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, 1998
[ ] 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: $12,574.
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 October 16, 1998: $3,289,098.54
The number of shares outstanding of the Registrant's No Par Value common stock,
as of October 16, 1998, was: 25,180.411 shares.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference herein:
Part II - Items 5(c), 6, 7, - Registrant's Annual Report for the fiscal year
ended July 31, 1998.
Part III - Items 9, 10, 11, and 12 - Registrant's Definitive Proxy Statement for
the Annual Meeting of Shareholders to be held on December 9, 1998.
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. Its name was change to Titan Technologies, Inc. in 1986 when it
begin to seek new business opportunities.
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. All of the Registrant's
present business is being conducted by Tire Recycling Technologies Corporation.
Tire Recycling Technologies Corporation. ("TRTC")
- -------------------------------------------------
As stated above, the Registrant's product that it is offering for sale to
interested operators on a turnkey basis is a completed, licensed and operational
tire recycling plant utilizing the Registrant's TRTC process that is discussed
below.
The TRTC technology and process was developed to recover the oil, steel and
carbon black 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.
The Registrant, with the assistance of Adherent Technologies and its
licensees is continually upgrading the performance of its technology and the
equipment employing the technology. During the past three years the Registrant
and Adherent Technologies have devoted substantial resources to this end. The
current evolution of the Registrant's technology uses a catalyst substantially
different from the one used in the initial TRTC process. The enabler developed
by the Registrant and now being used has proven to be superior in initiating the
necessary catalytic reaction and in 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. 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.
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.
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 or greater. The lower 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. The operation of the Bradley plant were
terminated in 1992, but the plant is maintained in anticipation that it may be
used to demonstrate a plastics recycling process if such a process is eventually
developed. The Registrant leases the land on which the plant is located, which
lease may be terminated and the plant removed from the premises upon 30 days
written notice.
The TRTM-60 technology is proprietary. However, one patent has been issued
and one additional patent has been applied for, both of which relate to
advancements in the 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 Registrant, 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. Dong Kook sold its interest in the plant located at Taegu City to
Hannam Co., Ltd., a Korean corporation, which subsequently filed bankruptcy and
closed the plant. The Registrant has been informed that Dong Kook expects to
reacquire this plant and reestablish its production. The other plant has
operated through fiscal 1998.
There has been significant and unexpected delay in getting the get both
Korean 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. To date, Dong Kook has
not reported any sale of any products from the plants and the Registrant has
waived its right to receive any additional payment from this plant.
The Registrant anticipates that the sales price for a completed plant will
range from $6,000,000 to $7,000,000. 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 1996, the Registrant concluded an agreement with the ESA Gmbh of Austria
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, but the Registrant anticipates that the project will be started during
the spring of 1999. Upon the completion of the Austrian facility, the Registrant
believes that five additional European companies will purchase plant for
location at other sites in Europe.
Products Recovered by the TRTM Process.
- ---------------------------------------
Oil:
The oil recovered by the TRTM 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 operation of the
TRTC-60 plant are nominal, recovered carbon black 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 its licensees are working together to
develop methods to enhance the quality of the carbon black. To date, there have
been limited improvements in the quality, but the Registrant believes 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
during fiscal 1998, generally priced in a range between $80 and $100 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. Numerous companies now exist that are
using waste tires in their 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, rubber.
Management believes that these products consume 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 below 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.
- -----------------------
As previously reported, as a result of a series of transaction that
occurred in the early 1990's, approximately 67 corporations located world wide
were contacted by a former marketer. Upon cancellation of that marketing
arrangement, the Registrant agreed that if any sale of a plant to be constructed
within the United States is made to any of those corporation, the Company will
pay the former marketer a fee of $400,000 for each such sale.
Subsequently, the Registrant entered into a new marketing agreement with a
corporation organized under the laws of Korea named Dowon Company, Ltd. (Dowon).
