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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON MARCH 31, 2000
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
ANNUAL REPORT
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[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1999.
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
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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)
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act.
NONE
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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 March 31, 2000
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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 October 31, 1999 the median bidding exchange
rate of Canadian dollars into United States dollars was $1.4720
Canadian to $1.00 US.
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TABLE OF CONTENTS
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Part I Page No.
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Item 1. Description of Business........................... 4
Item 2. Description of Property........................... 22
Item 3. Legal Proceedings................................. 23
Item 4. Control of Titan.................................. 23
Item 5. Nature of Trading Market.......................... 24
Item 6. Exchange Controls and Other Limitations
Affecting Securities Holders...................... 25
Item 7. Taxation.......................................... 26
Item 8. Selected Financial Data........................... 28
Item 9. Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 30
Item 10. Directors and Officers of Titan................... 42
Item 11. Compensation of Directors and Officers............ 44
Item 12. Options to Purchase Securities from Titan or
Subsidiaries...................................... 45
Item 13. Interest of Management in Certain Transactions.... 45
Part II
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Item 14. Description of Securities to be Registered........ 48
Part III
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Item 15. Defaults Upon Senior Securities................... 49
Item 16. Changes in Securities and Changes in Security for
Registered Securities............................. 49
Part IV
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Item 17. Financial Statements.............................. 50
Item 18. Financial Statements.............................. 67
Item 19. Exhibits.......................................... 67
Signature Page............................................... 68
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-KSB contains forward-looking statements. In some cases,
you can identify forward-looking statements by terminology such as
"may", "will", "should", "could", "expects", "plans", "intends",
"anticipates", "believes", "estimates", "predicts", "potential" or
"continue" or the negative of such terms and other comparable
terminology. Our forward-looking statements include, without
limitation, statements about our market opportunity, our strategies,
competition, expected activities and expenditures as we pursue our
business plan, and the adequacy of our available cash resources.
Although we believe that the expectations reflected in the forward-
looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements. The
information set forth under the headings "Description of Business"
and "Management's Discussion and Analysis of
Financial Condition and Results of Operations", identify important
additional factors that could materially adversely affect our actual
results and performance. All forward-looking statements attributable
to us are expressly qualified in their entirety by the foregoing
cautionary statement. Moreover, neither we nor anyone else assumes
responsibility for the accuracy and completeness of such statements.
We undertake no obligation to publicly update any forward-looking
statements for any reason, even if new information becomes available
or other events occur in the future.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Titan Trading Analytics Inc. ("Titan") is a financial software
developer and Internet web site publisher. Titan's software business
has been in a development stage since commencing operations in May
1994. The Internet website publication has been in development since
October 1996. The focus of Titan's present business plan is to
publish and market a paid monthly subscription service to its new
independent stock screening research service, its daily stock market
indicators, and its daily market commentaries published on the
Company's Internet website.
The beta test website of the new monthly subscription service with
full e-commerce capability went online in late February 2000. It has
not yet been actively marketed to the public, pending completion of
beta testing and planned new equity financings to secure funds to
ramp up advertising, marketing and sales.
Titan's stock screening and market timing publication is targeted at
stock brokers, their clients and private online traders. The website
is located at www.titantrading.com. The US stock brokers and active
trader client target market represents an estimated market size of
1,250,000 potential users. The second private online stock trader
target market has an estimated market size of 10,000,000 individuals.
Initial website development has been completed on the new Titan
Platinum Alert big cap stock screening service, combined with stock
market timing. Beta testing is taking place on newly developed online
credit card transaction processing on secure e-commerce servers, the
development of the initial database management software capabilities,
as well as the development of fax, email and wireless
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messaging delivery of subscriber information. This process is expected
to continue in development and beta test during the next quarter, along
with the introduction of the more mainstream TitanGold stock
screening and market timing service for smaller private portfolios in
mid cap and small cap stocks.
At the heart of Titan's core trading technology is a proprietary and
proven methodology for short-term stock market timing using neural
networks. Neural networks are a mathematical pattern recognition
technique used in a wide variety of non-linear system estimation and
predictive modeling applications. Titan applies the technique to
determining probable short term direction of the stock market and to
identify market turning points based on real time monitoring of
several technical market indicators.
Titan recently received excellent written customer testimonials from
several high profile users who have benefited financially by using
Titan's stock market timing service. These testimonials form the
basis for a planned aggressive advertising and marketing campaign
scheduled to begin in the third quarter of the current fiscal year.
The main objective of Titan's online subscription service is to
provide an independent stock screening service in combination with
short term stock market timing, in order to provide a trading
solution that creates wealth and preserves capital for subscribing
private and institutional traders and investors.
During development of its trading technology, Titan has used its
software 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, for stock day-
trading, and in the publication of financial information on its
Internet web site.
Effective April 1, 1999 Titan stopped all developmental stock day-
trading activities. By July 30, 1999 all stock index and currencies
trading activities were stopped. This was done to avoid potential
regulatory problems that arose during the clearing of the initial
Form 20-F registration with the SEC, to reduce financial risk during
the development stage of operations and to concentrate all human and
financial resources on the development of the new online financial
subscription service.
Titan has developed a series of financial software programs which
support its website publications. These include an advanced financial
trading simulator called VirtualTrader, a series of US stock market
trading indicators and trading software for trading the S&P 500 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,
and British Pound
( "the World Currency Trader") and a proprietary method of screening
high quality stocks for short term trading applications.
VirtualTrader is a software based training simulator for traders,
previously licensed to private and professional traders that are
existing Omega Research TradeStation software users. VirtualTrader
software can only function if the user already owns TradeStation
software. Titan has only supported TradeStation software version 4.0
with its VirtualTrader ("VT") software version 2.07. VT is now
incompatible with the latest version of TradeStation and accordingly
has limited long term sales potential. Titan is no longer pursuing
marketing and sales of its VirtualTrader software, concentrating all
resources on the new online subscription service.
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Titan's Stock Index Trader software has never been sold or licensed
to third parties, and is used for ongoing research and development
and in the online subscription service. Technical stock market
indicator information generated by the Stock Index Trader software is
published on Titan's website as part of the online subscription
service.
Titan's World Currency Trader is not offered for sale or license to
the general public. It has been licensed to and used by registered
professional money managers for hedging currency risk in
international stock portfolios. There are no present plans to market
the World Currency Trader software.
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 to eventually forming a separate trading business. These plans
will be pursued following the launch of the online subscription
business. TTC has no income, expenses, assets or liabilities and is
presently an inactive subsidiary.
EMPLOYEES
The following is a brief description of the Titan's non-officer
employees:
John Austin is General Manager and has been a full time employee of
Titan since November 1995. Since graduating with a degree 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 involved in the research and development of trading software.
Between 1992 and 1994 he was engaged in the establishment,
development and sale of several private businesses. Mr. Austin
manages the development of Titan's stock screening technology and
provides technical support of all online subscription services.
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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.
In addition to the above noted employees, Titan has three officers
that are remunerated as independent consultants, two of whom are
contracted full time. The current business plan of the Company
contemplates establishing operational headquarters in the United
States during the current fiscal year and hiring a marketing
management and sales administration team to fully launch the online
financial subscription service.
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 strong growth of
online Internet trading provides a growing marketplace for Titan's
independent online stock market research, stock screening and stock
market timing service.
The marketplace is extremely competitive with numerous small and
large competitors attempting to establish themselves as leaders in
the marketplace. As a result of the growing competition and the low
cost of entry for new competitors, it is expected that a major
advertising and marketing campaign will be required to successfully
launch the new subscription service. This will require that the
Company obtain additional capital to fund the extent of advertising
considered necessary to launch the latest plan.
With the scale and timing of planned business expenditures
conditional upon additional equity placements of its securities over
the next 12 to 18 months, Titan expects to make the following minimum
planned expenditures in its business:
1. $500,000 on television, radio and Internet advertising.
2. $100,000 on high speed redundant Internet servers &
communications equipment.
3. $750,000 for additional staffing to effect a marketing
launch of the subscription service.
4. $145,000 in ongoing software and systems research and
development for 12 months.
If the full capital plans of the Company are fully realized during
the next twelve months, expenditure levels are expected to exceed
those levels set out above.
PRINCIPAL PRODUCTS AND SERVICES
The main focus of the present business plan is to publish and market
the paid monthly subscription services as noted below. There are
several components of a fully expanded planned subscription services
as follows, each of which can be separately subscribed to as sections
of the pay site. Certain high traffic sections of the Titan web site
will be supported by planned advertising revenues:
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1. The N1 stock market timing indicator service, by email,
wireless and web site publication.
2. Platinum Alert stock screening of big caps Nasdaq and NYSE
stocks.
3. TitanGold stock screening of mid cap and small cap US
stocks.
4. Special situation alerts by email.
5. Core stock portfolio analysis for long term buy and hold
investing.
6. Market Timing service for investor covered call writing
strategies.
Original 1996 plans called for the delivery in North America of a
SkyTel pager based financial trading subscription service. A launch
was deferred in late 1997 for technical pager delivery reasons and to
develop a more mainstream mass market financial trading service for
stock traders, to be delivered over the Internet instead. Having
proven up the market timing concept with several satisfied customers,
during 1999 Titan developed its stock screening methodology and the
new service was put in service on a beta test basis in February 2000,
with the signing of the first 15 pay subscribers and 175 opt-in email
subscribers.
During 1997 and 1998, Titan developed and tested its VirtualTrader
simulator software to support sales as well as for internal use in
trading system development. VirtualTrader is an advanced training
simulator for traders that 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 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. Titan 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 software. Titan has used VirtualTrader software to develop a
technical analysis based approach position trading high volume
NASDAQ, AMEX and NYSE stocks. This work resulted in key software now
used to generate the stock screening services published in the
subscription service.
