your
Oblio division regarding the intangible assets acquired. We
believe
that the captions "cost of sales" and "gross profit" that excludes
depreciation and amortization directly attributed to the
generation
of revenue inappropriately reports a figure for income before
depreciation and amortization. Please revise your presentation to
either reclassify the applicable depreciation and amortization to
"cost of sales" or remove the caption "gross margin" and indicate
the
amount of applicable depreciation and amortization that is
excluded
from "cost of sales."
* * * *
Please respond to these comments within 10 business days or
tell us when you will provide us with a response. Please furnish
a
letter that keys your responses to our comments and provides any
requested information. Detail letters greatly facilitate our
review.
Please understand that we may have additional comments after
reviewing your responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings to be certain that the
filing includes all information required under the Securities
Exchange Act of 1934 and that they have provided all information
investors require for an informed investment decision. Since the
company and its management are in possession of all facts relating
to
a company`s disclosure, they are responsible for the accuracy and
adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that
* the company is responsible for the adequacy and accuracy of the
disclosure in the filings;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filings; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filings or
in
response to our comments on your filings.
You may contact Inessa Berenbaum, Senior Staff Accountant,
at
(202) 551-3371 or Dean Suehiro, Senior Staff Accountant, at (202)
551-3384 if you have questions regarding comments on the financial
statements and related matters. Please contact me at (202) 551-
3810
with any other questions.
Sincerely,
Larry Spirgel
Assistant Director
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Mr. Curtis Okumura
Titan Global Holdings, Inc.
March 23, 2006
Page 7
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DIVISION OF
CORPORATION FINANCE