Under the agreement with Dowon, Dowon 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'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. Dowon. Sold a
TRTM-60 plant to Taiwanese group and the construction of that plant is now well
underway. Because Dowon has purchased certain technology relating to the
activation of carbon black, thereby enhancing that by-product, the Registrant
has agreed that in exchange for its ability to use that technology on a world
wide basis in its other plants, it waived any license fee and waived any royalty
payments until the plant is in full operation, which is expected to occur in
approximately two years. When the plant is in full operation, the Registrant
will, during the subsequent two years, be paid a royalty of 3% of all products
produced by the plant. After that initial two years, the royalty will increase
to 5%.
In 1996, the Registrant concluded an agreement with ESA Gmbh ESA Gmbh was
granted the exclusive marketing rights for Europe ESA Gmbh is, with the
participation of Skoda to construct the first TRTM tire recycling facility in
Austria.. The first European facility is designed to be the Registrant's state
of the art showcase, and Management believes it will attract other purchasers,
resulting in additional sales of its facilities. Construction of this plant
should be undertaken by the end of the year or early in the first quarter of
1999.
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.
Other Developments.
- -------------------
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.
An agreement between the Registrant and Fiberite, Inc., of Phoenix,
Arizona, has been terminated.
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 during
1999.
Employees.
- ----------
The Registrant has four full time employees, each of whom 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 Oklahoma 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 3202 Candelaria, N.E., Albuquerque, New Mexico 87107 at a
month to month rent of $1,025. The Registrant also leases approximately 4 acres
of land located in Bradley County, Oklahoma for its tire recycling plant under a
five year lease beginning on September 4, 1991, at a monthly cost of $500. The
Bradley, Oklahoma lease may be terminated, without penalty, upon 30 days prior
notice. At such time as a suitable location for this facility may be acquired in
New Mexico and the facility moved to such new location, the Registrant will
terminate the Bradley, Oklahoma lease. 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
At the date of this report there are no known legal proceedings pending, or
judgment against any director or officer of the RegistrantCompany in their
capacity as such.
The Registrant recently received a letter from a law firm in Pasadena,
California claiming that their client, a Mr. Martin Chang, is entitled to a fee
of approximately $216,000 as compensation for his assistance in the sale of a
TRTM Plant in Taiwan. Prior to receipt of the letter, the Registrant had never
heard of Mr. Chang and was unaware of any participation by him in the sale. Mr.
Chang's lawyers did submit a copy of an agreement which purports to be between
Mr. Chang and Dowon Company through which Mr. Chang was engaged as a sales
representative for Dowon. Dowon has assured the Registrant that Mr. Chang
performed no services to it under that agreement. The Registrant is unable to
determine any basis under which it might be liable to Mr. Chang for an agreement
he may or may not have with Dowon to perform services for Dowon in Asia.
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, 1998.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information required by this item is incorporated by reference to the item
in the Registrant's Annual Report to Shareholders for the year ended July 31,
1998 entitled "Market Price and Dividends on the Company's Common Equity and
Related Stockholder Matters."
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The information required by this item is incorporated by reference to the
item in the Registrant's Annual report to Shareholders for the fiscal year ended
July 31, 1998 entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operation."
ITEM 7: FINANCIAL STATEMENTS
The information required by this item is incorporated by reference to the
Financial Statements in the Registrant's Annual Report to Shareholders for the
fiscal year ended July 31, 1998 which is attached as an exhibit to this report.
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.
The information required by this item is incorporated by reference to the
items in the Registrant's Definitive Proxy Statement for the 1998 Annual Meeting
of Shareholders entitled "Election of Directors" and "Directors and Executive
Officers". 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 information required by this item is incorporated by reference to the
item in the Registrant's Definitive Proxy Statement for the 1998 Annual Meeting
of Shareholders entitled "Executive Compensation".
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
item in the Registrant's Definitive Proxy Statement for the 1998 Annual meeting
of Shareholders entitled "Voting Securities and Principal Holders Thereof".
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
item in the Registrant's Definitive Proxy Statement for the 1998 Annual Meeting
of Shareholders entitled "Voting Securities and Principal Holders Thereof,"
"Executive Compensation" and "Certain Transactions".
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, 1998:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity (deficit) Consolidated
Statements of Cash Flows Notes to Consolidated Financial Statements
2. Exhibits:
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)
(ii) By-laws currently in effect.
