UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the fiscal year ended July 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
Commission File Number: 0-25024
TITAN TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
New Mexico 85-0388759
(State or other jurisdiction of (I.R.S. Employer
incorporation or other organization) Identification No.)
3206 Candelaria Road, N.E., Albuquerque, New Mexico 87107
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: 505-884-0272
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
No Par Value Common Stock
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 X No ____.
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $171,119.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of February 23, 1998: $9,127,500.
The number of shares outstanding of the Registrant's No Par Value common stock,
as of March 23, 1998, was: 22,016,411 shares.
PART I
ITEM 1: DESCRIPTION OF BUSINESS
History
- -------
Titan Technologies, Inc. (hereafter the "Registrant") was incorporated
under the laws of the State of New Mexico on July 14, 1954, as Titan Uranium
Corporation, which, at that time intended to engage in the business of mining
exploration and operations, with its principal efforts being directed toward
precious metals and uranium. The Registrant's name was change to Titan
Technologies, Inc. in 1986.
In 1989, the Registrant acquired approximately 97.5% of the outstanding
common stock of Aegis Technologies, Inc., a privately held New Mexico
corporation, and in 1991 acquired the balance of that company's common stock. In
1991, the Registrant acquired all of the outstanding common stock of Tire
Recycling Technologies Corporation., a privately held North Carolina corporation
(subsequently reorganized as a New Mexico corporation). The common stock of
Aegis Technologies Corporation was sold on July 7, 1995. All of the Registrant's
present business is being conducted by Tire Recycling Technologies Corporation.
After 1986, the Registrant began looking for new assets and businesses that
it might acquire. It acquired two businesses, those being Aegis Technologies,
Inc., a corporation that had certain technology related to the manufacture of
building tiles, which was acquired in 1989, and Tire Recycling Technologies
Corporation, which was acquired in 1991. The Registrant was never able to
develop the business of Aegis Technologies, Inc. and that corporation was sold
during fiscal 1995.
The acquisition of Tire Recycling Technologies Corporation ("TRTC") was
based on a formula of Registrant shares for the shares of stock in TRTC, which
formula was based on the perceived value of the technologies that TRTC owned.
The Registrant exchanged four shares of its common stock for each share of
TRTC's common stock. Since 1991, the Registrant has devoted substantially all of
it resources to further the development of TRTC's business.
Tire Recycling Technologies Corporation. ("TRTC")
- -------------------------------------------------
As stated above, TRTC, a wholly owned Registrant subsidiary, conducts the
primary Registrant business operations. TRTC has developed and is currently
marketing commercial scale plants capable of converting scrap tires into high
quality, readily marketable oil, steel, and carbon black. The Registrant is
offering for sale to interested operators on a turnkey basis a completed,
licensed and operational tire recycling plant together with a license with the
Registrant for the use of the Registrant's TRTC process that is discussed below.
The TRTC technology being utilized by the Registrant was developed by the
Registrant to recover the oil, steel and carbon black that was utilized in the
manufacture of tires. The process is self contained, using scrap tires as the
feed-stock resource, which, with heat and a physical enabler reduces the tires
to their basic chemicals. Minor residue from combustion is vented into the
atmosphere, which is believed by management to result in minimal environmental
impact.
During the past three years, the Registrant has learned that the initial
technology was not fully developed and has been required to devote substantial
resources to develop its technology to meet the criteria of its clients to
dispose of tires through the use of the TRTC technology. The current evolution
of the Registrant's technology does not require the catalyst originally used in
the TRTC process. An enabler developed by the Registrant and now being used by
the Registrant has proven to be superior in initiating the necessary catalytic
reaction and continuing the process of breaking down the tires into their basic
constituent parts.
The TRTM-60 Technology employs enhanced pyrolysis, which, unlike known
competing scrap tire recovery systems, is true tertiary recycling: the original
elements that went into making the tires, primarily oil, steel and carbon black,
are reclaimed in near virgin form.
The entire tire recycling process is a closed system. The only emissions
are the exhaust gases from firing the retort burners. Because methane and other
components of the gas fraction are clean burning, release of pollutants to the
atmosphere is minimal. The only nonresalable materials from the process are the
small quantities of ash and dirt produced that are landfilled.
The TRTM-60 technology was developed to meet the world-wide need for an
economically viable method for the permanent disposal of tires. Total quantities
of tires in stock piles and dumps in the United States have been estimated at 3
billion tires. Tires are introduced into these stock piles through the
distribution of new cars (which is expected to reach 58 million units per year
by the year 2,000) and by replacement tires for older vehicles, of which there
are approximately 15 for each new car introduced into the market. The Scrap Tire
Management Council estimates that there is about one scrap tire generated
annually per person in the United States, or approximately 240 million scrap
tires annually. Tire production has been estimated at 260 million tires per
year. In 1989, replacement tires for all auto, buses, trucks and motor cycles,
but not including military equipment, was approximately 189 million tires. The
difference between the estimated 260 million tire production and use is believed
to be from use by military and on farm machinery and aircraft.
Stockpiled tires and the risks associated with them, from mosquito
production to fire hazard, have become a significant environmental problem.
Legislation has been introduced and passed in many states controlling tire
disposal, storing and transportation. Massachusetts, Minnesota and Wisconsin
have established programs to eliminate stockpiles of tires. Fourteen states have
adopted or plan to adopt tax measures to provide the resources to eliminate tire
stockpiles, while thirteen other states have established or will establish
grants or subsidy arrangements for tire recycling and disposal.
The Registrant's Management believes that the Registrant's process is
unique in the industry in that it operates on a continuous basis at the
unusually low temperature of 450 degrees Fahrenheit rather than competing
pyrolytic technologies, which typically function at temperatures of 1000 degrees
Fahrenheit a greater. The low temperature at which the Registrant's process
operates translates into cost efficiencies by using less energy to operate and
reduced wear and tear on the equipment. The low temperatures result in
qualitative enhancement of the end products generated by the process.
The TRTM process was initially demonstrated in a plant constructed by the
Registrant near Bradley, Oklahoma. Through this pilot plant the Registrant
demonstrated that the pilot plant was capable of processing from 60 to 100 tons
of scrap tires daily. At this plant, scrap tires were converted into oil (with a
97% fuel content), steel, methane gas, carbon black,and other marketable
byproducts. The Bradley Plant was constructed as a proto-type facility to
demonstrate the TRTM process and, because of its limited size, was not designed
nor intended to be an operating facility.
The TRTM-60 technology is proprietary. However, two patent applications
have been filed relating to advancement in the technology. Both applications
were consolidated subsequently, and U.S. Patent No. 5,714,043 has been issued to
protect the enhanced design of the TRTM-60 technology. While the feedstock used
in the process initially consisted of shredded tires, the Registrant has
developed some initial applications looking toward the eventual application of
the process to various plastics.
Governmental regulations regarding plant operations.
- ----------------------------------------------------
Because the process uses natural gas to fire its retort burners, discharge
from a plant utilizing the TRTM process is minimal. However, because the plant
creates and stores recovered oil and carbon black, each plant must meet all
requirements established by federal and state environmental laws related to the
storage and transportation of such products. The storage and transportation
requirements are well established and present no significant problem in
obtaining all necessary licenses for operation of any facility.
Current Status of Marketing Efforts.
- ------------------------------------
In 1995, Dong Kook Steel Material Company, Ltd. ("Dong Kook"), a Republic
of Korea corporation, completed construction of two plants in the Republic of
Korea that employ the TRTM-60 process. One of the plants is located
approximately twenty miles from the city of Chong Ju, while the other is located
approximately two miles from Taegu City. Each of these plants is capable of
processing approximately 60 tons of scrap tires per day and are estimated to
produce approximately 150 barrels of oil, 6 tons of steel, and 17 tons of carbon
black per day. Although both plants are now complete, Dong Kook has experienced
delays in reaching sustained operations because of inadequate tire shredding
equipment needed to prepare the tires for introduction into the system.
Although there has been significant and unexpected delay in getting the
Dong Kook plants to operate up to their capacity on a continuous basis, the
Registrant has been fortunate in that it has been able to work closely with Dong
Kook to experiment with various methods of preparing the feed-stock of tires,
various configurations for the plants and various forms of catalytic agents. all
of which has resulted in a more efficient plant that should eventually result in
greater production and, thereby, profitability for Dong Kook.