The trading methods, indicators and software developed by Titan to be
used in the planned Internet Subscription Service, are intended to
allow subscribers to more effectively trade US stocks based on
extensively tested methods developed by Titan.
The published trading indicators measure short term market trends and
price momentum over several days more accurately than the standard
existing real time and end of day technical market trading indicators
contained in programs such as Omega's TradeStation and SuperCharts
software based on tests conducted by Titan. This is expected to
provide subscribers with a short-term market timing advantage in that
indicators can be used to improve short term market timing decisions
and to better
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identify risks of trades based on technical analysis approaches now
popularized by software programs such as TradeStation and SuperCharts.
A principal advantage of Titan's service is that the published N1
stock market trading indicator is generally more accurate than the
most popular and conventional trading indicators in use by technical
traders that Titan has tested. The two most popular conventional
trading indicators used by technical traders are Stochastics (Fast
and Slow K) and Moving Average Convergence Divergence (MACD)
indicators, both of which are price based trading indicators. 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 on page 9.
Titan's trading software developments center around the application
of Artificial Intelligence ("AI") to stock index 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 software 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"). Most third party TradeStation software requires the
Omega software to be installed on the same computer in order to
operate. Customers must therefore obtain a license third party
applications. 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, 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 software 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.
Titan's website subscription service allows potential users to
benefit from the many years of testing and substantial expenditures
on research, software and systems development by Titan as an Omega
solution provider as applies to the position trading of stocks. The
fact that Titan is able to provide extensively
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tested trading solutions to users provides a competitive advantage that the
Company believes it can exploit at a profit once adequate resources are in
place for advertising, marketing and sales.
PRINCIPAL MARKETS AND METHODS OF DISTRIBUTION
Titan plans to market the new paid monthly Internet Subscription
Service to the full service stock brokerage and online trader markets
through an established Internet web site presence, trade shows,
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 web
site and third-party Internet banner advertising.
Up to April 30, 1999 Titan has made $149,631 in software product
sales and licensing. The principal market for the sales and
licensing of its products and services is in the US. Up to October
31, 1999, approximately $146,390 of the sales and licensing of its
sales and licensing were in the United States, and approximately
$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
industry business model and expanded the activities of online stock
traders dramatically.
The marketplace for the planned Internet Subscription Service is
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 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 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.
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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 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) COMPETITIVE ANALYSIS OF FULL PAY WEB 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 Stockhouse Online. 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) COMPETITIVE ANALYSIS OF LOW COST OR FREE WEB 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.
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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.
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.
THE TARGET MARKET AND MARKET SIZE ESTIMATES:
There are estimated to be over 250,000 full service stockbrokers in
the United States. With the addition of an estimated 5 active trader
clients per broker, the market size for this subscription market
segment is 1,250,000 potential subscribers. The full service broker
segment is dominated by eight major firms that employ approximately
75,000 stock brokers. These include Merrill Lynch, Solomon Smith
Barney, Morgan Stanley Dean Witter, Charles Schwab, AG Edwards, Paine
Webber, Prudential Securities, and Raymond James. The following
analysis examines the main competitors and competitive factors
affecting these segments of the two main target markets.
COMPETITIVE ASSESSMENT - BROKER MARKET SEGMENT
Competing subscription services, or services serving the same target
market, include such services such as Dorsey Wright, Wall Street
Strategist, the Pristine Daytrader, JagNotes, Multex Investor and
others. None are exactly similar to Titan's service.
The Wall Street Strategist is referenced below as the closest broker
market competitor and is referenced as an actual example of market
penetration.
Wall Street Strategist "WSST" claims to have a subscriber base of
4000 existing full service brokers from 250 brokerage houses. The
WSST service does not provide stock market timing. Its strength is
its marketing and brand recognition.
The private trader segment is now being targeted by WSST for future
expansion. A promotion is underway to provide new subscription
services to private online traders. WSST claims a private trader
segment market size of 10,000,000 potential subscribers. WSST is
considered the main direct competitor to Titan's service.
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COMPETITIVE MARKET ASSESSMENT - PRIVATE TRADER MARKET SEGMENT
There are hundreds of small Internet based stock tout subscription
services on the Internet. Most appear to are low quality under-
financed sites. They pose a problem of fracturing the marketplace
with confusing choices for the uninformed private trader. Titan's
strength in competing in the private trader market segment is that we
offer a 'total solution', that can be delivered in a convenient way.
a. WWW.CLEARSTATION.COM
One of the two main competitors for the private trader market segment
is considered to be Clearstation.com, purchased in 1999 by E-trade
for a reported $160 million. To date, this small company has
implemented a simple service and established a community for private
stock traders which is an Internet based subscription service that
competes directly with the application of Omega's TradeStation
software. It offers the advantages of ease of use, convenience, an
established peer community, online market share and brand recognition
that is already established. It also has the strength of its co-
branding affiliation with and the financial strength of the E-Trade.
b. OMEGA RESEARCH INC.
The second private trader segment competitor is Omega Research Inc.
of Miami Florida (Nasdaq symbol OMGA). Omega is an established
market leader that recently merged with Online Trading in an
announced +$300 million merger. Omega has recently altered course
with its new Internet delivery strategy in response to changing
market conditions. Omega's marketing strategy is to represent that
its TS2000i product tells customers "when to and when to sell - when
to trade". TS 2000i is expensive and is only a partial solution for
most users. It does not meet the needs of the larger mass market of
private traders due to its complexity.
Omega has proven marketing experience, strong financial resources and
an installed base of 35,000 existing customers. Omega publicly
reports a current monthly rate of new telephone responses to ads of
15,000 to 20,000 traders looking for stock market trading solutions.
Omega's TS2000i software is a complex product requiring that the
private trader develop his own trading solutions with TradeStation.
The recent Omega acquisition of WindowsOnWallStreet reflects Omega's
effort to address the lower end of the market and targeting the
private trader.
Titan offers the "what to trade and when to trade" part of the
customer need with its stock market timing and stock screening
solution. With Titan's service, convenience and ease of use is
emphasized. Skill development is not a major requirement for the
user, as is the case with the use of TradeStation. The customer
avoids significant startup and set up costs otherwise payable using
Omega's software, as well as the high ongoing monthly costs for data
feeds, such as those provided by WindowsOnWallStreet.
Titan's strategy is to deliver the subscription service to stock
traders over the Internet, providing greater convenience and at lower
cost than Omega's current products. That is how we intend to compete
in the private trader segment of the market.
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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 website subscription
information and redistribute it to others. 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.
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
1999, as development continued, Titan began system testing its
trading 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 this expense category. 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 (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.
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Trading $(29,687) $ 70,607 0 0 0
System Testing $(17,391) $(42,490) $56,761 $(57,934) 0
-------- -------- ------- --------
Net gain or (loss)$(47,078) $28,117 $56,761 $(57,943) 0
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The 1999 trading loss reported above in the sum of $29,687 was a loss
not actually from trading, but was a foreign exchange loss in the US
dollar denominated trading accounts due to the rising value of the
Canadian dollar during the year. Trading software for stock indexes
and currencies was installed in Titan's computers in April 1998. A
trading program has been carried out since that time to demonstrate
the software technologies and under development.
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
execution errors present a far higher proportional cost and risk that
when position trading stock indexes or currencies.
All System testing losses noted above since April 1998 are from stock
daytrading activities. As mentioned previously, all trading
activities by Titan have now been discontinued.
BREAKDOWN OF TOTAL SALES AND COSTS TO DATE
Titan's total revenue from sales and operations during the past five
fiscal years by category of activity was as follows:
FYE October 31, 1999
- --------------------
Software Sales and Licensing $ 38,921
Trading Income (loss) $(29,687)*
Interest and other Income $ 28,821
--------
Total $ 38,055
- ---------------
*There was $17,391 in System testing Losses (separately reported as
an expense) during this period
FYE October 1998.
- -----------------
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).
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<PAGE>
FYE October 1997
- ----------------
Software Sales & Licensing $ 36,040
System testing $ 56,761
Interest and Other Income $ 58,581
---------
Total $151,382
FYE October 1996
- ----------------
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 and earlier include
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 software still under
development. System testing expenses reported in the financial
statements under expenses represents trading losses from trading
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 general public.
Titan is constantly refining and developing its trading software to
maintain its 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
16
<PAGE>
current products developed by Titan. No new products, however, other
than those described in this filing have been formally announced to
the public.
ACOUNTING POLICY ON PRODUCT RESEARCH AND DEVELOPMENT
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.
System testing is an expense category that represents a research and
development activity associated with the development of trading
software. While trading software is in a development stage, the costs
of test trading such trading software, including all trading gains
and losses and all transaction costs, are booked in the accounts as
system testing expense or recovery, as the case may be. Once the
trading software is fully developed, all gains or losses from trading
with the software are reflected in the accounts as trading income or
trading loss as the case may be. The following table reflects the
inclusion of the following system testing expenses (recovery) by
year: 1998 system testing expenses - $42,490, 1997 system testing
recovery ($56,761), 1996 system testing expenses - $57,934.
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 represent total
expenditures by Titan on Systems and Software Development, which
costs are capitalized as incurred and then subject to amortization,
as well as Research and Development expenses, and include the costs
of system testing expenses and expense recovery incurred or realized
on trading systems under development, during each of the past three
fiscal years:
Software and Systems System testing
Development R&D expense (recovery) Total
FYE 10/99 $141,778 $46,800 $ 17,391 $205,969
FYE 10/98 $198,718 $ 3,483 $ 42,490 $244,691
FYE 10/97 $146,134 $ 3,483 $(56,761) $ 92,856
FYE 10/96 $129,935 $ 7,436 $ 57,934 $195,305
--------
$738,821
--------
The planned software and systems development expenditures budgeted
for fiscal year 2000 is $135,000.