10. Material Contracts.
a) Consulting Agreement dated September 15, 1992, between the Registrant and
Ronald E. Allred.
b) Purchase and Nonexclusive Licensing Agreement dated June 9, 1993, between
the Registrants and Geotechnologies Corporation and Dong Kook Steel
Material Company, Ltd.
c) Technical License Agreement dated July 23, 1993, between the Registrant
and Hannam Co., Ltd.
d) Technical License Agreement dated July 23, 1993, the Registrant and Dong
Kook Steel Material Co., Ltd.
e) Purchase and Nonexclusive Licensing Agreement dated July 21, 1994,
between the Registrant and Geotechnologies Corporation.
f) Purchase and Nonexclusive Licensing Agreement dated July 21, 1994, between
the Registrant and Geotechnologies Corporation and Southeast Environmental
Tire Recycling Corporation.
B. The following exhibit is incorporated herein by reference to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended July 31, 1995.
a) 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:
a) License Agreement as amended dated February 16, 1996, with
Environmental Solutions Agency, Inc., relating to Europe, South Africa
and North and South America.
b) Marketing and License Agreement dated March 19,1996, with Dowan
Company, Ltd., relating to Asia.
c) Agreement dated April 25, 1996, with SKODA Klatovy S.P.D., relating to
the construction of a TRTC recycling plant in Austria.
d) Addendum to SKODA Klotovy S.P.D. Agreement dated April 25, 1996.
e) Irrevocable Option Agreement with Abtech Industries, LLC, dated June 10,
1996.
f) Option agreement between the Registrant, Adherent Technologies and
Fiberite, Inc. dated September 4, 1996.
g) Promissory Note dated September 24, 1996.
D. No Exhibits are filed with this Annual Report. on Form 10-KSB.
13. Annual Report to Shareholders for the Fiscal year ended July 31, 1998.
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 report on Form 8-K was filed by the 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
By Ronald L. Wilder
------------------------------------
Ronald L. Wilder, Acting Secretary
Date: October 20, 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 Ronald L. Wilder
--------------------------
Ronald L. Wilder, Director
Date: October 20, 1998
By Dr. Ronald E. Allred
------------------------------
Dr. Ronald E. Allred, Director
Date: October 20, 1998
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</TABLE>
TITAN TECHNOLOGIES, INC.
ANNUAL REPORT TO SHAREHOLDERS
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
History
Your Company, Titan Technologies, Inc., ("Titan") is a New Mexico corporation,
incorporated on July 14, 1954. It has been engaged in developing its current
business of marketing its tire and plastics recycling technology since 1991. Two
TRTM plants have been built in Korea, the license for one of which has been
transferred to a plant that is under construction in Taiwan, while a third plant
is about to begin construction in Austria. The Company has issued licenses to
Europe and to Asia as discussed below.
Tire Recycling Technologies Corporation. ("TRTC")
- -------------------------------------------------
Titan's and TRTC's business is the marketing and constructing a completed,
licensed and operational tire and/or plastics recycling plants using the
Company's TRTC process for recovering marketable products from tires and
plastics. The Company's technology is able to break tires and complex plastics
down into their component parts and those parts, when recovered, have a
substantial market value.
The TRTC technology was initially developed 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 constituent components. Minor
residue from combustion is vented into the atmosphere, which is believed by
management to result in minimal environmental impact.
The TRTM-60 plant 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 Company's technology meets a 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 exceeds three billion tires.
Tires are introduced into these stock piles through the distribution of new cars
(which is expected to reach fifty-eight million units per year by the year two
thousand) and by replacement tires for older vehicles, of which there are
approximately fifteen for each new car introduced into the market over the life
of the vehicle.
Management believes that the TRTC process is unique in the industry in that it
operates on a continuous basis at the unusually low temperature of three hundred
twenty five to four hundred fifty degrees Fahrenheit rather than competing
pyrolytic technologies, which typically function at temperatures of one thousand
degrees Fahrenheit and greater. The low temperature at which the Company'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.