The Registrant retained no royalty on any products produced from the
initial plant, while the Registrant retained a royalty of 3.5% of all gross
receipts from the sale of products produced by the second plant, less the cost
of transportation to the point of sale of the products. During the year, in
order to assist the project in going forward, the Registrant waived its royalty
interest in the second plant when it was sold by Dong Kook to a third party
purchaser. To date, Dong Kook has not reported any sale of any products from the
plants and the Registrant has waived its right to received any additional
payment from this plant.
Dong Kook was primarily responsible for the cost of construction of the
plant with the Registrant's management overseeing and assisting in the
construction. The Registrant anticipates that it will have the primary
responsibility of construction of all future plants sold and anticipates that
the sales price for a completed plant will be about $8,000,000.00. It also
anticipates that future licenses will retain a royalty of 7.5% of all after tax
receipts for products produced from each plant. Although these are Management's
current estimated prices and royalties, each plant must be custom made for the
country and area in which it may be located and negotiations for any such plant
may result in price and royalty structures that vary substantially from such
present intentions.
In April, 1996, the Registrant concluded an agreement with the
Environmental Solutions Agency ("ESA") of Ft. Meyers, Florida and Skoda Klatovy,
a wholly owned subsidiary of the Czech Republic conglomerate Skoda Holding,
a.c., for the sale and construction of a TRTC tire recycling plant to be built
in Austria. The preliminary engineering and design and site preparation work for
the plant has been completed. The start of this project was delayed because of a
breach by ESA of its agreement to fund the project. ESA's breach resulted in the
Registrant suing ESA (see Item 3. Legal Proceedings), but ESA Recycling, Gsmbh,
("ESA Recycling") the Austrian corporation formed to build and operate the
facility has informed the Registrant that it has obtained financing independent
of that promised by ESA. Upon the basis of that representation, the Registrant
entered into a new agreement for the marketing and licensing in Europe of the
Registrant's TRTC plants and technology. ESA Recycling has paid the Registrant
500,000 Austrian Shillings ($40,000.00 US equivalent) as an advance on the
license fee due the from the plant it is to construct in Austria. The Registrant
anticipates that the project will be started during the spring of 1998. Upon the
completion of the Austrian facility, the Registrant has been assured by ESA
Recycling that five additional European companies will purchase additional
facilities from the Registrant for location at other sites in Europe.
Recoverable Products.
- ---------------------
Oil:
The oil recovered by the Registrant's tire recycling process in Korea has
been as high as 34.1 gravity extender oil, oil with an extremely high percentage
of usage fuels (in the range of 99.4% gasoline, naphtha and kerosene), that is
used primarily to lighten heavier oils either before or after refining. It can
also be used in the manufacture of carbon black and rubber products. The oil has
a high content of kerosene and light gas, as well as gasoline.
A TRTC-60 tire recycling plant typically recovers about one gallon of oil
per tire. At 60 ton capacity, a plant is capable of recovering 150 barrels of
oil per day from sixty tons of tires.
While it is impossible to predict the future market price for the recovered
oil, in 1992 the Registrant sold oil produced from its Bradley plant for $15.00
per barrel. Any price received for the oil will necessarily be based upon the
then current market for crude oil.
Carbon Black:
The carbon black recovered by the TRTM-60 tire recycling process is a
semi-reinforcing carbon black. North America manufacturing facilities consume
nearly 3 billion pounds of carbon black annually, of which 50 percent are of the
semi-reinforcing type.
Carbon black, when combined with rubber, substantially increases the
hardness and durability of the product. The wear characteristic of carbon black
is a function of the particle size. The finer the particles, the better the
rubber reinforcing properties. Particle size is measured by numerical grade, in
nanometers (nm). The highest grade with particle sizes under 20 nm is designed
as super abrasion furnace. The lowest grades are the semi-reinforcing furnace
blacks with particle sizes from 50 nm to 1000 nm.
Tire manufacturers traditionally use grades 500 to 700 in the interior of
the tire, and grade 200 for the sidewalls and tread. Grade 100 is typically used
in the production of very high abrasion products such as automobile racing
tires, while the various other industrial applications use varying grades,
depending upon the performance required.
Because much of the tread has been worn away in a scrap tire, the carbon
black recovered by the TRTC-60 tire recycling process is dominated by grades 500
to 700. It is this category which is the target market for TRTC recovered carbon
black. In 1990, the market demand for grade 700 was 300 million pounds. Initial
test results of the carbon black produced from the Registrant's Bradley plant
were found to be a substitute for IRB 5 carbon black for which the market price
varies between $0.30 and $0.32 per pound. Because the costs of operations of the
TRTC-60 are nominal, it might be offered for sale at a price significantly lower
than the prevailing market rate for IRB 5 carbon black.
A market price for TRTC-60 carbon black remains to be established, but
preliminary indications are that a price of ten cents to fifteen cents per pound
should be maintainable. The Registrant and Dong Kook are working together at the
TRTC plant located at Chong Ju to develop methods to enhance the quality of the
carbon black. To date, there have been limited improvements in the quality, but
both the Registrant and Dong Kook believe that the correct process to enhance
the product will be developed.
At sixty ton capacity, the TRTC tire recycling plant is capable of
recovering 30,000 pounds of carbon black per day.
Steel:
Scrap steel can be used in a variety of applications, and there is a large
and very active market for such steel. The steel recovered from a scrap tire is
comprised of woven steel threads. Thus, this steel is more easily recycled by a
recycler of steel and consequently generates a higher market price than solid
scrap steel pieces.
In general, 10 percent of the weight of a tire is steel, assuming it is a
steel belted tire. At full capacity, the TRTC tire recycling plant should
recover six tons of steel per day. The market price for such steel varies, but
generally commands a price of between $30.00 and $60.00 per ton.
The Industry and the Registrant's Competition.
- ----------------------------------------------
Historically scrap tires have been piled or buried, neither of which offer
a solution to disposal of scrap tires.
The scrap Tire Management Council in its Scrap Tire Use Disposal Study
published September 11, 1990, identified two basic areas in which waste tires
have been used in industry. Each of these areas have developed into separate
industries that will compete with the Registrant for tires. These areas and
industries are: (i) a substitute for traditional fossil fuels in cement kilns,
paper mills, utilities, and dedicated tire-to-energy facilities, and (ii) as an
ingredient for asphalt paving. Limited numbers of tires have been made into
sandals and other rubber products, but have not and probably will not contribute
significantly to waste tire disposal. In July, 1994 this same council identified
numerous companies that are now using waste tires in numerous products,
including, ball-point pens, video cassettes, bulletin boards, flooring products,
rubber mats, rubber protection devices for marine applications, garden products,
various forms of hoses, belts, and similar products that have historically been
made from new product. It is unknown what percentage of used tires these
competing products use, but Management believes that they represent a very small
percentage of the more than 250 million scrap tires that are discarded in the
United States each year.
Management believes that as a substitute fuel, waste tires provide only
marginal savings for the user, while their use in asphalt paving has yet to be
proven viable or to meet the expectations that it will substantially extend
asphalt service life. At present, these industries consume less than twelve
percent of the waste tires discarded in this country each year.
With respect to recycling, the only technology at all comparable to that
developed by TRTC is pyrolysis. Such pyrolytic facilities as currently exist in
Japan and Germany, however, rely on government subsidies because they involve
significant capital outlays and operating costs and are unable to handle any
significant tonnage of scrap tire rubber. The Scrap Tire Management Council has
observed, "the volume capability of pyrolysis is negligible". Furthermore, due
to the high temperatures employed in pyrolysis, the by-products recovered from
the scrap tire rubber are of a lower, less marketable quality than those derived
through the TRTC process as demonstrated at its Bradley, Oklahoma plant. Because
the TRTC process operates efficiently at temperatures approximately 450 degrees
Fahrenheit the oil and carbon black recovered through the TRTM process undergo
minimal degradation and have correspondingly higher market value than pyrolytic
byproducts.
The Registrant does not know of any other uses for the tires that might
compete with its business, however, continual research into the problem of waste
tires is continuing throughout the world and it should be anticipated that new
and novel approaches to a solution to the problem will, from time to time, be
put forward.
Marketing Arrangements.
- -----------------------
On December 27, 1990, the Registrant sold the exclusive marketing rights to
its technology. This sale provided that the Registrant was to furnish completed
plants on a turn-key basis, without any reservation of royalty from the
licensing arrangement. Because of the royalty limitation, the Registrant
subsequently repurchased the rights. As a result of that sale, approximately 67
corporations located world wide remain subject to a right retained by the former
marketer that if any sales are made to such corporations for the construction of
a plant to be located within the United States, the former marketer will be
entitled to a fee of $400,000 for each such sale. No agreements for the sale of
any plant or the reservation of any royalty were entered into during the time
that the Registrant did not own its marketing rights.
