AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON JANUARY 22, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
[X] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended...
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number ________________________________________
TITAN TRADING ANALYTICS INC.
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(Exact name of Registrant as specified in its charter)
INAPPLICABLE
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(Translation of Registrant's name into English)
PROVINCE OF BRITISH COLUMBIA, CANADA
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(Jurisdiction of incorporation or organization)
201 SELBY STREET, NANAIMO, BRITISH COLUMBIA, CANADA V9R 2R2
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(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b)
of the Act.
Name of each exchange
Title of each class on which registered
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NONE
Securities registered or to be registered pursuant to Section 12(g)
of the Act.
COMMON SHARES WITHOUT PAR VALUE
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(Title of Class)
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(Title of Class)
Securities for which there is a reporting obligation pursuant to
Section 15(d)of the Act.
NONE
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(Title of Class)
Indicate the number of outstanding shares of each of the
registrant's classes of capital or common stock as of the close of
the period covered by the annual report.
COMMON SHARES WITHOUT PAR VALUE: 8,857,001 as of December 31, 1998
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities 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 No X
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Indicate by check mark which financial statement item the
registrant has elected to follow.
Item 17 X Item 18
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Except as otherwise noted, all dollar amounts are presented in
Canadian dollars.
Exchange Rates: As at December 31, 1998, the median bidding
exchange rate of Canadian dollars into United States dollars was
$1.5375 Canadian to $1.00 United States.
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TABLE OF CONTENTS
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Part I Page No
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Item 1. Description of Business................ 1 - 13
Introduction........................... 1
General Development of Business........ 1
Employees.............................. 1 - 2
1998-99 Fiscal Period Operational Plan. 2
Principal Products and Services........ 3 - 4
Principal Markets and Methods of
Distribution........................... 4 - 5
Competition and Competitive Strategy... 5
Intellectual Property Rights........... 5 - 6
Trading and Testing Activities......... 6
Breakdown of Total Sales and Costs To
Date................................... 7
Status of New Products or Services..... 7 - 8
Research and Development Policy........ 8
Distinctive and Special Characteristics
of Operation........................... 8 - 13
Item 2. Description of Property................ 13
Item 3. Legal Proceedings...................... 13
Item 4. Control of Registrant.................. 13 - 14
Item 5. Nature of Trading Market............... 14
Item 6. Exchange Controls and Other Limitations
Affecting Securities Holders........... 15
Item 7. Taxation............................... 16 - 17
Dividends.............................. 16
Capital Gains.......................... 17
Deemed Distributions on Death.......... 17
Item 8. Selected Financial Data................ 17 - 19
Summary of Financial Data.............. 18
Exchange Rates......................... 18 - 19
Item 9. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 19 - 26
Overview............................... 19 - 20
Results of Operations.................. 20 - 25
Liquidity and Capital Resources........ 25 - 26
Item 10. Directors and Officers of Registrant... 26 - 28
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TABLE OF CONTENTS
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Page No.
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Item 11. Compensation of Directors and Officers. 28
Item 12. Options to Purchase Securities from
Registrant or Subsidiaries............. 29
Item 13. Interest of Management in Certain
Transactions........................... 29 - 31
Material Transactions.................. 29 - 31
Indebtedness of Directors and Officers. 31
Part II
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Item 14. Description of Securities to be
Registered............................. 31 - 32
Part III
Item 15. Defaults Upon Senior Securities........ 33
Item 16. Changes in Securities and Changes in
Security for Registered Securities..... 33
Part IV
Item 17. Financial Statements................... 33
Item 18. Financial Statements................... 33
Item 19. Financial Statements and Exhibits...... 33 - 34
(a) Financial Statements..........
(b) Exhibits......................
1
PART I
Item 1. Description of Business
INTRODUCTION
Titan Trading Analytics Inc. ("Registrant") is a financial trading
and software development company that commenced operations in May
1994 and is nearing the final stages of a multi-year software
research and development program. Registrant uses the software it
develops in its own trading activities and for providing training
services and seminars, in addition to offering them for sale or
license to customers. In this regard, the Registrant has developed
a series of software programs, including: (1) a financial trading
simulator called VirtualTrader ("VT"); (2)a series of real-time
proprietary pattern recognition trading indicators and stock index
trading systems for trading the S&P 500 Stock Index, the OEX 100
Stock Index, the Dow Jones Industrial Index and the NYSE Composite
Index called the TITAN Stock Index Trader series ("SIT"); and (3)a
portfolio of currency trading software programs for trading the
Japanese Yen, the Swiss Franc, the British Pound and the German
Mark called the TITAN World Currency Trader series ("WCT").
GENERAL DEVELOPMENT OF BUSINESS
Registrant was incorporated by registration of its Memorandum and
Articles under the Company Act of the Province of British Columbia,
Canada on November 30, 1993 under the name "KBK No. 24 Ventures
Ltd." Registrant changed its name to "Titan Trading Analytics
Inc.," by filing of an amendment to its Articles on November 14,
1994. Registrant's principal business office is at 201 Selby
Street, Nanaimo, British Columbia, and its registered and records
office is located at 30 Front Street, Nanaimo, British Columbia.
Up to the period ended October 31, 1998, Registrant raised a total
of $2,808,962 in share capital through the sale of its Common
Shares, and has invested approximately $1,347,469 in the
development of its business.
On November 23, 1994, Registrant incorporated Titan Trading Corp.
("TTC") under the Company Act of the Province of British Columbia,
Canada, as its wholly owned subsidiary. TTC has no income,
expenses, assets or liabilities. It was set-up with a capital
contribution of $100, specifically and exclusively for the purpose
of acting as agent for Registrant in executing Registrant's in-
house stock and other trading activities.
EMPLOYEES
The following is a brief description of the Registrant's employees:
John Austin, was Titan's Manager of Marketing and Sales from
November 1995 to November 17, 1998, but was recently appointed to
the position of Manager of Trading Operations. Since graduating in
Business Administration from Utah State
2
University in 1972, Mr. Austin has held a number of marketing,
service and sales management positions, including marketing manager
for TNT between 1987 and 1991, where he was also involved in the
research and development of trading systems.
Between 1992 and 1994 he was engaged in the establishment,
development and sale of several private businesses. Mr. Austin is a
full-time employee of Registrant.
Greg Kennedy joined Registrant as a full-time Manager of Marketing
and Sales on November 17, 1998. Mr. Kennedy graduated from the
University of Alberta in 1989 with a business degree in Marketing
and Statistics. He gained stock trading experience during 8 years
in the investment business as a registered securities
representative for McDermid St.Lawrence Securities Ltd. Mr.
Kennedy is a full-time employee of Registrant.
Joe Shatzko joined Registrant as a full time stock trader effective
January 4, 1999. Mr Shatzko graduated with a Bachelor of Arts
degree from the University of British Columbia in 1989, and
obtained his Juris Doctor from California Western University Law
School in San Diego in 1994. He was called to the California Bar in
November 1994 and practiced law for one year in California before
entering the securities business as a securities broker in 1997
with McDermid St. Lawrence Securities Ltd. in British Columbia,
Canada. Joe Shatzko is director Paul Shatzko's son and brother of
director Robert Shatzko. Mr. Shatzko is a full-time employee of
Registrant.
For information regarding Registrant's officers and directors see
Item 10.
1998-99 FISCAL PERIOD OPERATIONAL PLAN
Registrant believes that the expanded discount brokerage business
in North America and the recent high growth of online internet
trading provides a growing marketplace in which to market and
commercialize its VT software and related training seminars.
In general, Registrant plans to demonstrate the performance of its
products and services by using them in actual trading for its own
account. This will not only generate income directly from trading,
it will help promote software and seminar sales. In November of
1998, Registrant signed a letter of intent for a planned joint
venture with an established brokerage operation on the West Coast
of Canada, Wolverton Securities Ltd.("Wolverton"), one of the
oldest securities firms in Canada having established its operation
in 1910.
Over the next year and a half, Registrant expects to spend
approximately $200,000 of its capital on continuing research and
development of its software products to enhance trading activities
and stay current in the market. In this on-going process,
Registrant further expects to spend an additional $25,000 on
computer equipment and systems. Moreover, Registrant expects to
hire 4 - 8 additional traders for its own activities and as part of
its planned joint venture with Wolverton.
Registrant does not at this time anticipate any other material
changes to employees, plant and equipment or other business items
over the next 18 months of operation.
3
PRINCIPAL PRODUCTS AND SERVICES
Originally, Registrant planned to develop and offer a North
American pager based financial trading subscription service. This
plan was abandoned in late 1997 based on an assessment of new
competition from internet based financial subscription services.
During 1997 and 1998, Registrant developed and tested its
VirtualTrader software - an advanced training simulator for traders
that allows users to replay market data on a computer, bar by bar,
in any time frame, simulating a real time computer based financial
market data feed. This makes it possible for stock bond, currency
and commodity traders to easily test simple and complex trading
methods and money management strategies, without requiring any
software programming of mechanical trading rules, technical methods
or systems, and without risking any trading capital.
The VT program lets traders enter simulated trades on price charts,
enter market orders, stop loss orders, trade exit orders and track
trading performance, in a manner very similar to actual trading.
Registrant's management likens its VT trading software to a flight
training simulator for pilots, except VT is a training simulator
for traders. Traders can conveniently test trading strategies,
technical trading methods and different trading indicators, at a
lower cost, with more convenience, and with greater ease than
conventional methods of computerized back-testing.
In addition, Registrant uses VT software in the development of its
own trading systems and for in-house and joint venture training.
Applications of the VT software have been completed for various
futures trading applications, including currencies and stock
futures. More recently, the Registrant has used the VT software to
develop a technical analysis based approach to day-trading high
volume NASDAQ, AMEX and NYSE stocks. The Registrant's own in-house
application of the VT software along with a previously developed
stock index trading methodology known as the "neural tape reader",
have been combined to form an integrated method of day-trading
stocks that is now being used by the Registrant in its own trading
operations. This combination also forms the basis for Registrant's
plans to develop joint venture trading operations and offer
training seminars to stock day-traders in North America.