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
17
<PAGE>
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.
As a Canadian operation to date, Titan does not believe it is under
the jurisdiction of the United States Commodities and Futures Trading
Commission ("CFTC"). However, 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. In
the past, 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 provide
educational, technical trading information, neural network indicator
readings, and buy/sell signals for the decision support of users, who
at all times remain responsible for their own actions as the result
of use of the product or service, and any use of Titan products and
services in the absence of such an acknowledgment of these terms, is
unauthorized by the Company.
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 does not sell trading systems. Titan is not presently
registered with the CFTC or NFA as a Commodity Trading Advisor (CTA)
and does not offer commodity trading advice or presently solicit or
trade third-party managed accounts. Titan may plan to conduct such
business in the future and may eventually become registered as a CTA
in the United States and or in Canada. These plans would first
require the passage by management of a CTA examination, registration
and appropriate filings, which Titan has not yet begun. There can be
no assurance that Titan will ever submit or obtain such CTA
registration in the ordinary course of its business, nor may the
Company ever be required to do so. Should Titan become a CTA, or
manage or trade third-party managed accounts in the future, which it
does not presently do, or if Titan begins to conduct trading
operations in the future in the United States, which it does not
currently do, Titan would then be directly governed by the
regulations and administrative policies of the CFTC and the NFA.
Titan would accordingly register with the CFTC as may be required at
such time that such future activities might take place.
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 full new planned
Internet Subscription Service to the general public in the United
States, it plans to register as an Investment Advisor with the United
States Securities and Exchange Commission.
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<PAGE>
RISK FACTORS AFFECTING THE BUSINESS OF THE COMPANY
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 and establishing
its new product development and marketing strategy. Titan's
accumulated deficit to October 31, 1999 is $1,775,381. 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 paid monthly subscription services. Titan's planned
Internet Subscription Service is in an early stage of development.
Although a small level of subscriptions have been effected on the
beta test site and there is an established market for similar
products and planned services, there can be no assurance of market
acceptance of Titan's subscription 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
marketing programs and on the success of its new online financial
services. Timing in this regard is crucial, as other similar services
that reach the market prior to Titan's service 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
the general manager John Austin. Although Titan has key man life
policies in place for Paauwe and Gossland, there is no key man life
insurance on John Austin and loss of any of the ongoing services of
these three individuals 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. Titan plans to
market its 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
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<PAGE>
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 online
financial services market is 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 and service is technically numerous competitors are
already established in this marketplace. Titan will seek to establish
its market position through the sale of subscriptions to its high
quality, fully tested trading solutions and by making its service
available at reasonable cost to customers through direct and indirect
marketing channels. However, 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 are large numbers 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 online finacial
services market, financially stronger companies may seek to enter
this market and compete for market share.
The market for online trading of stocks 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, has already threatening the existence of
established data and information vendors, as well as full service
brokers. This creates technical, competitive and business trends,
with uncertain outcomes, which adds to the business risk.
7. Potential Trading Losses to Subscribers. Under its present
business plan, Titan no longer carries out any kind of trading
activity, therefore the previous risks identified in this area no
longer apply. However, trading activity by Titan subscriber clients
still involves trading even when conducted by experienced
practitioners. The historic results of Titan's website published
market calls trading performance are not as accurate and dependable a
measure of profitability as actual trading results. Past performance
cannot be guaranteed or necessarily assumed to continue in the
future. Potential subscribers must expect trading losses in actual
trading operations and potentially wide fluctuations in monthly
trading performance. This present an ongoing legal and financial risk
to Titan, notwithstanding the protection afforded the Company by the
careful use of industry standard legal disclaimers regarding its
subscription services.
8. 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 published financial information and offer it to the
marketplace as its own, or use the service and not pay for it. To
date, Titan has not sought to obtain copyright registration or patent
protection for any of its software products, though it may do so
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<PAGE>
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 do, this could reduce the value of the Titan's
proprietary technology and its ability to effectively compete. There
is an ongoing risk of financial losses due to piracy of Titan's
subscription services.
9. Possible high degree of volatility in the future price of Titan's
stock. Factors such as news announcements on technical developments,
innovations by 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.
10. Control by existing officers and directors. Titan's executive
officers and directors currently own or control an aggregate of
3,031,401 of the issued and outstanding shares of the Titan which
represents approximately 34.2% of the outstanding shares as at
October 31, 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 to be potentially adverse to the
interests of other shareholders.
11. 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 or financial condition.
12. Possible changes in derivatives market and the regulatory
environment. Titan's software provides pattern recognition and market
timing information related to stock indexes and related derivatives.
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 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.
13. Technological change. The online financial services 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.
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14. Potential product liability claims. The Titan does not maintain
product liability insurance against bugs or defects in the general
performance of its software products that are used to provide
information in its financial subscription service. In accordance
with standard industry practice, established by Omega Research Inc.,
the subscription license agreements entered into in connection with
its products and services that all these risks are borne solely and
entirely by the 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.
15. Strategic marketing dependence on TradeStation and SuperCharts
software of Omega Research Inc. Titan's VirtualTrader software and
certain elements in the provision of its services, depend in part 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 could have
an adverse effect on Titan's operating results and financial
condition.
16. Year 2000 potential negative business impact and risks. The Year
2000 (Y2K) computer problem may still 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. Refer to the broader discussion referred to
above for the status of Y2K readiness, relevant target dates and
contingency planning. These risks are now minimized by the passage of
time since the start of Y2000 and these risks will continue to
diminish with time.
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 indicators and
general US stock market timing 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. These trading indicators are designed to provide
short-term, predictive market timing information on the US stock
market indexes such as the S&P 500 index. The indicators are based
on advanced pattern recognition methods which are automated,
mathematically based methods of recognizing recurring market
patterns, based on the use artificial intelligence techniques,
including expert systems and neural networks. The trading
indicators are designed for trading US stocks and stock indexes,
OEX, NYSE and NASDAQ markets. They provide market timing
information for those indices for US stock traders and investors.
Recently Titan has developed proprietary stock screening software
which produces lists of NASDAQ and
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NYSE stocks that meet predefined short term technical trading criteria,
that will be used in the new Internet Subscription Service (See
DESCRIPTION OF BUSINESS).
2. TradeStation based proprietary world currency trading software.
These are Titan designed software based trading methods for
trading world currencies including the Japanese Yen, the German
Mark, now replaced by the Euro, 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. These are a group of software utilities, authored and
owned by Titan, consisting of a number 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, code
development and software debugging capabilities not available in
commercially available off-the-shelf software. This custom
software provides Titan with the advantages of rapid systems
research, greater flexibility in systems testing, and higher
quality 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. New e-commerce software is under test and
development to manage secure online credit card transactions in
connection with the new Internet Subscription Service, together
with subscriber database management systems and website security
software.
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 March 31, 2000 information with
respect to 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
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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)
Title or class Identity of Person Amount Owned Percent of Class
or Group
- ---------------------------------------------------------------------
Common Shares TTN Escrow Capital 3,000,000 34.0%
without par value Corp.
- ---------------------------------------------------------------------
Common Shares Directors and Officers 3,031,401 34.2%
without par value as a Group
- -------------
Note 1: TTN Escrow Capital Corp. ("TTN") is a private company owned
by Michael Paauwe (66.67%) and Michael Gossland (33.33%), who are the
only officers and directors of TTN.
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 Canadian Venture
Exchange, called the "CDNX". The CDNX website can be viewed at
www.cdnx.ca.
Titan's shares are not currently trading on any US stock exchange or
on the over-the-counter market. 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 NASD Over The Counter ("OTC") Bulletin Board
market during the next few months, but no assurance can be given that
any NASD OTC Bulletin Board listing will occur.
Titan's shares presently trade on the Canadian Venture Exchange.
Public trading in Titan's shares commenced in Canada 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
- ---------------------------------------------------------------------
November 1, 1999 - January 31, 2000 4.25 1.00 1,773,038
August 1, 1999 - October 31, 1999 1.75 0.96 500,020
May 1, 1999 - July 31, 1999 2.15 1.10 728,038
February 1,1999 - April 30, 1999 1.25 .88 556,100
November 1,1998 - January 31, 1999 1.35 .85 425,400
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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
As of March 31, 2000 there are an estimated 550,000 common shares
representing 6.2% of Titan's outstanding shares held of record by
approximately 83 persons residing in the United States. Titan
estimates, but cannot be certain, that there may be as many as 100
beneficial holders of its common shares holding approximately 600,000
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
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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
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ratified protocol, for a further reduction of this rate to
5% for dividends paid or credited on or after January 1, 1997 if the
beneficial owner of the dividends is a corporation which is a
resident of the United States and owns at least 10% of the voting
shares of the Company paying the dividend.
If a Non-Resident Security Holder carries on business in Canada
through a "permanent establishment" or performs independent personal
services from a fixed base in Canada, and the holding of shares in
respect of which the dividends are paid is effectively connected with
such permanent establishment or fixed base, the limitations set out
in the preceding paragraph will not apply. Instead, the dividends
will be taxed using the rates and rules of taxation generally
applicable to residents of Canada.
A "permanent establishment" of a Non-Resident Security Holder can
generally be described as a fixed place of business through which the
business of a resident is wholly or partly carried on.
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.
