AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON OCTOBER 31, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
AMENDMENT No.2
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[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 June 30, 1999
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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
Indicate by check mark which financial statement item the registrant
has elected to follow.
Item 17 X Item 18 __
Except as otherwise noted, all dollar amounts are presented in
Canadian dollars.
Exchange Rates: As at June 28, 1999, the median bidding exchange rate
of Canadian dollars into United States dollars was $1.4695 Canadian
to $1.00 US.
2
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TABLE OF CONTENTS
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Part I Page No.
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Item 1. Description of Business......................... 5
Introduction.................................. 5
General Development of Business............... 6
Employees..................................... 7
1998-99 Fiscal Period Operational Plan........ 8
Principal Products and Services............... 11
Principal Markets and Methods of Distribution. 11
Competition and Competitive Strategy.......... 12
Intellectual Property Rights.................. 15
Trading and Testing Activities................ 16
Breakdown of Total Sales and Costs To Date.... 18
Status of New Products or Services............ 20
Research and Development Policy............... 20
Distinctive and Special Characteristics of
Operation ................................... 21
Item 2. Description of Property......................... 25
Item 3. Legal Proceedings............................... 26
Item 4. Control of Titan................................ 27
Item 5. Nature of Trading Market........................ 27
Item 6. Exchange Controls and Other Limitations
Affecting Securities Holders.................. 29
Item 7. Taxation........................................ 30
Dividends..................................... 31
Capital Gains................................. 31
Deemed Distributions on Death................. 32
Item 8. Selected Financial Data......................... 32
Summary of Financial Data..................... 33
Exchange Rates................................ 33
Item 9. Management's Discussion and Analysis of
Financial Condition and Results of
Operations..................................... 34
Overview...................................... 38
Results of Operations......................... 39
Liquidity and Capital Resources............... 46
Item 10. Directors and Officers of Titan................. 47
Item 11. Compensation of Directors and Officers.......... 49
Item 12. Options to Purchase Securities from Titan or
Subsidiaries................................... 50
Item 13. Interest of Management in Certain Transactions.. 50
Material Transactions......................... 50
Indebtedness of Directors and Officers........ 52
3
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TABLE OF CONTENTS
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Part II Page No.
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Item 14. Description of Securities to be Registered...... 53
Part III
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Item 15. Defaults Upon Senior Securities................. 54
Item 16. Changes in Securities and Changes in Security
for Registered Securities...................... 54
Part IV
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Item 17. Financial Statements............................ 55
Item 18. Financial Statements............................ 55
Item 19. Financial Statements and Exhibits............... 55
(a) Financial Statements................... 55
(b) Exhibits............................... 55
Item 20. Signature Page.................................. 56
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PART I
Item 1. Description of Business
INTRODUCTION
Titan Trading Analytics Inc. ("Titan") is a software development
company that is still in a development stage of operations. Titan
commenced operations in May 1994 and is nearing the final stages of a
multi-year software research and development program. The focus of
Titan's present business plan is to test, develop, publish and market
a paid monthly subscription service to its daily stock market
indicators and market commentaries through its internet website. This
service has not yet been offered to the public.
Titan uses the software it develops in its own trading activities, to
conduct ongoing trading system software research and development, to
trade S&P500 stock index futures contracts and currency futures
contracts for its own account and in the publication of financial
information on its internet web site. Titan offers certain of its
software products for direct sale or license to customers.
Titan has developed a series of software programs, which include a
financial trading simulator called VirtualTrader, a series of US
stock market trading indicators and trading systems for trading the
S&P 500 & OEX 100 Stock Index, the Dow Jones Industrial Index and the
NYSE Composite Index, the Stock Index Trader Software"); and a
portfolio of currency trading software programs for trading the
Japanese Yen, Swiss Franc, British Pound and German Mark ( "the TITAN
World Currency Trader").
VirtualTrader is a software based training simulator program for
traders that is licensed to customers, usually private or
professional traders that are existing Omega Research Inc.
TradeStation software users. To April 30, 1999, VirtualTrader has
accounted for the majority of Titan's reported software revenues.
VirtualTrader software can only function if the user already owns or
purchases Omega Research Inc.'s TradeStation or SuperCharts software
programs. Currently Titan only supports TradeStation software version
4.0 with its VirtualTrader software version 2.07.
Titan's Stock Index Trader software is not sold or licensed to any
third parties, but is used for ongoing research and development and
in-house trading activities for Titan's own trading account. In
addition, technical stock market indicator information generated by
the Stock Index Trader software is published on Titan's internet
website and will be incorporated into a planned new paid internet
subscription service.
Titan's World Currency Trader is not offered for sale or license to
the general public nor sold at all in the United States. It has been
licensed to and used by registered professional money managers for
hedging currency risk in international stock portfolios. Titan plans
to market the World Currency Trader software to professional money
managers in Europe.
None of Titan's software products or planned paid internet
publication subscription services offer any kind of trade execution
capability, nor do any of Titan's business activities generate any
kind of commission income from trades. None of Titan's software
facilitates directly or indirectly the actual
5
trading of any securities. In all cases, users must execute trades
through the facilities of independent third party registered brokers
and clearing houses and with independent financial advice.
The words 'trading system(s)' as used throughout this document refers
to Titan's proprietary trading rules, methods and techniques, based
on pattern recognition, that have been tested on historical trading
data and which are used by a trader to determine market trends or
market conditions. Titan's trading systems are usually programmed in
a proprietary software program designed to run in TradeStation.
Examples of 'trading systems' are Titan's World Currency Trader
software and Titan's Stock Index Trader software described above. A
trading system is normally a set of tested and programmed rules that
indicate how to respond to changes in a particular trading indicator
or indicators.
'Trading indicators', such as Titan's neural network trading
indicators which detect changes in market trends, generally form the
basis of all 'trading systems'. 'Trading indicators' are mathematical
calculations usually derived from market price series data that form
the basis for a particular trading system. An example of a simple
trading indicator would be a smoothed five day moving average of a
stock's price that might be used by a trader to define the short term
trend in that stock's price.
The term trading systems as used in this document specifically
excludes any kind of direct or indirect trade execution capability,
electronic, internet based, or otherwise.
Titan is not a registered broker dealer and has no plans to become a
broker dealer. To date Titan has not acted as an investment advisor.
However, the Company plans to register with the United States
Securities and Exchange Commission as an Investment Advisor on or
before it offers its planned paid monthly Internet Subscription
Service.
HISTORY OF BUSINESS DEVELOPMENT
Titan 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." The
Company changed its name to "Titan Trading Analytics Inc.," by filing
of an amendment to its Articles on November 14, 1994. Titan'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 April 30, 1999, Titan raised a total of
$2,802,962 in share capital through the sale of its Common Shares,
and up to April 30, 1999 has invested approximately $1,362,185 in the
development of its business. The balance of the funds raised as of
April 30, 1999, totaling $1,447,931, is represented in the balance
sheet as current assets, software and systems development and capital
assets.
On November 23, 1994, Titan incorporated Titan Trading Corp. ("TTC")
under the Company Act of the Province of British Columbia, Canada, as
its wholly owned subsidiary. TTC was originally incorporated with a
view toward forming a separate trading business. The original
intention was to separate that trading activity from the software
development business. That plan, however, never materialized because
the scale of trading remained relatively small and software
development took
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much longer than originally expected. The main trading account
of Titan was originally set up at Refco Futures (Canada) Ltd.
("Refco") in Canada under the TTC name. Although TTC was
an otherwise inactive wholly-owned subsidiary of Titan, management
elected to continue to execute its trades through TTC, as
agent on behalf of Titan, for convenience, due to the way accounts
were initially set up at Refco. Trade execution through TTC does not
shield Titan from any kind of financial liability. Titan remains
fully liable for any and all losses incurred through the company's
TTC trading account. TTC does not trade for any other party. Refco is
a US and Canadian registered commodities clearing house and
registered securities broker through which Titan executes its own
trades. Refco charges Titan industry standard commission rates. No
other special business or contractual relationship exists between
Titan and Refco. There are no undisclosed relationships or special
licensing arrangements or referrals of any kind between Titan
customers and Refco.
TTC has no income, expenses, assets or liabilities. It was set-up
with a capital contribution of $100, and currently operates
specifically and exclusively for the purpose of acting as agent for
Titan in executing Titan's in-house trading activities.
In November of 1998, Titan announced a planned joint venture for US
stock day trading with an established brokerage operation on the West
Coast of Canada, Wolverton Securities Ltd.("Wolverton"). Wolverton is
an unrelated, registered US and Canadian broker dealer. The intended
joint venture was to be a private stock daytrading operation not
involving the public, where both parties would trade their own
account using Titan's trading indicator information and Wolverton's
trade execution facilities. On April 1, 1999, following the receipt
of a letter from the Vancouver Stock Exchange ("VSE") stating that
the VSE would not allow profit sharing between its member company
(Wolverton) and a non-member (Titan) and that it would not allow the
Titan's traders to execute trades through Wolverton because they were
not registered broker dealers or part of the staff of Wolverton,
Titan publicly announced the withdrawal from the proposed joint
venture and abandoned all business plans and activities involved with
the development of a stock day trading business.
Titan has been publishing a regular stock market commentary on its
Internet web site based on its trading technology for approximately
two years. Titan is now planning as the primary focus of its present
business to develop, publish and market an expanded internet-based,
daily financial market commentary on a paid subscription basis
("Internet Subscription Service").
EMPLOYEES
The following is a brief description of the Titan's non-officer
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 General Manager. Since graduating in Business Administration from
Utah State 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 Titan.
7
Greg Kennedy joined Titan 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 sales, marketing, brokerage and 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 Titan.
Ellen Addison joined Titan as a Special Projects Coordinator
effective March 15, 1999. Ms. Addison is a graduate of British
Columbia Institute of Technology in Administrative Management. During
the past 10 years, Ms. Addison started and managed a public
accounting and financial consulting business, was the Administrative
Director of a 42 bed residential treatment center and recently became
an author and book publisher. Ms. Addison manages new financial
subscription promotions planning, corporate marketing media
development and new internet web site development and publication
projects for Titan. Currently Ms. Addison works as an independent
consultant to Titan.
For information regarding Titan's officers and directors see Item 10.
1998-99 FISCAL PERIOD OPERATIONAL PLAN
Titan believes that the rapid growth in the Internet-based discount
brokerage business in North America and the recent high growth of
online Internet trading provides a growing marketplace for its
VirtualTrader software and the planned development and marketing of
its Internet Subscription Service.
Previous plans to market related training seminars using the
VirtualTrader software in conjunction with a stock day trading joint
venture, have been canceled along with the stock day trading joint
venture project. See discussion under "History of Business
Development" section above.
Titan plans to continue to demonstrate the value and performance of
its software products and services by using them in actual trading
for its own account.
Over the next 18 months, Titan expects to spend approximately
$250,000 of its capital on continuing research and development of its
web site and Internet Subscription Service and software products to
enhance trading activities and stay current in the market. In this
on-going process, Titan further expects to spend an additional
$95,000 on computer equipment and systems. Titan also expects to hire
3 - 6 additional staff as a result of business expansion and for the
development and marketing launch of its Internet Subscription
Service.
Titan 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.
PRINCIPAL PRODUCTS AND SERVICES
In addition to marketing its existing VirtualTrader software, the
focus of the present business plan is to test, develop, publish and
market an expanded paid monthly subscription service to its daily
stock
8
market indicators and market commentaries through its internet
website. This service has not yet been offered to the public.
Originally, Titan planned to develop and offer a North American
SkyTel 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. Based on recent
user response to the existing daily stock market commentary published
on Titan's web site on a test basis for the past two years, Titan now
plans to proceed with further development and marketing over the next
twelve months of an Internet Subscription Service similar to that
planned originally for distribution by way of the SkyTel pagers.
During 1997 and 1998, Titan developed and tested its VirtualTrader
simulator software. VirtualTrader is an advanced training simulator
for traders. VirtualTrader allows users to replay market data on a
computer at user adjustable speeds, as if the financial market data
were actually coming in to the computer each minute, allowing the
user to simulate a real time computer based financial market data
feed. This makes it possible and practical for stock, bond, currency
and other 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 VirtualTrader 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. Titan's management likens VirtualTrader to a flight
training simulator for pilots, except it 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 historical back-testing.
Titan uses the VirtualTrader software in the development of its own
trading systems. Applications of the VirtualTrader software have
been completed for various futures trading applications, including
currencies and stock futures. More recently, the Titan used the
VirtualTrader software to develop a technical analysis based
approach to day-trading and position trading high volume NASDAQ, AMEX
and NYSE stocks. Titan's own in-house application of the
VirtualTrader software along with a previously developed stock index
trading methodology were combined to form an integrated method of
day-trading stocks. By simulating a real time stock market data feed
and providing a simulated order entry interface, VirtualTrader
provides the user with a highly realistic and easier method of
testing various trading strategies, without risking any real trading
capital. However, as noted under HISTORY OF BUSINESS DEVELOPMENT,
Titan no longer conducts daytrading and does not foresee conducting
daytrading in the future.
The trading methods, indicators and software developed by Titan to be
used in the planned Internet Subscription Service, are intended to
allow it or its licensees and subscribers to more effectively trade
US stocks, stock indexes and some world currencies based on
technical analysis methods applied to intra-day and end-of-day data.
In general, Titan's systems and trading indicators included in the
Titan Stock Index Trader software measure short term market trends
and price momentum over several days
9
more accurately than the standard existing real time and end of
day technical market trading indicators contained in programs
such as Omega Research Inc.'s TradeStation and SuperCharts
software based on tests conducted by Titan. This is expected
to provide subscribers of its Internet Subscription Service
with a short-term market timing advantage in that indicators can
be used to improve short term market timing decisions and to
better identify risks of trades based on technical analysis
approaches now popularized by software programs such as
TradeStation and SuperCharts. For example, the Stock Index Trader
indicators used in the planned Titan Internet Subscription Service
combine the information contained in market price and market breadth
data to create a composite stock market trend indicator that is
generally more accurate than the most popular and conventional
trading indicators in use by technical traders. The accuracy of
Titan's stock market indicators has not been independently verified
but rather is based on Titan's own in-house computer testing on
historical and real time data using the testing capabilities of
TradeStation as noted below.
Titan's trading software 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.
All Titan's software products, including those under development, are
designed to operate in conjunction with TradeStation or SuperCharts,
two of the industry's leading Windows-based technical analysis and
stock and commodity price charting programs, developed and marketed
worldwide since late 1991 by Omega Research Inc. of Miami, Florida,
USA ("Omega"). Titan's software requires the Omega software to be
installed on the same computer in order to operate. Customers must
therefore obtain a license for Omega's software as well as a separate
license for Titan's software. Titan's software operates within
Omega's software platform by taking advantage of its data-feed
interface, real-time data and price chart updating, and reporting
functions. TradeStation was the world's first Microsoft Windows
based, stock and commodity price charting program for graphically
analyzing stocks, stock index futures, bonds, mutual funds,
commodities and other securities. SuperCharts is a related Omega
program for off-line technical market analysis. TradeStation allows
the user to see the changes in various pre-programmed trading
indicators on selected markets being traded as the market data is
received, while connected to a market data feed. This is referred to
as 'real time' price charting and allows technical market analysis of
price action to take place as the market events are actually
happening.