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 sixty tons of scrap tires per day and are estimated to produce
approximately one hundred fifty barrels of oil, six tons of steel, and seventeen
tons of carbon black per day. Dong Kook has informed the Company that through
the use of the carbon activating technology being implemented in the Taiwan
plant discussed below, each of the Korean plants will be economic.
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 Company
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.
Dong Kook was primarily responsible for the cost of construction of the plant
with Company's Management overseeing and assisting in the construction. The
Company anticipates that it will have the primary responsibility of construction
of all future plants sold. The cost of the plants to the purchaser will vary
from country to country because of different costs of permitting the
construction and operation. Although the Company waived any royalty from the
Korean licenses in its effort to assist in getting the first two plants built,
the Company anticipates that future licenses will retain a royalty of seven and
one-half percent 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 1996, the Company concluded an agreement with ESA Gmbh of Austria 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. After some delays that arose for a variety of reasons, a
TRTM-60 plant has been approved for construction in Austria. Construction of the
Austrian plant is expected to commence in the near future. Management believes
that approval of this plant in Austria will facilitate licensing of the
Company's plant throughout the European community. Management believes that with
each plant that is constructed, the demand for additional plants will grow.
There are very few cities of any size that do not have a problem with abandoned
tires and plastics that would benefit from the introduction of a TRTM plant in
their community.
Marketing Arrangements.
- -----------------------
On December 27, 1990, the Company sold the exclusive marketing rights to its
technology. This sale provided that the Company 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 Company subsequently
repurchased the rights. As a result of that sale, approximately sixty-seven
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 four hundred thousand dollars 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 Company did not own its marketing rights.
The Company has entered into an agreement with a Korea company named "Dowon
Company, Ltd." ("Dowan"). Under the agreement Dowon 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 Company believes
that because of Dowon's location and business contacts in Asia it will be able
to effectively develop and implement a marketing strategy for the Company's
plants in all of the areas covered by the agreement. Dowon Company, Ltd.
Through the efforts of Dowon, a TRTM-60 plant has been licensed for construction
in Taiwan. Construction of this plant is well underway and should be completed
early in 1999. As a part of this plant, the owners have purchased a technology
developed in Japan that activates the carbon produced by the plant and
substantially increases the surface area of the carbon. The Company exchanged
the license fee that it would have received for the sale of this plant for the
right to use the carbon activating technology on all its TRTM-60 plants licensed
at any location in the world and the right to market the activated carbon free
of charge or royalty anywhere in the world. In addition, the Company has waived
any royalty from this plant until such time as it is fully operational, which is
expected to be in approximately two years. At the time the royalty payments
commence, the Company will receive a royalty of three and one quarter percent
for the first two years and five percent thereafter.
In 1996 the Company concluded an agreement with ESA Gmbh through which that
Austrian corporation was granted the exclusive marketing rights for Europe. As a
means of effectively proving the feasibility of the Company's tire recycling
system in a European environment, ESA Gmbh has formed a joint venture to
construct the first Company's tire recycling facility in Austria which
incorporates the technology with advancements, modifications and improvements
developed by the Company and by ESA Gmbh and Skoda Klotovy resulting from the
Company's experiences with the two facilities operating in Korea. The first
European facility is designed to be the Company's state of the art showcase,
which Management believes will attract other purchasers and result in additional
sales of its facilities.
On July 31, 1998, as part a settlement of litigation, the Company agreed with
Ms. Diana D. Holt that if by October 31, 1998, she can assure the Company that
she has sufficient cash resources to construct a TRTC tire recycling plant in
West Virginia, the Company will, for its standard license fee, grant Ms. Holt a
standard form TRTC tire recycling license covering the state of West Virginia.
If Ms. Holt is able to complete a plant in West Virginia the Company has agreed
to grant Ms. Holt the option to acquire licenses covering its oil recycling
technology in certain other states. On October 20, 1998, Ms. Hold had not
furnished the Company the required assurances. However, if Ms. Hold should in
the future be able to establish her financial ability to construct a plant, the
Company will continue to negotiate with her for such a plant.