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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 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, 1999,
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, 1999 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
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------
Revenue $9,234 $123,658 $ 92,801 $ 21,213 $ 11,165
Expenses $653,804 $ 557,517 $293,615 $291,805 $ 336,058
Interest &
Other Income $28,821 $ 41,457 $ 58,581 $ 35,290 $ 9,490
Net Loss for
the year
Canadian GAAP $614,983 $ 392,402 $142,233 $235,302 $ 315,403
US GAAP $746,860 $ 392,402 $142,233 $235,302 $ 315,403
Net Loss Per
Share(1)
Canadian GAAP $(.07) $(.04) $(.02) $(.03) $(.78)
US GAAP $(.13) $(.07) $(.03) $(.06) $(.78)
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Net Working
Capital $742,989 $1,340,017 $1,672,725 $1,579,827 $902,720
Total Assets
Canadian GAAP $1,050,074 $1,672,903 $1,924,638 $1,776,793 $977,238
US GAAP $1,050.074 $1,672,903 $1,924,638 $1,776,793 $977,238
Long Term
Obligations $NIL $NIL $NIL $NIL $NIL
________________________________________________________________________
(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.
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 October 31, 1999 the median bidding exchange rate of Canadian
dollars into United States dollars was $1.4720 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
1999 1.4440 1.4827 1.5095 1.4440
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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 still have some adverse and
unpredictable affect on Titan's operations due largely to the ongoing
dependence on various third party software programs and financial
market exchange data vendors. This risk factor has now subsided
substantially.
The principal risk identified in prior filings was Titan's reliance
on Omega Research Inc.'s TradeStation (TS) software product. The
TradeStation product is the platform upon which Titan's main software
products operate. On June 30, 1999 Omega Research Inc. shipped the
Year 2000 patch for TradeStation 4.0 to Titan and its other
customers. 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 trading related
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 still be adversely affected by the Year 2000 compliance issue,
this may have the effect of limiting Titan's subscription service,
and may adversely affect its financial results. As time passes
following January 1st, 2000, the Y2K risk is expected to be
diminishing rapidly.
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 still a development stage company and presently receives
income from the following sources; software sales, subscription
income and interest and other income. Subscription income started
only in February 2000 from the test website. There are only a small
initial number of subscribers because advertising and marketing of
the service has not yet commenced. VirtualTrader software is still
sold to private and professional traders but marketing efforts in
this area have been reduced in order to concentrate on the online
subscription business. When sold, VirtualTrader is delivered to
customers by a pre-arranged download from Titan's website. The terms
of sale are always FOB Nanaimo, British Columbia, Canada. Delivery
is confirmed by direct contact with customers following download of
the software over the Internet.
Interest and other income reported in the financial statements totals
$128,859 for the three years ended October 31, 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. 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
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does it hold in its control any cash balances from any third parties.
Brokerage accounts have now been closed and all trading activities have
been discontinued pending new equity financings, a legal restructuring
and any required regulatory filings.
In prior periods, income or losses from trading of fully developed
and tested trading software was reported when earned, as trading
income or trading loss, in each period. Income or losses from trading
software still in development was reported in the financial
statements as system testing income or expense, in each period, as
was the case.
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 was fully installed
in April 1998. Since that time and up to July 1999, a trading
program was carried out, in part, to show the functionality and
effectiveness of the software developed. Trading income from stock
index and currency trading reported in fiscal year ended October 31,
was $70,607 in the Fiscal Year Ended October 31, 1998 with the loss
of $29,687 reported in 1999, due to a foreign exchange loss on the US
denominated trading account balances from a rising Canadian dollar
during 1999.
As noted in the TRADING AND TESTING ACTIVITIES section, in the past
periods, while trading software was in a research and development
stage, there was a final period of actual online testing which
involved 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 was considered completed in all
material respects, all related trading activity was booked in the
company's accounts as System testing expenses, similar to an R&D
function. Once that particular software or trading indicator was
finally technically validated by real time testing in actual trading
activity, only then was the development considered completed. Any
continued trading activity results beyond that point based on that
software was booked in the accounts as Trading Income or Trading
Losses. Titan relies on the development experience and expertise of
Michael Paauwe and Michael Gossland in making 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 that 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.
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
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
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development costs, as well as depreciation on office computer
systems. Advertising, marketing and promotion expenses, travel and
investor relations expenses are recurring 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. By February 2000 traffic
rose to a high of 172,000 hits on the site. Website traffic is
expected to rise substantially upon the launch of a sustained
advertising and marketing campaign in connection with the Internet
Subscription Service that is expected to commence in May 2000. This
service, providing various subscriptions to different services at
different prices, is expected to be offered to subscribers at prices
ranging from US $20 to $295 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, 1999 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, the only material impact to date of the differences
between Canadian GAAP and US GAAP in the financial statements,
relates to 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, 1999 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 reduced number of average shares outstanding
as used in the loss per
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share calculations. The resulting differences in the loss per share
calculations are as set forth in the financial statements for the
FYE October 31, 1999 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 1999, $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,
1999 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.
ANNUAL REPORT OVERVIEW OF BUSINESS OPERATIONS FOR THE YEAR
During the past year we achieved a number of development stage
milestones that brought us closer to achieving our goal of
establishing a high potential Internet e-commerce growth strategy and
a viable online financial subscription service business model:
* During 1999 we developed, tested and implemented our
new stock screening technology for big cap US stocks,
called Platinum Alert?. The project is now being expanded
to cover mid cap and small cap stocks under the
TitanGold? brand. This significantly expands our
proprietary trading technology and supplements use of our
existing real-time stock market timing indicators and
systems. We are now able to deliver a high quality,
independent, online stock position trading solution to a
growing market of Internet based traders, stock brokers
and money managers.
* During the second half of the fiscal year, we began to
develop our e-commerce
transaction processing software, to support the planned
financial subscription service. This led to the
development of our own e-commerce software capability for
online Visa and Master Card credit card transaction
processing over the Internet, which started in beta
testing during March 2000. This will allow us to deliver
our online subscription service in the future more
efficiently, with added convenience, at lower cost and to
a greater number of potential customers than would
otherwise be possible.
* In December 1999 we finally cleared our Form 20-F
registration of Titan's securities with the US SEC. This
was done to facilitate access to future US equity
financings and to clear the way for a listing on the NASD
OTC bulletin board in the US, now expected in April,
2000.
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* During 1999 we discovered that many stock brokers and
private traders were making substantial trading profits
using the stock market research published on our website.
As a result we obtained and now publish on our website,
several very high quality written product testimonials
from users. These testimonials will be used to support
the future advertising and marketing launch of the new
subscription service.
* Titan's stock market capitalization increased by more
than 100% after year end. The market began to recognize
our corporate progress and this added significantly to
shareholder value. The bull market climate in microcap
and small cap stocks that emerged on the CDNX stock
exchange and in US markets in early 2000, is expected to
help us in the process of obtaining new equity financings
to support our plans.
These developments, in combination, represent major steps in
implementing our new Internet marketing strategy and establishing the
basis for future profitable operations of the Company.
In 1999 we had to deal with a number of complex regulatory issues, as
well as several challenging technical problems. This delayed our
progress and frustrated some of our existing business plans. These
problems are now substantially behind us. We have adapted our
marketing strategies and business plans to bring about future growth
and profitability in a highly competitive marketplace. We have made
marked progress in implementing our new Internet marketing strategy
as an online financial services enterprise. With the completion of
planned new equity financings to secure substantial marketing and
advertising resources, we should be able to fully ramp up our
advertising, marketing and promotions programs this year and make the
full transition from a development stage to an operating enterprise.
RESULTS OF OPERATIONS
FYE OCTOBER 31, 1999 COMPARED TO FYE OCTOBER 31, 1998
The company remained in a development stage during the fiscal year
ended October 31, 1999. The loss for the year was $614,983, or $.07
per share. This compares to a loss of $392,402 or $.04 per share, for
the fiscal period ended October 31, 1998. Total expenses were higher
in part due to increased expenses of $79,770 for professional fees
associated with filing and clearing the US SEC registration. This
compares to ordinary course outlays for annual professional fees of
$17,934 in the previous year.
Salaries and benefits doubled during 1999 to $122,099, compared to
$63,224 in 1998. This resulted from additional staffing and higher
rates of remuneration being paid, in order to bring pay rates closer
to industry standards in our business. Research and development
expenses increased to $46,800 in 1999, compared to only $3,483 in
1998. This R&D included increased software research costs associated
with new website software and the new US stock screening software. It
excludes $141,778 in software and systems development expenditures
during the period, capitalized by the company and subject to
amortization. Amortization expenses increased to $180,532, compared
to $140,258 in the previous year. This was due to our increased
Internet based investment and development initiatives.
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Advertising, marketing and promotion expenses dropped this period
because planned marketing expenditures were postponed, as a result of
the delays in completing new website and stock screening software.
The new website software took several months longer than expected to
complete and get ready for market. Our business plan timetable was
adversely impacted by the required management resources to complete
and clear the SEC filings, which were finally completed in December
1999. It took eleven months from the time of the initial filing and
several revisions to ultimately get clearance on our Form 20-F United
States registration with the SEC.
Total revenue for the year was only $38,055, including interest and
other income of $28,821. This compares to total revenue $165,115 in
1998. The reduced revenue is the result of significant changes in our
development and marketing strategy and in our business plans as
noted. Trading income was flat for the year, compared to a gain of
$70,607 in 1998. Stock daytrading activities ended in April 1999 and
in the third quarter we ended all in-house trading activities to
satisfy regulatory issues and avoid potential regulatory conflicts
related to our status as a public company. We decided to stop all
trading activities to focus all our corporate resources on the new
Internet product development and marketing strategy.