In 1992, the Registrant entered into a national and international marketing
arrangement for its technology with Geotech, based in Orange County California.
As a result of the agreements, Geotech acquired the exclusive worldwide
marketing rights exclusive of the States of California, Oregon, Washington, and
the Dominion of Canada. The Registrant retained the marketing rights for
California, Oregon, and Washington. The agreement provides that the Registrant
will sell the marketers a fully licensed and operational plant for the actual
cost of the plant plus a markup of one-third over such actual costs.
As a result of Geotech's default under the agreement, marketing rights
reverted to the Registrant; however, the Registrant entered into a new agreement
with a former corporate principal of Geotech which, during the past year, was
reorganized under the laws of Korea and was renamed Dowon Company, Ltd. Under
the agreement with Dowon Company, Ltd. that corporation has the exclusive
marketing and manufacturing rights on the continent of Asia, with the exception
of the Asiatic portions of the Commonwealth of Independent States. The
Registrant believes that because of Dowon Company, Ltd.'s location and business
contacts in Asia it will be able to effectively develop and implement a
marketing strategy for the Registrant's tire recycling plants in all of the
areas covered by the agreement. The Registrant has been informed by Dowon
Company Ltd. that it is currently negotiating with a Taiwanese group for the
purchase of three of the Registrant's tire recycling plants to be located in
Taiwan.
As discussed above, in February of 1996, the Registrant concluded an
agreement with ESA whereby E.S.A. was granted the exclusive marketing rights for
Europe, the Republic of South Africa and Austria. Thereafter, E.S.A. formed ESA
Recycling to build and operate the facility. The start of this project was
delayed because of a breach by ESA of its agreement to fund the project. ESA's
breach resulted in the Registrant suing ESA (see Item 3. Legal Proceedings). ESA
recycling informed the Registrant that it has obtained financing independent of
that promised by ESA. Upon the basis of that representation, the Registrant
entered into a new agreement for the marketing and licensing in Europe of the
Registrant's TRTC plants and technology. ESA Recycling has paid the Registrant
500,000 Austrian Shillings ($40,000.00 US equivalent) as an advance on the
license fee due the Registrant from the plant it is to construct in Austria. The
Registrant anticipates that the project will be started during the spring of
1998. Upon the completion of the Austrian facility, the Registrant has been
assured by ESA Recycling that five additional European companies will purchase
additional facilities from the Registrant for location at other sites in Europe.
The first Registrant tire recycling facility in Austria incorporates
advancements, modifications and improvements resulting from the Registrant's
experiences with the two facilities operating in Korea. The first European
facility is designed to be the Registrant's state of the art showcase, which
Management believes will attract other purchasers and result in additional sales
of its facilities..
Management estimates that there is a market for approximately one hundred
TRTM-60 tire recycling plants in the United States alone. This estimate is based
on demographic to scrap tire stockpile ratios indicating approximately 27.1
scrap tires per capita of population. Given this figure, it appears that a
population base of approximately one million people will generate sufficient
scrap tires to sustain the operations of a TRTM-60 recycling machine.
Preliminarily, marketing efforts in the United States have been focused on
the larger population centers. Management believes that because of the current
policies of providing incentives and inducements to promote recycling, market
conditions for its technology should continue to improve.
Plastics Technologies.
- ----------------------
The Registrant, with the assistance and through an arrangement with and
under the direction of Adherent Technologies, Inc., a company owned by Dr.
Ronald E. Allred, is currently working on the initial development efforts toward
creating a low-temperature catalytic conversion process for reclaiming waste
plastics, scrap electronics, and other organic materials. It is believed by
management that the Registrant has developed a new and unique process that will
allow efficient and economical reclamation of many types of waste plastics by
turning them into valuable fuels and chemical products. Initial testing has been
extremely encouraging and Adherent Technologies' research has been funded by a
Small Business Innovative Research Grant from the United States Air Force, by
the Defense Department's Advanced Research Products Agency and by Sandia
National Laboratories. The effort to develop this new technology is in its
formative stages and has not yet been commercialized.
All developments relating to the technology belong to the Registrant and
the Registrant is not obligated by contract or otherwise to reimburse any
research and development expenses incurred by Adherent Technologies.
In the past two years, the Registrant has concluded two agreements for the
commercial implementation of its plastic technology for two separate
applications. Those are:
(1) The Registrant and AbTech, LLC, of Phoenix, Arizona, have executed an
agreement through which AbTech, LLC has acquired the exclusive right to use
the Registrant's plastics recycling process for the recovery of oil and
hydrocarbon chemicals from polymer wafers that AbTech, LLC manufactures.
The AbTech, LLC product is unique and the only known effective technique
for rapid clean up and full recovery of petroleum spills. At the present
time, the only way that the wafers can be disposed of is as hazardous
waste. The Registrant and AbTech, LLC believe that the Registrant's
tertiary recycling technology is a method through which the oil and
hydrocarbons contained in the wafers may be recovered.
(2) During fiscal 1996, the Registrant and Fiberite, Inc., of Phoenix, Arizona,
(now Cytec Fiberite, Inc.) entered into and have executed an agreement
through which Fiberite, Inc. may use the Registrant's technology for
recycling carbon composite materials such as those used extensively in the
aerospace industry. Fiberite, Inc. is only one of, but is a leading,
manufacturer of such carbon composite materials which have an ever growing
world-wide market demand. The Registrant believes that its process is the
only known way to recover the original components of the carbon composites
for reuse. Fiberite is currently undertaking a marketing and gathering
survey while the Registrant, with the assistance of Adherent Technologies,
is undertaking the final phases of research and development of this
application of the Registrant's technology. Management believes that
commercialization of the process could be accomplished by the Spring of
1999.
On February 20, 1998, Fiberite formally indicated to the Registrant its
intent to pursue negotiations for an agreement to buy outright a specific field
of application of the Registrant's plastics recycling technology, and the
Registrant and Fiberite entered into a sixty day confidentiality, no shop, and
stand still agreement pending written formalization of the contemplated final
agreement. Until a final agreement is signed, the details and terms of any of
the negotiations cannot be disclosed, but the Registrant's management currently
believes that the final agreement will result in the purchase and full
development of the application by about August, 1998, and will result in the
receipt by the Registrant of a continuous revenue stream from royalty payments.
Employees.
- ----------
The Registrant has five full time employees. Each of the full time
employees is presently paid at the rate of $3,000 per month.
ITEM 2: DESCRIPTION OF PROPERTIES
The Registrant has the exclusive right to use the technology incorporated
into its TRTM-60 plants and the right to develop such technology for the
recycling of plastics and other organic materials. In addition, the Registrant
owns its research and development facility now located in Las Lunas, New Mexico
which has an estimated replacement value of approximately $500,000. Since the
plant was built for research and development purposes, all plant expenditures
have been charged to operations. It also owns certain office furniture having an
estimated replacement value of approximately $12,000. Management believes that
its facility and equipment is adequate for the Registrant's needs at the present
and during the foreseeable future.
The Registrant leases approximately 2,150 square feet for its executive
offices located at 3206 Candelaria, N.E., Albuquerque, New Mexico 87107 at a
month to month rent of $925. The Registrant's management believes that the
executive offices now leased by it will be adequate for the Registrant's
business for the near future.
ITEM 3: LEGAL PROCEEDINGS
The only legal proceedings to which the Registrant is a party or of which
any of its property is subject are pending or known to be contemplated is the
following:
1. June 17, 1996, the Registrant filed an action in the Second Judicial District
Court for Bernalillo County, New Mexico (Civil Action CV-96-6134) against Robert
Aragon and Anne Trawicky for fraud or negligent misrepresentation by them at the
time they issued a license to Aegis Technologies, a Registrant subsidiary, in
exchange for Registrant shares. At the time the Registrant shares were issued to
Mr. Aragon and Ms. Trawicky they represented to the Registrant that a license
previously issued to Aegis Technologies was in full force and effect. Subsequent
to the issuance of the Registrant shares to them, they informed the Registrant
that the license had expired prior to the date that Aegis Technologies was
acquired by the Registrant. Aegis only business at the time of its acquisition
by the Registrant was the ownership of the license. The defendants have denied
the allegations of the complaint and Ms. Trawicky has filed a counterclaim
against the Registrant seeking the removal of a stop-transfer instruction given
by the Registrant to its transfer agent relating to Ms. Trawicky''s shares.