The trading methods, indicators and software developed by
Registrant in this manner, allow it (or its licensees) to
efficiently trade certain Stock Indexes and Currencies online,
real-time, intra-day and end-of-day. These developments center
around the application of Artificial Intelligence ("AI") to stock
index and currency trading, using neural networks and expert
systems. Neural networks are an AI based mathematical pattern
recognition technique that allows software to mimic the information
processing functions of humans by being able to "learn" to
recognize complex patterns through trial and error without being
programmed with specific, preconceived rules. AI based software
trading systems can be taught complex relationships between sets of
variables and use them to find market correlations and
relationships that humans cannot easily see on their own.
4
All Registrant's software products, including those under
development, are designed to plug into and run under TradeStation
or SuperCharts, two of the industry's leading Windows-based
technical analysis and charting programs, developed and marketed
worldwide since late 1991 by Omega Research Inc. of Miami, Florida,
USA ("Omega"). TradeStation was the world's first real-time
Windows based charting program for analyzing stocks, stock index
futures, bonds, mutual funds, commodities and other securities.
SuperCharts is a related program for off-line technical market
analysis.
Both TradeStation and SuperCharts are widely used software programs
that allow users to develop, test and automate technical analysis
of the financial markets, and to run developed trading systems and
various standard and custom financial trading indicators in real-
time. The Registrant's software products have been designed to be
loaded into and to operate within the TradeStation and SuperCharts
software platforms and to take advantage of the automation and
charting features built into those products and their user-friendly
Windows operating system environment. This allows the Registrant to
implement and market its VT simulator software and related
indicators and trading systems within the established Omega
Research software programs.
Specifically, VT allows TradeStation software users to test methods
without having to acquire any programming knowledge of Omega's Easy
Language software language. The VT software also allows traders to
gain technical trading knowledge and experience, be formally
trained, and provides the use of conventional and custom technical
analysis techniques in a fully simulated real-time trading
environment.
PRINCIPAL MARKETS AND METHODS OF DISTRIBUTION
The Registrant's initial target market for its VirtualTrader
software and related training services is comprised of an estimated
40,000 to 50,000 existing PC users of the Windows-based SuperCharts
and TradeStation technical charting and financial analysis software
operating platforms. The Microsoft Windows operating system now
dominates the PC based software market worldwide. Although there
is a large number of financial software programs now available to
computerized investors and traders, users are increasingly
standardizing on Windows and a few proven Windows based technical
analysis and financial charting program platforms, such as
SuperCharts, TradeStation, and MetaStock for Windows(tm).
A broader market for VT training services is the existing and
growing market for online internet stock traders. Those online
stock traders who are not currently users of Omega charting program
platforms would have to invest US$395 (for SuperCharts) or US$2,395
(for TradeStation) to acquire them.
Omega, the manufacturer of SuperCharts and TradeStation software
offers marketing and other support for third-party product
development through the Omega Solution Provider Program (the
"Program"). There are approximately 150 software development and
service firms registered and active under this Program of which
Registrant is one. Products and services under this Program are
typically marketed by a combination of direct mail programs and
advertising in leading financial magazines. Omega presently
delivers the Program's Solution
5
Provider advertisements by direct mail to its database of customers
on a quarterly basis in the form of the Omega Research magazine.
This provides a central advertising medium for TradeStation and
SuperCharts solution providers, and also allows users of the
software to become familiar with various new products and services
offered by Omega and Solution Providers.
More generally, Registrant plans to market to the online trader
market through: (1) an established internet web site presence, (2)
Omega's Solution Provider Program, (3) direct advertising in trade
periodicals, (4) direct seminars and mail campaigns, and (5) in-
house direct sales. In addition, Registrant plans to establish
wider channels of distribution with the support of distributors and
agents, and through a combination of its own internet web site and
third-party internet banner advertising.
The Registrant has installed a computerized sales lead tracking and
database management system capable of supporting telephone sales
and service support functions which it intends to utilize to manage
customer service direct mail campaigns, and marketing and investor
relations administration.
COMPETITION AND COMPETITIVE STRATEGY
The worldwide financial software and information services
marketplace is both crowded and intensely competitive, with strong
growth being reported in the online internet trading segment of the
marketplace. The emergence of huge volume discount brokerage
services and online internet trading with firms such as E-Trade and
Datek internet has changed the business model for stock traders
dramatically.
Registrant plans to compete based on the growing demand for online
trading by offering training services to private, institutional and
professional traders in the niche application offered by the
VirtualTrader software. These training services were first offered
in October 1998 following Registrant's own actual stock day-trading
test program in September 1998.
The marketplace for stock index trading software, day trading
software and related training services is also crowded and
intensely competitive. There is a wide variety of products
providing direct competition to the Registrant's software, and a
constant threat of new entrants into the market in all areas of the
financial software marketplace.
INTELLECTUAL PROPERTY RIGHTS
The Registrant's ability to compete effectively depends in part on
its ability to protect its core software technology. The
Registrant relies for such protection on a combination of: (1)
trade secrets; (2) technical complexity; (3) common law copyright
and trademark protection; (4) non-disclosure agreements; (5)
password protection; (6)software encryption schemes; and (7) the
physical security of its source code.
Despite these measures and precautions, it may be possible for
unauthorized third parties to copy the Registrant's products or
obtain and use its core
6
software. The Registrant has not to date attempted to obtain
copyright registration for any of its software products, though it
may do so in the future. There can be no assurance, however, that
such registration will be granted if applied for. Moreover,
certain aspects of the Registrant's software products are not
subject to intellectual property protection in law, and to the
extent such protection is available, its extent may differ from one
jurisdiction to another.
An application is in process in the United States for registration
of a VirtualTrader trademark. It should be noted, however, that the
initial response by the examiner of the application was to reject
the trademark as being merely descriptive. Nevertheless, Registrant
is currently proceeding with its application for registration, but
there can be no assurance the VirtualTrader trademark will be
allowed for registration in the US.
TRADING AND TESTING ACTIVITIES
Trading systems for stock indexes and currencies were installed in
April 1998, and a trading program has been carried out since that
time to prove the efficiency of Registrant's software technologies
under development.
In September 1998 the Registrant commenced testing online stock
day-trading activities over the internet as part of its planned
VirtualTrader training and trader development services program.
This trading has involved the use of in-house day-trader software
to trade high volume NASDAQ, AMEX and NYSE stocks in short-term
intra-day trading, based on methods developed and practiced in the
VT trading simulator. Such trading is considered high risk due to
market volatility, trade slippage problems, occasional internet
execution errors, normal random short-term price movements, and the
margin leverage involved. Trading risks are reduced in day-trading
by not holding open trading positions overnight and by using
standard stop loss management systems that limit losses on a trade
by trade basis to predetermined amounts. Trades typically last for
between one and four hours, with an exit from the process before or
at the end of the day.
A balance of $500,000 has been allocated out of existing working
capital as a reserve for the purposes of the Registrant's various
demonstration trading activities. Typically, 30% of the allocated
working capital is actually allocated to trading margin, the
balance is generally held as a reserve for ordinary course trading
draw-downs.
There is an ongoing risk of material losses from the demonstration
trading activities described above. While Registrant is
conservative in its trading practices and has established internal
risk management criteria to minimize trading losses, due to the
volatility associated with stock index, currency and stock day
trading activities, and the large draw-downs possible from such
trading, trading losses can and will occur in the ordinary course
of Registrant's trading activities.
7
BREAKDOWN OF TOTAL SALES AND COSTS TO DATE
The development costs for Registrant's Software and Systems through
October 31, 1998, consist of the following:
Capital Assets: $ 192,122
Product and Development Costs: $ 604,722
Operating Costs*: $ 901,180
Total: $1,689,024
*Deficit less total amortization as of October 31, 1998.
Registrant's total revenue from sales and operations during the
past three fiscal years by category of activity was as follows:
FYE 10/98
Software Sales & Licensing $ 52,613
Trading Activities* $ 600
Interest and other Income $ 77,058
Total $130,271
FYE 10/97
Software Sales & Licensing $ 36,040
Trading Activities* $ 56,761
Interest and Other Income $ 58,581
Total $151,382
FYE 10/96
Software Sales & Licensing $ 21,213
Trading Activities* <$ 57,934>
Interest and other Income $ 35,290
Total <$ 1,431>
*including Demonstration and Testing
All sales are to unaffiliated customers, and because of the limited
amount of revenue generating activities and immateriality no
breakdown has been made into geographic markets or as to
differences in contribution made by revenue to total operating
losses over the past three fiscal years.
STATUS OF NEW PRODUCTS OR SERVICES
Registrant is constantly refining and developing its software and
trading systems to maintain their integrity and marketability. As
a result there is and
8
will be an on-going research and development effort with associated
costs to the company. Registrant anticipates spending
approximately $200,000 over the next 18 months on such research and
development efforts. Moreover, new products are constantly being
investigated and sought within the general area of the current
products developed by Registrant. No new products, however, other
than those described herein have been formally announced to the
public.
RESEARCH AND DEVELOPMENT POLICY
Registrant's accounting policy on software development is to
capitalize Software and Systems Development and amortize that cost
over the expected useful life of the software. Research and
Development, on the other hand, is fully expensed in the year
incurred. Registrant distinguishes Software and Systems
Development from Research and Development in that Software and
Systems Development involves expenditures on the development of
software that creates an asset, the economic benefit of which is
expected to extend into several future periods.
As noted above, Registrant's policy is to maintain an ongoing
program of Software and Systems Development and Research and
Development in order to maintain the quality and competitiveness of
its products, services and trading efforts. The following are the
Registrant's best estimate of the total amounts spent by it on both
Systems and Software Development and Research and Development
during each of the past three fiscal years:
FYE 10/98 $202,200
FYE 10/97 $279,552
FYE 10/96 $137,371
DISTINCTIVE AND SPECIAL CHARACTERISTICS OF OPERATION
In the North American financial software industry it is a
regulatory requirement and practice, to which the Registrant
adheres, to make no representations that any user will or is likely
to achieve profits or suffer losses similar to those described in
any product literature or in any published historical trading
simulations, computer test results, or trading simulator software
practice sessions.