The future for potential revenues from trading related activities is
now expected to be established by newly structured strategic
alliances and a revised legal and operational structure. These plans
will allow us to exploit our trading technology in the future
directly, without potential regulatory conflict. This restructuring
will take months to completely implement. The reported 1999 trading
loss of $29,687 arose from foreign exchange losses on US dollar
trading accounts, not from trading gains and losses. 1998 trading
income was $70,607. Trading gains made earlier this year were offset
by currency trading losses in the third quarter.
Titan is not a broker-dealer, investment advisor, or an investment
company, as defined by Canadian or United States rules. As a result
of the recurring regulatory issues raised in this regard during the
1999 SEC review and reduced working capital, all in-house trading
activity by Titan in its present structure has been suspended until a
revised business plan for this aspect of our business and the
required legal and financial restructuring can be implemented.
$410,854 cash was used in operations during the year, compared to
$258,904 the previous year. $141,778 was invested in software and
system development. 29.3% of the operating loss for the year was from
amortization expense, which is a non-cash outlay. During 1999 there
was no money raised from financing activities and we hope to address
the reduction in working capital as a priority during 2000.
LIQUIDITY AND CAPITAL RESOURCES - OCTOBER 31, 1999
See also the Cautionary Note Regarding Forward-looking Statements on
- --------------------------------------------------------------------
page 3.
- -------
As at October 31, 1999 the Company had total assets of $1,050,074,
cash balances of $761,007 and net working capital of $742,989. This
compares to total assets of $1,672,903, cash balances of $1,363,818
and net working capital of $1,340,017 as of October 31, 1998. These
asset balance reductions arose from the losses.
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During the twelve month period ended October 31, 1999 there was a
decrease in cash of $602,809 of which $410,854 was from cash used in
operations and $162,577 was from investing activities. $141,778 was
invested in software and systems and $20,799 in acquisition of
capital assets, mainly computer systems. There was no cash raised
from financing activities during this period. The net loss for the
fiscal period ended October 31, 1999 was $614,983 compared a net loss
of $392,402 for FYE October 31, 1998. Losses are expected to continue
for the next several quarters.
In order to sustain future operations in the scale necessary to
effectively carry out our business plans and achieve our revenue
goals, further equity capital will be required to supplement existing
resources. This will allow us to establish US headquarters, add key
management staff and fully launch our marketing and sales campaigns.
Negotiations toward that end are now in progress.
With the scale and timing of planned business expenditures
conditional upon additional equity placements of its securities, over
the next 12 to 18 months Titan expects to make the following planned
expenditures in its business:
1. $500,000 on television, radio and Internet based
advertising,
2. $100,000 on high speed redundant Internet server, &
communications equipment
3. $750,000 for additional staffing to effect a marketing
launch of the subscription service.
4. $145,000 in ongoing software and systems research and
development
The Company plans to initially secure between $1.5 million and $2.5
million in new equity capital service in the next six months, to fund
the expanded marketing and sales program for the new online
subscription service. If these capital plans of the Company are fully
realized during the next twelve months, expenditure levels could
exceed those levels set out above.
By reference to the working capital resources and liquidity risks
outlined above, Titan has insufficient current liquidity and working
capital resources to sustain the operations in accordance with
present business plans for the next 12 months, without obtaining the
additional equity financing referred to above. As a contingency plan,
expenditures will be adjusted in accordance with the timing and level
of equity financing actually raised by the Company during the next
several months.
As Titan does not as yet have net income from its operations and does
not currently have an existing credit facility, 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 the Company 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.
The Company expects to be able to announce progress in new financings
within days or weeks of this filing.
Long term Management Contracts with Michael Paauwe & Associates and
Michael Gossland & Associates were re-negotiated after year-end. New
contracts were approved by the Board of Directors
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and entered into effective January 2, 2000. These contracts create
expenditure commitments of $22,000 per month to December 2003 and
additional amounts if not renewed at that time.
Titan has not entered into any other 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, except as
disclosed above. We do not anticipate any significant capital
purchases other than those 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 use of
these resources.
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 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 software 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.
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
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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 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.
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 software 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 software 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.
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A small direct mail campaign on the VirtualTrader software product
was initiated to test the market 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 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
39
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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 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 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.
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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 software 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 software.
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 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
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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.
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. 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,
Nanaimo, British Columbia Secretary, September 1, 1994
Manager of Software Dev.
& Director
Paul Shatzko Director December 1, 1994
West Vancouver,
British Columbia
Robert Shatzko Director April 15, 1996
San Mateo, California
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Jennifer Gee Chief Financial December 1, 1994
Nanaimo, British Columbia Officer
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 Master
of Science degree from the University of Saskatchewan in 1978. In
1979, he obtained his designation as a Professional Engineer -
Electrical Branch (Association of Professional Engineers of Ontario)
and from 1986 to 1991 he was Software Project Manager for Sciex, a
division of MDS Health Group Inc., of Toronto.
Since September, 1994, through Michael Gossland and Associates (a
sole proprietorship), Mr. Gossland has been providing engineering and
software development services to Titan under a contract services
agreement. Mr. Gossland devotes the majority of his time to the
business and affairs of the Titan.
Paul Shatzko, M.D. is a retired radiologist who formerly practiced in
North and West Vancouver, British Columbia, and 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 diamond
discovery in the North West Territories and now partners with
Debeers. 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 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.
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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 and
has worked for Titan as Chief Financial Officer since June 1994.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
During the fiscal year ended October 31, 1999, 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 FYE October 1999
- ------------------------------------------------------------------------
Michael B. Paauwe, $ 87,000
President
Michael Gossland,
Vice President, Secretary $ 91,000
Manager of Software
Development
Jennifer Gee $ 11,641
Chief Financial Officer
Directors Fees (see below) $ 5,000
---------
Total Compensation
to Directors & Officers $ 194,641
---------
The value of unexercised stock options held by Named Executive
Officers Michael Paauwe and Michael Gossland as at October 31, 1999,
are as follows: Michael Paauwe: $120,750 on 345,000 stock options and
Michael Gossland: $120,750 on 345,000 stock options. Subsequent to
the fiscal year end, one time bonuses were approved by the Board of
Directors and paid to Michael Gossland and Michael
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Paauwe in February 2000 in the amounts of $36,000 and $44,000
respectively. A bonus of $2,500 was paid to Jennifer Gee in
December 1999.
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 Common Shares Exercise Price Expiration Date
- ------------------------------------------------------------------------
Directors and 755,000 $0.90 July 2001
officers as a group 390,000 $1.00 April 2004
-------
Total 1,145,000
Employees who are 75,000 $0.90 July 2001
not directors or 90,000 $0.85 January 2004
officers 45,000 $1.00 January 2004
------
Total 210,000
WARRANTS
There are no outstanding warrants to purchase Titan's common shares
as at October 31, 1999.
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 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, due to Canadian income tax requirements.
Canadian income tax asset
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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 software
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. A long term Management Contract with Michael
Paauwe & Associates was re-negotiated after the October 31, 1999
year-end. The new contract were approved by the Board of Directors
and entered into effective January 2, 2000. This contract makes
expenditure commitments of $12,000 per month to December 2003 and
additional amounts if not renewed at that time. In addition, a one
time $44,000 bonus was approved by the Board of Directors and paid to
Michael Paauwe in February, 2000.
From September 1994 to October 31, 1995, through his independent
software engineering and 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. A long term Management Contract with Michael Gossland &
Associates was re-negotiated after year-end. The new contract were
approved by the Board of Directors and entered into effective January
2, 2000. This contract makes expenditure commitments of $10,000 per
month to December 2003 and additional amounts if not renewed at that
time. In addition, a one time $36,000 bonus was approved by the Board
of Directors and paid to Michael Gossland in February, 2000.
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 currently not less than $12,000
and $10,000 per month respectively, plus reimbursement of expenses.
Each of the Agreements also provides for the payment of an annual
bonus (the "Bonus") of $8,640 and $7,200 respectively. Titan may
terminate these Services Agreements at any time on 30 days written
notice. If it terminates otherwise than for a material and
substantial failure to perform the agreed services by Paauwe or
Gossland, as the case may be, the Services Agreements provide for
payment of a lump sum equal to 12 times the Fee then in effect plus
any unpaid Bonus (the "Lump Sum") if terminated during the initial
term, and an amount to be negotiated, but not less than the Lump Sum,
if terminated thereafter. The latter provision applies as well to a
failure by Titan to renew the Services Agreement. If terminated for a
material and substantial breach of their obligations, Paauwe and
Gossland, as the case may be, have a
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30 day period in which to cure the breach. The Services Agreements
may be terminated by Paauwe and Gossland, as the case may be, on
120 days written notice to the Titan. The Services Agreements also
contain confidentiality provisions, and provisions for the arbitration
of disputes.
Pursuant to an agreement dated September 15, 1995 (the "Gossland
Agreement"), Michael Gossland (officer and director) assigned to
Titan at his transaction cost, all of his right, title and interest
in all software copyrights, product trademarks and related assets in
respect of NeuralEdge and Neural$. 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 Mrs. Sharon Paauwe 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. During 1999
these monthly rental rates were increased to $450 and $350 per month
respectively.
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, 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.
47
<PAGE>
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. These contracts were renegotiated again effective January 2,
2000, as noted above.
During the nine months ended July 31, 1998 Titan paid US$70,000 and
during 1999 Titan paid US$25,000 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 initial marketing efforts, customer and
shareholder liaison, negotiations with public relations firms and
potential US market makers, promotion to offshore investment groups,
presentations to Canadian banks, brokerages and high net worth
investors, negotiations on product reseller arrangements with US
firms and ongoing market research and reporting.
A bonus of $2,500 was paid to Jennifer Gee in December 1999. 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 October 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 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,
48
<PAGE>
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
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
Canadian Venture 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 Canadian Venture 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 Canadian Venture 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.