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 Titan'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 price charting
and technical analysis features built into those products and their
user-friendly Microsoft Windows operating system environment.
10
VirtualTrader allows TradeStation software users to test methods
without having to acquire any programming knowledge of Omega's Easy
Language software language. The VirtualTrader software also allows
traders to gain technical trading knowledge and experience, be
formally trained, and provides for the practice and use of
conventional public domain technical analysis techniques, as well as
allowing comparisons to proprietary and custom technical analysis
techniques, in a fully simulated trading environment.
Titan has also developed 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.
These programs, as with the VirtualTrader , operate through the Omega
software products as described above.
Titan's Stock Index Trader software and World Currency Trader
software do not affect the Omega user interface in operations, but
rather take advantage of Omega's Easy Language programming utilities
and its trading strategy testing functions to allow Titan's trading
indicators and systems to be programmed into Omega's software
products with graphically and tabularly displayed output and
technical analysis charting features. This allows Titan and the user
to receive and keep track of market price updates, receive the
benefit of built-in TradeStation software features such as audible
trading alerts based on pre-programmed trading signals, buy signals
or sell signals and other user defined market indicator readings,
trade by trade reporting of results and overall historic and real-
time trading system performance analysis.
Titan's VirtualTrader software is principally sold to United States
customers where Omega dominates the private trader technical analysis
and charting software market with a publicly reported installed base
of 35,000 customers. However, Omega is increasingly making sales into
the international marketplace. Internet use is also growing
internationally and the financial applications sector represents an
established potential market for Titan's software and planned
internet based daily stock market commentary subscription service.
The US has been substantially the whole market for test marketing and
software product sales to date (only about $14,000 in sales and
licensing revenue out of $149,631 have come from sources outside the
United States).
Presently the Titan's VirtualTrader software is compatible with
Omega TradeStation version 4.0. It is not yet compatible with the
recently released TradeStation version 5.0, nor can there be any
assurance at the present time that VirtualTrader will ever be
compatible with TradeStation version 5.0.
PRINCIPAL MARKETS AND METHODS OF DISTRIBUTION
The Titan's initial target market for its VirtualTrader software and
planned Internet Subscription Service is comprised of an estimated
35,000 licensed software users worldwide of the Windows-based
SuperCharts and TradeStation technical charting and financial
analysis software operating platforms based on information provided
by Omega Research Inc. 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
11
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 VirtualTrader and the planned Internet
Subscription Service is the existing and growing market for online
internet stock traders. Those online stock traders wishing to use
the VirtualTrader software, who are not currently users of Omega
charting programs, 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, usually on a cost shared basis,
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 Titan 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 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. Titan's products are listed in Omega's Solution Provider
catalogue and Titan has a listing on the Omega web site. To date
Titan has not advertised in the Omega Research Magazine and there has
been no coordination of advertising between Omega and Titan.
Titan plans to market VirtualTrader and the new paid monthly Internet
Subscription Service to the full service stock brokerage and online
trader markets through an established internet web site presence,
direct advertising in trade periodicals, direct seminars and mail
campaigns, and in-house direct sales. In addition, Titan 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.
Up to April 30, 1999 Titan has made $149,631 in software product
sales and licensing. While Titan operates out of Canada, the
principal market for the sales and licensing of its products and
services is in the US. Up to April 30, 199, $135,631 of the sales
and licensing of its sales and licensing were in the United States,
and $14,000 was in Great Britain.
The Titan has installed a computerized sales lead tracking and
database management system capable of supporting telephone sales and
service support functions which it uses 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 high volume discount brokerage services and online
internet trading with firms such as E-Trade and Datek has changed the
business model and activities of stock traders dramatically.
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The marketplace for the planned Internet Subscription Service, stock
index trading software and currency trading software are also crowded
and intensely competitive. There is a wide variety of products
providing direct competition to the Titan's software, and a constant
threat of new entrants into the market in all areas of the financial
software marketplace. Titan considers the VirtualTrader software and
the planned Internet Subscription Service to be its two principal
products. The main identified competitors to these two products are
listed in the following paragraphs.
Competition for Titan's VirtualTrader Software
Titan has identified the following three competitors of its
VirtualTrader software product:
1. The Omni Trader (trading simulator). The End of Day version for
stocks sells for US $395. The End of Day version for futures sells
for US $695, and the Real Time version sells for US $1,995. This
software is established, aggressively marketed, and popular.
2. The TSI001 Playback Assistant by Jan Arps (an Omega Solution
Provider). This software allows the capability of replaying past
intra-day or End of Day data. The price for this software is US
$495.00.
3. Aesis Software & Consulting is currently developing a trading
simulator which reportedly runs in TradeStation 4.0 or TradeStation
2000i. The price for this software is expected to be US $495, but
has not been released yet.
Note that the description of the software mentioned above is
incomplete, and all prices are the published retail prices of the
identified software.
In addition, Titan estimates there are at least 3 low cost trading
simulator packages on the market that do not facilitate full trading
simulations, yet appear in the marketplace to be low cost
competitors.
Competition for Titan's planned Internet Subscription Service
The financial services sector of the internet is extremely
competitive. Titan estimates that there are over 100 internet sites
that could be considered to be competitors to the Titan's planned
Internet Subscription Service. There are also new competitors coming
onto the internet everyday. The market is intensely crowded and
competitive. The following internet sites are examples of competitors
to the Titan's planned Internet Subscription Service, broken down
into two categories, as follows: full pay sites, or free or low cost
sites. Note that the description of the service is not complete and
all prices mentioned are the published price of the identified
service.
Titan's planned Internet Subscription Service does not presently
contemplate using what are called 'live chat rooms' or 'live real
time trading desks' where various groups of traders can
simultaneously log onto a website and discuss trading online. The
Titan service will be primarily an end of day internet posted and e-
mail publication, supplemented with periodic intraday postings and
market alerts delivered by e-mail or fax. Titan's planned Internet
Subscription Service will provide short term
13
market price momentum analysis and market timing on US stock
markets and will also publish specific baskets of high quality,
high volume US stocks that exhibit strong recent historic
correlation to Titan's live internet market call record. It is
expected that the primary users of the Titan internet publication
service will be full service stock brokers and private stock traders.
A) Full Pay Sites
1. Societe Anonyme. This is a $200 per month paid subscription site.
It provides daily e-mail alerts on US momentum stocks, and general
news and commentary on the stocks the site follows.
2. Anthony@Pacific. This is a paid subscription site with various
options available: Silver service: $85 per month, $950 per year, 1
hour delayed calls via e-mail. No site access; Gold service: $400 per
month, $4,150 per year, Real-time calls via browser window and e-
mail; Platinum service $1,000 per month, $10,000 per year.
3. Trading Places.net. This is a $279.95 per month paid subscription
service for real time trading desk news alerts, and access to live
trading (chat) room 24 hours per day. There is a cost of $399.95 per
month for real time market hours training for day traders, real time
news and trade alerts, and full access to live trading room.
4. The Momentum Trader: This is a $200 per month paid subscription
service. The service includes early morning market preview and an End
of Day market wrap, both sent by email. Similar to TradingPlaces.net,
it employs a live trading room-chat room.
5. DayTraders Online. This is a $179.00 per month paid subscription
service that provides a live trading desk service.
6. Pristine Daytrader. This is a $125.00 per month service that
offers pay per view via StockhouseOnline. It includes a database of
over 9,000 securities to determine which ones appear to be offering
the best opportunities, and then outlines specific trading strategies
to take advantage of them. This service includes intra-day updates.
It also offers a Pristine Lite service at $19.95 per month, designed
for the developing trader.
B) Low cost or free sites
1. Clearstation.com. This is a financial advisory web site that helps
investors make investment decisions by identifying and interpreting
stock trends.
2. The Bull Market Report. This is a newsletter (specific to hi-tech
issues) delivered daily, with News Flashes delivered via email on
timely events $125 per year or $39 for two months.
3. The Street.com. This is a subscription service that includes full
site access, three emails daily and a weekend wrap up. The service
is $9.95 per month or $99.95 per year.
14
4. Jag Notes. This is a compilation of 32 Wall Street brokerage and
analyst stock picks. Subscription is $9.95 per month or $99.95 per
year.
5. Tradehard.com. This site develops, assembles and centralizes
market analysis and information, and provides free email summaries.
The service costs $10 per month.
6. Investools. This site provides investors with a broad selection
of independent financial research at a subscription price of $14.95
per month.
7. Tulips and Bears. This site provides an email service featuring
portfolio picks and shorts, with free real time quotes and stock
charts.
INTELLECTUAL PROPERTY RIGHTS
Titan's ability to compete effectively depends in part on its ability
to protect its core software technology. Titan relies for protection
of its technology 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 Titan's products or obtain and use
its core software. Titan 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
registration will be granted if applied for. Moreover, certain
aspects of Titan's software products are not subject to intellectual
property protection in law, and to the extent that protection is
available, its extent may differ from one jurisdiction to another.
Application in the United States for registration of a VirtualTrader
trademark was rejected on initial response by the examiner of the
application on the basis that the trademark was merely descriptive.
Titan is no longer proceeding with its application for trademark
registration in this respect.
Titan has not applied for patents nor does it plan to apply for or
receive any patent protection for any of its software products or
product parts, under Canadian or US law.
TRADING AND TESTING ACTIVITIES
Beginning in 1994 and continuing through 1995, Titan was generally
focused on the initial development of its software products and
therefore did no trading or testing activities. In 1996 through
1998, as development continued, Titan began system testing the
software. System testing, as used in this document, refers to
Titan's own use of the software to trade securities at a time when
the particular software was still under development. System testing
expenses are a trading system research and development activity of
Titan, associated with testing, validating and completing the final
testing and development of a trading system. Direct costs of
carrying out test trades using the trading system, including
commissions costs of the trades and the net gains and losses from
such trades, are included in
15
this expense catagory. It does not include any costs of the software
development itself or any other costs associated with demonstrating
the software to a prospective customer.
By April of 1998, the Stock Index Trader software and World
Currency Trader software software (as described above) were
substantially tested and thus reference to any income and losses made
from trading after this time is described in the financials as
"Trading" income or loss rather than as "System testing" income or
loss. The table below provides a summary of trading and testing
income and losses, by year, using this distinction.
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Trading $ 70,607 0 0 0 0
Demo & Testing $(42,490) $ 56,761 $ (57,934) 0 0
Net gain or loss $ 28,117 $ 56,761 $ (57,943) 0 0
Trading systems for stock indexes and currencies were installed in
Titan's systems in April 1998, and a trading program has been carried
out since that time to demonstrate the effectiveness of the software
technologies developed and under development.
The World Currency Trader systems trading signals were provided under
an annual US$10,000 license to Lombard Odier International Portfolio
Management Limited ("Lombard") in London England for the one year
period ended September 1998. A written testimonial was received from
Lombard indicating that actual World Currency Trader software
trading profits were realized by them in 14 international currency
hedging trades using Titan's World Currency Trader software system,
over a one year period, totaling $28,987 USD on a single contract
basis. Actual real-time trading results by Lombard were confirmed to
have been consistent with historically back-tested (trading results
simulated with historic data) results prepared and represented by the
Titan in its marketing literature. Lombard's results were produced in
a combination of Japanese Yen, German Mark and Swiss Franc trades, in
US Dollars. A copy of this written testimonial is attached hereto as
an exhibit. The World Currency Trader is not offered for sale or
license in the United States or to the general public. Titan plans to
offer the software only in Europe to professional money managers.
In September 1998 the Titan commenced testing online stock day-
trading activities over the internet for the Titan's account with
Titan funds as part of its planned VirtualTrader training and trader
development services program. This program was later expanded to
include training of experienced third party stock traders trading
their own company funds at Wolverton Securities Ltd., a registered
brokerage in British Columbia. This trading 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 VirtualTrader trading simulator. Daytrading 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. In general
these same risks apply to all of the company's trading activities,
except that with stock daytrading, slippage losses and internet
16
execution errors present a far higher proportional cost and risk
that when position trading stock indexes or currencies.
All System testing losses since April 1998 are from stock daytrading
activities.
Throughout this document, the words "daytrading" and "stock
daytrading" refers to the practice of initiating either the purchase
or sale of a stock or other security with the intention of exiting
the trade within the same trading day. Trading positions are
typically held for a few hours down to a few minutes or even seconds,
depending on the methods practiced. Daytrading therefore implies the
practice of closing all open positions in all trades before the end
of the same day and not holding any positions overnight.
As mentioned previously, stock daytrading activities by Titan have
now been discontinued.
Titan does not presently trade stocks. Titan's planned Internet
Subscription Service may provide stock position trading alerts and
provide buy/sell stock market timing information to subscribers.
While these internet based stock day-trading tests indicated that
Titan's stock daytrading system could be profitable in the hands of
experienced traders using conventional trade execution methods,
trading risks from stock day-trading over the internet remained very
high due to intra-day volatility, commission costs, internet
downtime, trade slippage and the high cost of trader training and
daily supervision. When these normal risks were combined with the
recent bad publicity in the day-trading market and the response of
the VSE to Titan's proposed joint venture with Wolverton, Titan
assessed the overall business risks to be excessive and unwarranted
relative to the potential gains. Accordingly, as noted above the
project was canceled by Titan and there are no plans at the present
time to pursue any stock day-trading business plans and all in-house
stock day-trading activities have ceased.
Titan continues to 'position trade' stock index futures contracts and
currency futures contracts. 'Position trading' by Titan refers to
the practice of holding open trading positions overnight and usually
for several days duration. These trades typically last for a few to
several days, in the case of stock index futures trading and for
several days up to several weeks, in the case of currency trading.
Therefore all trading activity referred to in this document with
respect to current and all future activity by Titan refers to
'position trading' and not 'daytrading' as defined above.
$500,000 previously proposed for allocation out of existing working
capital for the purposes of Titan's various demonstration trading
activities is no longer applicable. Typically, 30% of trading account
cash balances is actually allocated to trading margin, the balance is
generally held as a reserve for ordinary course trading draw-downs.
Margin is the use of borrowed money for trading. The use of margin
magnifies trading gains and losses in direct proportion to the extent
of money borrowed. As a consequence, conservative implementation and
use of margin by even experienced traders is required in order to
avoid excessive risk of ruin in trading. Titan's management and the
registered clearing firm Refco Futures (Canada) Ltd, which clears all
trades for Titan, independently imposes a 30% allocation to margin
limitation used by Titan, rather than a higher, more typical and
liberal 50% allocation
17
guideline. In hundreds of trades to date Titan remains overall
profitable since the inception of stock index and currency trading,
in part as a consequence of the trading practices employed.