Registrant's sales procedures provide for the inclusion in product
license agreements, manuals and promotional literature of a
Disclosure Statement in the form prescribed by the United States
Commodities and Futures Trading Commission ("CFTC"). In addition,
Registrant's standard form of license agreement governing use of
its software and services, includes warnings as to the risk of
reliance on hypothetical trading results, and as to the risk of
trading losses. Terms of license and sale provide that nothing
contained in the Registrant's software products or related user
manuals, represents, or is intended to represent, the furnishing of
financial advice by the Registrant, its officers, agents or
employees. Users are warned that the pattern recognition software
and services merely provide educational, technical trading
information, neural
9
network indicator readings, and buy/sell signals for the decision
support of users who remain responsible for their own actions as
the result of use of the product or service, and that any use of
the products and services in the absence of acknowledgment of these
terms, is unauthorized.
The factors set-forth below, while not exhaustive, are believed to
be important in that they may have a material impact upon the
Registrant's future financial performance and could cause actual
results to differ materially from those expressed in any forward-
looking statement made by or on behalf of the Registrant. Note
that unpredictable or unknown factors, not discussed herein, could
also have a material adverse effects on Registrant's actual
financial and other results.
1. Short operating history and likelihood of continuing operating
losses. Registrant commenced operations in May 1994, and has, to
date, been largely engaged in product research and development and
establishing its new product development and marketing strategy.
Registrant's initial products and planned services are just
beginning to become available for market release and sale.
Registrant thus has a limited operating history and is expected to
continue to incur start up losses and negative cash flow in the
immediate future as these new products and services are completed
and marketed. Registrant's ability to succeed depends upon it
eventually achieving positive cash flow, failing which it may have
to seek additional financing, and there can be no assurance that
such additional financing will be available on acceptable terms, or
at all.
2. Early stage of development and no assurance of market acceptance
of the Registrant's new software products or services. Registrant's
existing and planned software products and the planned
VirtualTrader based training service are in an early stage of
development. Although a small level of sales have been effected
and there is an established market for such products and planned
services, there can be no assurance of market acceptance of
Registrant's products and services.
3. Dependence on the timely development and release of new software
products and services. Achievement of Registrant's objectives, and
its future operating results, are dependent upon completion of its
software marketing and new training service plans, and on the
success of such planned new software products and services. Timing
in this regard is crucial, as other similar products or services
that reach the market prior to Registrant's product may be able to
obtain and maintain business that would have otherwise gone to
Registrant. There can be no assurance that Registrant's timing and
business plan will be sufficiently successful to achieve sustained
profitability in its operations.
4. Dependence on key personnel. Registrant depends on its key
officers, including its founder and President, Michael Buchnanan
Paauwe, and its Vice President and Manager of Software Development,
Michael Gossland, and chief stock trader and trainer John Austin.
Although Registrant has key man life policies in place for Paauwe
and Gossland, loss of their ongoing services, would have a
materially adverse effect on future operating profits and
prospects.
10
5. Dependence on in-house direct sales and the lack of any existing
established indirect sales and distribution channels. The
Registrant plans to market its software and services through direct
sales efforts. The Registrant has recently appointed new marketing
and sales staff but does not presently have in-house staffing of
experienced sales and marketing personnel. There can be no
assurance that the Registrant will be able to attract and retain
the necessary personnel as and when required. The Registrant may
not be able to address all potential markets adequately, without
first establishing indirect distribution channels through
distributors and selling agents, and there can be no assurance that
it will be able to establish or maintain such channels cost
effectively.
6. Extensive competition and rapid technological change. The PC
based financial analysis and trading software and training markets
are intensely competitive and characterized by the frequent entry
of new competitors and introductions of new software programs,
features and technical innovations. Although Registrant's software
products are technically advanced and run under industry leading
Windows based technical charting and analysis programs, numerous
competitors are already established in this marketplace. The
Registrant will seek to establish its market position through the
sale of fully tested and high quality trading software, and by
making its trading solutions software and training services
available at reasonable cost to customers through its direct and
indirect marketing channels. However, there can be no assurance
that the Registrant will be successful in this effort, or, if
successful, that Registrant will have the resources to sustain any
early growth or market penetration it may achieve.
There is a large number of established financial trading and
trading software companies. Many are larger than Registrant, have
longer operating histories, more established track records, greater
name recognition, a larger installed base of customers, and greater
financial, technical, sales, marketing and other resources.
Moreover, if Registrant achieves significant success in penetrating
the financial trading software and training business, financially
stronger companies may seek to enter this market and compete for
market share.
The market for online trading of stocks and commodities, the
provision of financial market data, various financial software
products and related services accessible to PC users is changing
rapidly. The recent applications growth and emergence of the
Internet as a low cost source of worldwide financial market data,
subscriptions, trade execution and research services, is already
threatening the existence of established data and information
vendors, as well as full service brokers. This creates technical,
competitive and business trends, the outcomes of which are
uncertain.
7. Potential Trading Losses. Under its business plan, Registrant's
software will be used by Registrant to trade stocks, stock indexes,
futures contracts and international currencies. Due to the high
degree of market volatility for these trading items, as well as the
use of margin and leverage associated with such trading, there
exists the possibility of significant trading losses that could
have a materially adverse effect on Registrant's operating results
and financial condition.
11
8. Past software product performance is no assurance of future
performance. Any trading operation involving the use of leverage is
considered highly risky even when conducted by experienced
practitioners. The historic results of Registrant's simulated
trading performance are not as accurate and dependable a measure of
profitability as actual trading results, and past performance
cannot be guaranteed or necessarily assumed to continue in the
future. Potential investors must expect trading losses in actual
trading operations and potentially wide fluctuations in future
quarter to quarter financial performance.
9. Limited intellectual property protection and physical security.
Registrant depends on its ability to protect its core proprietary
software technology. In this regard, Registrant relies on such
protection by a combination of trade secrets, technical complexity,
common law copyright and trademark protection, non-disclosure
agreements, password protection and software encryption schemes,
and on the physical security of its source code. Despite these
measures and precautions, it may be possible for unauthorized
third parties to copy Registrant's products or obtain and use its
proprietary technology. To date, Registrant has not sought to
obtain copyright registration for any of its software products,
though it may do so in the future. There can be no assurance,
however, that such registration will be granted if applied for.
Also, certain aspects of the Registrant's software products are not
subject to intellectual property protection in law, and to the
extent such protection might be available, practical and legal
distinctions may apply in different jurisdictions. In addition,
there can be no assurance that competitors will not develop similar
technology, products and services, and if they do, this could
reduce the value of the Registrant's proprietary technology and its
ability to effectively compete.
10. Possible high degree of volatility in the future price of
Registrant's stock. Factors such as news announcements on technical
developments, innovations by the Registrant, its competitors or
third parties, industry developments in high-technology companies
in general, general stock market conditions, changes in interest
rates or general economic conditions, unexpected and extreme
general stock market price and volume fluctuations, or a lack of
liquidity, may individually or collectively have the effect of
causing substantial fluctuations in the traded price of the
Registrant's shares. Certain potentially large changes in the
trading price of its shares may be unrelated to the performance of
Registrant or its future prospects. In addition, investors in
Registrant's shares may lose their entire investment if Registrant
fails in its business.
12. Control by existing officers and directors. Registrant's
executive officers and directors currently own or control an
aggregate of 3,066,401 of the issued and outstanding shares of the
company which represents approximately 34.6% of the outstanding
shares as at December 31, 1998. As a result, these shareholders
will continue to be able to control the composition of Registrant's
board of directors and to have a significant influence over its
affairs. This concentration of ownership may have the effect of
delaying, deferring or preventing a future change of control of
Registrant. Under certain circumstances such a limitation may be
considered adverse to the interests of other shareholders.
12
13. Dependence on financial industry. Registrant is affected by
general economic and regulatory conditions affecting national and
international financial markets. A worldwide economic downturn may
have an adverse effect on Registrant's business, operating results
and/or financial condition.
14. Possible changes in derivatives market and the regulatory
environment. The Registrant's software provides pattern
recognition and market timing information related to stock indexes,
currencies and derivatives, including both futures and options.
Derivatives instruments have been involved in a number of well
publicized recent financial losses, including those involving
Barings Bank and Orange County, in California, and more recently,
Long Term Capital Management, among others. Such losses have led
to increased governmental scrutiny and potential new regulation of
hedge funds and derivatives markets generally. Any new regulatory
requirements affecting the sale or distribution of trading software
or related services may have the effect of imposing new and
unexpected costs on Registrant and this may affect future expenses
and operating results. There remains an ongoing risk of an adverse
impact of possible new governmental regulations on Registrant's
business.
15. Technological change. The financial trading software
marketplace is characterized by constant and rapid technological
change. There is no assurance that the Registrant will be able to
sustain the cost of the research and development efforts required
to continue to compete and keep pace with this technological
change. If Registrant cannot continue to compete on a technical
basis, this will likely have a materially adverse effect on its
operating results and financial condition.
16. Potential product liability claims. The Registrant does not
maintain product liability insurance against bugs or defects in the
general performance of its software products. In accordance with
standard industry practice, established by Omega Research Inc., the
software license agreements entered into on the sale or license of
its products provides that all these risks are borne solely and
entirely by the customer. There can be no assurance that such
provisions will protect the Registrant from all potential product
liability claims in all markets in which it may sell its products
or offer its services.
17. Strategic marketing dependence on expected future growth in key
industry suppliers. Registrant's software products, and its
strategic marketing and product development plans, depend to a
large extent on the continued existence of a serviceable installed
customer base of TradeStation and SuperCharts software products and
customers. If the market leadership now enjoyed by these products,
or their production and development were to change materially, or
technical support for them were to be discontinued or withdrawn,
that would have a material and adverse effect on Registrant's
operating results and financial condition.