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.
49
<PAGE>
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, 1999.
INDEX TO FINANCIAL STATEMENTS
1. Consent letter from Collins Barrow in regard to the inclusion of
2. Independent Auditors' Reports in the Registration Statement.
3. Audited Financial Statements of the Titan as of October 31, 1999
with comparative financial information for the years 1998 and 1997,
including the following:
- Auditors' Report
- Consolidated Balance Sheet
- Consolidated Statement of Operations and Deficit
- Consolidated Statement of Cash Flows
- Notes to Consolidated Financial Statements
50
<PAGE>
_______________________________________________________________________
5-1591I
March 29, 2000
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 Annual Report with the United States'
Securities and Exchange Commission and also will be filing an Annual
Information Form with the British Columbia Securities Commission.
As requested, we hereby consent to the filing of the audited
consolidated balance sheets of the company as at October 31, 1999 and
1998 and the consolidated statements of operations and deficit and
cash flows for each of the years in the three year period ended
October 31, 1999 including our auditors' report to the Shareholders
of the company dated January 4, 2000 thereon as part of the above
filing packages.
If you have any further requirements, please contact us.
Yours truly,
COLLINS BARROW
Chartered Accountants
Per: "James R. Church"
James R. Church
JRC/clc
51
<PAGE>
- ------------------------------------------------------------------------
TITAN TRADING ANALYTICS INC.
CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER 31, 1999
52
<PAGE>
AUDITORS' REPORT
-----------------
To the Shareholders of
Titan Trading Analytics Inc.
We have audited the consolidated balance sheets of Titan
Trading Analytics Inc. as at October 31, 1999 and 1998 and
the consolidated statements of operations and deficit and
cash flows for each of the years in the three year period
ended October 31, 1999. 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, 1999 and 1998 and
the results of its operations and cash flows for each of the
years in the three year period ended October 31, 1999 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.
"COLLINS BARROW"
CHARTERED ACCOUNTANTS
Vancouver, Canada
January 4, 2000
53
<PAGE>
TITAN TRADING ANALYTICS INC.
----------------------------
(Incorporated under the laws of British Columbia)
CONSOLIDATED BALANCE SHEET
--------------------------
OCTOBER 31, 1999
----------------
ASSETS 1999 1998
------ ---- ----
Current assets
Cash, due from brokers, and
short-term investments $ 761,007 $ 1,363,816
Accounts receivable 3,729 5,794
Prepaid expenses 746 746
----------- ------------
765,482 1,370,356
Software and systems development (note 3) 240,689 259,147
Capital assets (note 4) 43,903 43,400
---------- ------------
$1,050,074 $ 1,672,903
========== ============
LIABILITIES
-----------
Current liabilities
Accounts payable and accrued liabilities $ 22,493 $ 30,339
---------- ------------
SHAREHOLDERS' EQUITY
--------------------
Share capital (note 5) 2,802,962 2,802,962
Deficit (1,775,381) (1,160,398)
---------- ----------
1,027,581 1,642,564
---------- ----------
$1,050,074 $1,672,903
========== ==========
Approved by the Directors
"Michael B. Paauwe" , Director
- ------------------------
"Michael Gossland" , Director
- ------------------------
See accompanying notes to the consolidated financial statements.
<PAGE>
TITAN TRADING ANALYTICS INC.
----------------------------
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1999
-----------------------------------
1999 1998 1997
---- ---- ----
Software sales $ 38,921 $ 53,051 $ 36,040
------------- ------------- -------------
Trading income (loss) (29,687) 70,607 ---
------------- ------------- -------------
Expenses
Advertising, marketing and
Promotion 75,847 129,299 48,157
Amortization 180,532 140,258 84,297
Bank charges 1,818 2,408 1,452
Capital taxes 500 6,157 4,850
Directors' fees 5,000 5,000 ---
Investor relations 19,233 31,888 ---
Management fees 61,308 65,055 44,887
Office 18,001 12,567 15,005
Professional fees 79,770 17,934 13,424
Rent 5,424 6,177 5,900
Research and development 46,800 3,483 3,483
Salaries and benefits 122,099 63,224 47,282
System testing (recovery) 17,391 42,490 (56,761)
Telephone 6,877 4,118 4,533
Travel 12,438 27,459 20,345
------------- ------------- -------------
653,038 557,517 236,854
------------- ------------- -------------
(643,804) (433,859) (200,814)
Interest and other income 28,821 41,457 58,581
------------- ------------- -------------
Net loss for the year (614,983) (392,402) (142,233)
Deficit, beginning of
the year (1,160,398) (767,996) (625,763)
------------- ------------- -------------
Deficit, end of the year $ (1,775,381)$ (1,160,398) $ (767,996)
============= ============= =============
Net loss per share
for the year (note 7(e)) $(.07) $(.04) $(.02)
====== ====== ======
See accompanying notes to the consolidated financial statements.
<PAGE>
TITAN TRADING ANALYTICS INC.
----------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1999
-----------------------------------
1999 1998 1997
---- ---- ----
Cash flows from (used in)
operating activities
Net loss for the year $ (614,983) $ (392,402) $ (142,233)
Adjustments for:
Amortization 180,532 140,258 84,297
Foreign exchange
loss (gain) 29,378 (35,754) (3,624)
----------- ------------ -------------
(405,073) (287,898) (61,560)
Net change in non-cash
working capital
balances
Decrease (increase) in
accounts receivable 2,065 16,840 (13,390)
Decrease in prepaid
expenses --- 2,737 9,755
Increase (decrease) in
Accounts payable and
accrued liabilities (7,846) 9,417 (12,322)
----------- ------------ -------------
Cash used in operating
Activities (410,854) (258,904) (77,517)
----------- ------------ -------------
Cash flows used in investing
activities
Software and system
Development (141,778) (198,718) (146,134)
Acquisitions of capital
assets (20,799) (13,096) (5,432)
----------- ------------ -------------
Cash used in investing
activities (162,577) (211,814) (151,566)
----------- ------------ -------------
Cash flows from financing
activities
Share subscriptions
received and issuance
of common shares --- 131,250 302,400
----------- ------------ -------------
Cash from financing activities --- 131,250 302,400
----------- ------------ -------------
Foreign exchange gain (loss) on
cash held in foreign currency (29,378) 35,754 3,624
----------- ------------ -------------
Net increase (decrease)
in cash during the year (602,809) (303,714) 76,941
Cash, due from brokers, and
short-term investments,
beginning of the year 1,363,816 1,667,530 1,590,589
----------- ------------ -------------
Cash, due from brokers,
and short-term investments,
end of the year $ 761,007 $ 1,363,816 $1,667,530
=========== ============ =============
See accompanying notes to the consolidated financial statements.
<PAGE>
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1999
-----------------------------------
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 from
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) Stock option plan - No compensation expense is recognized
when stock or stock options are issued to employees. Any
consideration paid by employees on exercise of stock options
or purchase of stock is credited to share capital.
<PAGE>
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1999
-----------------------------------
2. Significant accounting policies - continued
h) 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.
i) 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.
j) Cash and cash equivalents - 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
1999 1998
---- ----
Cost $ 616,565 474,787
Accumulated amortization (375,876) (215,640)
----------- ------------
$ 240,689 $ 259,147
=========== ============
Software and system development cost is comprised of:
1999 1998
---- ----
Computer services $ 35,645 $ 29,520
Contract services 474,562 359,583
Other 71,443 60,769
Rent 10,200 10,200
Salaries 24,715 14,715
----------- ------------
$ 616,565 $ 474,787
=========== ============
<PAGE>
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1999
-----------------------------------
4. Capital assets 1999
----------------------------------------
Accumulated
Cost Amortization Net
------------- ------------- ------------
Computer equipment $ 93,454 $ 61,460 $ 31,994
Furniture and equipment 17,135 5,226 11,909
------------- ------------- ------------
$ 110,589 $ 66,686 $ 43,903
============= ============= ============
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
============= ============= ============
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 and 1999 8,857,001 $ 2,802,962
========= =========
<PAGE>
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1999
-----------------------------------
5. Share capital - continued
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.
During the year the company established a stock option plan to
provide options to directors, officers and employees for up to
1,771,400 common shares.
Directors, Officers and Common Share
Employee Stock Options Purchase Warrants
----------------------- -----------------
Outstanding,
November 1, 1997
Number 830,000 125,000
Exercise price $.90 to July 2001 $.90 to July 1997,
and $1.05 to July 1998
158,000
$1.75 to June 1998
Cancelled during 1998 --- (158,000)
Exercised during 1998 --- (125,000)
Issued during 1999 90,000 vesting over
two years ---
$.85 to January 2004
435,000 vesting over
two years
$1.00 to April 2004 ---
------------------- -------
Outstanding,
October 31, 1999 1,355,000 ---
------------------- -------
<PAGE>
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1999
-----------------------------------
6. Income taxes
The financial statements do not reflect the potential tax
reductions which may be available through the application of
losses of $1,866,000 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
2006 598,000
------------
2,078,000
Losses attributable to timing differences (212,000)
------------
$ 1,866,000
============
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:
1999 1998 1997
---- ---- ----
Expenses
Management fees $ 61,308 $ 65,055 $ 44,887
Rent $ 5,100 $ 4,200 $ 4,200
Research and development $ 16,041 $ --- $ ---
Software and systems development costs incurred during the
year includes $112,292 (1998 - $161,833) paid to officers
and directors.
At October 31, 1999, $10,022 (1998 - $7,438) 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.
Effective January 2, 2000 contract services agreements with
officers were amended to require the company to pay monthly
fees of $22,000 to December 2003 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.