It is anticipated that the trial of this matter will occur in March of
1998.
2. On February 12, 1998, the Registrant filed an action in the Second Judicial
District Court for Bernalillo County, New Mexico, (Civil Action CV-98-182
LH/LCS) against Josef Strauss and Environmental Solutions Agency (a/k/a ESA
World Trade), alleging fraud, breach of contract, conversion, and breach of oral
agreement in connection with contracts and agreements for the sale and/or
licensing of the Registrants's TRTC technology and certain geographic marketing
rights and raising capital funds for recycling plants in Europe. The suit seeks
compensatory and punitive damages in excess of $50,000 plus attorney fees. Due
to the early state of this litigation, management cannot estimate when a trial
on the merits may occur or the likelihood of success or the amount of any
verdict favorable to the Registrant.
The Registrant knows of no other legal proceedings pending or threatened,
or judgment against any director or officer of the Registrant in their capacity
as such.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended July 31, 1997.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCHOLDER MATTERS FOR
REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information: The Registrant's common stock is listed on the National
BASD's bulletin Bboard under the symbol "TITT" and is traded over the counter.
The high and low bid prices for the Registrant's common stock for the past two
years, as furnished by National Quotation Bureau, Inc. is as follows:
High Low
---- ---
Quarter ended September 30, 1995................ $ 0.0675 $ 0.5625
Quarter ended December 31, 1995................. $ 0.375 $ 0.3125
Quarter ended June 30, 1996 .................... $ 1.84375 $ 1.53125
Quarter ended September 30, 1996: .............. $ 1.8125 $ 0.8125
Quarter ended December 31, 1996: ............... $ 1.3125 $ 0.625
Quarter ended March 31, 1997: .................. $ 1.125 $ 0.65625
Quarter ended June 30, 1997: ................... $ 0.90625 $ 0.50
Dividends: The Registrant has never paid dividends and its earnings have
not warranted such payment. However, it should be anticipated that, should the
Registrant experience earnings that might otherwise warrant the payment of
dividends, the possible future business development needs of the Registrant
could result in no dividends being paid in the foreseeable future.
Shareholders: At March 23, 1998, the Registrant approximately 958
shareholders of record.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The Registrant's primary activities are to manufacture and sell commercial
plants designed to recycle waste tires, which plants will be granted a license
to utilize the Registrant's technology subject to a reservation of a royalty
relating to the sale from the plant of the various products produced and sold
from it. The Registrant's business is to manufacture large capacity recycling
plants capable of processing 100 tons or more of tires per day and to sell those
plants to be operated by governments or individuals. Two plants are now
operating in Korea, while a third has been designed for construction in Austria.
Additionally, the Registrant performs ongoing research and analysis devoted to
establishing a technology for the commercial recycling of plastics. Recently the
Registrant entered into option arrangements with two Arizona corporations
looking toward combining certain knowledge and technology owned by those
corporation with certain of the knowledge and technologies developed by the
Registrant (see in Item 1. Plastics Technology above). On February 20, 1998, one
of those company's stated its intention to pursue negotiations for an agreement
to buy outright a specific field of application of the Registrant's plastics
recycling technology, and the Registrant and Fiberite entered into a sixty day
confidentiality, no shop, and stand still agreement pending written
formalization of the contemplated final agreement. Until a final agreement is
signed, the details and terms of any of the negotiations cannot be disclosed,
but the Registrant's management currently believes that the final agreement will
result in the purchase and full development of the application by about August,
1998, and will result in the receipt by the Registrant a substantial upfront
payment and of a continuous revenue stream from royalty payments.
The Registrant narrowed the focus of its activities to the refinement of
its underlying technology and its development for various applications within
the field of depolymerization. In doing so, the Registrant has continued to
minimize overhead and the incurrence of long term debt by contracting out both
manufacturing and ongoing research, which it has managed to do at virtually no
cost to the Registrant. To facilitate marketing, the Registrant has entered into
strategic alliances with such Companies as Dowon Company Ltd. and ESA Recycling.
Through these alliances, the Registrant has obtained worldwide coverage of the
potential market for its products, and, as a result of these alliances, the
Registrant has generated interest in the TRTC recycling system and continues to
find interest in its processes throughout the world. By pursuing the strategy
Titan has with respect to manufacturing, research, and marketing, the Registrant
has achieved leverage over vast resources which are normally not available to a
company undertaking the development and marketing of new technology. Management
remains confident that as additional numbers of its plants are constructed the
demand for its technology will accelerate and revenue from both royalty and
sales of the plants will increase.
The Registrant's research on plastic recycling is being conducted through
an arrangement with Adherent Technologies, a research laboratory operated by
Ronald Allred, a Registrant Director. Adherent Technologies has received
contracts from the Department of the Army and from the U.S. Air Force to apply
to research on the Registrant's plastic technology directed toward the
depolymerization of carbon fiber reinforced composite materials. Adherent has
also received a significant grant from the Advanced Research Project Agency of
the Department of Defense for recycling scrap electronic components such as used
computers, FAX machines, copiers, etc. The Registrant is not responsible for
reimbursing Adherent Technologies any of that company's expenses related to such
research. Management believes that this contract is sufficient to cover all
research expenses that may be by required Adherent Technologies to evaluate the
technology.
Results of Operations
The delay in completion and successful operations of the TRTC Korean plants
and the default by ESA to fund additional plants in Europe had a material and
adverse impact upon the Registrant's ability to market additional plants and
upon its revenue. Prospective purchasers have awaited the ongoing operations of
the Korean plants to measure their economics. Management hopes that additional
unforseen delays will not continue to impede the development of its business and
that additional plants will be marketed during the remainder of the current
fiscal year. During the years ended July 31, 1997 and 1996 the Registrant had no
revenue from plant licensing. Total revenues during 1997 were $171,119, of which
$163,314 resulted from a gain realized from the transfer of certain trade
secrets with a book value of $75,000 in exchange for notes payable, accrued
interest, and other accrued liabilities totaling approximately $238,000. It had
$7,805 of other income in fiscal 1997 compared to $15,420 in fiscal 1996. As a
result of the lack of revenue and the ongoing operating expenses, the Registrant
experienced a loss of $238,946 during the current fiscal year compared to a net
loss of $369,051 for the previous fiscal year. Presently, management is
negotiating several transactions and anticipates that further licensing and
royalty revenue will increase during the balance of the current fiscal year and
in fiscal 1999, but cannot assure when closings will occur.
Financial Condition
The Registrant's cash position declined from $272,714 in fiscal 1996, to
$3,125 in fiscal 1997. This was the direct result of delayed revenues from plant
sales or royalty revenue. Management believes that this delay in plant sales and
in royalty revenue during the fiscal year was the direct result of the breach of
contract by ESA discussed above under litigation. During fiscal 1996 the
Registrant granted options to purchase an aggregate of 2,000,000 shares for a
total consideration, if all options are exercised, of $1,750,000. These options
have expired.
The Registrant's costs and expenses of operations increased $25,594, or
6.7% from $384,471 in 1996 to $410,065 in 1997. Operations provided no
significant cash flows during the current fiscal year, but used $379,268, while
in 1996 operations likewise provided no significant cash flows but used
$345,886. Because of this use of cash in operations the Registrant has been
forced to secure operating funds through the sale of shares of its common stock
and borrowing money. During fiscal 1997 the Registrant borrowed $112,000, which
was due on September 24, 1997 and bears interest at the rate of 12%. The
Registrant was not able to repay the loan when due and has not paid the loan or
accrued interest. Management has attempted to renegotiate the terms and payment
date of the loan but as of March 23, 1998, had not been able to do so.
Management believes that it has substantial off - set's against the debt that
must be recognized by the lender. Negotiations of this matter are ongoing.
Following the end of the current fiscal year the Registrant sold, in a
private placement, 580,000 shares of its common stock for which it received
$145,000. At the end of its October 31, 1997 quarter the Registrant had received
no revenue and had experienced additional costs and expenses of $92,316, leaving
it with a cash balance of $42,717.