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 population to scrap tire stockpile ratios indicating approximately
twenty-seven 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 Company, 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 initial development efforts toward creating a
low-temperature catalytic conversion process for reclaiming waste plastics,
scrap electronics, and other organic composite materials. It is believed by
Management that the Company 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. In addition, the National
Science Foundation has identified Titan's technology as one of the two to be
researched for utilization in the recycling of plastic composites produced by
the electronic industry.
All developments relating to the technology belong to the Company and the
Company is not obligated by contract or otherwise to reimburse any research and
development expenses incurred by Adherent Technologies.
The Company and AbTech, LLC, ("AbTech") of Phoenix, Arizona, have executed an
agreement through which AbTech, LLC has acquired the exclusive right to use the
Company's plastics recycling process for the recovery of oil and hydrocarbon
chemicals from a polymer that AbTech manufactures. The AbTech product is unique
and the only known effective technique for rapid clean up and full recovery of
petroleum spills. Without Titan's technology, the only way that the AbTech
wafers, which chemically bond with hydrocarbons, can be disposed of is as
hazardous waste. The Company's tertiary recycling technology is a method through
which the oil and hydrocarbons contained in the wafers may be recovered,
resulting in the polymer being recovered for reuse by AbTech and the oil being
recovered for sale.
MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information: The Company's common stock is listed on the NASD's bulletin
board under the symbol "TITT' and is traded over the counter. The high and low
bid prices for the Company's common stock for the past two years, as furnished
by National Quotation Bureau, Inc. is as follows:
High Low
---- ---
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
Quarter ended September 30, 1997: $0.875 $0.50
Quarter ended December 31, 1997: $0.71875 $0.28125
Quarter ended March 31, 1998: $0.44 $0.28125
Quarter ended June 30, 1998: $0.375 $0.21
Dividends: The Company has never paid dividends and its earnings have not
warranted such payment. However, it should be anticipated that, should the
Company experience earnings that might otherwise warrant the payment of
dividends, the possible future business development needs of the Company could
result in no dividends being paid in the foreseeable future.
Shareholders: At October 12, 1998, the Company had approximately 530
shareholders of record.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
As stated above, the Company's primary activities are to manufacture and sell
commercial plants designed to recycle waste tires and plastics, which plants are
licensed to use the CompanyCompany's technology subject to a reservation of a
royalty relating to the sale from the plants of the various products produced
and sold from them. Additionally, the CompanyCompany performs ongoing research
and analysis devoted to establishing additional uses for its technology.
Results of Operations
The delay in completion and full commercial operation of the TRTC plants in
Korea and Austria has continued to have a material and adverse impact upon the
Company's ability to market additional plants. Prospective purchasers have
awaited the ongoing operations of the plants to measure their economics.
Management believes that at the time construction of the Austrian plant begins
and the Taiwan plant is operational, delays will finally be behind the
CompanyCompany and the marketing of additional plants will occur during the
current fiscal year. The sale of additional licenses in Spain and at Niagara,
New York, are believed to be near completion, depending upon the purchasers
available funding. During the years ended July 31, 1997 and 1998, the
CompanyCompany had no revenue from plant licensing. Total revenues were only
$12,574 in fiscal 1998 compared to $171,119 in fiscal 1997. As a result of the
lack of revenue and the ongoing operating expenses and costs associated with
completion of the Korean plants, the CompanyCompany experienced a loss of
$294,602 during the current fiscal year compared to net a net loss of $238,946
for the previous fiscal year. Management anticipates a license payment from the
Austrian plant of approximately $1,000,000 in the current fiscal year. If
licensing of any of the additional plants that are in discussion are made, the
Company will receive substantial additional revenue. However, there can be no
present assurance when the Company will receive a payment from the Austrian
plant or that any additional licenses will be sold or, if sold, the time that
any closing of any such sale might occur.
Financial Condition
The Company's cash position improved slightly from $45,427 in fiscal 1998 from
$3,125 in fiscal 1997. During the year, the Company was engaged in substantial
litigation which increased the cost of operations. Following the end of the
fiscal year, the Company sold 2,088,000 shares of its common stock Company in
reliance upon certain exemptions from registration under the Securities Act of
1933, as amended, and received proceeds from those sales of $208,800 and
exchanged 1,000,000 shares of its common stock for a promissory note and
accumulated interest valued at approximately $137,000. Also, at the end of the
fiscal year, Company received back 2,000,000 shares of stock that had previously
been exchanged for a twenty-eight percent interest in the Austrian plant.