<PAGE>
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1999
-----------------------------------
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 holding short-term investments.
Trading income (loss) includes foreign exchange losses of
$29,378 (1998 - gains of $18,897). Interest and other
income for 1997 includes foreign exchange gains of $8,623.
e) Loss per share
The loss per share is calculated on the basis of the
weighted average number of shares outstanding during the
year which was 8,857,001 (1998 - 8,775,837; 1997 -
8,680,131).
f) Cash used in operating activities includes:
1999 1998 1997
---- ---- ----
Bank charges and interest paid$ (1,818) $ (2,407) $ (1,452)
Interest received $ 32,773 $ 45,329 $ 49,957
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. Although the change
in date has occurred, it is not possible to conclude that
all aspects of the Year 2000 Issue that may affect the
company, including those related to customers, suppliers, or
other third parties, have been fully resolved.
h) Comparative figures
The comparative figures have been reclassified, where
applicable, to conform to the current year's presentation.
<PAGE>
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1999
-----------------------------------
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, 1999 and 1998, 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) 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 is comprised
of:
1999 1998 1997
---- ---- ----
Amortization of software and
systems development $ 160,236 $ 125,142 $ 67,668
Delivery 2,419 3,924 4,905
----------- ----------- ----------
$ 162,655 $ 129,066 $ 72,573
=========== =========== ==========
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.
<PAGE>
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1999
-----------------------------------
8. United States accounting principles - continued
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:
1999 1998 1997
---- ---- ----
Weighted average number of
Shares outstanding 5,857,001 5,775,837 5,680,131
========= ========= =========
Net loss per share $(.11) $(.07) $(.03)
========= ========= =========
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 $131,877 in 1999 and
$Nil in 1998 and 1997. 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 6.50%; an option life of 5 years; an expected volatility of
36% and that no dividends would be paid until after the expiry
date of the options.
For purposes of these calculations, the estimated fair value of
the options were amortized to expense over the vesting periods.
1999 1998 1997
---- ---- ----
Net loss under United States
generally accepted accounting
principles $ (614,983) $ (392,402) $ (142,233)
Increase in directors',
officers', and
employees' compensation (131,877) --- ---
------------ ------------ ------------
$ (746,860) $ (392,402) $ (142,233)
============ ============ ============
Net loss per share if SFAS
123 adopted $(.13) $(.07) $(.03)
============ ============ ============
64
<PAGE>
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1999
-----------------------------------
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, 1999 are:
Software sales $ 160,390
Trading income 40,920
-----------
201,310
-----------
Expenses
Advertising, marketing and promotion 363,714
Amortization 457,484
Bank charges 8,257
Capital taxes 11,507
Consulting 30,000
Directors' fees 10,000
Investor relations 51,121
Management fees 251,552
Office 71,785
Professional fees 137,948
Rent 33,096
Research and development 266,020
Salaries and benefits 286,332
System testing 61,054
Telephone 25,173
Travel 85,287
-----------
2,150,330
-----------
(1,949,020)
Interest and other income 173,639
-----------
Net loss for the period and deficit
accumulated during the development stage $(1,775,381)
===========
65
<PAGE>
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1999
-----------------------------------
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, 1999 are:
Cash flows from (used in) operating
activities
Net loss for the period $(1,775,381)
Adjustments for:
Amortization 457,484
Foreign exchange gain (1,810)
-----------
(1,319,707)
Net change in non-cash working
capital balances
Increase in accounts receivable (3,729)
Increase in prepaid expenses (746)
Increase in accounts payable and
accrued liabilities 22,493
-----------
Cash used in operating activities (1,301,689)
-----------
Cash flows used in investing activities
Software and system development (616,565)
Acquisitions of capital assets (125,511)
-----------
Cash used in investing activities (742,076)
-----------
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 1,810
-----------
Net increase in cash during the period $ 761,007
===========
66
<PAGE>
ITEM 18. FINANCIAL STATEMENTS
Inapplicable
ITEM 19. EXHIBITS
10.1 Current Contract Services Agreement between Titan and
Michael B. Paauwe and Associates dated January 2, 2000
10.2 Current Contract Services Agreement between Titan and
Michael Gossland and Associates dated January 2, 2000
67
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, Titan Trading Analytics Inc. certifies that it meets all
of the requirements for filing on Form 20-F and has duly caused this
annual report 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: March 31, 2000
68
<PAGE>
THIS CONTRACT SERVICES AGREEMENT MADE AS OF JANUARY 2, 2000
BETWEEN:
TITAN TRADING ANALYTICS INC., a company
duly incorporated under the laws of the
Province of British Columbia, and
having an office at 201 Selby Street,
Nanaimo, British Columbia, V9R 2R2
(hereinafter referred to as "Titan")
AND:
MICHAEL PAAUWE AND ASSOCIATES,
financial and management consultants,
having an office at 3473 Ellis Place,
Nanaimo, British Columbia V9T 4Y6
(hereinafter referred to as "Paauwe")
WITNESSES THAT WHEREAS:
A. Titan is and has been engaged in the development of
artificial intelligence ("AI") technologies, research,
development, marketing and sale of financial software, the
development of AI based financial trading systems, and
proposes to develop an AI based wireless financial
messaging service;
B. Paauwe has experience in the provision of corporate
and financial management, financial trading systems
software development, product marketing, corporate
financing, financial research and administration, and
related advice and services (the "Services"), and has since
September 1, 1994 been providing the Services to Titan as
an independent contractor; and
C. the parties consider that it would be in their mutual
best interests to amend the date of the existing contract
and to amend the Fee payable pursuant to clause 2.1 in the
January 2, 1998 agreement, in accordance with a directors'
resolution dated December 23, 1999,
the parties hereto, in consideration of the premises and
the mutual covenants and agreements contained herein and
other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, agree as
follows:
1. Engagement
Titan hereby confirms the engagement of Paauwe to perform,
and Paauwe agrees to continue to perform the Services on
and subject to the terms of this Agreement for not fewer
than 160 nor more than 200 hours (or such greater or lesser
number of hours as the parties may from time to time agree
upon in writing) in each calendar month.
2. Payment for the Services and reimbursement of expenses
2.1 Titan hereby agrees:
<PAGE>
2.1.1 to pay Paauwe monthly for the Services
monthly at a rate, being not less than $12,000,
to be agreed upon between the parties from time
to time (the "Fee"); and
2.1.2 to pay Paauwe annually, upon his request, a
bonus (the "Bonus") of $8,640.
2.2 Titan agrees to reimburse Paauwe for vehicle mileage
expenses at a rate to be agreed from time to time, and also
agrees to reimburse Paauwe for all reasonable expenses
incurred in travel, administration, promotion and all other
out of pocket expenses actually and reasonably incurred by
Paauwe in connection with the business of Titan and in
performing the Services.
3. Paauwe to be an independent contractor
Notwithstanding any other provision of this Agreement, it
is understood and agreed between the parties and it is a
condition of this Agreement, that Paauwe is an independent
contractor and not subject except as hereinafter provided,
to the direction or control of any other person in
performing the Services, nor is he an employee by virtue
of any provision hereof, or his position as an officer of
Titan. In performing the Services, Paauwe shall at all
times, but subject to (a) the business plan of Titan, as
from time to time approved by its board of directors, (b)
any resolutions of the board of directors from time to
time, and (c) any legal, governmental or regulatory
requirements or conditions, take such steps as in his good
faith business judgment shall be necessary or appropriate.
4. Term and renewal
Subject to the termination provisions of paragraph 7
hereof, the term of this Agreement shall be for a period of
three years from the date of this Agreement (the "Initial
Term"), and unless terminated, shall be renewed by the
parties from time to time for further periods (a "Renewal
Term") of two years.
5. Right of Paauwe to enter into other contracts for
services
Nothing in this Agreement shall restrict the right of
Paauwe to perform services for others, provided that such
others are not engaged in a business which is competitive
or in conflict with the business of Titan, and provided
further that the performance of such services does not, in
the opinion of the board of directors of Titan acting
reasonably, interfere with the performance of the Services.
6. Confidentiality and non-disclosure
Paauwe agrees that all proprietary information relating to
Titan's technology, business and affairs ("Proprietary
Information") is and shall be kept confidential, and will
not be disclosed to any person other than a person employed
by or performing services for Titan and who has a need to
know such Proprietary Information, except with the prior
consent in writing of the President of Titan.
<PAGE>
7. Termination
7.1 Titan may at any time and for any reason terminate
this Agreement upon 30 days written notice to Paauwe,
and such termination shall be effective 30 days
following the delivery of such notice to Paauwe.
7.2 If Titan terminates this Agreement for any reason
other than the commission by Paauwe of a material and
substantial breach of his obligation to perform the
Services as provided in this Agreement, Titan shall
forthwith pay Paauwe, in a lump sum:
7.2.1 an amount equal to 12 times the Fee,
plus any Bonus to which Paauwe is entitled
pursuant to section 2.1.2 hereof, if
termination occurs during the Initial Term;
7.2.2 an amount to be negotiated between the
parties, but not less than the amount
payable under section 7.2.1 hereof, if
termination occurs during any Renewal Term
or if Titan fails to renew this Agreement.
7.3 If Titan gives notice of termination of this Agreement
to Paauwe by reason of a material and substantial
breach of his obligation to perform the Services, the
notice shall specify and Paauwe shall have 30 days
from delivery of the notice to him to cure, the
breach, and upon such breach being cured
notwithstanding section 7.1, the notice of termination
shall thereupon cease to be effective.
7.3 Paauwe may terminate this Agreement at any time upon
120 days written notice to Titan.