The audited financial statements filed as a part of this Report on Form
10-KSB include an uncertainty as to the ability of the Registrant to continue as
a going concern. Management believes that the proceeds of the sale of common
stock permitted it to continue its operations through the end of the its third
quarter. Management does not anticipate the sale of a plant or the receipt of
any royalty revenues in the foreseeable future and therefore the future
operations of the Registrant will be dependent upon Management's ability to
privately place additional shares of its common stock or borrow additional funds
for use as working capital, neither of which can be assured.
ITEM 7: FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants
Stockholders
Titan Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Titan
Technologies, Inc. and Subsidiary, as of July 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the years then ended. 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 the audit to obtain
reasonable assurance about 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.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Titan
Technologies, Inc. and Subsidiary, as of July 31, 1997 and 1996, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the financial
statements, the Company incurred net losses of $238,946 and $369,051 during the
years ended July 31, 1997 and 1996, respectively, and as of July 31, 1997 the
Company's current liabilities exceeded its current assets by $137,121 and its
total liabilities exceeded its total assets by $133,957. These factors, among
others, as discussed in Note K to the consolidated financial statements, raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note K. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
GRANT THORNTON LLP
Oklahoma City, Oklahoma
September 5, 1997 (except for the first two paragraphs of Note L, as to
which the date is September 24, 1997 and the last paragraph of Note
L, as to which the date is February 12, 1998)
Titan Technologies, Inc. and Subsididary
CONSOLIDATED BALANCE SHEETS
July 31,
ASSETS 1997 1996
----------- -----------
CURRENT ASSETS
Cash (note A6) ........................... $ 3,125 $ 272,714
----------- -----------
Total current assets ......... 3,125 272,714
PROPERTY AND EQUIPMENT - AT COST (note A2)
Furniture and fixtures ................... 8,058 5,737
Machinery ................................ 2,738 2,738
----------- -----------
10,796 8,475
Less accumulated depreciation .... 8,241 6,732
----------- -----------
2,555 1,743
OTHER ASSETS (notes A3, D, and F)
Accounts receivable - stockholder ........ 609 609
Trade secrets, net of accumulated
amortization of $56,995 in 1996 ........ -- 76,482
----------- -----------
609 77,091
----------- -----------
$ 6,289 $ 351,548
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable ......................... $ 2,539 $ 5,093
Current maturities of notes payable
to stockholders (notes D and F) ........ 112,000 10,651
Accrued interest payable ................. 11,424 5,301
Accrued liability to stockholder (note D) -- 150,000
Other accrued liabilities ................ 14,283 3,831
----------- -----------
Total current liabilities .... 140,246 174,876
NOTE PAYABLE TO STOCKHOLDER, net of current
maturities (notes D and F) ............... -- 71,683
STOCKHOLDERS' EQUITY (DEFICIT) (note H)
Common stock - no par value; authorized,
50,000,000 shares; issued and
outstanding, 21,436,411 shares
in 1997 and 18,236,411 shares in 1996 .. 1,160,694 1,160,694
Accumulated deficit ...................... (1,294,651) (1,055,705)
----------- -----------
(133,957) 104,989
----------- -----------
$ 6,289 $ 351,548
=========== ===========
The accompanying notes are an integral part of these statements.
Titan Technologies, Inc. and Subsididary
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended July 31,
1997 1996
------------ ------------
Revenues
Gain on disposition of trade secrets
(note D) ............................. $ 163,314 $ --
Other income ........................... 7,805 15,420
------------ ------------
171,119 15,420
Costs and expenses
General and administrative ............. 309,134 320,306
Outside services ....................... 45,789 44,261
Depreciation and amortization .......... 3,152 13,438
Interest ............................... 23,943 6,466
Research and development ............... 21,207 --
Equity in net loss of investee
(notes A8 and H) ..................... 6,840 --
------------ ------------
410,065 384,471
------------ ------------
Net loss before income taxes ..... (238,946) (369,051)
Provision for income taxes (note E) ............ -- --
------------ ------------
NET LOSS ......................... $ (238,946) $ (369,051)
============ ============
Weighted average common shares outstanding ..... 19,409,562 18,044,630
============ ============
Net loss per common share ...................... $ (.01) $ (.02)
============ ============
The accompanying notes are an integral part of these statements.
Titan Technologies, Inc. and Subsididary
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Years ended July 31, 1997 and 1996
Common stock
no par value
----------------------- Accumulated
Shares Amount deficit Total
---------- ---------- ----------- ---------
Balance at August 1, 1995 17,125,300 $ 710,694 $ (686,654) $ 24,040
Sale of 1,111,111 shares
of common stock ...... 1,111,111 450,000 -- 450,000
Net loss ................ -- -- (369,051) (369,051)
---------- ---------- ----------- ---------
Balance at July 31, 1996 18,236,411 1,160,694 (1,055,705) 104,989
Issuance of 3,200,000
shares of common
stock (note H) ........ 3,200,000 -- -- --
Net loss ................ -- -- (238,946) (238,946)
---------- ---------- ----------- ---------
Balance at July 31, 1997 21,436,411 $1,160,694 $(1,294,651) $(133,957)
========== ========== =========== =========
The accompanying notes are an integral part of these statements.
Titan Technologies, Inc. and Subsididary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended July 31,
1997 1996
--------- ---------
Increase (Decrease) in Cash
Cash flows from operating activities
Interest received ........................ $ 7,805 $ 15,420
Cash paid to suppliers and
subcontractors ......................... (387,073) (360,141)
Cash paid for interest ................... -- (1,165)
--------- ---------
Net cash used in operating
activities ........................... (379,268) (345,886)
Cash flows from investing activities
Cash paid for furniture and fixtures ..... (2,321) --
Cash flows from financing activities
Proceeds from borrowings ................. 112,000 --
Payments on borrowings ................... -- (893)
Proceeds from sale of common stock ....... -- 450,000
--------- ---------
Net cash provided by financing
activities ........................... 112,000 449,107
--------- ---------
NET INCREASE (DECREASE) IN CASH ........ (269,589) 103,221
Cash at beginning of year ........................ 272,714 169,493
--------- ---------
Cash at end of year .............................. $ 3,125 $ 272,714
========= =========
Reconciliation of Net Loss to Net Cash
Used in Operating Activities
Net loss ......................................... $(238,946) $(369,051)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization ................ 3,152 13,438
Equity in net loss of investee ............... 6,840 --
Gain on disposition of trade secrets ......... (163,314) --
Change in assets and liabilities
Increase (decrease) in accounts payable ... (2,554) 3,695
Increase in accrued interest payable ...... 11,942 5,301
Increase in accrued liabilities ........... 3,612 731
--------- ---------
Net cash used in operating activities $(379,268) $(345,886)
========= =========
Noncash investing and financing activities:
During 1997, the Company exchanged 3,000,000 shares of its common stock for a
28.5% interest in ESA Recycling GmbH. Also during 1997, the Company exchanged
certain rights and patents of the Company for notes payable, accrued interest,
and other accrued liabilities to the developer.
The accompanying notes are an integral part of these statements.
Titan Technologies, Inc. and Subsididary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997 and 1996
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES
Titan Technologies, Inc. (the "Company"), located in Albuquerque, New Mexico,
is a holding company which invests in businesses developing new technology.
Tire Recycling Corporation ("Tire Recycling"), also located in Albuquerque,
developed a tire recycling process which is marketed throughout the world.
Tire Recycling has licensed its technology for use in two operating recycling
plants in South Korea.
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows.
1. Consolidation
-------------
The consolidated financial statements include the accounts of the Company and
Tire Recycling, its wholly-owned subsidiary. All significant intercompany
accounts and transactions have been eliminated in the accompanying
consolidated financial statements.
2. Property and Equipment and Accumulated Depreciation
---------------------------------------------------
Depreciation is provided using straight-line and accelerated methods over
economic lives of five to seven years.
3. Amortization
------------
Trade secrets are amortized using the straight-line method over ten years
(Note D).
4. Income Taxes
------------
The Company provides for deferred income taxes relating to carryforwards and
temporary differences between the bases of certain assets and liabilities for
financial and tax reporting purposes. Both companies file separate income tax
returns.
5. Revenue Recognition
-------------------
Revenue from the license of technology for plants is recognized when all
material services relating to the contract have been substantially performed
by the Company. On contracts where the Company acts only as technical adviser
during the construction, substantial performance is generally defined as
installation of the catalyst. Any amounts received under the contracts prior
to the installation of the catalyst are treated as deferred revenue and are
not recognized as revenue until substantial performance under the contract
has occurred.