Ownership of that interest had substantially delayed the Company's completion of
its audit for the fiscal year ended July 31, 1997. During the year, the Company
granted options to two individuals providing that they each may purchase up to a
total of 150,000 shares of the Company's common stock at an exercise price of
$0.26 per share for the five year period following the date of the grant. The
proceeds received from the sale of sock and any proceeds that might be received
by the Company from the exercise of the options, which exercise cannot be
assured, will be used by the Company as working capital.
The Company's costs and expenses of operations went down from $410,000 in fiscal
1997 to $307,000 during fiscal 1998. As stated above, operations provided no
revenue during either year. Because of this shortfall of income, the
CompanyCompany has been forced to secure operating funds through the sale of
shares of its common stock and the borrowing of money. Management believes that
the proceeds of the sale of common stock and the payment of the promissory note
through the issuance of stock, substantially improved its liquidity and have
provided adequate funds meet The Company's operating needs for the next fiscal
year.
ON WRITTEN REQUEST, THE COMPANY WILL PROVIDE, WITHOUT CHARGE, A COPY OF ITS
ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED JULY 31, 1998, FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION (INCLUDING THE FINANCIAL STATEMENTS AND
THE SCHEDULES THERETO) TO ANY RECORD HOLDER OR BENEFICIAL OWNER OF THE COMPANY'S
SHARES AS OF THE CLOSE OF BUSINESS ON OCTOBER 20, 1998. ANY EXHIBIT WILL BE
PROVIDED ON REQUEST UPON PAYMENT OF THE REASONABLE EXPENSES OF FURNISHING THE
EXHIBIT. ANY SUCH WRITTEN REQUEST SHOULD BE ADDRESSED TO RONALD W. WILDER,
PRESIDENT, TITAN TECHNOLOGIES, INC., 3202 CANDELARIA ROAD, N.E., ALBUQUERQUE,
NEW MEXICO 87107.
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, 1998 and 1997, 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, 1998 and 1997, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
Oklahoma City, Oklahoma
September 11, 1998 (except for Note M, as to
which the date is October 16, 1998)
Titan Technologies, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
July 31,
ASSETS 1998 1997
----------- -----------
CURRENT ASSETS
Cash (note A5) ................................. $ 45,427 $ 3,125
----------- -----------
Total current assets ............... 45,427 3,125
PROPERTY AND EQUIPMENT - AT COST (note A2)
Furniture and fixtures ......................... 5,407 8,058
Machinery ...................................... 7,706 2,738
----------- -----------
13,113 10,796
Less accumulated depreciation ................ 5,197 8,241
----------- -----------
7,916 2,555
OTHER ASSETS ..................................... 609 609
----------- -----------
$ 53,952 $ 6,289
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable ............................... $ 914 $ 2,539
Accounts and note payable to stockholders
and officers (notes C and F) ................. 147,650 112,000
Accrued interest payable (note F) .............. 24,864 11,424
Other accrued liabilities ...................... 3,480 14,283
Deferred revenue (note A4) ..................... 39,353 --
----------- -----------
Total current liabilities .......... 216,261 140,246
STOCKHOLDERS' EQUITY (DEFICIT) (note H)
Common stock - no par value; authorized,
50,000,000 shares; issued and outstanding,
23,095,411 shares in 1998 and 21,436,411
shares in 1997 ............................... 1,426,944 1,160,694
Accumulated deficit ............................ (1,589,253) (1,294,651)
----------- -----------
(162,309) (133,957)
----------- -----------
$ 53,952 $ 6,289
=========== ===========
The accompanying notes are an integral part of these financial statements
Titan Technologies, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended July 31,
1998 1997
------------ ------------
Revenues
Gain (loss) on disposal of assets .......... $ (174) $ 163,314
Other income ............................... 12,748 7,805
------------ ------------
12,574 171,119
Costs and expenses
General and administrative ................. 276,211 309,134
Outside services ........................... 14,832 45,789
Depreciation and amortization .............. 2,136 3,152
Interest ................................... 13,443 23,943
Research and development ................... 554 21,207
Equity in net loss of investee
(notes A7 and H) ......................... -- 6,840
------------ ------------
307,176 410,065
------------ ------------
Net loss before income taxes ........ (294,602) (238,946)
Provision for income taxes (note E) .......... -- --
------------ ------------