18. Year 2000 potential negative business impact and risks. The
Year 2000 computer problem may have an adverse and unpredictable
affect on Registrant's operations due to its dependence on Omega
Research Inc.'s TradeStation product as the platform upon which its
main software products operate. While Omega
13
Research Inc. has disclosed plans and intentions to make its
TradeStation software fully Year 2000 compliant, and appears
technically and financially able to do so, to date compliance has
not been achieved in its main software product, TradeStation. If
Omega were to fail to make its main products Year 2000 compliant,
there would be a materially adverse impact on Registrants sales and
business operations that would likely result in increased losses.
In addition, Registrant depends on third-party financial data
vendors of various market exchanges to supply real-time data in
order to carry out its trading operations. To the extent that many
such data suppliers may be adversely affected by the Year 2000
compliance issue, this will also have the effect of limiting
Registrant's actual trading operations, and may adversely affect
its financial results.
ITEM 2. Description of Property
Registrant owns no real property or real property rights.
Registrant's principal business office is a rented facility located
at 201 Selby Street, Nanaimo, British Columbia, Canada V9R 2R2.
Due to the set-up of Registrant's operations many business
functions are undertaken from other confidential, remote locations
not owned by the company.
Registrant's proprietary financial trading software products and
technologies generally fall into five categories:
1. TradeStation based proprietary stock index trading systems and
software.
2. TradeStation based proprietary world currency trading systems
and software.
3. VirtualTrader product software written in Microsoft Visual Basic
4.0 and Omega's Easy Language software.
4. Proprietary software testing and trading system development
tools.
5. Internet web-site software for the Company's web-site.
ITEM 3. Legal Proceedings
Registrant is not currently a party to any material legal
proceedings; nor, to Registrant knowledge, are there any legal
proceeding pending or threatened of which Registrant would be a
party, or any of its property or assets are likely to be subject.
ITEM 4. Control of Registrant
As far as known to Registrant, and except as disclosed herein,
Registrant is not directly or indirectly owned or controlled by any
other corporation or by any foreign government.
The following table sets forth as of December 31, 1998 information
with respect to record ownership of (a) any person or company who
is known to Registrant to be the owner of more than 10% of any
class of the Registrant's voting securities, and (b) the total
amount of any class of the Registrant's voting securities owned by
the officers and directors as a group.
14
- -------------------------------------------------------------------
(1) (2) (3) (4)
Title or Identity of Person Amount Owned Percent
Class or Group
- -------------------------------------------------------------------
Common Shares TTN Escrow Capital Corp. 3,000,000 34%
without par value
Common Shares New Equities, Inc. 1,435,600 16.2%
without par value
Common Shares Directors and Officers 3,066,401 34.6%
without par value as a Group
As of the date hereof, there are no arrangements known to
Registrant, the operation of which may at a subsequent date result
in a change in control of the Registrant.
ITEM 5. Nature of Trading Market
Registrant's shares are listed and traded on the Vancouver Stock
Exchange in British Columbia, Canada. Registrant's shares are not
currently trading on any United States stock exchange nor on the
over-the-counter market, and, accordingly, there is currently no
public market for Registrant's common stock in the United States.
There can be no assurance that any such market will develop after
the effective date of this Registration Statement.
Trading in Registrant's shares commenced in Canada on July 24,
1996. The following table sets-forth the high and low sales prices
for Registrant's shares for the quarterly periods shown, expressed
in Canadian Dollars.
- -------------------------------------------------------------------
(1) (2) (3)
Year and Month High Low
- -------------------------------------------------------------------
August 1, 1998 - October 31, 1998 1.48 1.20
May 1, 1998 - July 31, 1998 1.55 1.41
February 1, 1998 - April 30, 1998 1.49 1.30
November 1, 1997 - January 31, 1998 1.44 1.25
August 1, 1997 - October 31, 1997 1.60 1.20
May 1, 1997 - July 31, 1997 1.35 1.05
February 1, 1997 - April 30, 1997 1.60 1.30
November 1, 1996 - January 31, 1997 1.85 1.43
As at December 31, 1998 there are 45,000 common shares representing
.5 % of Registrant's outstanding shares held of record by one
person residing in the United States. Registrant estimates that
there may be a total of four or five beneficial holders of its
common shares holding approximately 150,000 shares of its stock in
the United States, held in both registered and unregistered form.
15
ITEM 6. Exchange Controls and Other Limitations Affecting Security
Holders
Except as discussed in Item 7 as to taxes and withholding, the
Registrant is not aware of any Canadian federal or provincial laws,
decrees, or regulations that restrict the export or import of
capital, including foreign exchange controls, or that affect the
remittance of dividends, interest or other payments to non-resident
holders of Registrant's shares.
Registrant is not aware of any limitations on the right of non-
Canadian owners to hold or vote the common shares imposed by
Canadian federal or provincial law or by the Memorandum or Articles
of the Registrant.
The Investment Canada Act (the "Act") governs acquisitions of
Canadian businesses by non-Canadian persons or entities. The Act
provides, among other things, for a review of an investment in
certain Canadian businesses having in excess of $25 million in
gross assets.
The Act provides that a United States investor can hold up to 1/3
of the issued and outstanding capital of a Canadian corporation
without being deemed a "control person", and that a United States
investor holding greater than 1/3 but less than 1/2 of the issued
and outstanding capital of a Canadian corporation is deemed to be a
control person subject to a rebuttable presumption to the contrary
(i.e. providing evidence of another control or control group
holding a greater number of shares). If a United States investor
wishes to acquire "control" of a Canadian corporation, such
investor is required to obtain approval if the asset value of the
corporation is greater than $178 million Cdn. If the asset value of
the corporation at the time of the proposed acquisition is less
than $178 million Cdn., the investor wishing to acquire "control"
need only file a form indicating his or her intentions. The Act
also provides that if United States investors collectively hold
greater than 50% of the issued and outstanding shares of the
corporation, there is a rebuttable presumption that the
corporation's status has changed to that of an American
corporation. The effect of the change in status is that if the
control of the Registrant is deemed to be held by United States
investors, and if Registrant then wished to make investments of
greater than $178 million Cdn. in Canada, it would need
governmental approval.
Certain transactions involving Registrant's Common Shares would be
exempt from the Investment Canada Act, including: (a) an
acquisition of Common Shares made in connection with the person's
business as a trader or dealer in securities; (b) an acquisition of
control in connection with the realization of a security interest
granted for a loan or other financial assistance, and not for any
purpose related to the provisions of the Investment Canada Act; and
(c) an acquisition of control by reason of an amalgamation, merger,
consolidation or corporate reorganization, following which the
ultimate direct or indirect control in fact of the Company, through
the ownership of voting interests, remains unchanged.
Provisions of the Investment Canada Act are complex, and any non-
Canadian contemplating an investment to acquire control of
Registrant consult professional advisors as to whether and how the
Investment Canada Act might apply.
16
ITEM 7. Taxation
The following paragraphs set forth certain Canadian income tax
considerations in connection with the ownership of Registrant's
shares. These tax considerations are stated in general terms and
should not be considered to be a substitute for independent
professional advice on the subject of taxation of Canadian shares
by US stockholders. There may also be relevant state, or local tax
considerations which are not discussed here.
Registrant's management believes that the following general summary
fairly describes the principal federal income tax consequences
applicable to a holder of Registrant's common shares who is a
resident of the United States and who is not a resident of Canada
and who does not use or hold, and is not deemed to use or hold, his
common shares in connection with carrying on a business in Canada
(a "non-resident holder").
This summary is based upon the current provisions of the Income Tax
Act (Canada) (the 'ITA'), the regulations thereunder (the
"Regulations"), the current publicly announced administrative
assessing policies of Revenue Canada, Taxation, and all specific
proposals (the "Tax Proposals") to amend the ITA and Regulations
announced by the Minister of Finance (Canada) prior to the date
hereof. The description is not exhaustive of all possible Canadian
federal income tax consequences, and, except for the Tax Proposals,
does not take into account or anticipate any changes in law,
whether by legislative, governmental or judicial action, nor does
it take into account provincial or foreign tax consideration which
may differ significantly from those discussed herein.
DIVIDENDS
Dividends paid or credited on Registrant's shares to a non-resident
holder will be subject to withholding tax. The Canada-U.S. Income
Convention (1980) provides that the normal 25% withholding tax rate
is reduced to 15% on dividends paid or credited or deemed paid on
shares of a corporation resident in Canada (such as Registrant) to
a resident of the United States, and also provides, pursuant to a
recently ratified protocol, for a further reduction of this rate to
5% for dividends paid or credited on or after January 1, 1997 if
the beneficial owner of the dividends is a corporation which is a
resident of the United States and owns at least 10% of the voting
shares of the Company paying the dividend.
If a Non-Resident Security Holder carries on business in Canada
through a "permanent establishment" or performs independent
personal services from a fixed base in Canada, and the holding of
shares in respect of which the dividends are paid is effectively
connected with such permanent establishment or fixed base, the
limitations set out in the preceding paragraph will not apply.
Instead, the dividends will be taxed using the rates and rules of
taxation generally applicable to residents of Canada.
A "permanent establishment" of a Non-Resident Security Holder can
generally be described as a fixed place of business through which
the business of a resident is wholly or partly carried on.
17
CAPITAL GAINS
A non-resident of Canada is not subject to the tax under the ITA in
respect of a capital gain realized upon the disposition of a share
of a class that is listed on a prescribed stock exchange unless the
share represents "taxable Canadian property" to the holder thereof.
A common share of the Registrant will be taxable Canadian property
to a non-resident holder if, at any time during the period of five
years immediately preceding the disposition, the non-resident
holder, persons with whom the non-resident holder did not deal at
arm's length, or the non-resident holder together with persons with
whom he did not deal at arm's length, owned 25% or more of the
issued shares of any class or series of the Registrant.
Where a resident of the United States meets the 25% ownership tests
described above, the person's capital gains realized on the
disposition of Registrant's shares will be subject to Canadian
income tax if the value of Registrant's shares is principally
attributed to real estate, including the right to explore for or
exploit mineral deposits, sources and other natural resources.