Direct expenses under contracts are deferred and are matched against contract
revenue when substantial performance occurs. The deferred expenses are
evaluated periodically under the contract terms to ensure they are
recoverable under the contract.
6. Cash
----
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses
in such accounts and believes it is not exposed to any significant credit
risk on cash.
7. Net Loss Per Common Share
-------------------------
Net loss per common share is calculated using the weighted average number of
shares outstanding during each year. Common stock equivalents are included in
periods where such effects are dilutive.
8. Investments
-----------
Investments in affiliated companies owned 20% to 50% are accounted for on the
equity method. Accordingly, the consolidated statements of operations
include the Company's share of the affiliated entity's net loss.
9. Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect certain reported amounts and disclosures; accordingly, actual
results could differ from those estimates.
10. Reclassifications
-----------------
Certain 1996 amounts have been reclassified to conform to the 1997
presentation.
NOTE B - SALE OF LICENSES AND MARKETING RIGHTS
During the year ended July 31, 1996, the Company granted tire recycling
license rights for Europe, Australia, New Zealand, and South Africa to a
company. The agreement requires the payment of license fees of $1,500,000 to
$2,500,000 to the Company for each plant constructed and royalties of 3.5% of
the gross sales price of by-products from the plants. No plants are scheduled
for construction at July 31, 1997.
Marketing agreements with current marketers for North American and Asian
rights require, among other things, the marketers to sell certain numbers of
plants per year, and require payment to the Company, by the owner of the
plant, of a 7.5% royalty on the net sales of by-products. Unless other
arrangements are negotiated, the plants will be constructed by the Company
and sold to the marketer at cost of the plant, plus a one-third markup on
plant and installation cost. As a result of the repurchase of marketing
rights from a previous marketer, the Company must pay $400,000 to the former
owner of the rights for any plant sale or license of technology made to any
one of approximately sixty-seven specifically-identified corporations.
NOTE C - RELATED PARTY TRANSACTIONS
Land rental of $2,500 and $5,500 for a research site was paid to a
stockholder during the years ended July 31, 1997 and 1996, respectively.
Interest of $12,000 was paid to a stockholder during the year ended July 31,
1997.
NOTE D - TRADE SECRETS
In November 1990, Tire Recycling acquired certain assets, including all
proprietary rights to a process for the conversion of scrap tire rubber into
its component elements. Tire Recycling gave 2,400,000 shares of its common
stock with no determinable value and $100,000 in cash for these assets and
approximately $18,000 was allocated to technology received. In October 1991,
Tire Recycling acquired certain trade secrets by issuing a
noninterest-bearing note with a face value of $200,000 and a present value of
approximately $110,000. On August 29, 1996, an agreement was reached between
the Company and the developer of such trade secrets in which certain rights
and patents of the Company with a net book value of approximately $75,000
were transferred to the developer in exchange for notes payable, accrued
interest, and other accrued liabilities to the developer totaling
approximately $238,000 which resulted in a gain of approximately $163,000.
Management of the Company believes the transfer of these trade secrets will
not have an adverse effect on the Company's operations.
NOTE E - INCOME TAXES
The Company had no current or deferred income tax expense for the years ended
July 31, 1997 and 1996.
The income tax provision is reconciled to the tax computed at statutory rates
as follows:
July 31,
----------------------
1997 1996
--------- ---------
Tax benefit at statutory rates $ (81,242) $(125,477)
Change in valuation allowance 106,603 123,866
Other ........................ (11,161) 1,611
Nontaxable gain .............. (14,200) --
--------- ---------
$ -- $ --
========= =========
The companies report and incur income tax liabilities on a separate basis. At
July 31, 1997, the Company and Tire Recycling have loss carryforwards of
approximately $3,000 and $1,236,000, respectively, which can be used to
reduce their taxable income and will expire in 2005 through 2012. The
companies have elected under Internal Revenue Code Section 1561(a) to
apportion all taxable income brackets to Tire Recycling.
At July 31, 1997, Tire Recycling has a "research credit" of $49,076 available
to offset income tax liabilities through 2006 and a "foreign tax credit" of
$145,179 available to offset income tax liabilities through 2000.
Amounts of deferred tax assets and valuation allowance are as follows at July
31:
1997 1996
-------- --------
Deferred tax assets
Net operating loss carryforwards $483,422 $376,819
Research credit ................ 49,076 49,076
Foreign tax credit ............. 145,179 145,179
-------- --------
677,677 571,074
Less valuation allowance .... 677,677 571,074
-------- --------
Net deferred tax asset ... $ -- $ --
======== ========
Due to a change in controlling ownership of Tire Recycling in 1991, the use
of net operating losses arising prior to the change in controlling ownership
of approximately $445,000 will be limited in any year to an amount determined
by multiplying the value of the respective company's equity just prior to the
ownership change by the federal long-term exempt rate. Any unused limitation
may be carried forward and added to the next year's limitation.
NOTE F - NOTES PAYABLE TO STOCKHOLDERS
Notes payable to stockholders consist of the following at July 31:
1997 1996
-------- --------
To a stockholder at a stated interest
rate of 12%, an effective interest
rate of 23%, repayable September 24,
1997; collateralized by 200,000 shares
of Titan Technologies, Inc. common
stock and the personal guaranty of
stockholder ................................. $112,000 $ --
To a patent developer, repayable in
monthly installments of 1% of gross
revenues of Titan Technologies, Inc.
or $1,000, whichever is greater;
collateralized by rights in technology ...... -- 82,334
-------- --------
112,000 82,334
Less current maturities .................. 112,000 10,651
-------- --------
$ -- $ 71,683
======== ========
The note to a patent developer is a noninterest-bearing note with an original
face amount of $200,000, which is reflected at its estimated present value
using an effective interest rate of 8% (Note D).
NOTE G - RESEARCH AND DEVELOPMENT ARRANGEMENTS
The Company has an arrangement with a research company owned by a director of
the Company whereby that company will research a waste plastics recycling
process using the Company's technology. In return, the Company will get the
findings and developments of the research company. Although the research
company receives money under government and private grants, the Company is
not a party to the grant contracts, conducts no research under the contracts,
and has no obligation to repay any amounts under the contracts. No amounts
were paid to the research company for the years ended July 31, 1997 and 1996.
NOTE H - COMMON STOCK
In October 1995, the Company sold 1,111,111 shares of common stock for
$500,000 and received proceeds of $450,000 after deduction of commissions and
expenses. The shares were sold under an exemption of Regulation S and have
not been registered under the United States Securities Act of 1933
("Securities Act").
In March 1997, the Company exchanged 3,000,000 shares of its common stock for
a 28.5% interest in ESA Recycling GmbH ("ESA"), an Austrian company. No
investment was recorded because the estimated fair value of the net assets of
ESA at the time of the exchange were nominal. ESA has no current operations
but plans to develop a tire recycling plant in Europe. The Company shares
issued have not been registered under the Securities Act and as restricted
securities may be sold only upon compliance with Rule 144 under the
Securities Act.
NOTE I - FINANCIAL INSTRUMENTS
The following table includes information about estimated fair values as of
July 31, 1997 and 1996 as required by Statement of Financial Accounting
Standards ("SFAS") No. 107, Disclosure About Fair Value of Financial
Instruments. Such information, which pertains to the Company's financial
instruments, is based on the requirements set forth in SFAS No. 107 and does
not purport to represent the aggregate net fair value of the Company.
None of the financial instruments are held for trading purposes.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Cash. The carrying amount approximates fair value because the Company has
the contractual right to receive immediate payment on the deposit
accounts.
Note Payable to Stockholder. At July 31, 1997, the carrying amount
approximates fair value because the interest rate approximates the market
rate. The note at July 31, 1996 had no fixed maturity and it is not
practicable to estimate fair value.
The estimated fair values of the Company's financial instruments as of July
31 are as follows:
Carrying Estimated
amount fair value
of assets of assets
(liabilities) (liabilities)
------------- -------------
1997
Cash ............................. $ 3,125 $ 3,125
Note payable to stockholder ...... (112,000) (112,000)
1996
Cash ............................. 272,714 272,714
Note payable to stockholder
for which it is not
practicable to estimate
fair value ..................... (82,334) --
NOTE J - LITIGATION
The Company has filed suit against several individuals for fraud and/or
negligent misrepresentation seeking the return of approximately 2,264,000
shares of Company stock issued to these individuals for technology and
license rights. One of the individuals subsequently filed counterclaims
against the Company. In the opinion of management, the ultimate resolution of
these matters will not have a materially adverse effect on the Company's
consolidated financial position or consolidated results of operations;
however, due to the uncertainty of the matters, it is at least reasonably
possible that management's view of the outcome will change in the near
future.