NET LOSS ............................ $ (294,602) $ (238,946)
============ ============
Weighted average common shares outstanding ... 22,075,109 19,409,562
============ ============
Net loss per common share .................... $ (.01) $ (.01)
============ ============
The accompanying notes are an integral part of these financial statements
Titan Technologies, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Years ended July 31, 1998 and 1997
Common stock
no par value Accumulated
Shares Amount deficit Total
Balance at August 1, 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)
Issuance of 1,659,000
shares of common stock
(note H) .............. 1,659,000 260,250 -- 260,250
Issuance of stock
options (note H) ...... -- 6,000 -- 6,000
Net loss ................ -- -- (294,602) (294,602)
---------- ----------- ----------- ----------
Balance at July 31, 1998 23,095,411 $ 1,426,944 $(1,589,253) $ (162,309)
========== =========== =========== ==========
The accompanying notes are an integral part of these financial statements
Titan Technologies, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended July 31,
1998 1997
--------- ---------
Increase (Decrease) in Cash
Cash flows from operating activities
Cash received from contract advance ........... $ 39,353 $ --
Interest and insurance proceeds received ...... 5,908 7,805
Cash paid to suppliers and employees .......... (255,538) (387,073)
--------- ---------
Net cash used in operating activities ..... (210,277) (379,268)
Cash flows from investing activities
Cash paid for property, plant, and equipment .. (32,277) (2,321)
Proceeds from disposal of property, plant,
and equipment ............................... 24,606 --
--------- ---------
Net cash used in investing activities ..... (7,671) (2,321)
Cash flows from financing activities
Proceeds from sale of common stock ............ 260,250 --
Proceeds from borrowings ...................... -- 112,000
--------- ---------
Net cash provided by financing activities . 260,250 112,000
--------- ---------
NET INCREASE (DECREASE) IN CASH ........... 42,302 (269,589)
Cash at beginning of year ....................... 3,125 272,714
--------- ---------
Cash at end of year ............................. $ 45,427 $ 3,125
========= =========
Reconciliation of Net Loss to Net Cash Used in
Operating Activities
Net loss ........................................ $(294,602) $(238,946)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization .............. 2,136 3,152
Noncash compensation ....................... 6,000 --
Equity in net loss of investee .............. -- 6,840
(Gain) loss on disposal of assets ........... 174 (163,314)
Change in assets and liabilities
Decrease in accounts payable ............. (1,625) (2,554)
Increase in accrued interest payable ..... 13,440 11,942
Increase (decrease) in accrued liabilities (10,803) 3,612
Increase in deferred revenue ............. 39,353 --
Increase in accounts and note payable to
stockholders and officers .............. 35,650 --
--------- ---------
Net cash used in operating activities $(210,277) $(379,268)
========= =========
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 financial statements
Titan Technologies, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1998 and 1997
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. 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.
4. 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.
5. 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.
6. Net Loss Per Common Share
-------------------------
Net loss per common share is calculated using the weighted average number of
shares outstanding during each year. Basic and diluted earnings per share are
the same because the inclusion of options to purchase 300,000 shares of stock
(Note H) are antidilutive.
7. 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.
8. 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.
9. Reclassifications
-----------------
Certain 1997 amounts have been reclassified to conform to the 1998
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, 1998.
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
During 1998, the Company sold a truck to an employee (son of the President of
Tire Recycling) for $19,830. A right was granted to the Company to continue
to use the truck for business and to repurchase the truck. The Company also
received an advance from an officer of $8,650 and deferred payments of
salaries to officers of $27,000.
Land rental of $2,500 for a research site was paid to a stockholder during
the year ended July 31, 1997. Interest expense of approximately $13,000 and
$11,000 to a stockholder was recorded during the years ended July 31, 1998
and 1997, respectively.