Where a resident of the United States meets the 25% ownership test
but the Registrant fails the value of assets test, that person's
capital gains realized on the disposition of Registrant's shares
would be eligible for exemption under the Canada - U.S. Income Tax
Convention (1980) (the "Treaty") unless the U.S. resident had
resided in Canada at any time in the ten-year period immediately
preceding the disposition and was resident in Canada for 120 months
during any 20 year period preceding the disposition.
DEEMED DISPOSITION ON DEATH
Where a resident of the United States owns shares that are taxable
Canadian property as discussed above, that person will be liable
for Canadian income tax on his capital gains or losses accrued to
the date of death. Where the decreased transfers the property to
his or her spouse or a qualifying spouse trust, the deceased's
representative may be eligible to apply to defer the tax on the
accrued gain pursuant to the Treaty. Where the application is
accepted, the surviving spouse would pay tax on the capital gain
accrued to the subsequent date of death.
ITEM 8. Selected Financial Data
The following table summarizes certain selected financial
information of Registrant (stated in Canadian dollars) prepared in
accordance with Canadian generally accepted accounting principles
(Canadian GAAP). The table also summarizes certain corresponding
information prepared in accordance with United States generally
accepted accounting principles (US GAAP). The information in the
table was extracted from the more detailed financial statements for
the years ended October 31, 1995 to the nine months ended July 31,
1998 inclusive and related notes included therein, and should be
read in conjunction with such financial statements and with the
information appearing under the heading "Item 9 - Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
18
Reference is made to Note 9 of Registrant's October 31, 1997
financial statement included herewith for a discussion of the
material differences between Canadian GAAP and US GAAP, and their
effects on Registrant's financial statements. To date, Registrant
has not generated sufficient cash flow from operations to fund
ongoing operational requirements and cash commitments. The Company
has financed its operations principally through the sale of its
equity securities and its ability to continue operations is
dependent on the ability of Registrant to increase revenues from
operations or to obtain additional financing or a combination of
both. See "Item 9 - Management's Discussion and Analysis of
Financial Condition and Results of Operations."
SUMMARY OF FINANCIAL DATA
- -------------------------------------------------------------------
9 Months ended Fiscal Years ended October 31
July 31, 1998 1997 1996 1995
- -------------------------------------------------------------------
Revenue $ 97,739 $151,382 $56,503 $20,655
Expenses $344,415 $293,615 $291,805 $336,058
Net Loss $246,676 $142,233 $235,302 $315,403
Net Loss Per Share(1)
Canadian GAAP $(.03) $(.02) $(.03) $(.78)
US GAAP $(.04) $(.03) $(.05) $(.78)
Net Working $1,455,493 $1,672,725 $1,579,827 $902,720
Capital
Total Assets $1,846,256 $1,924,638 $1,776,793 $977,238
Long Term $NIL $NIL $NIL $NIL
Obligations
__________________________________________________________________
(1) Calculated based on the average weighted number of shares
outstanding on a non-diluted basis.
To date, Registrant has paid no dividends on its shares, and does
not anticipate doing so in the foreseeable future. The declaration
of dividends on Registrant's Common Shares is within the discretion
of Registrant's board of directors and will depend upon, among
other factors, earnings, capital requirements, and the operating
and financial condition of Registrant.
EXCHANGE RATES
As at December 31, 1998, the median bidding exchange rate of
Canadian dollars into United States dollars was $1.5375 Canadian to
$1.00 United States.
The following table sets forth, for the periods and dates
indicated, certain
information concerning exchange rates of United States and Canadian
dollars. All
the figures shown represent noon buying rates for cable transfers
in New York
City, certified for customs purposes by the Federal Reserve Bank of
New York. The average rate means the average of the exchange rates
on the last day of each month during a year. The source of this
data is the Federal Reserve Bulletin and Digest.
19
Period Period End Average High Low
- ------- ---------- ------- ------- -------
(CDN$/US$)
1994 1.4030 1.3699 1.4078 1.3103
1995 1.3655 1.3689 1.4238 1.3285
1996 1.3697 1.3644 1.3822 1.3310
1997 1.4288 1.3894 1.4398 1.3357
1998 1.5375 1.4892 1.5770 1.4075
ITEM 9. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion and analysis should be read in conjunction
with Registrant's consolidated financial statements and notes
thereto appearing under Item 17 - "Financial Statements".
Registrant's consolidated financial statements are prepared in
accordance with generally accepted accounting principles used in
Canada (Canadian GAAP). Material differences resulting from the
application of generally accepted accounting principles in the
United States (US GAAP) are described in Note 9 to the October 31,
1997 audited financial statements provided under Item 17. Unless
expressly stated otherwise, all references to dollar amounts in
this section are in Canadian dollars in accordance with Canadian
GAAP.
Note 9 to the October 31, 1997 financial statements of Registrant
included herein discusses some of the material differences between
Canadian GAAP and US GAAP, and their effect on Registrant's
financial statements. Generally, under US GAAP, the loss per share
is calculated on the basis that the weighted average number of
shares outstanding during the year excludes shares which are
subject to escrow restrictions, unless the conditions for issuance
are currently met or will be met by the mere passage of time.
Registrant has 3,000,000 escrow shares that are subject to release
on the basis of an earn out formula and not merely by the passage
of time and this has resulted in the calculation of a greater loss
per share under US GAAP than is the case under Canadian GAAP. The
resulting differences in the loss per share calculations are as set
forth in the table referred to above in Item 8 - " Selected
Financial Data ".
In addition, under US GAAP, the granting of stock options to
directors officers and employees may give rise to differences in
the charge to income for compensation. In the case of Registrant,
US GAAP results in an increase to compensation totaling $6,350, as
described more fully in Note 9 to the October 31, 1997 financial
statements of Registrant. This difference is also reflected in the
loss per share calculations as set-forth in the table referred to
above in Item 8 - " Selected Financial Data ".
OVERVIEW
Registrant is a financial software development and trading company
engaged in the development of proprietary software based financial
trading systems and technologies with the aim of developing such
proprietary software technologies to a stage where they can be
exploited at a profit. Existing software products
20
have been test marketed up to the present stage of development and
are also being used internally in Registrant's own operations with
the objective of eventually establishing consistent revenues from
profitable trading operations, software sales and related training
service revenues. The recent 1998 application of Registrant's
VirtualTrader software to stock day-trading and the potential to
apply this technology in a growing internet based electronic
trading environment is the main focus of Registrant's current
development efforts and marketing plans. Management believes that
its existing trading systems and software technologies can be
profitably exploited with a sustained marketing and sales effort
and by the formation of appropriate strategic business alliances
and software license agreements with established firms.
Prior to the current fiscal year and during 1998, Registrant's
operations have been primarily directed at developing trading
systems software with the VT software product, related market
testing and introductory sales, in addition to establishing
Registrant's online trading systems in late April 1998.
A new full-time Manager of Marketing and Sales was hired in
December 1998 following Titan's November 1998 public announcement
of the signing of a letter of intent to form a trading group for
stock day-trading with a registered Vancouver based brokerage,
Wolverton Securities Ltd.
RESULTS OF OPERATIONS
Stock index and currencies trading revenues have started to be more
consistent since formally establishing the online trading systems
in late April 1998, although they remain small, based on limited
trading activity, with only a few contracts being traded per
signal. Trading income by its nature remains subject to periodic
draw-down on a quarter by quarter basis in the ordinary course of
Registrant's trading business. However, the overall net trading
results since May 1, 1998 are positive and are expected to reduce
overall losses in operations in the current fiscal period and
contribute to profitability in future.
As Registrant's marketing strategy of using VT software to train
stock day-traders and establish revenues from training to
supplement license fees, only started with the first clients in
October 1998, there are no reportable results of these efforts.
However, management believes these activities will enhance VT
software sales and increase overall company revenues.
In the period August 1, 1998 to October 31, 1998, Registrant
completed development and software testing of its application of
the VT software to day-trading quality high volume US big board
stocks. The testing consisted of completing hundreds of simulated
day-trades inside Registrant's VT software, as well as executing
approximately 150 test day-trades over the internet with a US
discount brokerage firm. During this same period, Registrant
trained two traders with Wolverton Securities Ltd. using the VT
software and technical trading methods developed by Registrant.
Initial trading results on the first actual trades executed by
Wolverton following the training have exceeded expectations,
indicating a potential for profitability in a scaled-up trading
operation. Plans are now underway to expand the training program
to additional traders and to finalize business terms of the joint
venture stock day-trading
21
operation between Registrant and Wolverton. The expected formal
start date of this joint venture trading operation is sometime in
the first calendar quarter of 1999.
A positive independent product review of the VT software was
published in the September 1998 issue of Technical Analysis of
Stocks and Commodities magazine. This increased exposure for the
product in the US market and internationally has initially produced
a more effective response rate than direct mail campaigns to date.
This indicates that greater coverage in the form of third-party
publicity will be needed to improve VT software sales in future.
As a result of Registrant's limited sales and trading activity,
only recently begun, inflation and changing prices have not had a
material effect on the Registrant's net sales, revenues and income
from continuing operations.
Nine months Ended July 31, 1998 compared to FYE October 31, 1997
At the end of this last nine month reporting period Registrant had
cash balances of $1,504,057 and net working capital of $1,455,493,
compared to cash balances of $1,667,530 and net working capital of
$1,672,725 at October 31, 1997. Total assets dropped to $1,846,256
from $1,924,638 at October 31, 1997. This reflects a net loss in
operations for the nine period ended July 31, 1998 of $246,676
compared to a net loss of $142,233 in the year ended October 31,
1997. The increased loss over the same period last year is the
result of increased expenditures in a number of expense categories,
including increased outlays for salaries, directors' fees,
management fees, marketing and promotion expenses, and investor
relations expenses.
Pay scales of a key employee were increased and management fees
expense and software and systems development costs increased as the
result of re-negotiated base monthly contract rates effective
January 1, 1998 ( see "Related Party Transactions"). First time
management bonuses of $20,000 were paid to each of Gossland and
Paauwe and directors fees of $5000 were paid to outside directors.