NOTE K - MANAGEMENT'S PLANS FOR OPERATIONS
The Company has experienced significant losses from operations in recent
years and the Company has used rather than provided cash in its operations.
At July 31, 1997, the Company's current liabilities exceed current assets by
$137,121 and total liabilities exceed total assets by $133,957. Additionally,
subsequent to year end the Company was in default of its note payable to
stockholder (Note L).
The Company's ability to continue as a going concern is contingent upon its
ability to maintain adequate financing or obtain capital from other sources
and to attain profitable operations. The consolidated financial statements do
not include any adjustments relating to the recoverability and classification
of recorded asset amounts that might be necessary should the Company be
unable to continue in existence.
Management has taken the following steps to address the financial and
operating condition of the Company which it believes will be sufficient to
provide the Company with the ability to continue in existence:
- A sale of stock for $145,000 to be used as working capital was completed
in August 1997.
- Possible additional stock sales and debt financing.
- Elimination of all but essential expenditures.
- Earnings generation from possible new contracts for pollution cleanup.
NOTE L - SUBSEQUENT EVENTS
Subsequent to July 31, 1997, the Company sold 580,000 shares of common stock
for $145,000. The shares have not been registered under the Securities Act
and as restricted securities may be sold only upon compliance with Rule 144
under the Securities Act.
The Company did not repay the $112,000 note to a stockholder due September
24, 1997 and is in default of the note. The Company is attempting to
renegotiate the note but there is no certainty that such attempts will be
successful.
The Company filed a lawsuit against a stockholder for fraud, breach of
contract, conversion, and breach of oral agreement in connection with
contracts and agreements for the sale and/or licensing of the Company's
recycling technology and certain geographic marketing rights and raising
capital funds for recycling plants in Europe. The suit seeks compensatory and
punitive damages in excess of $50,000 plus attorney fees. Due to the early
stage of this litigation, management cannot estimate the likelihood or amount
of a favorable verdict.
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with Accountants of the kind
described by Item 304 of Regulation S-B at any time during the Registrant's two
(2) most recent fiscal years.
PART III
ITEM 9: DIRECTORS, EXECUTIVE OFFICERS PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Bruce R. Clark, who is 44, was elected to the Registrant's board of directors by
the Registrant's shareholders on November 13, 1992. Mr. Clark has been the
Registrant's General Counsel since July of 1990. Mr. Clark has been engaged in
the practice of law since 1982. Mr. Clark holds a B.A. in English from the
University of Tennessee and a JD in law from the University of New Mexico.
Ronald L. Wilder, who is 62, is the President and Chief Operating Officer of the
Registrant, and has been employed by the Registrant since 1986. Mr. Wilder and
another person acted as the Registrant's board of directors from 1986 until a
new slate of directors was elected by the Registrant's shareholders on November
13, 1992. Following the election, the new board of directors voted to retain Mr.
Wilder as the Registrant's President and Chief Operating Officer. Mr. Wilder was
a founder of TRTC and serves on TRTC's board of directors. Mr. Wilder attended
the University of Southern California from 1954 to 1957 where he studied
geology. He served as President and a director of Solar Age Industries, Inc.
from 1978 to 1986. Prior to being employed by Solar Age Industries, Inc., Mr.
Wilder owned and or operated public or private corporations in the cattle,
Indian art and financial service businesses.
Dr. Ronald E. Allred, who is 51, was elected to the Registrant's board of
directors by the Registrant's shareholders on November 13, 1992. Dr. Allred
holds a B.S. degree in Chemistry and a MS degree in Nuclear Engineering from the
University of New Mexico and a Sc.D. degree in Polymerics from MIT. He was
employed by Sandia National Laboratory as a Technical Staff member from July of
1969 to August of 1986. from December of 1986 to January of 1991 he was employed
as the director of the Material Department of PDA Engineering in Costa Mesa
California, and since January of 1991 has been employed as the President of
Adherent Technologies in Albuquerque, New Mexico.
Dr. Jelle deBoer, was elected to the Registrant's board of directors by the
Registrant's Directors on January 4, 1994. Dr. deBoer holds a B.S. degree in
Biology, a M.S. degree in Radiation Biology and a Ph.D. degree in Radiation
Biology, as well as specialized courses in Environmental Sciences. Dr. deBoer
was employed by the U.S. Air Force for more than 25 years as a Research
Scientist. Because of health matters, Mr. deBoer resigned from the board
effective October 10, 1997. His seat on the board will not be filled in the
immediate future.
Alan L. Wilder, was elected to the Registrant's board of directors by the
Registrant's shareholders on November 13, 1992. Mr. Wilder was a consultant to
Coeur d'Alene Mines Corp. during 1989 and 1990, and became its a Vice President
- - Engineering, a position he has held since September of 1990. Prior to being
employed by Coeur d'Alene Mines Corp., Mr. Wilder was employed as a project
manager for Newmont Mining corp. during 1987 and 1988, was employed as Plant
Supervisor for Coeur Rochester, Inc. during 1986 and 1987 and was an Engineer
Supervisor for Bechtel Corporation from 1973 to 1985. Mr. wilder is a graduate
of the New Mexico Institute of mining and Technology with a degree in
Metallurgical Engineering. Because Mr. Wilder moved to Great Britain during the
year and because he felt that the distance from the Registrant would make it
difficult for him to continue to serve as a director, effective September 15,
1997, he resigned from the board. This seat on the board will not be filled in
the immediate future.
Alan L. Wilder and Ronald L. Wilder are cousins. No other family
relationship exists between any of the Registrant's officers and directors.
All reports required by Section 16(a) of the Exchange Act to be filed
during the fiscal year were filed.
ITEM 10: EXECUTIVE COMPENSATION
The Compensation of the two compensated executives is as follows:
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------
Annual Compensation Awards Payouts
----------------------------- ------------------ -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Secur-
Other Rest- ities All
Name Annual ricted Under- Other
and Compen- Stock lying LTIP Compen-
Principal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($) ($) ($) SARs(#) ($) ($)
- --------------------------------------- ---- ------- ------- ------- ------- ------- ------- -------
Ronald L. Wilder* ..................... 1995 $30,000 -0- -0- -0- -0- -0- -0-
President ............................. 1996 $36,000 -0- -0- -0- -0- -0- -0-
and COO ............................... 1997 $36,000 -0- -0- -0- -0- -0- -0-
Bruce R. Clark ........................ 1995 $30,000 -0- -0- -0- -0- -0- -0-
Secy., Treas., ........................ 1996 $36,000 -0- -0- -0- -0- -0- -0-
and CFO ............................... 1997 $36,000 -0- -0- -0- -0- -0- -0-
</TABLE>
*During prior years the Registrant loaned Mr. Ronald L. Wilder a total of
$87,317, which loans are still outstanding, but which in 1993 were reserved for
financial reporting purposes and reported in the Registrant's general and
administrative expenses for that year.
In the future, the Registrant's employees, including the Registrant's
officers, may also receive such bonuses and salary increases as the Board of
Directors, in its sole discretion, may award. The Registrant may in the future
grant cost-of-living or merit increases, even though such increases are not
currently contemplated and may provide health insurance benefits to the officers
and Directors and all other full time employees and their dependents. The
Registrant presently has no retirement, bonus, profit sharing, stock option or
other compensation plan. The Registrant may in the future, and with the approval
of the Registrant shareholders, establish an Employee Stock Ownership Plan and
stock option plan or similar program to benefit its key employees, the specific
terms of which have not presently been determined. Other than what is discussed
above, the Registrant has no retirement, pension, profit sharing, stock option
or similar program for the benefit of its officers, directors or employees, and
there are currently no plans, arrangements, commitments or understandings with
respect to the establishment of any such program.
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners and Management:
The following table sets forth, as of March 23, 1998 ,October 20, 1997, the
beneficial ownership of the Registrant's No Par Value Stock by each nominee and
by all officers and Directors as a group. The information as to beneficial stock
ownership is based on data furnished by each person. Each person has sole voting
and investment power as to all shares unless otherwise indicated.