8. Payment of GST
All amounts payable by Titan to Paauwe for the Services
shall be exclusive of any Goods and Services Tax (GST) or
other governmental taxes or levies payable in respect of
the Fee and Titan shall, in addition to the Fee, pay to
Paauwe all amounts of GST or other governmental taxes or
levies imposed on Paauwe with respect to the Fee, and
agrees to indemnify him and save him harmless in respect of
any such imposition resulting from any failure by Paauwe to
collect, or by Titan to make payment of any amount properly
chargeable to it on account thereof.
9. Severability
If any provision of this Agreement is found to be void,
invalid, illegal or unenforceable by a court of competent
jurisdiction, such finding will not affect any other
provision of this Agreement, which will continue to be in
full force and effect.
10. Assignment
This agreement may not be assigned by either party without
the prior written consent of the other, which consent may
not be unreasonably witheld.
<PAGE>
11. Arbitration of disputes
11.1 Except as provided in section 11.2, all differences or
disputes arising out of or in connection with this
agreement, including any difference or dispute with respect
to the amount of the Fee, or in respect of any defined
legal relationship associated herewith or derived herefrom
shall be referred to and finally resolved by arbitration
under the rules for the conduct of domestic commercial
arbitrations under the British Columbia International
Commercial Arbitration Centre. The appointing authority
shall be the British Columbia International Commercial
Arbitration Centre. The case shall be administered by the
British Columbia International Commercial Arbitration
Centre in accordance with its Procedures for Cases under
the BCICAC Rules". The place of arbitration shall be
Vancouver, British Columbia, Canada.
11.2 The provisions of section 11.1 do not apply to the
obligations of Titan under section 7.2 hereof.
12 Enurement
This Agreement shall enure to the benefit of and shall bind
the parties and their respective heirs, executors,
administrators, successors and permitted assigns.
13. Governing law
This Agreement shall be interpreted in accordance with the
laws of the Province of British Columbia
The parties, intending to be bound, have executed this
Agreement as of the date first above written.
TITAN TRADING ANALYTICS INC.
Per: /s/ Michael Gossland
________________________
Authorized signatory
MICHAEL PAAUWE AND ASSOCIATES
Per: /s/ Michael Paauwe
________________________
Authorized signatory
Office/contract/paauwe3.doc
<PAGE>
THIS CONTRACT SERVICES AGREEMENT MADE AS OF JANUARY 2, 2000
BETWEEN:
TITAN TRADING ANALYTICS INC., a company
duly incorporated under the laws of the
Province of British Columbia, and
having an office at 201 Selby Street,
Nanaimo, British Columbia, V9R 2R2
(hereinafter referred to as "Titan")
AND:
MICHAEL GOSSLAND AND ASSOCIATES,
professional software developers,
having an office at 5449 Kenwill Drive,
Nanaimo, British Columbia, V9T 5Z6
(hereinafter referred to as "Gossland")
WITNESSES THAT WHEREAS:
A. Titan is and has been engaged in the development of
artificial intelligence ("AI") technologies, research,
development, marketing and sale of financial software, the
development of AI based financial trading systems, and
proposes to develop an AI based wireless financial
messaging service;
B. Gossland has experience in software design and
engineering, financial trading software system research and
development, computer systems configuration and
maintenance, technical trouble shooting, software
technology security, and matters related to the foregoing
(the "Services"), and has since September 1, 1994 been
providing the Services to Titan as an independent
contractor; and
C. the parties consider that it would be in their mutual
best interests to amend the date of existing contract and
amend the Fee payable pursuant to clause 2.1 in the January
2, 1998 agreement, in accordance with a directors'
resolution dated December 23, 1999,
the parties hereto, in consideration of the premises and
the mutual covenants and agreements contained herein and
other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, agree as
follows:
1. Engagement
Titan hereby confirms the engagement of Gossland to
perform, and Gossland agrees to continue to perform the
Services on and subject to the terms of this Agreement for
not fewer than 160 nor more than 200 hours (or such greater
or lesser number of hours as the parties may from time to
time agree upon in writing) in each calendar month.
2. Payment for the Services and reimbursement of expenses
2.1 Titan hereby agrees:
<PAGE>
2.1.1 to pay Gossland monthly for the
Services monthly at a rate, being not less than
$10,000, to be agreed upon between the parties
from time to time (the "Fee"); and
2.1.2 to pay Gossland annually, upon his
request, a bonus (the "Bonus") of $7,200.
Titan agrees to reimburse Gossland for vehicle mileage
expenses at a rate to be agreed from time to time, and also
agrees to reimburse Gossland for all reasonable expenses
incurred in travel, administration, promotion and all other
out of pocket expenses actually and reasonably incurred by
Gossland in connection with the business of Titan and in
performing the Services.
3. Gossland to be an independent contractor
Notwithstanding any other provision of this Agreement, it
is understood and agreed between the parties and it is a
condition of this Agreement, that Gossland is an
independent contractor and not subject except as
hereinafter provided, to the direction or control of any
other person in performing the Services, nor is he an
employee by virtue of any provision hereof, or his
position as an officer of Titan. In performing the
Services, Gossland shall at all times, but subject to (a)
the business plan of Titan, as from time to time approved
by its board of directors, (b) any resolutions of the board
of directors from time to time, and (c) any legal,
governmental or regulatory requirements or conditions, take
such steps as in his good faith business judgment shall be
necessary or appropriate.
4. Term and renewal
Subject to the termination provisions of paragraph 7
hereof, the term of this Agreement shall be for a period of
three years from the date of this Agreement (the "Initial
Term"), and unless terminated, shall be renewed by the
parties from time to time for further periods (a "Renewal
Term") of two years.
5. Right of Gossland to enter into other contracts for
services
Nothing in this Agreement shall restrict the right of
Gossland to perform services for others, provided that such
others are not engaged in a business which is competitive
or in conflict with the business of Titan, and provided
further that the performance of such services does not, in
the opinion of the board of directors of Titan acting
reasonably, interfere with the performance of the Services.
6. Confidentiality and non-disclosure
Gossland agrees that all proprietary information relating
to Titan's technology, business and affairs ("Proprietary
Information") is and shall be kept confidential, and will
not be disclosed to any person other than a person employed
by or performing services for Titan and who has a need to
know such Proprietary Information, except with the prior
consent in writing of the President of Titan.
<PAGE>
7. Termination
7.1 Titan may at any time and for any reason terminate
this Agreement upon 30 days written notice to
Gossland, and such termination shall be effective 30
days following the delivery of such notice to
Gossland.
7.2 If Titan terminates this Agreement for any reason
other than the commission by Gossland of a material
and substantial breach of his obligation to perform
the Services as provided in this Agreement, Titan
shall forthwith pay Gossland, in a lump sum:
7.2.1 an amount equal to 12 times the Fee,
plus any Bonus to which Gossland is entitled
pursuant to section 2.1.2 hereof, if
termination occurs during the Initial Term;
7.2.2 an amount to be negotiated between the
parties, but not less than the amount
payable under section 7.2.1 hereof, if
termination occurs during any Renewal Term
or if Titan fails to renew this Agreement.
7.3 If Titan gives notice of termination of this Agreement
to Gossland by reason of a material and substantial
breach of his obligation to perform the Services, the
notice shall specify and Gossland shall have 30 days
from delivery of the notice to him to cure, the
breach, and upon such breach being cured
notwithstanding section 7.1, the notice of termination
shall thereupon cease to be effective.
7.4 Gossland may terminate this Agreement at any time upon
120 days written notice to Titan.
8. Payment of GST
All amounts payable by Titan to Gossland for the Services
shall be exclusive of any Goods and Services Tax (GST) or
other governmental taxes or levies payable in respect of
the Fee and Titan shall, in addition to the Fee, pay to
Gossland all amounts of GST or other governmental taxes or
levies imposed on Gossland with respect to the Fee, and
agrees to indemnify him and save him harmless in respect of
any such imposition resulting from any failure by Gossland
to collect, or by Titan to make payment of any amount
properly chargeable to it on account thereof.
9. Severability
If any provision of this Agreement is found to be void,
invalid, illegal or unenforceable by a court of competent
jurisdiction, such finding will not affect any other
provision of this Agreement, which will continue to be in
full force and effect.
10. Assignment
This agreement may not be assigned by either party without
the prior written consent of the other, which consent may
not be unreasonably witheld.
<PAGE>
11. Arbitration of disputes
11.1 Except as provided in section 11.2, all differences or
disputes arising out of or in connection with this
agreement, including any difference or dispute with respect
to the amount of the Fee, or in respect of any defined
legal relationship associated herewith or derived herefrom
shall be referred to and finally resolved by arbitration
under the rules for the conduct of domestic commercial
arbitrations under the British Columbia International
Commercial Arbitration Centre. The appointing authority
shall be the British Columbia International Commercial
Arbitration Centre. The case shall be administered by the
British Columbia International Commercial Arbitration
Centre in accordance with its Procedures for Cases under
the BCICAC Rules". The place of arbitration shall be
Vancouver, British Columbia, Canada.
11.2 The provisions of section 11.1 do not apply to the
obligations of Titan under section 7.2 hereof.
12 Enurement
This Agreement shall enure to the benefit of and shall bind
the parties and their respective heirs, executors,
administrators, successors and permitted assigns.
13. Governing law
This Agreement shall be interpreted in accordance with the
laws of the Province of British Columbia
The parties, intending to be bound, have executed this
Agreement as of the date first above written.
TITAN TRADING ANALYTICS INC.
Per: /s/ Michael Paauwe
______________________
Authorized signatory
MICHAEL GOSSLAND AND ASSOCIATES
Per: /s/ Michael Gossland
______________________
Authorized signatory
Office/contract/gossland3.doc