Marketing and general corporate promotions expenses rose compared
to prior periods due to efforts to increase corporate business
exposure in the US and Europe. Payments averaging approximately
US$8000 per month since December 1997 covering marketing promotions
expenses were made to an independent contractor who is an associate
of one of the directors. This covered general corporate promotion,
initial marketing efforts and customer and shareholder liaison
expenses in connection with the promotion and licensing of the WCT
systems in London England, negotiations on promotions with public
relations firms in Europe, discussions and negotiations with US
market makers for sponsorship on a US bulletin board listing for
Registrant, promotion to offshore investment groups of the WCT
systems, presentations of Registrant's technology to Canadian
banks, Canadian brokerages and high net-worth investors,
negotiations on product reseller arrangements with US firms,
evaluation, monitoring and reporting on the growth of new online
trading and the impact on VT development, and ongoing monthly
market research and reporting.
During this period Registrant licensed its WCT trading software for
a period of twelve months to an international money manager based
in London. This resulted
22
in the securing of an independent testimonial as to the
profitability of the WCT software when applied to currency hedging
in international stock portfolio management following use by this
client. This testimonial will form the basis for future European
software marketing efforts in the current and future fiscal
periods.
The cash loss in operations for the period was $189,939 compared to
$57,936 in the fiscal year ended October 31, 1997. Expenditures on
software and systems development during the period were $158,543.
This compares to expenditures of $146,134 in the fiscal year ended
October 31, 1997. These expenditures on software and systems
development were primarily the result of developing the stock day-
trading simulations capability of the VT software and the costs of
solving related market data conversion problems necessary to
facilitate that application.
The main development project on the VT stock day-trading software
application neared completion during this period. Trading income
improved over prior period testing results because the position
trading systems went formally online in April of 1998. Trading
gains in this quarter of $45,872 offset prior quarter demonstration
and testing expenses. Actual trading operations have started to
contribute to operations and are expected to be scaled-up further
in future periods. In sum, the better contribution to operations
from trading during this period is the result of having
substantially completed trading system development of the stock
index trading systems effective in April 1998.
Cash balances were substantially maintained as the result of the
exercise of $131,250 in broker warrants during the quarter ending
April 1998. This contributed funds to increase expenditures on
travel, promotion and investor relations. Travel, marketing and
promotion expenditures increased as the result of efforts to
promote Registrant's software and systems technology to new
potential US Canadian and European institutional clients.
A first stage direct mail campaign on the VT software product was
initiated during the second quarter with limited results.
Management believes it will take at least another two quarters of
marketing activities before it can properly assess the
effectiveness of advertising and marketing programs on sales of the
VirtualTrader software.
The focus of further applications and software development work on
the VirtualTrader recently shifted to electronic, high volume
NASDAQ and NYSE stock day-trading applications. Development of this
new application resulted in unplanned delays, extra software
testing and larger development expenditures in the most recent
fiscal year.
Applications work neared completion during the final quarter ending
October 1998, and as noted above, actual online system testing
started in September 1998. Management believes that if
profitability in this internet based electronic stock trading
application of VT can be established in actual stock day trading
operations, the market for the VT product will rise materially in
the future.
23
FYE October 31, 1997 compared to FYE October 31, 1996
As of October 31, 1997 total assets were $1,924,638, up from total
assets of $1,776,793 as of October 31, 1996. Registrant had cash
balances of $1,667,530 and net working capital of $1,672,725
compared to cash balances of $1,590,589 and net working capital of
$1,579,827 as of October 31, 1996. This reflects a net loss in
operations for the period of $142,233 compared to a net loss of
$235,302 for the fiscal year ended October 31, 1996. Share capital
issuance during the period totaled $302,400 as the result of a
private placement that was completed in December 1996. The cash
loss in operations for the period was $57,936 compared to $198,074
in the fiscal year ended October 31, 1996. Expenditures on software
and systems development during the period were $146,134. This
compares to expenditures of $129,935 in the year ended October 31,
1996. There was a small contribution during fiscal year end 1997 of
$56,761 from demonstration trading gains, as compared to a loss of
$57,934 the previous year. This was mainly the result of reduced
R&D type test trading that often resulted in losses. Ordinary
course trading draw-downs experienced in the early part of the 1997
fiscal year caused by stock index trading losses were offset by
gains realized later in the year from more profitable currency
trades, largely the result of swings in the price of world
currencies relative to the US dollar.
A milestone in software development was achieved during the 1997
fiscal year with the completion of the first commercial version of
the VirtualTrader advanced trading simulator. Registrant remained
in an early stage of product and system development and market
testing during this period. The development stage continued as the
focus of our resources shifted to exploitation of the VT technology
for in-house trading operations work.
The loss for the fiscal period ended October 31, 1997 was $142,233
or $.02 per share. This compares to a loss of $235,302 or $.03 per
share in the year ended October 31, 1996. See Note 9 in the notes
to the financial statements for a reconciliation of Canadian GAAP
to US GAAP.
Fifty Nine percent (59%) of the operating loss for FYE 1997 was
from amortization expense, which is a non-cash outlay. This
includes the normal write-off of software and systems development
costs, as well as the normal depreciation of computer systems and
office equipment, details of which are disclosed in the notes to
the financial statements provided herewith.
FYE October 31, 1996 compared to FYE October 31, 1995
As of October 31, 1996 total assets were $1,776,793, up from total
assets of $977,238 as of October 31, 1995. Registrant had cash
balances of $1,590,589 and net working capital of $1,579,827,
compared to cash balances of $873,552 and net working capital of
$902,720 as of October 31, 1995. This reflects a net loss in
operations for the period of $235,302 compared to a net loss of
$315,403 in the fiscal year ended October 31, 1995. Share
subscriptions received and Share capital issuance during the period
totaled $1,165,500 as the result of an initial public offering that
was completed in July 1996. Share issue costs associated with the
initial public offering totaled $141,089. The cash loss in
24
operations for the period was $198,074 compared to $304,299 in the
year ended October 31, 1995. Expenditures on software and systems
development during the period were $129,935.
During this period, Registrant's operations were generally in a
full-time R&D mode. It completed development of an initial version
of its real-time, online intra-day pattern recognition based stock
index trading system, as part of its stock index trader series
software ("SIT") development, and produced the first demo software
versions of this product.
A number of fees connected with the filing of Registrant's
preliminary prospectus for its initial public offering in British
Columbia and Alberta were incurred, along with increased marketing
related expenses incurred as a result of the appointment of a
manager of sales and marketing and the creation of a new product
market testing program.
During the two month period from April 1 to May 31, 1996,
Registrant continued with its program of market and product testing
and completed development of a prototype of an advanced software
based trading simulator in connection with the stock index series,
Neural Tape Reader research and development. A substantial amount
of management time and effort was also taken up with matters
related to the filing of the Prospectus and initial public offering
during this period.
Net working capital and deferred share issue costs on May 31, 1996,
prior to the July 1996 initial public offering, amounted to
approximately $800,000.
In August 1996, regulatory rules in the United States were changed
by the Commodities Futures Trading Commission ("CFTC") relating to
the sale of commodities, futures and options trading systems. New
regulatory enforcement measures were undertaken by the CFTC at that
time. Legal proceedings were commenced in the US against certain
unregistered and allegedly unscrupulous vendors of such trading
systems. As a result of these actions and the related adverse
publicity, customer demand dropped immediately, and the market
environment quickly became uncertain. Demand from prospective
purchasers dropped and as the result of the negative impact on the
software market for any kind of trading systems, Registrant
cancelled plans to market its SIT series software, incorporating it
instead as a component of the VT software development. This action
had the effect of reducing expected software sales revenues in the
short run until the development of the new VT simulator training
software could be completed.
FYE ended October 31, 1995 Compared to FYE October 31, 1994
Total assets as of October 31, 1995 amounted to $977,238, with cash
and cash equivalents of $873,552 and net working capital of
$902,720.
During the fiscal year ended October 31, 1995, Registrant engaged
in a full-time program of software research and development
activities, making expenditures of $39,786 on equipment and
intellectual property rights and $161,442 on software research and
development. General and administrative costs for the year ended
October 31, 1995 totaled $129,364; $34,160 was spent on management
fees and $30,000 on marketing consulting fees. The marketing
consulting fees were paid
25
to an associate of a director over a 10 month period ended October
31, 1995, to complete a preliminary assessment of the institutional
and private trader market segments, as well as analyze information
technology developments and trends in the financial industry. A
total of $96,600 was paid to Michael Paauwe and Michael Gossland
during this period pursuant to service contracts, including
management fees of $32,600, research and development expenses of
$57,500, rental expenses of $4,200 and office costs of $2,300.
Registrant completed initial development of a portfolio of
international currency trading models - the WCT series software,
and also developed proprietary standalone software to install AI
based neural network financial pattern recognition indicators and
systems into TradeStation and SuperCharts. Development work
continued on AI based financial pattern recognition applications on
stock indexes, including development of a new and more accurate
neural network for end-of-day trend indication on the S&P 500 stock
index, as part of the SIT series software under development.
Share capital issuance of common shares during the period resulted
in net proceeds of $1,168,900. Commencing in August 1995, after
Registrant had completed development of its initial test
advertising and marketing concept and the development of a
trademark and logo design, it began a three month test marketing
program of its first software product, an international currency
trading program, at a cost of $29,000. Six hundred sales leads were
generated from several countries in response to the test marketing
program, indicating far more interest in Europe than in North
America for the WCT system.
Initial market test versions of the product were shipped in
September. A full time marketing and sales manager commenced
employment in November to start the process of implementing
Registrant's marketing and sales programs.
Five Month Initial Operating Period ended October 31, 1994
Registrant's founder, Michael Paauwe, commenced operations on
behalf of Registrant in May 1994. In the period from May 1994 to
October 31, 1994, Registrant was engaged in the initial formulation
of its capital structure, technical and product development plans
and initial business strategy. It acquired computer and office
equipment for $27,103 and incurred $43,376 in software and systems
research and development expenditures. Total expenses during this
period amounted to $75,058. This included $40,000 in fees paid to
Michael Paauwe and Michael Gossland as independent contractors for
management and research and development services.