Examples of additional Titan trading practices which may be construed
to be conservative in approach include trading with a view to the
preservation of capital, the avoidance of trading activities during
periods of higher than normal market volatility, avoidance of trading
in advance of big report days to avoid unexpected event price shocks,
minimizing losses through the use of advance stop loss orders,
locking in open gains by the use of stop loss orders, not trading in
unfamiliar markets, trading only in highly liquid markets, and
trading only based on extensively tested strategies.
Even with a conservative approach to trading, there is always an
ongoing risk of material losses from trading activities. While Titan
intends to remain conservative in its trading practices as described
above and has established internal risk management criteria
associated with the limited use of margin to minimize trading losses,
as described above, due to the volatility associated with stock index
and currency trading activities, and the large draw-downs possible
from this type of trading, trading losses can and will occur in the
ordinary course of Titan's trading activities.
Titan reports trading results on an ongoing basis in regularly filed
public quarterly financial reports with the Sedar system pursuant to
the British Columbia Securities Act and related Securities Rules.
Investors and other interested parties can access Titan's quarterly
Sedar Filings database at no cost through the internet at Sedar's
website at www.sedar.com. In addition, shareholders will be advised
of all material events including material changes in Titan's
investment or trading practices by way of publicly disseminated News
Releases also as required under the British Columbia Securities Act.
Titan is planning to become a full reporting issuer under US law.
BREAKDOWN OF TOTAL SALES AND COSTS TO DATE
The development costs for Titan's Software and Systems through April
30, 1999, consist of the following:
Capital Assets: $ 109,468
Product and Development Costs: $ 573,176
Operating Costs*: $ 1,041,474
-----------
Total: $ 1,724,118
*Deficit less total amortization as of April 30, 1999.
Titan's total revenue from sales and operations during the past three
fiscal years, plus the six months ended April 30, 1999, by category
of activity, was as follows:
Six Months Ended April 30, 1999
Software Sales and Licensing $ 31,438
Trading Income $ 63,878*
18
Interest and other Income $ 18,022
---------
Total $113,338
*There was $28,155 in System testing Losses (separately reported as
an expense) during this period FYE 10/98.
Software Sales & Licensing $ 53,051
Trading Income $ 70,607*
Interest and other Income $ 41,457
---------
Total $ 165,115
*There was $42,490 in System testing Losses during this period (
separately reported as an expense).
FYE 10/97
Software Sales & Licensing $ 36,040
System testing $ 56,761
Interest and Other Income $ 58,581
---------
Total $151,382
FYE 10/96
Software Sales & Licensing $ 21,213
System testing $ 0*
Interest and other Income $ 35,290
--------
Total $ 56,503
*There was $ 57,934 in System testing Losses during this period
(separately reported as an expense).
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.
Note that software sales reported in the audited financial statements
to the end of fiscal year ended October 31, 1998 includes revenue
received from beta test versions of software programs and from
software products in early stages of market testing. System testing
income reported in the financial statements represents trading income
derived from company trading systems software still under
development. System testing expenses reported in the financial
statements under expenses represents
19
trading losses from trading systems software still in a testing
and development stage. See also "Breakdown of Total Sales and
Costs to Date" under Item 1, "Description of Business".
Once management has determined that a particular trading software
system has been satisfactorily tested in actual trading operations,
income from that point forward is reported as trading income or loss,
as the case may be.
STATUS OF NEW PRODUCTS OR SERVICES
The focus of the present business plan is to test, develop, publish
and market a paid monthly subscription service to its daily stock
market indicators and market commentaries through its internet
website. This service has not yet been offered to the public. Titan
is constantly refining and developing its software and trading
systems to maintain their integrity and marketability. As a result
there is and will be an on-going research and development effort with
associated costs to Titan. Titan anticipates spending approximately
$250,000 over the next 18 months on research and development efforts.
Moreover, new products are constantly being investigated and sought
within the general area of the current products developed by Titan.
No new products, however, other than those described in this filing
have been formally announced to the public.
RESEARCH AND DEVELOPMENT POLICY
Titan'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. Titan
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, Titan'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 Titan'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
The planned expenditure for 1999 fiscal year is $250,000.
DISTINCTIVE AND SPECIAL CHARACTERISTICS OF OPERATION
In the North American financial software industry it is a regulatory
requirement and practice, to which the Titan adheres, to make no
representations that any user will or is likely to achieve profits or
suffer
20
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.
Even though Titan does not believe it is under the jurisdiction of
the United States Commodities and Futures Trading Commission
("CFTC"), Titan conducts its business in a manner consistent with the
rules and regulations of the CFTC with respect to sales of trading
system software and commodity futures trading activities that may
take place within the United States. Titan's sales procedures provide
for the inclusion of a Disclosure Statement in product license
agreements, manuals and promotional literature in the form prescribed
by the CFTC. In addition, Titan'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 Titan's software products or related user
manuals, represents, or is intended to represent, the furnishing of
financial advice by the Titan, its officers, agents or employees.
Users are warned that the pattern recognition software and services
merely provide educational, technical trading information, neural
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.
Titan is not a registered member of the National Futures Association
(NFA) and does not conduct a commodity trading business in the United
States. Consequently, Titan does not presently come under the direct
regulatory jurisdiction of that industry governing body.
Titan is not presently registered with the CFTC or NFA as a Commodity
Trading Advisor (CTA) and does not presently solicit or trade third-
party managed accounts. Titan plans to conduct business and become
registered as a CTA in the United States and Canada. These plans
would first require the passage of a CTA examination, registration
and appropriate filings which Titan has no yet begun, and there can
be no assurance that Titan will ever submit or obtain registration.
Should Titan become a CTA or trade third-party managed accounts in
the future, or begin to conduct trading operations in the United
States, Titan will be directly governed under the regulations and
administrative policies of the CFTC and the NFA.
Titan is not presently registered, or required within its current
business operations to be registered as an investment advisor with
any government or regulatory body in the United States, Canada or
elsewhere.
As noted above, on or before Titan offers its new planned Internet
Subscription Service, it plans to register as an Investment Advisor
with the United States Securities and Exchange Commission.
The risk factors set-forth below are believed to be important in that
they may have a material impact upon the Titan'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 Titan. All material risk factors known to Titan are discussed
below, however, note that unknown factors, not discussed in this
filing, could also have a material adverse effect on Titan's actual
financial and other results.
1. Short operating history and likelihood of continuing operating
losses. Titan commenced operations in May 1994, and has, to date,
been largely engaged in product research and development
21
and establishing its new product development and marketing strategy.
Titan's accumulated deficit to April 30, 1999 is $1,362,185. Titan's
initial products and planned services are just beginning to become
available for market release and sale. Titan 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. Titan'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 any additional financing will be available on
acceptable terms, or at all.
2. Early stage of development and no assurance of market acceptance
of the Titan's new software products or services. Titan's existing
software products and the planned Internet Subscription Service are
in an early stage of development. Although a small level of sales
have been effected and there is an established market for similar
products and planned services, there can be no assurance of market
acceptance of Titan's products and services.
3. Dependence on the timely development and release of new software
products and services. Achievement of Titan's objectives, and its
future operating results, are dependent upon completion of its
software marketing, and on the success of these software products and
services. Timing in this regard is crucial, as other similar products
or services that reach the market prior to Titan's product may be
able to obtain and maintain business that would have otherwise gone
to Titan. There can be no assurance that Titan's timing and business
plan will be sufficiently successful to achieve sustained
profitability in its operations.
4. Dependence on key personnel. Titan depends on its key officers,
including its founder and President, Michael Paauwe, and its Vice
President and Manager of Software Development, Michael Gossland, and
general manager John Austin. Although Titan 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.
5. Dependence on in-house direct sales and the lack of any existing
established indirect sales and distribution channels. The Titan
plans to market its software and services through direct sales
efforts. The Titan 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
Titan will be able to attract and retain the necessary personnel as
and when required. The Titan 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 these 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 Titan'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 Titan 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,
22
there can be no assurance that the Titan will be successful
in this effort, or, if successful, that Titan 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 Titan, 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 Titan
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 present business plan, Titan's
software is used by Titan to trade stock index 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 this type of trading, there exists the possibility of
significant trading losses that could have a materially adverse
effect on Titan's operating results and financial condition. As a
portion of existing share capital will be used in these trading
activities, there is a direct risk of loss to shareholders that Titan
could lose significant equity capital on trading, even if the Titan
were not using its own software.
8. Potential losses from trading securities with or without trading
software.
Any trading operation involving the use of leverage is considered
highly risky even when conducted by experienced practitioners. The
historic results of Titan's 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.
Titan depends on its ability to protect its core proprietary software
technology. In this regard, Titan relies on protection of its
technology 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 Titan's products or obtain and use its proprietary
technology. To date, Titan has not sought to obtain copyright
registration or patent protection 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 Titan'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
23
do, this could reduce the value of the Titan's proprietary technology
and its ability to effectively compete.
10. Possible high degree of volatility in the future price of Titan's
stock. Factors such as news announcements on technical developments,
innovations by the Titan, 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 Titan's shares. Changes in the trading price
of its shares may be unrelated to Titan's performance or its future
prospects. In addition, investors in Titan's shares may lose their
entire investment if Titan fails in its business.
12. Control by existing officers and directors. Titan's executive
officers and directors currently own or control an aggregate of
3,066,401 of the issued and outstanding shares of the Titan which
represents approximately 34.6% of the outstanding shares as at April
30, 1999. As a result, these shareholders will continue to be able to
control the composition of Titan'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 Titan. Under certain circumstances, this
type of limitation may be considered adverse to the interests of
other shareholders.
13. Dependence on financial industry. Titan is affected by general
economic and regulatory conditions affecting national and
international financial markets. A worldwide economic downturn,
therefore, may have an adverse effect on Titan's business, operating
results and/or financial condition.
14. Possible changes in derivatives market and the regulatory
environment. The Titan'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
Titan and this may affect future expenses and operating results.
There remains an ongoing risk of an adverse impact of possible new
governmental regulations on Titan's business.
15. Technological change. The financial trading software marketplace
is characterized by constant and rapid technological change. There
is no assurance that the Titan 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 Titan 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 Titan 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
24
customer. There can be no assurance that these provisions
will protect Titan 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 TradeStation and SuperCharts
software of Omega Research Inc. Titan'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.
There is a risk that the market leadership now enjoyed by these Omega
products, or their production, development or technical support may
change substantially or be discontinued completely, which would have
a direct and materially adverse effect on Titan's operating results
and financial condition.
18. Year 2000 potential negative business impact and risks. The Year
2000 (Y2K) computer problem may have an adverse and unpredictable
affect on Titan's operations as more fully disclosed under
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Remaining as yet unresolved Year 2000 risks to Titan's business exist
primarily in two areas. The first is in the Windows based office and
trading computer systems which still require lower risk identifiable
implementation of existing software patches from Microsoft
Corporation and others to remedy . The second less predictable area
of business risk is the prospect of Y2K related data feeds problems
or interruptions from various data vendors and financial exchanges
that could disrupt Titan's trading operations and planned Internet
Subscription service, resulting in possible direct and materially
adverse effects on operating results and financial condition. Refer
to the broader discussion referred to above for the status of Y2K
readiness, relevant target dates and contingency planning.
ITEM 2. Description of Property
Titan owns no real property or real property rights. Titan'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 Titan's operations many business functions are undertaken from
other confidential, remote locations in British Columbia, not owned
by Titan.
Titan's proprietary financial trading software products and
technologies generally fall into five categories:
1. TradeStation based proprietary stock index trading systems and
software. These are Titan designed neural network and expert
system software based custom trading indicators and software based
trading methods, installed on a computer with the third-party
software programs TradeStation or SuperCharts. They are designed
to provide short-term, predictive market timing information on the
US stock market indexes (such as the S&P 500 index), based on
advanced pattern recognition methods which in general, are
automated, mathematically based methods of recognizing recurring
market patterns, based on the use artificial intelligence
techniques such as expert systems and neural networks. The trading
indicators and systems are designed for trading stock futures
contracts on the S&P500, OEX, NYSE and NASDAQ markets, and they
also provide market timing information for those indices for US
stock, stock options and index options brokers, traders and
investors.
25
2. TradeStation based proprietary world currency trading systems and
software. These are Titan designed software based trading methods
for trading world currencies including the Japanese Yen, the
German Mark, the Swiss Franc and the British Pound. To operate,
the software needs to be installed on a computer with the third
party software programs TradeStation or SuperCharts. The methods
are designed for intermediate term trading. Trades are typically
held for weeks or months. The currency trading methods can also be
easily adapted to trading in any other high volume world
currencies.
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.
These are proprietary software programs written in Microsoft
Visual Basic 4.0 and 5.0, programmed into Microsoft Excel, or
written in Omega's Easy Language trading system development
language. They are basically a group of software utilities,
authored and owned by Titan, consisting of a series of specialized
trading system development software tools that are used in Titan's
ongoing software research and development programs to perform data
manipulation, custom system testing, mathematical functions and
code development and software debugging capabilities not available
in off-the-shelf software. This software now provides Titan with
the advantages of rapid systems research, systems testing,
software debugging and trading system validation and deployment.
5. Internet web site software for the Titan's web site. Titan has a
body of custom software developed for its web site that
facilitates ongoing maintenance. This software is written in PERL
scripts and includes all the custom graphics and other HTML code
for the web site.
ITEM 3. Legal Proceedings
Titan is not currently a party to any material legal proceedings;
nor, to Titan's knowledge, are there any legal proceeding pending or
threatened of which Titan would be a party, or any of its property or
assets are likely to be subject.
ITEM 4. Control of Titan
As far as is known to Titan, and except as disclosed in this filing,
Titan is not directly or indirectly owned or controlled by any other
corporation or by any foreign government.
The following table sets forth as of May 31, 1999 information with
respect to record ownership of (a) any person or company who is known
to Titan to be the owner of more than 10% of any class of the Titan's
voting securities, and (b) the total amount of any class of the
Titan's voting securities owned by the officers and directors as a
group.
- ------------------------------------------------------------------
(1) (2) (3) (4)
26
Title or class Identity of Person Amount Owned Percent of Class
or Group
- ------------------------------------------------------------------
Common Shares TTN Escrow 3,000,000 34.0%
without par Capital Corp.
value
Common Shares New Equities, Inc. 1,435,600 16.2%
without par
value
Common Shares Directors and 3,066,401 34.6%
without par Officers as a Group
value
Note 1: TTN Escrow Capital Corp. is owned by Michael Paauwe (66.67%)
and Michael Gossland (33.33%), who are officers and directors of the
Titan.
Note 2: New Equities, Inc. is an investment company resident in
Nassua, Bahamas. New Equities, Inc. is managed and administered by
Mr. Russell Barnett of Charleston Private Management Ltd. resident of
Nassua Bahamas, at the same address as New Equities, Inc. Mr.