(1) (2) (3) (4)
Title of Name and Amount and Percent
Class Address of Nature of of class
Beneficial Beneficial
Owner Ownership
No Par Ronald L. Wilder 123,500 (direct) *
Value Common 3206 Candelaria, N.E. 1 ,400,000** (indirect) 6.359
Albuquerque,
New Mexico 87107
No Par Alan L. Wilder(1)*** 522,000 (direct) 2.37
Value Common 1411 Skyline Drive
Coeur d'Alene,
Idaho 83814
No Par Bruce R. Clark -0- -0-
Value Common 6116 Bellamah, N.E.
Albuquerque,
New Mexico 97110
No Par Jelle deBoer(1)*** 148,000 (direct) *
Value Common 1716 Valencia, N.E.
Albuquerque,
New Mexico 87110
No Par Dr. Ronald E. Allred 216,000 (direct) *
value common 9621 Camino del Sol, N.E.
Albuquerque,
New Mexico 87111
No Par value Officers and Directors 2,409,500 10.9
Common Stock (six persons)
owned of record
* Less than one percent
** Shares are owned by Mr. Wilder's family members who vote their shares as
advised by Mr. Wilder.
***Mr. Jelle deBoer resigned during the fiscal year because of health problems.
Mr. Alan Wilder resigned during the fiscal year because of his relocating his
business outside of the United States.
Other persons owning 5% or more of the Registrant no par value common stock:
The only other persons known by the Registrant to own 5% or more of its
issued and outstanding no par value common stock are the following:
(1) (2) (3) (4)
Title of Name and Amount and Percent
Class Address of Nature of of class
Beneficial Beneficial
Owner Ownership
No Par Wolfgang Rieger 1,111,111 (direct) 5.05
value common Gesmb H
Kohlmarkt 5/12
Vienna, Austria
No Par Josef R. Strauss 5,100,000* (direct) 23.17
value common 1243 Plumosa Dr.
Ft. Myers, Florida 33901
* Includes 3,000,000 shares underlying stock options that are immediately
exercisable. The Registrant has instituted legal action against Mr. Strauss. See
Item 3. Legal Proceedings.
Meetings of the Board:
The Board held one meeting during the last fiscal year and all directors
were in attendance at that meeting. Typically the board acts in an informal way
and conducts its business through consent meetings following such telephonic
discussions as each director feels may be necessary for him to have an
understanding of the proposals to which his consent may be requested. During the
last fiscal year, the Directors had no consent meetings. The Board has no audit,
nominating, compensation committee, or other committees.
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There have been no transactions during the past two fiscal years nor are
there any proposed transactions to which the Registrant was or is to be a party
in which any person described in Rule 404 of Regulation S-B, except for the
agreement between the Registrant and Adherent Technologies, Inc., a company
owned by Dr. Ronald E. Alred, a Registrant director, which arrangement is
discussed in Item 1 under the heading "Plastics Technology."
PART IV
ITEM 13: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-KSB
1. Financial Statements, incorporated by reference to the Registrant's Annual
Report to Shareholders as of and for each of the two years in the period ended
July 31, 1997:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Exhibits:
A. The following exhibits are incorporated herein by reference to the
Registrant's Form 10-SB, File no. 0-25024
Exhibit
Number Title
3. Articles of Incorporation and By-laws.
(i) Articles of Incorporation:
(a) Articles of Incorporation dated July 14, 1954.
(b) Articles of Amendment to Articles of Incorporation dated
October 2, 1986.
(ii) By-laws currently in effect.
10. Material Contracts.
(a) Conveyance of Rights Agreement dated October 6, 1991, between
Floyd D. Wallace and Tire Recycling Technologies Corporation.
(b) Exclusive Marketing Rights Agreement dated December 14, 1991,
between Tire Recycling Technologies Corporation (the Registrant)
and Global Tire Recycling, Inc., Recycling Technology
International, Inc. and Tedesco Recycling, Inc.
(c) Division of Proceeds Agreement dated May 19, 1992, between Tire
Recycling Technologies Corporation and Chuck Wages.
(d) Consulting Agreement dated September 15, 1992, between Tire
Recycling Technologies Corporation (the Registrant) and Ronald
E. Allred.
(e) Purchase and Nonexclusive Licensing Agreement dated June 9,
1993, between Tire Recycling Technologies Corporation (the
Registrant) and Geotechnologies Corporation and Dong Kook Steel
Material Company, Ltd.
(f) Agreement for Assignment of the Exclusive Marketing Rights in
the Republic of Korea dated July 12, 1993, between Tire
Recycling Technologies Corporation (the Registrant) and
Geotechnologies Corporation and Dong Kook Steel Material
Company, Ltd.
(g) Technical License Agreement dated July 23, 1993, between Tire
Recycling Technologies Corporation (the Registrant) and Hannam
Co., Ltd.
(h) Technical License Agreement dated July 23, 1993, between Tire
Recycling Technologies Corporation (the Registrant) and Dong
Kook Steel Material Co., Ltd.
(i) Purchase and Nonexclusive Licensing Agreement dated July 21,
1994, between Tire Recycling Technologies Corporation (the
Registrant) and Geotechnologies Corporation.
(j) Purchase and Nonexclusive Licensing Agreement dated July 21,
1994, between Tire Recycling Technologies Corporation (the
Registrant) and Geotechnologies Corporation and Southeast
Environmental Tire Recycling Corporation.
(k) Conveyance of Rights Agreement between Titan Technologies, Inc.
and Floyd D. Wallace, dated October 6, 1991.
(l) Catalyst Fee and Technical Assistance Agreement between Tire
Recycling Technologies, Inc. and Floyd D. Wallace, dated October
12, 1992.
B. The following exhibit is incorporated herein by reference to the Registrants
Annual Report on Form 10-KSB for the fiscal year ended July 31, 1995.
(m) Option agreement between the Registrant and Joseph Henry dated
September 19, 1995.
C. The following exhibits are incorporated by reference to the Registrant's
Annual Report on Form 10- KSB for the fiscal year ended July 31, 1996:
(n) License Agreement as amended dated February 16, 1996, with
Environmental Solutions Agency, Inc., relating to Europe, South
Africa and North and South America.
(o) Marketing and License Agreement dated March 19,1996, with Dowan
Company, Ltd., relating to Asia.
(p) Agreement dated April 25, 1996, with SKODA Klatovy S.P.D.,
relating to the construction of a TRTC recycling plant in
Austria.
(q) Addendum to SKODA Klotovy S.P.D. Agreement dated April 25, 1996.
(r) Irrevocable Option Agreement with Abtech Industries, LLC, dated
June 10, 1996.
(s) Option agreement between the Registrant, Adherent Technologies
and Fiberite, Inc. dated September 4, 1996.
(t) Promissory Note dated September 24, 1996.
D. There are no exhibits filed with this Annual Report on Form 10-KSB.
21. Subsidiaries of the Small Business Issuer.
The Registrant has one wholly owned subsidiary, which is:
Name of Subsidiary Jurisdiction of Incorporation
Tire Recycling Technologies
Corporation New Mexico
The subsidiary operates only under its corporate name.
All other exhibits required by Item 601 of Regulation S-B are inapplicable to
this Registrant in this filing.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by this Registrant during the last quarter of
the period covered by this report.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TITAN TECHNOLOGIES, INC.
By: Ronald L. Wilder
-----------------------------------------------------
Ronald L. Wilder, President, Chief Executive Officer,
Chief Operating Officer and Director
Date: March 10, 1998
In accordance with the Exchange Act, this report has been signed below by the
following persons in behalf of the registrant and in the capacities and on the
dates indicated.
By: Bruce R. Clark
-----------------------------------------------------
Bruce R. Clark, Secretary-Treasurer, General Counsel,
Chief Financial Officer and Director
Date: March 10, 1998
By: Dr. Ronald E. Allred
------------------------------
Dr. Ronald E. Allred, Director
Date: March 10, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JUL-31-1997
<CASH> 3125
<SECURITIES> 0
<RECEIVABLES> 609
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3125
<PP&E> 10796
<DEPRECIATION> 8241
<TOTAL-ASSETS> 6289
<CURRENT-LIABILITIES> 140246
<BONDS> 0
0
0
<COMMON> 1160694
<OTHER-SE> (1294651)
<TOTAL-LIABILITY-AND-EQUITY> 6289
<SALES> 0
<TOTAL-REVENUES> 171119
<CGS> 0
<TOTAL-COSTS> 354923
<OTHER-EXPENSES> 55142
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23943
<INCOME-PRETAX> (238946)
<INCOME-TAX> 0
<INCOME-CONTINUING> (238946)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (238946)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