LIQUIDITY AND CAPITAL RESOURCES
At the end of this last nine month reporting period Registrant had
cash balances of $1,504,057 and net working capital of $1,455,493,
compared to cash balances of $1,667,530 and net working capital of
$1,672,725 as of October 31, 1997. Total assets dropped to
$1,846,256 from $1,924,638 at October 31, 1997. By reference to the
working capital resources and liquidity risks outlined above,
management believes Registrant has sufficient current liquidity
working capital resources to sustain the operations in accordance
with its present business plans for several additional quarters
without requiring additional financing.
26
As Registrant does not as yet have general earnings from its
operations and does not currently have an existing credit facility,
Registrant's liquidity in the future depends on its ability to
either generate such earnings in the future, access the capital
markets or enter into joint venture agreements. The ability of
Registrant to access the capital markets or to enlist new joint
venture partners is determined in part by the success or failure of
its current and prospective sales and trading operations. No
specific arrangements or agreements have been made for any such
financing at this time.
Registrant does not know of any other trends, demands, commitments,
events or uncertainties that will result in, or that are reasonably
likely to result in, Registrant's liquidity either materially
increasing or decreasing at present or in the foreseeable future.
Registrant has not entered into any material commitments for
capital expenditures as of the end of the latest fiscal year end or
the subsequent interim period to the date of this filing, and does
not anticipate any significant capital purchases other than
discussed above.
Registrant is not aware of any material trends, favorable or
unfavorable, in its capital resources other than as discussed
herein, and does not anticipate any material changes in the mix of
the relative costs of such resources.
ITEM 10 Directors and Officers of Registrant
The following table sets forth, as of December 31, 1998, the names
of the directors and executive officers of the Company, the offices
held by them, and their terms of office as a director or officer.
Directors are elected by the shareholders for one year terms and
until their successors have been duly elected, and officers are
appointed by and serve at the pleasure of the Board of Directors.
Paul Shatzko is Robert Shatzko's father, and trader Joe Shatzko is
Paul Shatzko's son and Robert Shatzko's brother. There are no
other family relationships between any director or executive
officer and any other director or executive officer.
- -------------------------------------------------------------------
Name and municipality Position with Registrant Commencement of
of residence Service
- -------------------------------------------------------------------
Michael B. Paauwe President & Director May 1, 1994
Nanaimo, British
Columbia
Michael Gossland Vice President, Secretary, September 1, 1994
Nanaimo, British Manager of Software Dev.
Columbia & Director
Paul Shatzko Director December 1, 1994
West Vancouver,
British Columbia
27
Robert Shatzko Director April 15, 1996
San Mateo, CA
Jennifer Gee Chief Financial Officer December 1, 1994
Nanaimo, British
Columbia
Michael B. Paauwe, the founder, President and a director of
Registrant, graduated in 1974 with an honors Diploma of Technology
in Financial Management (Finance) from the British Columbia
Institute of Technology, receiving the BCIT Alumni Silver Medal for
Finance, and the Dow Jones and Company - Wall Street Journal Silver
Medal for Security Analysis. After a further course of studies, and
a period of training as a tax accountant with Revenue Canada
Taxation, Mr. Paauwe was employed as a tax auditor with the British
Columbia Ministry of Finance from November 1975 to December 1983.
Mr. Paauwe received a professional designation as a Certified
General Accountant in British Columbia in 1980, retiring his
membership in May of 1998.
Through his management and financial consulting firm, Michael B.
Paauwe and Associates (a sole Proprietorship), Mr. Paauwe provides
management, trading research and product development services to
Registrant under a contract services agreement. Mr. Paauwe devotes
the majority of his time to the business and affairs of the
Registrant.
Michael Gossland, M. Sc., P. Eng., is the Vice President,
Secretary, a Director, and the Manager of Software Development of
Registrant. Mr. Gossland has provided full time services under
contract to Titan since September 1, 1994. In 1976, he was awarded
the Harrington Prize for academic excellence in physics, and he
received his M.Sc. degree from the University of Saskatchewan in
1978. In 1979, he obtained his designation as a Professional
Engineer - Electrical Branch (Association of Professional Engineers
of Ontario) and from 1986 to 1991 he was Software Project Manager
for Sciex, a division of MDS Health Group Inc., of Toronto.
Since September, 1994, through Michael Gossland and Associates (a
sole proprietorship), Mr. Gossland has been providing engineering
and software development services to Titan under a contract
services agreement. Mr. Gossland devotes the majority of his time
to the business and affairs of the Registrant.
Paul Shatzko, M.D. a radiologist who formerly practiced in North
and West Vancouver, British Columbia, is a director of the
Registrant. Since 1988 Dr. Shatzko has been the President of
Mountain Province Mining Inc.("MPV"), which in March 1995 made a
major diamond pipe discovery in the North West Territories. Dr.
Shatzko has held this position on a full time basis since August,
1995. Prior to that, he devoted part of his time to the office of
President of MPV, and in addition practiced his profession as a
radiologist.
Dr. Shatzko has been involved over a number of years as a director
or officer of several publicly traded companies, and devotes such
time to the affairs of the Registrant as is necessary to perform
his functions as a director.
28
Robert Shatzko, a member of the California State Bar and a trial
lawyer, is a director of the Registrant. Mr. Shatzko obtained a
bachelor of arts degree with honors in political science from
Loyola Marymount University in Los Angeles, California in 1986, and
the degree of Juris Doctor from the McGeorge School of Law of the
University of The Pacific in Sacramento, California, in 1992. He
practices as a trial attorney with the law firm of Clapp, Moroney,
Bellagamba, Davis & Vucinich in Menlo Park, California. Mr. Shatzko
devotes such time to the affairs of the Registrant as is necessary
to perform his functions as a director.
Jennifer Gee, Titan's Chief Financial Officer, is an independent
business and marketing consultant in Nanaimo, British Columbia.
From 1984 until May 1994, Ms. Gee was the financial controller for
TNT. She has worked for Titan in a similar capacity on a part time
basis since June 1994, and will continue to do so until such time
as the Registrant's requirements necessitate the appointment of a
full-time Chief Financial Officer.
ITEM 11. Compensation of Directors and Officers
During the nine months ended July 31, 1998 and the fiscal year
ended October 31, 1997, the following executive officers received
compensation from Registrant for management, marketing,
engineering, research and development, and consulting services.
See Item 13 - "Interest of Management In Certain Transactions". The
compensation amounts identified below are reported in Canadian
dollars.
- -------------------------------------------------------------------
Name and Position 9 Months ending July 1998 FYE
October 1997
- -------------------------------------------------------------------
Michael B. Paauwe, $85,667 $72,000
President
Michael Gossland,
vice president, secretary, $82,750 $72,000
manager of software
development
Jennifer Gee $6,526 $7,387
chief financial officer
Total Compensation $174,943 $151,387
to all Directors &
Officers
Registrant compensates directors who are not also officers of the
company ("Outside Directors") $2,500 per year for serving on the
board. Consequently, Outside Directors Robert and Paul Shatzko
received payment of $2,500 each, in each of the last two fiscal
years.
Registrant does not compensate directors who are also officers of
the company for acting as directors, and Registrant has not set-up
or paid out on any pension, retirement or similar plans for
directors or officers.
29
ITEM 12. Options to Purchase Securities from Registrant and
Subsidiaries
OPTIONS
Certain of the directors and officers, as well as employees who are
not directors or officers of Registrant, have been granted
incentive stock options to purchase Common Shares of Registrant at
various prices. As of December 1, 1998 the following total number
of Company stock options are outstanding:
- -------------------------------------------------------------------
Holders Number of Shares Exercise Price Expiration Date
- -------------------------------------------------------------------
Directors and 785,000 $0.90 July 2001
officers as a group Common Shares
Employees who are 75,000 $0.90 July 2001
not directors or Common Shares
officers
WARRANTS
There are no outstanding warrants to purchase Registrant's common
shares as of October 28, 1998; nor were any outstanding at the end
of the last reporting period on July 31, 1998.
ITEM 13. Interest of Management in Certain Transactions
MATERIAL TRANSACTIONS
From May 1994 to October 31, 1995, through his independent
management and financial consulting firm, Michael B. Paauwe and
Associates (a sole proprietorship), Mr. Paauwe (the President and a
director) provided corporate and financial management, trading
systems research and product development contract services to
Registrant under an oral arrangement, pursuant to which he received
a monthly fee of $5,000 until December 31, 1994, and of $6,000
thereafter, plus reimbursement of expenses. On November 1, 1995
the terms of the arrangement were reduced to writing, and have
continue since that time to the present.
From September 1994 to October 31, 1995, through his independent
software design and engineering consulting firm, Michael Gossland
and Associates, Mr. Gossland (an officer and director) provided
software engineering and development contract services to
Registrant under an oral arrangement, pursuant to which he received
a monthly fee of $5,000 until December 31, 1994, and of $6,000
thereafter, plus reimbursement of expenses. Effective November 1,
1995 the terms of the arrangement were reduced to writing, and have
continue since that time to the present.
Except for the description of the services to be performed
thereunder, the written agreements between Registrant and Paauwe
and the Registrant and Gossland (the "Services Agreements") contain
identical provisions. Each has an initial term of three years,
subject to renewal for further terms of two years, at a
30
monthly fee to be agreed from time to time (the "Fee"), but not
less than $6,000, plus reimbursement of expenses. Each of the
Agreements also provides for the payment of an annual bonus (the
"Bonus") of $4,500. Registrant may terminate these Services
Agreements at any time on 30 days written notice. If it terminates
otherwise than for a material and substantial failure to perform
the agreed services by Paauwe or Gossland, as the case may be, the
Services Agreements provide for payment of a lump sum equal to 12
times the Fee then in effect plus any unpaid Bonus (the "Lump Sum")
if terminated during the initial term, and an amount to be
negotiated, but not less than the Lump Sum, if terminated
thereafter. The latter provision applies as well to a failure by
Registrant to renew the Services Agreement. If terminated for a
material and substantial breach of their obligations, Paauwe and
Gossland, as the case may be, have a 30 day period in which to cure
the breach. The Services Agreements may be terminated by Paauwe
and Gossland, as the case may be, on 120 days written notice to the
Registrant. The Services Agreements also contain confidentiality
provisions, and provisions for the arbitration of disputes.