Barnett has power of attorney over the shares attributed to New
Equities, Inc. and thereby has voting and dispositive power over the
shares held in Titan.
As of the date hereof, there are no arrangements known to Titan, the
operation of which may at a subsequent date result in a change in
control of the Titan.
ITEM 5. Nature of Trading Market
Titan's shares are listed and traded on the Vancouver Stock Exchange
in British Columbia, Canada. Titan's shares are not currently trading
on any US stock exchange nor on the over-the-counter market, and,
accordingly, there is currently no public market for Titan's common
stock in the United States. There can be no assurance that any
market will develop after the effective date of this Registration
Statement. Titan plans to list its securities on the US NASD Over The
Counter ("OTC") Bulletin Board market during the next few months, but
no assurance can be given that an NASD OTC Bulletin Board listing
will occur.
Trading in Titan's shares commenced in Canada on the Vancouver Stock
Exchange on July 24, 1996. The following table sets-forth the high
and low sales prices for Titan's shares for the quarterly periods
shown, expressed in Canadian Dollars and the trading volume in number
of shares for the applicable time period.
- ------------------------------------------------------------------
(1) (2) (3) (4)
Year and Month High Low Volume
- ------------------------------------------------------------------
February 1,1999 - April 30, 1999 1.25 .88 556,100
November 1,1998 - January 31, 1999 1.35 .85 425,400
27
August 1, 1998 - October 31, 1998 1.48 1.20 294,800
May 1, 1998 - July 31, 1998 1.55 1.41 455,350
February 1, 1998 - April 30, 1998 1.49 1.30 765,926
November 1, 1997 - January 31, 1998 1.44 1.25 224,900
August 1, 1997 - October 31, 1997 1.60 1.20 622,490
May 1, 1997 - July 31, 1997 1.35 1.05 406,200
February 1, 1997 - April 30, 1997 1.60 1.30 812,400
November 1, 1996 - January 31, 1997 1.85 1.43 814,950
The Vancouver Stock Exchange was established in Vancouver, British
Columbia, Canada in 1907 by a special Act of the British Columbia
(B.C.) Legislature. In 1998, it was the fourth largest business
stock exchange in North America for trading volume, after NASDAQ, the
New York and Toronto stock exchanges. During 1998, nearly 1400
companies were listed and over 5.2 billion shares worth $3.79 billion
were traded.
The VSE is overseen by the Government of B.C. through the B.C.
Securities Commission. The VSE is a self-regulating organization
owned and operated by 54 national and regional member firms, holding
70 seats on the exchange. The VSE's Board of Governors has 22
members, of which one-third are public governors appointed by the
Provincial Government. The VSE President sits on the Board and the
remainder are member governors, elected annually from the brokerage
industry. The Chair of Board of Governors is a public governor.
With the implementation of its Vancouver Computerized Trading (VCT)
system in January 1990, the VSE became the first stock exchange in
North America to convert from the traditional open-outcry auction
method to a fully automated trade execution system. VCT provides
complete, real-time, online quotations, information on the depth of
the market, accelerates the trading process and improves surveillance
capabilities. In 1998, 2.3 million orders were placed through VCT
resulting in approximately 1.2 million trades. There were over 5.2
billion shares traded valued at $3.79 billion Canadian.
A listed company must file prompt notice with the Exchange of any
proposed significant or material change in its business, property,
affairs or undertakings. The notice must be filed at least 30 days
prior to completion of the proposed change or transaction unless
specific rules or policies of the Exchange permit a shorter filing
requirement.
A reporting issuer must prepare and file with the Exchange and the
B.C. Securities Commission and mail to shareholders the following
financial reports:
a) Interim Financial Statements - for the three, six and nine month
periods in each financial year - together with a comparative
financial statement to the corresponding period in the previous
financial year; and
b) Annual Comparative Financial Statements - audited comparative
financial statements approved and signed by the directors.
28
The VSE has two tiers of companies as follows:
ADVANCED COMPANIES. Companies that fall into these categories meet
higher asset, market value and shareholder distribution requirements
than those classified as Venture Companies.
VENTURE BOARD. A classification of VSE-listed companies that are in
the early stages of development and that meet the minimum asset,
market value and shareholder distribution requirements. Approximately
75 per cent of VSE-listed companies fall into this category.
Titan's shares have traded on the Venture Board since completion of
its initial public offering in July 1996.
As of April 30, 1998 there are approximately 50,000 common shares
representing .5 % of Titan's outstanding shares held of record by one
person residing in the United States. Titan estimates, but is not
sure, that there may be a total of four or five beneficial holders of
its common shares holding approximately 350,000 shares of its stock
in the United States, held in both registered and unregistered form.
ITEM 6. Exchange Controls and Other Limitations Affecting Security
Holders
Except as discussed in Item 7 as to taxes and withholding, the Titan
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
Titan's shares.
Titan 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 Titan.
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, that investor would be
required to obtain approval if the asset value of the corporation is
greater than $178 million Canadian. If the asset value of the
corporation at the time of the proposed acquisition is less than $178
million Canadian, 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 Titan is deemed to be held by United
States investors, and if Titan then
29
wished to make investments of greater than $178 million Canadian in
Canada, it would need governmental approval.
Certain transactions involving Titan'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 Titan, 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 Titan
should consult professional advisors as to whether and how the
Investment Canada Act might apply.
ITEM 7. Taxation
The following paragraphs set-forth a summary of all material
information regarding Canadian income taxation in connection with the
ownership of Titan's shares. Note that 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 held by US stockholders. There may also
be relevant state, or local tax considerations that are not discussed
here.
Titan's management believes that the following general summary fairly
describes the principal federal income tax consequences applicable to
a holder of Titan'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 here.
DIVIDENDS
Dividends paid or credited on Titan'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 Titan) 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
30
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.
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 Titan 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 Titan.
Where a resident of the United States meets the 25% ownership tests
described above, the person's capital gains realized on the
disposition of Titan's shares will be subject to Canadian income tax
if the value of Titan'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 Titan fails
the value of assets test, that person's capital gains realized on the
disposition of Titan'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 Titan (stated in Canadian dollars) prepared in accordance with
Canadian generally accepted accounting principles (Canadian
31
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 fiscal year ended
October 31, 1994 through the fiscal year ended October 31, 1998,
inclusive, and the related notes, and should be read in conjunction
with the financial statements and with the information appearing
under the heading "Item 9 - Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Reference is made to Note 8 of Titan's October 31, 1998 financial
statement included herewith for a discussion of the material
differences between Canadian GAAP and US GAAP, and their effects on
Titan's financial statements. To date, Titan has not generated
sufficient cash flow from operations to fund ongoing operational
requirements and cash commitments. Titan has financed its operations
principally through the sale of its equity securities and its ability
to continue operations is dependent on the ability of Titan 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
- ---------------------------------------------------------------------
Fiscal Years ended October 31
1998 1997 1996 1995 1994(2)
- ---------------------------------------------------------------------
Revenue $ 123,658 $ 92,801 $ 21,213 $ 11,165 $ ---
Expenses $ 557,517 $ 293,615 $ 291,805 $ 336,058 $ 75,058
Interest
& Other
Income $ 41,457 $ 58,581 $ 35,290 $ 9,490 $ ---
Net Loss
for the
year
Canadian
GAAP $ 392,402 $ 142,233 $ 235,302 $ 315,403 $ 75,058
US GAAP $ 392,402 $ 142,233 $ 235,302 $ 315,403 $ 75,058
Net Loss
Per Share(1)
Canadian
GAAP $(.04) $(.02) $(.03) $(.78) $ 75,058
US GAAP $(.07) $(.03) $(.06) $(.78) $ 75,058
Net Working
Capital $1,340,017 $ 1,672,725 $ 1,579,827 $ 902,720 $ 77,905
Total
Assets
Canadian
GAAP $1,672,903 $ 1,924,638 $ 1,776,793 $ 977,238 $ 106,436
US GAAP $1,672,903 $ 1,924,638 $ 1,776,793 $ 977,238 $ 106,436
Long Term
Obligations $NIL $NIL $NIL $NIL
_____________________________________________________________________
32
(1) Calculated based on the average weighted number of shares
outstanding on a non-diluted basis. 3,000,000 escrow shares, which
are issuable based on future financial performance (see Item 4.
Control of Titan) are excluded from the average weighted number of
shares outstanding on a non-diluted basis, in calculating net loss
per share under US GAAP, but are included in the same calculation
under Canadian GAAP. However, this does not affect Net Loss for
the year and therefore that figure in the table above remains the
same under both US GAAP and Canadian GAAP.
(2) 1994 financial data disclosed above is from May 1994 ( date of
inception) to October 31, 1994.
To date, Titan has paid no dividends on its shares, and does not
anticipate doing so in the foreseeable future. The declaration of
dividends on Titan's Common Shares is within the discretion of
Titan's board of directors and will depend upon, among other factors,
earnings, capital requirements, and the operating and financial
condition of Titan.
EXCHANGE RATES
As at June 28,1999, the median bidding exchange rate of Canadian
dollars into United States dollars was $1.4695 Canadian to $1.00
United States.
The following table sets forth, for the periods and dates indicated,
certain information concerning exchange rates of United States and
Canadian dollars. All the figures shown represent noon buying rates
for cable transfers in New York City, certified for customs purposes
by the Federal Reserve Bank of New York. The average rate means the
average of the exchange rates on the last day of each month during a
year. The source of this data is the Federal Reserve Bulletin and
Digest.
Period Period End Average High Low
- ------- ---------- ------- ------ -------
(CDN$/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
Year 2000 potential negative business impact and risks
The Year 2000 computer problem may have an adverse and unpredictable
affect on Titan's operations due largely to its ongoing dependence on
various third party software programs and financial market exchange
data vendors.
33
The principal material risk previously identified was Titan's
reliance on Omega Research Inc.'s TradeStation (TS) software product.
On June 30, 1999 Omega Research Inc. shipped the Year 2000 patch for
TradeStation 4.0 to Titan and its other customers. The TradeStation
product is the platform upon which Titan's main software products
operate. During July 1999 Titan fully implemented the Year 2000 patch
into its VirtualTrader software product and completed extensive
testing to ensure that all other TS dependent company software is now
Year 2000 compliant, including the Stock Index Trader and the World
Currency Trader.
Titan continues to depend 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 these data suppliers
may be adversely affected by the Year 2000 compliance issue, this
will also have the effect of limiting Titan's actual trading
operations, and may adversely affect its financial results.
In order to get its internal Microsoft Windows based office computer
systems Year 2000 compliant, Titan still needs to download and load
the Microsoft Windows 95 and Windows 98 Year 2000 patch for its
Windows 95 and 98 operating systems and purchase an off the shelf
utility program to fix any problems in the bios and clocks of its
computers. The target date for assessment of Year 2000 compliance and
the completion of this work is September 30, 1999.
Titan has expended approximately $8,500 of internal resources to date
(the time of M. Gossland, John Austin and M. Paauwe) in identifying
and fixing Year 2000 related problems, and expects to expend an
additional $2,500 of the same internal resources, and the purchase of
a utility software, before having remedied identified potential
internal Year 2000 problems associated with its Microsoft Windows
based office computer systems.
In the event the potential Year 2000 problems are not completely
dealt with, Titan runs the risk of interruption to, or shut down of,
its proposed Internet Subscription Service, and/or an interruption in
its ability to trade and analyze data. Similar negative results
would occur if the US stock exchanges or US commodities markets upon
which it depends for its financial information and market data ceased
operations.
Titan but does not yet have contingency plans in the event major
financial markets or any of its third-party data providers cease
operation as a result of a year 2000 problem. Titan plans to have
contingency plans in place by October 31, 1999 to deal with potential
Y2K disruptions in its third party market data feeds.
The following discussion and analysis should be read in conjunction
with Titan's consolidated financial statements and notes thereto
appearing under Item 17 - "Financial Statements".
GENERAL OVERVIEW OF REVENUE AND EXPENSES
Titan is a development stage company and presently receives income
from the following sources; software sales and licenses, trading
income from trading the company's own account, and interest income
earned on cash balances held in working capital. In the future,
revenue is also expected to be generated from the planned Internet
Subscription Service to the stock market information published on
34
Titan's website. As noted in the INTRODUCTION Titan sells licenses to
use its VirtualTrader software to private and professional traders.
VirtualTrader is delivered to customers by a pre-arranged download
from Titan's website. The terms of sale are FOB Nanaimo, British
Columbia, Canada. Delivery is confirmed by direct contact with the
customer following download of the software over the internet.
Interest and other income reported in the financial statements totals
$153,350 for the three and one half years ended April 30, 1999. The
interest income earned on cash balances is from Titan's own cash, and
includes interest earned on short-term money market funds and short
term treasury bills on corporate cash balances held in broker
accounts for the purposes of trading. The cash balances are reported
in the financial statements as 'Cash, due from brokers, and short
term investments'. Titan is not a broker dealer, does not presently
trade any third-party funds, nor does it hold in its control any cash
balances from any third parties.
Existing software products, including the World Currency Trader
software, the Stock Index Trader software and VirtualTrader
software, have only generated total sales and license revenues
through April 30, 1999 of $149,631. The VirtualTrader software is
delivered to customers by way of electronic download over the
internet or alternatively the software is shipped to customers
directly on disks. The current price of the VirtualTrader software
is USD $2,500.
Income or losses from trading of fully developed and tested trading
systems software is reported when earned, as trading income or
trading loss, in each period, as the case may be. Income or losses
from trading systems still in development is reported in the
financial statements as system testing income or expense, in each
period, as the case may be.
Trading Income was first reported in the fiscal year ended October
31, 1998 after the World Currency Trader software and Stock Index
Trader software systems completed development and were fully
installed in April 1998. Since that time, a trading program has been
carried out, in part, to show the functionality and effectiveness of
the software technologies developed. Trading income from stock index
and currency trading reported in fiscal year ended October 31, 1998
and the six months ended April 30, 1999 totaled $134,485, $70,607 in
the Fiscal Year Ended October 31, 1998 and $63,878 in the six months
ended April 30, 1999.
System testing income from trading systems under development was
reported for fiscal year ended October 31, 1997 in the amount of
$56,761.00. There was no development and testing income reported for
fiscal years 1998 and 1996. System testing expenses on systems under
development was reported for the fiscal year ended October 31, 1998
in the amount $42,490.00 mainly for the Stock Index Trader software
and stock day trading systems in development and in the amount of
$57,934.00 for the fiscal year ended October 31, 1996, from World
Currency Trader software and Stock Index Trader software systems
under development. There was no system testing expenses reported for
fiscal year 1997 because gains in that fiscal year happened to exceed
losses on the trading systems under development. Improvements in stop
loss management methods during the 1997 trading system software
development was the principal reason for the improved results of
System testing activities in 1997. Stop loss management involves
various methods of controlling losses in trading. Methods used by
Titan include limiting the maximum loss potential of a trade at the
commencement of the trade, by establishing a
35
stop order to limit losses. It can also include following the
practice of locking in open gains with the use of stop orders and by
establishing expected trade performance profiles based on historic
testing. The stop loss methods used successfully in the period
reported related to better matching of individual trade stop loss
settings with the current volatility conditions of the market. Similar
stop loss methods were used by Titan in 1998 and this contributed
to the reported net trading gains in that period. System testing
losses of $42,490 in 1998 still resulted even though the improved
methods were used in the stock daytrading activities under test.
However, stop loss management may not automatically result in
similar overall improved results in all future trading periods
because market conditions respecting volatility may change on a
period to period basis and the rules and methods used may need to
be adapted to such changing market conditions and the nature of the
securities traded.
As noted in the TRADING AND TESTING ACTIVITIES section, while trading
systems are in a research and development stage, there is a final
period of actual online testing which involves executing trades based
on information provided by the trading indicators or models in order
to finally validate or ultimately reject a developed trading method
and the related software. During this final testing and validation
activity stage and before the software development is considered
completed in all material respects, all related trading activity is
booked in the company's accounts as System testing expenses. Once
that particular software or trading indicator is finally technically
validated by real time testing in actual trading activity, only then
is the development considered completed. Any continued trading
activity results beyond that point based on that software are booked
in the accounts as Trading Income or Trading Losses. Titan relies on
the extensive development experience and expertise of Michael Paauwe
and Michael Gossland in making the determinations that a particular
trading method, system or indicator development is complete.
All Titan trading indicators and software was considered to be in the
developmental stage until April 1998 when the company reported that
development of the stock futures and currencies systems was
considered complete. All stock index and currency trading activities
since that date, whether resulting in a gain or a loss, have been
booked in the accounts as Trading Income or Loss. All trading
activity results which related to the stock daytrading development
project, which took place from the August 1998 to the announced
termination on April 1, 1999, were recorded as System testing because
the systems were still in a testing and development stage up to the
date the project was ended.
In order to aggregate all net gains or net losses from all trading
activity, including System testing , net results are shown by year in
the section and table entitled TRADING AND TESTING.
For full details of all trading activities for the past three years
also refer to the summary financial information set out in the
section entitled BREAKDOWN OF TOTAL SALES AND COSTS TO DATE.
In analyzing Expenses incurred in operations by source, the largest
components of expenses are the regular salaries and benefits for
staff, the ongoing monthly contracted management fees, and
36
professional fees representing mainly accounting and legal expenses.
The next largest expense item is for amortization, which is a non-
cash outlay that covers amortization of software and system
development costs, as well as depreciation on office computer
systems. Advertising, marketing and promotion expenses, travel and
investor relations expenses are recurring large cash expenses
incurred in the ordinary course of the business of Titan. Expenses
for office, rent, telephone and bank charges are relatively small
constant monthly costs. System testing expenses reported in the most
recent prior represents the losses from the now abandoned stock
daytrading project. Directors fees are paid to the two outside
directors and have averaged a total of $5,000 per year.
Daily market commentary and related short term stock market trading
indicators have been published on Titan's website on a demonstration
basis at no cost to visitors since October 1996. Traffic to the
website generated 45,000 hits (website page views) in May 1999,
rising from 27,000 hits in October 1998. Website traffic is expected
to rise further upon the launch of a sustained advertising and
marketing campaign in connection with the Internet Subscription
Service that is expected to commence in October 1999. This service is
expected to be offered to subscribers at between US $100 and US $200
per month, depending on the features subscribed to.
CANADIAN GAAP vs. US GAAP
Titan'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 8 to the October 31, 1998 fiscal year end
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. In the case
of the Titan, a material impact of the differences between Canadian
GAAP and US GAAP in the financial statements relates to the existence
of the 3,000,000 escrow shares and the fact that these shares are not
considered issued under US GAAP for purposes of calculating the net
loss per share. Therefore, as noted in the discussion below, the net
loss per share is increased under US GAAP versus that shown under
Canadian GAAP.
Note 8 to the audited fiscal year ended October 31, 1998 financial
statements of Titan, discusses the material differences between
Canadian GAAP and US GAAP, and their effect on Titan'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 excluding shares that are subject to
escrow restrictions, unless the conditions for issuance are currently
met or will be met by the mere passage of time. Titan has 3,000,000
escrowed 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 existence and terms of
release of the escrow shares affects the net loss per share
calculations in the reconciliation between Canadian GAAP and US GAAP,
due to the fact that under US GAAP, shares conditionally issuable are
not to be used in the average number of shares outstanding in the
calculation of net loss per share. Under Canadian GAAP these escrow
shares are used in the calculation of the average number of shares
outstanding for purposes of the net loss per share calculations. The
result is that net loss for the year is the same under both Canadian
GAAP and US GAAP but the net loss per share differs according to the
37
reduced number of average shares outstanding as used in the loss per
share calculations. The resulting differences in the loss per share
calculations are as set forth in the financial statements for the FYE
October 31, 1998 and 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. Titan has prepared its financial
statements in accordance with APB 25 under which stock options are
measured by the intrinsic value method whereby directors, officers
and employee compensation cost is limited to the excess of the quoted
market price at date of grant over the option exercise price. Since
the exercise price equaled the quoted market price at the dates the
stock options were granted, there was no compensation cost to be
recognized. Had Titan valued the options using a fair market value
method (as required under SFAS 123) such as the Black-Scholes option
pricing model, there would be an increase in employee and director
compensation costs charged to income of $Nil in 1998, $Nil in 1997
and $6,350 in 1996. Thus, in the case of Titan, US GAAP results in
an increase to compensation totaling $6,350, as described more fully
in Note 8 to the audited fiscal year ended October 31, 1998 financial
statements of Titan. 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", together with the impact of the
escrow shares, as noted in the discussion above.
OVERVIEW OF BUSINESS OPERATIONS
Titan is a financial software development company still in a
development stage. Titan is engaged in the development of proprietary
software based financial trading systems and technologies with the
aim of developing proprietary software technologies to a stage where
they can be exploited for profit. Existing software products have
been marketed and are also being used internally in Titan's own
operations with the objective of eventually establishing consistent
revenues from profitable trading operations, software sales and a
planned internet financial website subscription service revenues
("Internet Subscription Service"). The application of Titan's
VirtualTrader software to stock trading and the potential to apply
this technology in a growing internet based electronic trading
environment was, until recently, the focus of Titan's development
efforts and marketing plans. Efforts are now being directed to the
development and marketing launch of Titan's planned Internet
Subscription Service. Titan's Internet Subscription Service will be
an internet based, financial subscription service that provides
subscribers with daily US stock market commentary and technical
analysis of individual high quality, high volume US stocks. This
service will be targeted at stockbrokers, traders and investors, on a
pre-paid monthly subscription basis. Management believes that its
existing trading systems and software technologies can be profitably
exploited in its in-house trading and Internet Subscription Service
with a sustained marketing and sales effort and by the formation of
appropriate strategic business alliances and software license
agreements with established firms. A new full-time Manager of
Marketing and Sales was hired in November 1998 for this purpose.
Also, in March 1999 a Special Projects Coordinator was retained to
manage new financial subscription advertising and promotions
planning, corporate marketing media development and new internet
website development and publishing projects for Titan.
Prior to the current fiscal year and during 1998, Titan's operations
were primarily directed at developing trading systems software with
the VirtualTrader software product, related market testing
38
and introductory sales. As a result, to date, Titan has received only
limited revenues from software sales and licenses, in-house trading
income and interest income on cash balances from working capital.
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 because of 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 Titan's
trading activities. Overall net trading results since May 1, 1998
have been positive as noted below.
In the period from August 1, 1998 to October 31, 1998, Titan
completed development and software testing of its application of the
VirtualTrader software to day-trading quality, high volume, US big-
board stocks. The testing consisted of completing hundreds of
simulated day-trades inside Titan's VirtualTrader software, as well
as executing approximately 150 test day-trades over the internet with
a US discount brokerage firm.
A positive independent product review of the VirtualTrader 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, and initially produced
a larger 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 VirtualTrader software sales in future.
As a result of Titan's limited sales and trading activity to date,
inflation and changing prices have not had a material effect on the
Titan's net sales, revenues and income from continuing operations.
Six months ended April 30, 1999 compared to April 30, 1998 and FYE
October 31, 1998
As at April 30, 1999 Titan had cash balances of $1,073,077 and net
working capital of $1,078,842, compared to cash balances of
$1,363,816 and net working capital of $1,340,017 at FYE October 31,
1998.
Revenue in this period from software sales and trading income was
$31,438 and $63,878 respectively, compared to $53,051 and $70,607
respectively in the FYE October 31, 1998. These revenues increased by
$66,100 over the corresponding six month period in 1998 as trading
became profitable and software sales increased. Trading during this
period was higher as the result of improved consistency of profitable
trades over prior periods, particularly in stock index trading.
Software revenue increased primarily because of increases in price,
not as a result of unit sales gains. Interest and other income
dropped to $18,022 during the period compared to $41,457 in FYE
October 31, 1998 and compared to $30,236 in the same six month period
in the previous year. Interest income is gradually dropping as cash
balances in working capital drop from period to period.
39
Total assets dropped to $1,447,931 compared to $1,672,903 at FYE
October 31, 1998 due to the loss for the period. The net loss for the
period was $201,787 compared to $157,448 in the same period of the
prior year and compared to a net loss of $392,402 for FYE October 31,
1998. The increase in the net loss for the period compared to the
same period last year is mainly the result of a $20,000 increase in
Professional fees expenses incurred in connection with a regulatory
filing in the US, an increase in salaries and benefits caused by
increased staffing, and an increase in investor relations expenses of
$19,338 compared to $Nil in the same period of the prior year.
Titan invested $19,576 in computer system purchases and $84,663 in
software and systems development during the period.
After discontinuing on April 1, 1999, the stock day trading joint
venture with Wolverton Securities Ltd. previously announced in
November 1998, corporate development efforts have been directed at
further research and development of the planned internet website,
demonstrating and improving the marketability of the published daily
market commentary, and planning and developing the new Internet
Subscription Service.
In April and May 1999 Titan began research and development of new
multimedia internet software and related internet e-commerce software
programs expected to be publicly announced before the end of the
fourth quarter of the current fiscal period. This multimedia and
internet software and all related business development by the Titan
maybe sold to third parties for further development sometime after
the end of the current fiscal period.
During April, May and June 1999, Titan registered for its own planned
use, the following Internet Domain names, as part of its future
internet business plans: TitanRadarScreen.com, WorldMarketScan.com
and SeedStockCapital.com. RadarScreen is a new financial software
program recently developed and released by Omega Research Inc.
viewable on the internet at omegaresearch.com.
FYE October 31, 1998 compared to FYE October 31, 1997
At the end of this last fiscal year end reporting period, Titan had
cash balances of $1,363,816 and net working capital of $1,340,017,
compared to cash balances of $1,667,530 and net working capital of
$1,672,725 at October 31, 1997.
Total revenue for the year increased to $123,658 (not including
$41,457 in Interest and other income) compared to $92,801 ( not
including $58,581 in Interest and other income) in the previous year
arising from small increases in software sales and trading income.
Total assets dropped to $1,672,903 from $1,924,638 at October 31,
1997. This reflects a net loss in operations for the fiscal year
ended October 31, 1998 of $392,402, or $.04 per share, compared to a
net loss of $142,233, or $.02 per share in the year ended October 31,
1997. The cash loss in operations for the fiscal period ended October
31, 1998 was $287,898 compared to $61,560 in the fiscal year ended
October 31, 1997. The $226,338 increased cash loss in operations came
about as a result of the following factors, in combination.
Advertising, marketing and promotion expenses jumped by $81,142
40
over the prior period as marketing efforts to introduce Titan and its
products to the institutional sector were scaled up. Management fees
and salaries and benefits also increased during the period compared
to the last year by $36,110. Investor relations expenses were
incurred for the first time in the amount of $31,888 as a result of
the costs of presentations to stock brokers and potential investors
in Europe and in offshore financial markets. System testing expenses
of $42,490 were incurred, an increase from $NIL the previous year,
which sum included new increased costs from VirtualTrader related
stock day trading activities. These increased expenses include and
reflect the costs of hundreds of small scale test trades being
conducted over the internet with related commission costs, to
develop, test and validate the stock day trading systems under
development. These costs do not include any costs to demonstrate the
software to potential customers but relate strictly to net losses
inclusive of commissions from test trading hundreds of 100 lot ( the
purchase of 100 shares) NASDAQ stock trades during the development
project, subsequently abandoned in April 1999 as noted in the section
HISTORY OF BUSINESS DEVELOPMENT.
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") for officers Paauwe and
Gossland . First time management bonuses of $20,000 were paid to each
of Gossland and Paauwe, and directors' fees totaling $5,000 were paid
to the two outside directors Paul Shatzko and Robert Shatzko.
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$8,000 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 World Currency
Trader software 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 Titan, promotion to offshore investment groups of the World
Currency Trader software systems, presentations of Titan'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 VirtualTrader development, and ongoing
monthly market research and reporting.
During this period Titan licensed its World Currency Trader software
for a period of twelve months to an international money manager based
in London. This resulted in the securing of an independent
testimonial as to the profitability of the World Currency Trader
software software when applied to currency hedging in international
stock portfolio management following use by this client. This
testimonial is expected to form the basis for future European
software marketing efforts..
Expenditures on software and systems development during the period
were $198,718. 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 and position trading simulations capability of the
VirtualTrader software and the costs of solving related stock market
data conversion problems necessary to facilitate the development of
that that application. Of the total software and systems development
expenditures of $198,718 reported during this period, an estimated
$138,000 is attributed to developing the stock trading capabilities
and solving the related
41
data conversion problems. Out of the balance of $60,718 in expenditures,
an estimated $41,000 is allocated to VirtualTrader software debugging and
$19,718 to final development of the Stock Index Trader software. No
portion of these costs are attributable to losses from trades, which are
reported under System testing as noted above.
The main development project on the VirtualTrader 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 income of $70,607 offset system testing expenses for the year
of $42,490. Actual trading operations started to contribute to
operations. In sum, the better contribution to operations from
trading during this period in the sum of $70,607 is the result of
having substantially completed trading system development of the
stock index trading systems effective in April 1998.
Cash balances were supplemented by the exercise in May 1998 of
$131,250 in broker warrants by Yorkton Securities Inc. of Calgary,
Alberta, Canada. These agent warrants were still outstanding from
the agency agreement related to the initial public offering completed
in British Columbia in July, 1996. This exercise of broker warrants
contributed funds to increase expenditures on travel, corporate
promotion and investor relations. Travel, marketing and promotion
expenditures increased as the result of efforts to promote Titan's
software and systems technology to new potential US Canadian and
European institutional clients.
A first stage direct mail campaign on the VirtualTrader software
product was initiated during the second quarter with limited results.