Pursuant to an agreement dated September 15, 1995 (the "Gossland
Agreement"), Michael Gossland (officer and director) assigned to
Registrant all of his right, title and interest in all software
copyrights, product trademarks and related assets in respect of
NeuralEdge and Neural$. The assets assigned, which included the
object and source codes, were acquired pursuant to an agreement
dated July 28, 1995 with Teranet IA Incorporated and were
subsequently assigned to Registrant at Mr. Gossland's cost of
$20,000, of which $10,000 represented an advance royalty payment in
respect of sales of the DOS-based version of NeuralEdge and
Neural$, and certain components thereof. In view of Titan's
decision not to proceed with the marketing of the DOS-based version
of these products, there is no future royalty obligation payable by
Registrant pursuant to the Gossland Agreement.
In June 1994, Registrant acquired certain computer equipment, and
in September 1994 it acquired certain software assets and related
products from Michael B. Paauwe (President and director), at his
depreciated cost of $2,400 and $3,500, respectively.
Registrant rents certain office space from a Mr. Paauwe's spouse at
a monthly rental of $350 and from Mr. Gossland at a monthly rental
of $250. The aggregate rents paid during FYE October 31, 1995 were
$4,200 and $3,000 respectively. These rental agreements continue to
the present time at the same monthly rental amount.
In addition, during the fiscal year ended October 31, 1995,
Registrant paid $30,000 to an associate of Paul Shatzko (a
director) for marketing consulting services under an arrangement
which is no longer in effect. The consulting services were rendered
over a 10-month period which ended in October 1995. The services
included a preliminary market assessment of the institutional
segment of the market, assessment of the competition in the private
trader segment of the market, and analysis of financial industry
information technology trends related to Registrant's business
plan.
In 1998 the, Services Agreements for Michael Gossland and Michael
Paauwe were both re-negotiated with the board of directors of
Registrant and amended
31
agreements were entered into effective January 1, 1998. The amended
agreements provide for monthly compensation of $7,667 per month for
Paauwe, and $7,250 per month for Gossland, up from $6000 each. In
addition, both Paauwe and Gossland were paid a one time bonus
payment of $20,000 each. In all other respects, the Services
Agreements remain the same as disclosed above.
The Services Agreements were automatically renewed on November 1,
1998 and now have renewable two year terms effective from that
date, in accordance with the terms of the original agreements
described above.
During the nine months ended July 31, 1998 Registrant paid
US$70,000 to an associate of Paul Shatzko (a director) for
marketing consulting and promotion services rendered during that
period and US$30,000 for the period August 1, 1998 to December 31,
1998. The services involved marketing and promotions activities,
including: (1) initial marketing efforts; (2) customer and
shareholder liaison services in connection with the promotion and
licensing of the WCT systems in London England; (3) negotiations on
promotions with public relations firms in Europe and the US; (4)
meetings, discussions and negotiations with potential US market
makers for sponsorship on a US bulletin board; (5) promotion to
offshore investment groups; (6) presentations to Canadian banks,
Canadian brokerages and high net worth investors; (7) negotiations
on product reseller arrangements with US firms; (8) evaluation and
reporting on the growth of new online trading and its impact on VT
development; and (9) ongoing monthly market research and reporting.
In addition, certain officers and directors have an interest in the
stock options as more particularly described above.
INDEBTEDNESS OF DIRECTORS AND OFFICERS AND THEIR ASSOCIATES
During the last three years, there has been no recorded
indebtedness of any of the directors or officers, or any associates
of the directors or officers, to the Registrant.
PART II
ITEM 14. Description of Securities to be Registered
The class of capital stock of Registrant being registered hereby is
the Registrant's common shares.
The issued and outstanding share capital of the Registrant is
summarized as follows:
The authorized capital of Registrant consists of 100,000,000 common
shares without par value. As of October 28, 1998, 8,857,001 common
shares were issued and outstanding. If all outstanding options to
purchase common shares were exercised, the issued common share
capital of Registrant would be 9,687,001 shares. The holders of the
common shares are entitled to vote at all meetings of shareholders,
to receive dividends if, as and when declared by the directors,
32
and to participate ratably in any distribution of property or
assets on the liquidation, winding up or other dissolution of
Registrant. The common shares have no pre-emptive or conversion
rights. Registrant may, by way of a resolution of the Directors
and in compliance with The Company Act, purchase any of its shares
at the price and upon the terms specified in such resolution. No
such purchase shall be made if Registrant is insolvent at the time
of the proposed purchase or if the proposed purchase would render
Registrant insolvent. Unless otherwise permitted under The Company
Act, Registrant must make its offer to purchase such shares pro
rata to every shareholder who holds shares of the class or kind, as
the case may be, to be purchased. The common shares are non-
assessable, and not subject to further calls by Registrant.
A total of 3,000,000 common shares ("Escrow Shares") are held in
escrow by the Montreal Trust Company of Canada ("Montreal Trust"),
510 Burrard Street, Vancouver, British Columbia, V6C 3B9, pursuant
to an escrow agreement (the "Escrow Agreement") dated January 5,
1996 by and between Registrant, Montreal Trust, and TTN Escrow
Capital Corp., a private British Columbia company the outstanding
voting shares of which are held 66.67% by Michael Buchanan Paauwe
and 33.33% by Michael Gossland. The Escrow Shares were purchased
for cash at a price of $0.01 per share. They represent
approximately 33.87 % of the issued and outstanding common shares.
The Escrow Shares are subject to the direction or determination of
the Vancouver Stock Exchange. The Escrow Agreement provides that
the Escrow Shares may not be traded in, dealt with or released
without the consent of the Vancouver Stock Exchange. Any Escrow
Shares not released from escrow by June 21, 2006 will be cancelled
at that time.
Release of Escrow Shares from escrow will take place in accordance
with a formula prescribed by Policy 3-07 of the British Columbia
Securities Commission ("Policy 3-07"), applied to Registrant's
cumulative cash flow from operations as disclosed in its audited
financial statements from time to time. In short, Policy 3-07
requires that Registrant first achieve cumulative cash flow per
share of $0.46 or an aggregate cumulative cash flow of $1,380,000
before the Escrow Shares can be released. For these purposes, "cash
flow" means net income or loss before tax, adjusted to add back
depreciation, amortization of goodwill and deferred research and
development costs (excluding general and administrative costs) and
any other amounts permitted or required by the Vancouver Stock
Exchange. "Cumulative cash flow" at any time means the aggregate
cash flow in the period from September 1, 1995 to that time, net of
any negative cash flow.
The holder of the Escrow Shares has agreed for so long as they
remain in escrow to waive its rights: (i) to vote on a resolution
to cancel any of them; (ii) to receive dividends, and (iii) to
participate in the assets and property of Registrant on a winding
up or dissolution.
33
PART III
ITEM 15. Defaults upon Senior Securities
Registrant has not defaulted on any payment with respect to any
indebtedness.
ITEM 16. Changes in Securities, Changes in Security for Registered
Securities and Use of the Proceeds
There have been no changes made to the rights of the holders of
Registrant's securities.
PART IV
ITEM 17. Financial statements
The financial statements of Registrant have been prepared on the
basis of Canadian generally accepted accounting principles.
Differences between Canadian and U.S. generally accepted accounting
principles are set out in Note 9 to the audited financial
statements dated October 31, 1997.
See "Item 19. Financial Statements and Exhibits" for a list of
Registrant's Financial Statements that follow.
ITEM 18. Financial Statements
Inapplicable
Item 19. Financial Statements and Exhibits
INDEX
1. FINANCIAL STATEMENTS
(a) Interim un-audited management prepared financial
statements for the nine months ending July 31,1998, including:
- Consolidated Interim Balance Sheet
- Consolidated Interim Statement of Operations and Deficit
- Consolidated Interim Statement of Changes in Financial
Position
- Supplemental Information
(b) Audited Financial Statements of the Registrant as of
October 31, 1997, including:
- Auditors Report
- Consolidated Balance Sheet
- Consolidated Statement of Operations and Deficit
- Consolidated Statement of Changes in Financial Position
- Notes to Consolidated Financial Statements
34
(c) Audited Financial Statements of the Registrant as of
October 31,1996, including:
- Auditors Report
- Consolidated Balance Sheet
- Consolidated Statement of Operations and Deficit
- Consolidated Statement of Changes in Financial Position
- Notes to Consolidated Financial Statements
(d) Audited Financial Statements of the Registrant as of
October 31,1995, including:
- Auditors Report
- Consolidated Balance Sheet
- Consolidated Statement of Operations and Deficit
- Consolidated Statement of Changes in Financial Position
- Notes to Consolidated Financial Statements
(e) Consent letter from Collins Barrow in regard to the
inclusion of Independent Auditors' Reports in the Registration
Statement.
2. EXHIBITS
(a) Certificate of Incorporation of KBK No. 24 Ventures Ltd.
(b) Certificate of Change of Name of KBK No. 24 Ventures Ltd.
to Titan Trading Analytics Inc.
(c) Articles of Registrant
(d) Current Contract Services Agreement between Registrant
and Michael B. Paauwe and Associates dated January 1, 1998
(e) Current Contract Services Agreement between Registrant
and Michael Gossland and Associates dated January 1, 1998
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the Registrant certifies that it meets all of
the requirements for filing on Form 20-F and has duly caused this
registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
TITAN TRADING ANALYTICS INC.
(Registrant)
"MICHAEL B. PAAUWE"
MICHAEL B. PAAUWE
PRESIDENT AND DIRECTOR
(Authorized Signatory)
DATE: January 22, 1999