The effectiveness of advertising and marketing programs to date on
sales of the VirtualTrader software into the futures trading market
segment has been limited. The market size of this segment is small
and this is reflected in the relatively small level of software sales
to date.
During late 1998 the focus of further applications and software
development work on the VirtualTrader 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. As noted above, total expenditures on software and systems
development increased by $52,584.00 over the previous year. This was
all attributable to the stock daytrading development project.
Applications work on the VirtualTrader stock trading application
neared completion during the final quarter ending October 1998, and
as noted above, actual online system testing started in September
1998.
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. Titan had cash balances
of $1,667,530 and net working capital of $1,672,725 compared to
42
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 or $.02 per share compared to a net loss of
$235,302 or $.03 per share 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. Total revenue
jumped to $92,801 from $21,213 the previous year. This was mainly the
result of improved trading results, including a $56,761 increase in
system testing income. There was also a large reduction in system
testing expenses, which fell to NIL during this period, compared to
$57,934 in the prior period. In addition, cash losses were reduced by
an increase in Interest and Other Income, which rose to $58,581 from
$35,290 the prior year, as the result of larger average monthly cash
balances in working capital, following the initial public offering in
July 1996 and the private placement of common stock in the sum of
$302,400 completed in December 1996. These factors, in combination,
produced the net reduction of $140,138 in the cash loss for the
period, over the previous fiscal year.
As noted under Research and Development Policy, Titan capitalizes
software under development and amortizes these costs over the
expected life of the software. 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. Titan remained in an
early stage of product and system development and market testing
during this period. The development stage continued as the focus of
Titan's resource allocation shifted to exploitation of the
VirtualTrader technology for in-house trading operations work.
Fifty Nine percent (59%) of the operating loss for FYE 1997 was from
amortization expense, 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. Titan 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. The $80,101 reduction in net loss for
the period was the result of a $10,048 increase in software sales, a
$25,800 increase in interest income from the larger cash balances and
a
43
reduction of $44,253 in operating expenses. Included in the expense
reduction was $18,000 in management fees which were allocated to
share issue costs associated with the initial public offering. 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 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, Titan'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 ("
Stock Index Trader software") development, and produced the first
demo software versions of this product.
A number of fees connected with the filing of Titan'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, Titan
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, regulations relating to the sale of commodities,
futures and options trading systems in the United States were changed
by the Commodities Futures Trading Commission ("CFTC"). Legal
proceedings were commenced in the US against certain unregistered and
allegedly unscrupulous vendors of trading systems. As a result of
these actions and the related adverse publicity, customer demand
dropped immediately, and the market environment quickly became
uncertain. Titan thereafter canceled plans to market its Stock
Index Trader software series software, incorporating it instead as a
component of the VirtualTrader software development. This action
had the effect of reducing expected software sales revenues until the
development of the new VirtualTrader 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, Titan 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
44
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 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.
Titan completed initial development of a portfolio of international
currency trading models - the World Currency Trader software 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 Stock Index Trader 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 Titan
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 World Currency
Trader software 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 Titan's
marketing and sales programs.
Five Month Initial Operating Period ended October 31, 1994
Titan's founder, Michael Paauwe, commenced operations on behalf of
Titan in May 1994. In the period from May 1994 to October 31, 1994,
Titan 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 the six month reporting period ended April 30, 1999,
Titan had cash balances of $1,073,077 and net working capital of
$1,078,842, compared to cash balances of $1,363,818 and net working
capital of $1,340,017 as of October 31, 1998. Over the next 18
months, Titan expects to spend approximately $250,000 of its capital
on continuing research and development of its web site and
45
Internet Subscription Service and software products to enhance trading
activities. Titan also expects to spend an additional $95,000 on
computer equipment and systems and hire 3 - 6 additional staff as a
result of business expansion and for the development and marketing
launch of its Internet Subscription Service.
During the six month period ended April 30, 1999 there was a decrease
in cash of $290,739, of which $156,937 was from cash used in
operations and $104,239 was from investing activities. $84,663 was
invested in software and systems and $19,576 in acquisition of
capital assets, mainly computer systems. There was no cash raised
from financing activities during this period. Total assets dropped
to $1,447,931 compared to $1,672,903 at FYE October 31, 1998 due to
the net loss for the period. The net loss for the six months ended
April 30, 1999 was $201,787 compared to $157,448 in the same period
of the prior year and compared to a net loss of $392,402 for FYE
October 31, 1998. Losses are expected to continue for the next
several quarters.
By reference to the working capital resources and liquidity risks
outlined above, management believes Titan has sufficient current
liquidity and working capital resources sufficient to sustain the
operations in accordance with its present business plans for at least
12 months without requiring additional financing.
As Titan does not as yet have net income from its operations and does
not currently have an existing credit facility, Titan's liquidity
beyond the next 12 months depends on its ability to either generate
earnings in the future, access the capital markets or enter into
joint venture agreements. The ability of Titan 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 financing at this time.
Titan does not know of any other trends, demands, commitments, events
or uncertainties that will result in, or that are reasonably likely
to result in, Titan's liquidity either materially increasing or
decreasing at present or in the foreseeable future.
Titan 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.
Titan is not aware of any material trends, favorable or unfavorable,
in its capital resources other than as discussed here, and does not
anticipate any material changes in the mix of the relative costs of
these resources.
ITEM 10 Directors and Officers of Titan
The following table sets forth, as of December 31, 1998, the names of
the directors and executive officers of Titan, 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. In
46
addition, TTN Escrow Capital Corp. a 34% shareholder of Titan is
owned by Michael Paauwe (66.67%) and Michael Gossland (33.33%), who
are officers and directors of the Titan. There are no other family
relationships between any director or executive officer and any other
director or executive officer.
- -------------------------------------------------------------------
Name and municipality Position with Titan Commencement of Service
of residence
- -------------------------------------------------------------------
Michael B. Paauwe President & Director May 1, 1994
Nanaimo, British
Columbia
Michael Gossland Vice President,
Secretary, September 1, 1994
Nanaimo, British Manager of Software
Columbia Dev. & Director
Paul Shatzko Director December 1, 1994
West Vancouver,
British Columbia
Robert Shatzko Director April 15, 1996
San Mateo,
California
Jennifer Gee Chief Financial Officer December 1, 1994
Nanaimo, British
Columbia
Michael B. Paauwe, the founder, President and a director of Titan,
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
Titan under a contract services agreement. Mr. Paauwe devotes the
majority of his time to the business and affairs of the Titan.
Michael Gossland, M. Sc., P. Eng., is the Vice President, Secretary,
a Director, and the Manager of Software Development of Titan. 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
47
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 Titan.
Paul Shatzko, M.D. a radiologist who formerly practiced in North and
West Vancouver, British Columbia, is a director of the Titan. 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. MPV trades on the VSE, Toronto Stock
Exchange and on the NASDAQ. 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 other publicly traded companies, and in addition
to Titan and MPV is presently a director of Camphor Ventures Inc.
( VSE symbol "CFV"), Gee-Ten Ventures Inc. (VSE symbol "GTV") and
Amex Ventures Inc. (VSE symbol "AEX") . Dr. Shatzko devotes the time
to the affairs of Titan as is considered necessary to perform his
functions as a director.
Robert Shatzko, a member of the California State Bar and a trial
lawyer, is a director of the Titan. 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 time to the
affairs of Titan 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 Titan's
requirements necessitate the appointment of a full-time Chief
Financial Officer.
ITEM 11. Compensation of Directors and Officers
During the six months ended April 30, 1999 and the fiscal year ended
October 31, 1998, the following executive officers received
compensation from Titan 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 6 months ended April 30, 1999 FYE October 1998
- -------------------------------------------------------------------
48
Michael B. Paauwe, $ 50,000 $ 85,667
president
Michael Gossland,
vice president,
secretary, $ 47,500 $ 82,750
manager of software
development
Jennifer Gee $ 5,600 $ 6,526
chief financial
officer
Total Compensation $ 103,100 $ 174,943
to all Directors &
Officers
Titan 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.
Titan does not compensate directors who are also officers of the
company for acting as directors, and Titan has not set-up or paid out
on any pension, retirement or similar plans for directors or
officers.
ITEM 12. Options to Purchase Securities from Titan and Subsidiaries
OPTIONS
Certain of the directors and officers, as well as employees who are
not directors or officers of Titan, have been granted incentive stock
options to purchase Common Shares of Titan at various prices. As of
April 30, 1999 the following total number of Company stock options
are outstanding:
- -------------------------------------------------------------------
Holders Number of Exercise Price Expiration Date
Common Shares
- -------------------------------------------------------------------
Directors and 755,000 $0.90 July 2001
officers as a
group 390,000 $1.00 April 2004
---------
Total 1,145,000
Employees who 75,000 $0.90 July 2001
are not
directors or 90,000 $0.85 January 2004
officers 45,000 $1.00 January 2004
---------
Total 210,000
WARRANTS
49
There are no outstanding warrants to purchase Titan's common shares
as of April 30, 1999; nor were any outstanding at the end of the last
reporting period on October 31, 1998.
125,000 warrants that were issued to an agent for services in
connection with the initial public offering in 1996 were exercised by
their expiration date in July 1997. 158,000 warrants issued in
connection with a private placement in 1997, expired without being
exercised in June of 1998.
ITEM 13. Interest of Management in Certain Transactions
MATERIAL TRANSACTIONS
It is Titan's policy in related-party transactions is to try to
ensure that the cost and payment terms of related party transactions
reflect costs of similar arm's-length transactions, in accordance
with normal Canadian business practices and with due consideration
for the impact of Canadian income taxes requirements. Canadian income
tax asset acquisition and disposition rules deem non-arm's length
transactions to be accounted for as if completed at fair market value
and can impose tax penalties where such transactions are not recorded
in the accounts at the fair market value. Titan completes all non-
arm's length transactions at fair market value as a matter of policy
to avoid any such taxation issues.
The following are descriptions of all material transactions between
Titan and its management.
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 Titan 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 Titan 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 Titan and Paauwe and the
Titan 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 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 $4,500. Titan may
terminate these Services Agreements at any time on 30 days written
notice. If it terminates otherwise than for a material and
substantial failure to perform the agreed services by Paauwe or
Gossland, as the case may be, the Services Agreements provide for
payment of a lump sum
50
equal to 12 times the Fee then in effect plus any unpaid Bonus
(the "Lump Sum") if terminated during the initial term, and an
amount to be negotiated, but not less than the Lump Sum,
if terminated thereafter. The latter provision applies as well to a
failure by Titan to renew the Services Agreement. If terminated for a
material and substantial breach of their obligations, Paauwe and
Gossland, as the case may be, have a 30 day period in which to cure
the breach. The Services Agreements may be terminated by Paauwe and
Gossland, as the case may be, on 120 days written notice to the
Titan. The Services Agreements also contain confidentiality
provisions, and provisions for the arbitration of disputes.
Pursuant to an agreement dated September 15, 1995 (the "Gossland
Agreement"), Michael Gossland (officer and director) assigned to
Titan at his transaction cost, all of his right, title and interest
in all software copyrights, product trademarks and related assets in
respect of NeuralEdge and Neural$. 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 Titan 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 Titan pursuant to the Gossland
Agreement.
Note that these transactions were recorded in the Titan's accounts at
cost and no gain was realized by Michael Gossland on the assignment
to Titan of the software copyrights, product trademarks and related
assets in respect of NeuralEdge and Neural$. In addition, of the
$10,000.00 of prepaid royalties in 1995 in this transaction,
$6,000.00 was recovered from a third party in 1996 and the balance of
$4,000.00 was written off in 1998. Finally, it should be noted that
this transaction had no impact on the reconciliation between Canadian
and US GAAP.
In June 1994, Titan 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.
Titan 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, which is
comparable to third-party market rates for similar office space in
the areas.
In addition, during the fiscal year ended October 31, 1995, Titan
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 Titan's business plan.
In 1998 the, Services Agreements for Michael Gossland and Michael
Paauwe were both re-negotiated with the board of directors of Titan
and amended agreements were entered into effective January 1,
51
1998. The amended agreements provide for monthly compensation of
$7,667 per month for Paauwe, and $7,250 per month for Gossland, up
from $6,000 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 Titan 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 World Currency Trader
software 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 VirtualTrader
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 Titan.
PART II
ITEM 14. Description of Securities to be Registered
The class of capital stock of Titan being registered hereby is the
Titan's common shares.
The issued and outstanding share capital of the Titan is summarized
as follows:
The authorized capital of Titan consists of 100,000,000 common shares
without par value. As of May 31, 1999, 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
Titan would be 10,152,001 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, and to
participate ratably in any distribution of property or assets on the
liquidation, winding up or other dissolution of Titan. The common
shares have no pre-emptive or conversion rights. Titan 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
52
upon the terms specified in the resolution. No share purchase shall
be made if Titan is insolvent at the time of the proposed purchase or
if the proposed purchase would render Titan insolvent. Unless otherwise
permitted under The Company Act, Titan 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 Titan.
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 Titan, 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.
In general, the Escrow Agreement was devised to create a long-term
incentive for the beneficial owners of the shares (Michael Paauwe and
Michael Gossland) to act in the long-term interest and for maximum
profitability of Titan, in accordance with the policies of the
Vancouver Stock Exchange. The shares are subject to an earn-out
formula based on cumulative net positive cash flow as described
below, and cannot be released for trading until thresholds of net
profitability are reached. Any escrow shares not released after ten
years are automatically canceled. The Escrow Agreement has been
attached as an Exhibit hereto.
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 canceled 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 Titan's cumulative
cash flow from operations as disclosed in its audited financial
statements from time to time. In short, Policy 3-07 requires that
Titan 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 Titan on a winding up or dissolution.
53
PART III
ITEM 15. Defaults upon Senior Securities
Titan 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
Titan's securities.
PART IV
ITEM 17. Financial statements
The financial statements of Titan 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 8 to the audited financial statements dated
October 31, 1998.
See "Item 19. Financial Statements and Exhibits" for a list of
Titan'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 six months ending April 30, 1999, including:
- Consolidated Interim Balance Sheet
- Consolidated Interim Statement of Operations and Deficit
- Consolidated Interim Statement of Cash Flows
- Notes to the Interim Financial Statements
(b) Audited Financial Statements of the Titan as of October 31,
1998, including:
- Auditors' Report
54
- Consolidated Balance Sheet
- Consolidated Statement of Operations and Deficit
- Consolidated Statement of Cash Flows
- Notes to Consolidated Financial Statements
(c) Consent letter from Collins Barrow in regard to the
inclusion of Independent Auditors' Reports in the Registration
Statement.
Titan Trading Analytics Inc. 201 Selby Street, Nanaimo, B.C.,
Canada V9R 2R2 phone: 250 758 8262
October 31, 1999
Titan Trading Analytics Inc.
Management's Representation Letter
Unaudited Interim Consolidated Financial Statements
For the six months ended April 30, 1999
_____________________________________________
The unaudited management prepared financial statements of Titan
Trading Analytics Inc. covering the six month period ended April
30, 1999 reflect all adjustments which are necessary to a fair
statement of results for the interim period presented, on a basis
consistent with prior periods reported.
Titan Trading Analytics Inc.
\s\ MICHAEL PAAUWE
_____________________________
per: Michael Paauwe, president
TITAN TRADING ANALYTICS INC.
----------------------------
(Incorporated under the laws of British Columbia)
CONSOLIDATED INTERIM BALANCE SHEET
----------------------------------
APRIL 30, 1999
--------------
ASSETS
------
Current Assets 1999 1998
Cash and short-term investments $ 1,073,077 $ 1,440,592
Accounts receivable 11,683 0
Prepaid expenses 1,236 1,050
----------- -----------
1,085,996 1,441,642
Software and systems development
(net) 304,937 269,267
Capital assets (net) 56,998 41,227
----------- -----------
$ 1,447,931 $ 1,752,136
=========== ============
LIABILITIES
-----------
Current Liabilities
Accounts payable and accrued
Liabilities $ 7,154 $ 5,869
----------- -----------
SHAREHOLDERS' EQUITY
--------------------
Share capital $ 2,802,962 $ 2,671,712
Deficit (1,362,185) (925,445)
----------- -------------
$ 1,447,931 $ 1,752,136
=========== =============
Approved by the Directors
\s\ MICHAEL PAAUWE Director
- --------------------------------
\s\ MICHAEL GOSSLAND Director
- --------------------------------
See accompanying note to the consolidated financial statements.
PREPARED BY MANAGEMENT WITHOUT AUDIT
TITAN TRADING ANALYTICS INC.
----------------------------
CONSOLIDATED INTERIM STATEMENT OF OPERATIONS AND DEFICIT
--------------------------------------------------------
FOR THE PERIOD FROM NOVEMBER 1, 1998 TO APRIL 30, 1999
------------------------------------------------------
Revenue
1999 1998
Software Sales $ 31,438 $ 29,216
Trading Income 63,878 0
----------- -------------
$ 95,316 $ 29,216
Expenses
Advertising, marketing and promotion 57,256 19,266
Amortization 44,850 39,716
Bank charges 805 1,481
Corporate Tax 500 0
System testing 28,155 47,312
Directors fees 5,000 5,000
Investor relations 19,338 0
Management fees 32,800 36,387
Office 6,417 6,401
Professional fees 37,099 17,135
R & D expenses 0 3,483
Rent 2,275 2,438
Salaries and benefits 76,918 31,989
Telephone 2,588 1,682
Travel 1,124 4,610
----------- -------------
315,125 216,900
----------- -------------
(219,809) (187,684)
Interest and Other Income 18,022 30,236
----------- -------------
Net loss for the period $ (201,787) $ (157,448)
Deficit beginning of period (1,160,398) (767,996)
----------- -------------
Deficit end of period $(1,362,185) $ (925,445)
=========== =============
See accompanying note to the consolidated financial statements.
PREPARED BY MANAGEMENT WITHOUT AUDIT
TITAN TRADING ANALYTICS INC.
----------------------------
CONSOLIDATED INTERIM STATEMENT OF CASH FLOW
-------------------------------------------
FOR THE PERIOD FROM NOVEMBER 1, 1998 TO APRIL 30, 1999
------------------------------------------------------
1999 1998
Cash from operating activities
Net loss for the period $ (201,787) $ (157,448)
Item not involving cash
Amortization 44,850 39,716
----------- -------------
(156,937) (117,732)
Net change in non-cash working
capital balances (29,563) 11,064
----------- -------------
(186,500) (106,668)
Cash used in investing activities
Acquisition of capital assets (19,576) (3,048)
Software & Systems development (84,663) (116,171)
----------- -------------
(104,239) (119,219)
Cash from financing activities
Share subscriptions received
And issuance of Common Shares 0 0
----------- -------------
Increase in cash during the period (290,739) (225,887)
Cash and short-term investments,
beginning of the period 1,363,816 1,667,530
----------- -------------
Cash and short-term investments,
end of period $ 1,073,077 $ 1,441,643
=========== =============
See accompanying note to the consolidated financial statements.
PREPARED BY MANAGEMENT WITHOUT AUDIT
Note to the Interim financial statements dated April 30, 1999:
- --------------------------------------------------------------
Note 1. United States accounting principles:
This note summarizes the material variations in the accounting
principles, practices and methods between Canadian and United
States generally accepted accounting principles (GAAP) and how
these variations impact the financial statements.
a) Balance sheet
There are no differences between United States generally
accepted accounting principles and Canadian generally
accepted accounting principles that would result in material
changes to the balance sheet.
b) Short-term investments
Under United States generally accepted accounting
principles, short-term investments are recorded at market
value. At April 30, 1999 there were no differences between
the cost and the market value of the short-term investments.
c) Escrow shares
Under United States generally accepted accounting
principles, the 3,000,000 common shares of the Company held
in escrow are considered contingent shares because the
conditions for issuance are not currently met and will not
be met by the mere passage of time. If these shares are
ever released from escrow, to the extent their fair market
value exceeds their issuance price, compensation expense
would be recognized at that time by the Company.
d) Cost of sales
Under United States generally accepted accounting principles
costs of sales are required to be separately disclosed. The
cost of sales for software sales and trading income in the
current and comparable prior interim six month period is
comprised of:
April 1999 April 1998
Amortization of software
and systems development $ 44,850 $ 39,716
Delivery 1,145 950
------ ------
Cost of sales $ 45,995 $ 40,666
------ ------
e) Foreign currency translation
The application of the temporal method of foreign currency
translation used by the Company under Canadian generally
accepted accounting principles does not result in material
differences from United States generally accepted accounting
principles.
f) Loss per share
Under United States generally accepted accounting
principles, the loss per share is calculated on the basis
that the weighted average number of shares outstanding
during the year excludes shares which are considered
contingent shares. This means the 3,000,000 escrow shares
are excluded from the calculation under US generally
accepted accounting principles. On that basis, calculation
of the loss per share for the current reporting period under
US generally accepted accounting principles, is as follows.
During the six month period ended April 30, 1999 the
weighted average number of shares outstanding was 8,857,001.
3,000,000 of that total are escrow shares. Therefore, under
US generally accepted accounting practices, the loss per
share for the current six month period ended April 30, 1999
is 3.4 cents per share.
g) Development stage enterprise
Under United States generally accepted accounting principles
the Company is considered to be a development stage
enterprise and all revenues and expenses and cash flows from
inception to the reporting date are to be reported.
The Company's consolidated revenue and expenses from
incorporation on November 30, 1993 to April 30, 1999 are:
Revenue
Software sales $ 152,907
Trading income 134,485
-----------
287,392
-----------
Expenses
Advertising, marketing and promotion 345,123
Amortization 321,802
Bank charges 7,244
Capital taxes 11,507
Consulting 30,000
Directors' fees 10,000
Investor relations 51,226
Management fees 223,044
Office 60,201
Professional fees 95,277
Rent 29,947
Research and development 219,220
Salaries and benefits 241,151
System testing 71,818
Telephone 20,884
Travel 73,973
-----------
1,812,417
-----------
(1,525,025)
Interest and other income 162,840
-----------
Net loss for the period and deficit
accumulated during the development stage $ (1,362,185)
===========
h) Development stage enterprise - continued
The Company's cash flows from incorporation on November 30, 1993
to April 30, 1999 are:
Cash flows from (used in) operating activities
Net loss for the period $ (1,362,185)
Adjustments for:
Amortization 321,802
Foreign exchange gain (64,819)
-----------
(1,105,202)
Net change in non-cash working capital balances
Increase in accounts receivable (11,683)
Increase in prepaid expenses (1,236)
Increase in accounts payable and
accrued liabilities 7,155
-----------
Cash used in operating activities (1,110,966)
-----------
Cash flows used in investing activities
Software and system development (559,450)
Acquisitions of capital assets (124,288)
-----------
Cash used in investing activities (683,738)
Cash flows from (used in) financing activities
Share subscriptions received and
issuance of common shares 2,944,051
Share issue costs (141,089)
-----------
Cash from financing activities 2,802,962
Foreign exchange gain on cash held in
foreign currency 64,819
-----------
Net increase in cash during the period $ 1,073,077
===========
apr99fin.doc
TITAN TRADING ANALYTICS INC.
CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER 31, 1998
Collins
Barrow
Chartered Accountants
Suite 800
1030 West Georgia Street
Vancouver, Canada
V6E 3B9
AUDITORS' REPORT
-----------------
To the Directors of
Titan Trading Analytics Inc.
We have audited the consolidated balance sheets of Titan
Trading Analytics Inc. as at October 31, 1998 and 1997 and
the consolidated statements of operations and deficit and
cash flows for each of the years in the three year period
ended October 31, 1998. These financial statements are the
responsibility of the company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management,
as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements
present fairly, in all material respects, the financial
position of the company as at October 31, 1998 and 1997 and
the results of its operations and cash flows for each of the
years in the three year period ended October 31, 1998 in
accordance with generally accepted accounting principles in
Canada. As required by the Company Act (B.C.), we report
that, in our opinion, these principles have been applied on a
consistent basis.
\s\ COLLINS BARROW
CHARTERED ACCOUNTANTS
Vancouver, Canada
January 13, 1999
A member of
Moores
Rowland
International Collins Barrow
An association of independent is a Partnership of
accounting firms throughout the world. Incorporated Professionals
TITAN TRADING ANALYTICS INC.
----------------------------
(Incorporated under the laws of British Columbia)
CONSOLIDATED BALANCE SHEET
--------------------------
OCTOBER 31, 1998
----------------
ASSETS 1998 1997
------ ---- ----
Current assets
Cash, due from brokers, and short-term
Investments $ 1,363,816 $ 1,667,530
Accounts receivable 5,794 22,634
Prepaid expenses 746 3,483
----------- -----------
1,370,356 1,693,647
Software and systems development (note 3) 259,147 185,571
Capital assets (note 4) 43,400 45,420
---------- -----------
$ 1,672,903 $ 1,924,638
=========== ===========
LIABILITIES
-----------
Current liabilities
Accounts payable and accrued liabilities $ 30,339 $ 20,922
----------- -----------
SHAREHOLDERS' EQUITY
---------------------
Share capital (note 5) 2,802,962 2,671,712
Deficit (1,160,398) (767,996)
----------- -----------
1,642,564 1,903,716
----------- -----------
$ 1,672,903 $ 1,924,638
=========== ===========
Approved by the Directors
\s\ MICHAEL B. PAAUWE , Director
- ------------------------
\s\ MICHAEL GOSSLAND , Director
- ------------------------
See accompanying notes to the consolidated financial statements.
TITAN TRADING ANALYTICS INC.
----------------------------
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1998
-----------------------------------
1998 1997 1996
---- ---- ----
Revenue
Software sales $ 53,051 $ 36,040 $ 21,213
Trading income 70,607 --- ---
--------- --------- ---------
123,658 36,040 21,213
--------- --------- ---------
Expenses
Advertising, marketing and
promotion 129,299 48,157 65,159
Amortization 140,258 84,297 37,228
Bank charges 2,408 1,452 1,811
Capital taxes 6,157 4,850 ---
Directors' fees 5,000 --- ---
Investor relations 31,888 --- ---
Management fees 65,055 44,887 34,364
Office 12,567 15,005 10,118
Professional fees 17,934 13,424 8,669
Rent 6,177 5,900 6,330
Research and development 3,483 3,483 7,436
Salaries and benefits 63,224 47,282 43,750
Systems testing (recovery) 42,490 (56,761) 57,934
Telephone 4,118 4,533 5,060
Travel 27,459 20,345 13,946
--------- --------- ---------
557,517 236,854 291,805
--------- --------- ---------
(433,859) (200,814) (270,592)
Interest and other income 41,457 58,581 35,290
--------- --------- ---------
Net loss for the year (392,402) (142,233) (235,302)
Deficit, beginning of the year (767,996) (625,763) (390,461)
--------- --------- ---------
Deficit, end of the year $(1,160,398)$ (767,996)$ (625,763)
=========== =========== =============
Net loss per share for the year
(note 7(e)) $(.04) $(.02) $(.03)
====== ====== ======
See accompanying notes to the consolidated financial statements.
TITAN TRADING ANALYTICS INC.
----------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1998
-----------------------------------
1998 1997 1996
---- ---- ----
Cash flows from (used in)
operating activities
Net loss for the year $ (392,402)$ (142,233)$ (235,302)
Adjustments for:
Amortization 140,258 84,297 37,228
Foreign exchange loss (gain) (35,754) (3,624) 8,190
----------- ----------- ------------
(287,898) (61,560) (189,884)
Net change in non-cash working
capital balances
Decrease (increase) in
Accounts receivable 16,840 (13,390) 3,437
Decrease in prepaid
Expenses 2,737 9,755 26,047
Increase (decrease) in
Accounts payable and
accrued liabilities 9,417 (12,322) 10,446
----------- ----------- ------------
Cash used in operating
Activities (258,904) (77,517) (149,954)
----------- ----------- ------------
Cash flows used in investing
activities
Software and system
Development (198,718) (146,134) (129,935)
Acquisitions of
capital assets (13,096) (5,432) (19,295)
----------- ----------- ------------
Cash used in investing
Activities (211,814) (151,566) (149,230)
----------- ----------- ------------
Cash flows from (used in)
financing activities
Share subscriptions received
And issuance of common shares 131,250 302,400 1,165,500
Share issue costs --- --- (141,089)
----------- ----------- ------------
Cash from financing activities 131,250 302,400 1,024,411
----------- ----------- ------------
Foreign exchange gain (loss)
on cash held in foreign
currency 35,754 3,624 (8,190)
----------- ----------- ------------
Net increase (decrease) in cash
during the year (303,714) 76,941 717,037
Cash, due from brokers, and
short-term investments,
beginning of the year 1,667,530 1,590,589 873,552
----------- ----------- ------------
Cash, due from brokers, and
short-term investments, end
of the year $1,363,816 $1,667,530 $1,590,589
=========== =========== ============
See accompanying notes to the consolidated financial statements.
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 1998
----------------
1. General information
The company develops, uses for its own account, and markets
financial software trading systems.
2. Significant accounting policies
These financial statements are prepared in accordance with
accounting principles generally accepted in Canada which do
not differ from those established in the United States, except
as disclosed in note 8.
a) Consolidation - The financial statements include the
accounts of the company and of its wholly-owned subsidiary,
Titan Trading Corp.
b) Short-term investments - Short-term investments are carried
at the lower of cost or market. Gains and losses trading short-term
investments are recognized as income on the trade date.
c) Research and development - Research costs are expensed
when incurred. Development costs are expensed when incurred
prior to the establishment of technical feasibility.
Subsequent to the establishment of technical feasibility,
the costs associated with the development of a commercial
product for which adequate resources exist to market the
product or a product to be used internally are capitalized as
software and systems development. Capitalization of development
costs ceases when the product is available for general release
to customers or once internal utilization commences.
d) Software and systems development - Software and systems
development costs are amortized on a product by product basis at the
greater of (i) the ratio of gross revenues over aggregate anticipated
gross revenues or (ii) straight-line over the remaining
estimated economic life of the related products. The estimated
economic life of the company's products is three years.
e) Capital assets - Capital assets are recorded at cost and
amortized at the following annual rates:
Computer equipment - 30% declining balance
Copyrights and trademarks - 20% straight line
Furniture and equipment - 20% declining balance
f) Software sales - Revenue arising from software sales is
recognized at the time of the sale unless the company is
obligated to provide services in the future in which case a
portion of the revenue is deferred until the services have
been performed.
g) Foreign currency translation - Foreign currency transactions
are translated using the temporal method, whereby:
i) monetary items are translated at the rate of exchange in
effect at the balance sheet date;
ii) non-monetary items are
translated at historical exchange rates; and
iii) revenue and expense items are
translated at the average rate of exchange for the year.
h) Use of estimates - The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates. Significant
areas requiring the use of management estimates relate to
the valuation of software and systems development and the
determination of useful lives of software and systems
development and capital assets for purposes of calculating
amortization.
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 1998
----------------
2. Significant accounting policies - continued
i) Cash and cash equivalents includes highly liquid investments
that are readily convertible to known amounts of cash and which
are subject to an insignificant risk of changes in value. Investments
with an original maturity of more than three months are not included
in cash and cash equivalents.
3. Software and systems development
1998 1997
---- ----
Cost $ 474,787 $ 276,069
Accumulated amortization (215,640) (90,498)
----------- -----------
$ 259,147 $ 185,571
=========== ===========
Software and system development cost
is comprised of: 1998 1997
---- ----
Computer services $ 29,520 $ 18,495
Contract services 359,583 200,750
Other 60,769 34,909
Rent 10,200 7,200
Salaries 14,715 14,715
----------- -----------
$ 474,787 $ 276,069
=========== ===========
4. Capital assets
1998
----------------------------------
Accumulated
Cost Amortization Net
-------- ------------ --------
Computer equipment $ 82,785 $ 50,034 $ 32,751
Copyrights and trademarks 13,464 6,714 6,750
Furniture and equipment 7,370 3,471 3,899
-------- ------------ --------
$ 103,619 $ 60,219 $ 43,400
========= ============ ========
1997
----------------------------------
Accumulated
Cost Amortization Net
-------- ------------ --------
Computer equipment $ 71,675 $ 38,378 $ 33,297
Copyrights and trademarks 11,836 4,184 7,652
Furniture and equipment 7,012 2,541 4,471
-------- ------------ --------
$ 90,523 $ 45,103 $ 45,420
======== ======== ========
Copyrights and trademarks includes $10,000 acquired in 1995
from a related individual.
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 1998
----------------
5. Share capital
Number
of Shares Amount
--------- ------
Authorized
100,000,000 common shares,
without par value
Issued
Issued for cash during the period
ended October 31, 1994 1 1
Issued for cash 4,114,000 1,314,900
--------- ---------
Balance, October 31, 1995 4,114,001 1,314,901
Issued for Cash 4,302,000 1,055,500
Share Issue Costs --- (141,089)
--------- ---------
Balance, October 31, 1996 8,416,001 $ 2,229,312
Issued for cash 316,000 442,400
--------- -----------
Balance, October 31, 1997 8,732,001 2,671,712
Issued for cash 125,000 131,250
--------- -----------
Balance, October 31, 1998 8,857,001 $ 2,802,962
========= ===========
During 1997 the company issued 316,000 common shares for
$442,400, $140,000 of which had been received on account of share
subscriptions during 1996.
3,000,000 of the common shares issued during 1996 are held in
escrow with their release being subject to regulatory
approval. The release from escrow is based upon the policies of the
British Columbia Securities Commission and is based on cumulative
cash flow as defined during the ten-year period ending October 31, 2005.
Stock options and common share purchase warrants
Directors, Officers and Common Share
Employee Stock Options Purchase Warrants
------------------------ -----------------
Outstanding, November
1, 1996
Number 830,000 125,000
Exercise price $.90 to July 2001 $.90 to July 1997
and $1.05 to July
1998
Exercised during 1997 --- ---
Issued during 1997 --- 158,000
$1.75 to June 1998
Cancelled during 1998 --- (158,000)
Exercised during 1998 --- (125,000)
------- --------
Outstanding, October
31, 1998 830,000 ---
======= ========
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 1998
----------------
6. Income taxes
The financial statements do not reflect the potential tax
reductions which may be available through the application of
losses of $1,223,000 carried forward against future years'
earnings otherwise subject to income taxes.
The losses expire as follows:
2001 $ 67,000
2002 322,000
2003 373,000
2004 248,000
2005 470,000
----------
1,480,000
Losses attributable to timing
Differences (257,000)
----------
$ 1,223,000
===========
7. Other information
a) Related party transactions
Included in the statement of operations and deficit are the
following transactions with officers and directors and
related individuals:
1998 1997 1996
---- ---- ----
Expenses
Management fees $ 65,055 $ 44,887 $ 34,032
Rent $ 4,200 $ 4,200 $ 4,200
Research and development $ --- $ --- $ 6,250
Software and systems development costs incurred during the
year includes $161,833 (1997 - $109,500) paid to officers
and directors.
At October 31, 1998, $7,438 (1997 - $6,093) due to officers
and directors is included in accounts payable and accrued
liabilities.
Share issue costs for 1996 include $18,000 paid to an
officer and director.
The company has contract services agreements with officers
requiring the company to pay monthly fees of $14,917 to
December 2001 and additional amounts if not renewed at that
time.
The related party transactions are in the normal course of
operations and are recorded at the amount paid.
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 1998
----------------
7. Other information - continued
b) Financial instruments
The company's financial instruments consist of cash, due
from brokers, and short-term investments, accounts
receivable, and accounts payable. Unless otherwise noted,
it is management's opinion that the company is not exposed
to significant interest, currency or credit risks arising
from these financial instruments. A significant portion of
the company's cash, due from brokers, and short-term
investments are denominated in United States dollars.
Therefore, the realization of these amounts into Canadian
dollars can fluctuate based on foreign exchange rates. The
fair values of these financial instruments approximate their
carrying values, unless otherwise noted.
c) Geographic information
Substantially all of the company's software sales are to
customers in the United States.
d) Foreign exchange gains and losses
Foreign exchange gains and losses arising because of changes
in the exchange rate between Canadian and United States
currency arose because of trading in short-term investments.
Trading income includes foreign exchange gains of $18,897.
Interest and other income for 1997 includes foreign
exchange gains of $8,623 (1996 - losses of $5,932).
e) Loss per share
The loss per share is calculated on the basis of the
weighted average number of shares outstanding during the
year which was 8,775,837 (1997 - 8,680,131; 1996 -
6,966,045).
f) Cash used in operating activities includes:
1998 1997 1996
---- ---- ----
Bank charges and interest paid $ (2,407)$ (1,452)$ (1,811)
Interest received $ 45,329 $ 49,957 $ 41,223
g) Uncertainty due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems
use two digits rather than four to identify a year. Date-
sensitive systems may recognize the year 2000 as 1900 or
some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems
may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the
Year 2000 Issue may be experienced before, on or after
January 1, 2000, and, if not addressed, the impact on
operations and financial reporting may range from minor
errors to significant systems failure which could affect an
entity's ability to conduct normal business operations. It
is not possible to be certain that all aspects of the Year
2000 Issue affecting the entity, including those related to
the efforts of customers, suppliers, or other third parties,
will be fully resolved.
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 1998
----------------
7. Other information - continued
h) Comparative figures
The comparative figures have been reclassified, where
applicable, to conform with the current year's presentation.
8. United States accounting principles
a) Balance sheet
There are no differences between United States generally
accepted accounting principles and Canadian generally
accepted accounting principles that would result in material
changes to the balance sheet.
b) Short-term investments
Under United States generally accepted accounting
principles, short-term investments are recorded at market
value. At October 31, 1998 and 1997, there were no
differences between the cost and the market value of the
short-term investments.
c) Escrow shares
Under United States generally accepted accounting
principles, the 3,000,000 common shares held in escrow are
considered contingent shares because the conditions for
issuance are not currently met and will not be met by the
mere passage of time. When these shares are released from
escrow, to the extent their fair market value exceeds their
issuance price, compensation expense would be recognized by
the company.
d) Share issue costs
Under United States generally accepted accounting
principles, share issue costs paid to employees are required
to be expensed. Accordingly, share issue costs of $18,000
paid to an officer and director in 1996 would result in an
increase in management fees expense in 1996.
e) Loss per share
Under United States generally accepted accounting
principles costs of sales are required to be separately disclosed.
The cost of sales for software sales and trading income is comprised of:
1998 1997 1996
---- ---- ----
Amortization of software and
systems development $ 125,142 $ 67,668 $ 22,830
Delivery 3,924 4,905 4,053
--------- --------- ---------
$ 129,066 $ 72,573 $ 26,883
========= ========= =========
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 1998
----------------
8. United States accounting principles - continued
f) Foreign currency translation
The application of the temporal method of foreign currency
translation has not resulted in material differences from United States
generally accepted accounting principles.
g) Loss per share
Under United States generally accepted accounting principles, the
loss per share is calculated on the basis that the weighted average number of
shares outstanding during the year excludes shares which are considered
contingent shares. On that basis:
1998 1997 1996
---- ---- ----
Weighted average number of
shares outstanding $5,775,837 $5,680,131 $4,515,225
========== ========== ==========
Net loss per share $(.07) $(.03) $(.06)
====== ====== ======
h) Stock options
Under United States generally accepted accounting
principles, granting of stock options to directors, officers
and employees may give rise to a charge to income for
compensation. The company has prepared its financial
statements in accordance with APB 25 under which stock
options are measured by the intrinsic value method whereby
directors, officers and employee compensation cost is
limited to the excess of the quoted market price at date of
grant over the option exercise price. Since the exercise
price equalled the quoted market price at the dates the
stock options were granted, there was no compensation cost
to be recognized. Had the company fully adopted the
recommendations of SFAS 123 and valued the options using a
fair market value method such as the Black-Scholes option
pricing model, there would be an increase in employee and
director compensation costs charged to income of $Nil in
1998, $Nil in 1997 and $6,350 in 1996. The weighted average
grant date fair market value of options granted was
determined using the Black-Scholes option pricing model
assuming a risk-free interest rate of 6.25%; an option life
of 5 years; an expected volatility of 13% and that no
dividends would be paid until after the expiry date of the
options.
1998 1997 1996
---- ---- ----
Net loss under United States
Generally accepted accounting
Policies $ (392,402) $ (142,233) $ (253,302)
Increase in directors',
officers' and employees'
compensation --- --- 6,350
---------- ---------- ----------
$ (392,402) $ (142,233) $ (259,652)
========== ========== ==========
Net loss per share if SFAS
123 adopted $(.07) $(.03) $(.06)
====== ====== ======
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 1998
----------------
8. United States accounting principles - continued
i) Development stage enterprise
Under United States generally accepted accounting principles the
company is considered to be a development stage enterprise.
The company's consolidated revenue and expenses from incorporation
on November 30, 1993 to October 31, 1998 are:
Revenue
Software sales $ 121,469
Trading income 70,607
-----------
192,076
-----------
Expenses
Advertising, marketing and promotion 287,867
Amortization 276,952
Bank charges 6,439
Capital taxes 11,007
Consulting 30,000
Directors' fees 5,000
Investor relations 31,888
Management fees 190,244
Office 53,784
Professional fees 58,178
Rent 27,672
Research and development 219,220
Salaries and benefits 164,233
System testing 43,663
Telephone 18,296
Travel 72,849
-----------
1,497,292
-----------
(1,305,216)
Interest and other income 144,818
-----------
Net loss for the period and deficit accumulated
during the development stage $(1,160,398)
===========
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 1998
----------------
8. United States accounting principles - continued
i) Development stage enterprise - continued
The company's cash flows from incorporation on November 30,
1993 to October 31, 1998 are:
Cash flows from (used in) operating activities
Net loss for the period $(1,160,398)
Adjustments for:
Amortization 276,952
Foreign exchange gain (31,188)
-----------
(914,634)
Net change in non-cash working capital balances
Increase in accounts receivable (5,794)
Increase in prepaid expenses (746)
Increase in accounts payable and accrued liabilities 30,339
-----------
Cash used in operating activities (890,835)
-----------
Cash flows used in investing activities
Software and system development (474,787)
Acquisitions of capital assets (104,712)
-----------
Cash used in investing activities (579,499)
-----------
Cash flows from (used in) financing activities
Share subscriptions received and issuance of
common shares 2,944,051
Share issue costs (141,089)
-----------
Cash from financing activities 2,802,962
-----------
Foreign exchange gain on cash held in foreign currency 31,188
-----------
Net increase in cash during the period $ 1,363,816
Collins
Barrow
Chartered Accountants
Suite 800
1030 West Georgia Street
Vancouver, Canada
V6E 3B9
5-1591I
November 1, 1999
Titan Trading Analytics Inc.
3473 Ellis Place
Nanaimo, B.C.
V9T 4Y6
Dear Sirs:
We understand that Titan Trading Analytics Inc. ("the company") will be
filing a Form 20-F Registration Statement pursuant to Section 12(g) of
the Securities Exchange Act of 1934, as amended.
As requested, we hereby consent to the filing of the audited
consolidated balance sheets of the company as at October 21, 1998 and
1997 and the consolidated statements of operations and deficit and cash
flows for each of the years in the three year period ended October 31,
1998 including part of our auditor's report to the Directors of the
company dated January 13, 1999 thereon as part of the registration
statement.
If you have any further requirements, please contact us.
Yours truly,
COLLINS BARROW
Chartered Accountants
Per: \s\ James R. Church
James R. Church
JRC/clc
A member of
Moores
Rowland
International Collins Barrow
An association of independent is a Partnership of
accounting firms throughout the world. Incorporated Professionals
===========
2. EXHIBITS
(g) Certificate of Incorporation of KBK No. 24 Ventures Ltd.
(h) Certificate of Change of Name of KBK No. 24 Ventures Ltd.
to Titan Trading Analytics Inc.
(i) Articles of Titan
(j) Current Contract Services Agreement between Titan and
Michael B. Paauwe and Associates dated January 1, 1998
(k) Current Contract Services Agreement between Titan and
Michael Gossland and Associates dated January 1, 1998
(f) Escrow Agreement dated January 5, 1996 with TTN
Escrow Capital Corp.
(g) Testimonial Letters of Lombard Odier International
Portfolio Management Limited
55
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Titan 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)
\s\ Michael B. Paauwe
______________________________________
MICHAEL B. PAAUWE
PRESIDENT AND DIRECTOR
(Authorized Signatory)
DATE: October 31, 1999
56