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, 1998 and 1997.
The income tax provision is reconciled to the tax computed at statutory rates
as follows:
July 31,
-------------------------
1998 1997
--------- ---------
Tax benefit at statutory rates $(100,165) $ (81,242)
Change in valuation allowance 113,847 106,603
Other (13,682) (11,161)
Nontaxable gain - (14,200)
--------- ---------
$ - $ -
========= =========
The companies report and incur income tax liabilities on a separate basis. At
July 31, 1998, the Company and Tire Recycling have loss carryforwards of
approximately $3,000 and $1,531,000, 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, 1998, 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:
1998 1997
-------- --------
Deferred tax assets
Net operating loss carryforwards $597,269 $483,422
Research credit 49,076 49,076
Foreign tax credit 145,179 145,179
-------- --------
791,524 677,677
Less valuation allowance 791,524 677,677
-------- --------
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 - NOTE PAYABLE TO STOCKHOLDER
Note payable to stockholder consists of the following at July 31:
1998 1997
-------- --------
To a stockholder at a stated interest
rate of 12%, an effective interest rate
of 23%; collateralized by 200,000 shares
of Titan Technologies, Inc. common stock
and the personal guaranty of stockholder $112,000 $112,000
======== ========
The $112,000 note was due September 24, 1997 and the Company is in default of
the note plus approximately $25,000 of accrued interest at July 31, 1998
(Note M).
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, 1998 and 1997.
NOTE H - COMMON STOCK
During the year ended July 31, 1998, the Company sold 1,659,000 shares of
common stock for which it received $260,250. The shares 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 was nominal. ESA has no current operations
but plans to develop a tire recycling plant in Europe. The Company shares
issued were not registered under the Securities Act and as restricted
securities may be sold only upon compliance with Rule 144 under the
Securities Act. The Company settled a lawsuit on August 11, 1998 which
stipulates that 3,000,000 shares of the common stock will be transferred back
to the Company in exchange for its 28.5% interest in ESA. The Company has
agreed to pay the plaintiff $300,000 from the proceeds from each of the first
five sales of recycling plants anywhere in the world except Asia. These
payments are due when the Company receives its final payment for each plant.
The Company entered into an agreement with two legal consultants in May 1998,
whereby the Company will pay each consultant $1,500 a month through May 2003
and granted each consultant options to purchase up to 150,000 shares of the
Company's common stock at an exercise price per share equal to the bid price
for such shares published by the National Quotation Bureau on the date of the
agreement. The consultants may terminate their services at any time without
penalty. The options will be valid for the longer of the period ending five
years from the date of the agreement or twelve months after the date that the
Company has paid the consultants all consideration due under the agreement.
The options or any portion thereof are assignable at any time to any person
in a private transaction that does not violate the Securities Act of 1933, as
amended. The Company recorded legal expense based upon the estimated fair
market value of the options.
The Company also authorized the granting of 900,000 options to purchase
shares of common stock to certain employees. These options have yet to be
approved by the Board of Directors and shareholders of the Company.
NOTE I - FINANCIAL INSTRUMENTS
The following table includes information about estimated fair values as of
July 31, 1998 and 1997 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. The note is in default at July 31, 1998 and
it is not practicable to estimate fair value. At July 31, 1997, the
carrying amount of the note approximates fair value because the interest
rate approximates the market rate.
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)
------------- -------------
1998
Cash $ 45,427 $ 45,427
Note payable to stockholder (112,000) -
1997
Cash 3,125 3,125
Note payable to stockholder (112,000) (112,000)
NOTE J - LITIGATION
From time to time the Company is engaged in various lawsuits either as
plaintiff or defendant which have arisen in the conduct of its business
which, in the opinion of management and based upon advice of counsel, would
not have a material effect on the Company's financial position or results of
operations.
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, 1998, the Company's current liabilities exceed current assets by
$170,834 and total liabilities exceed total assets by $162,309. Additionally,
the Company is in default of its note payable to stockholder (Notes F and J).
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:
( Reduction of operating and administrative expenses including salary
reduction of approximately 50%.
( A sale of stock for $200,000 to be used as working capital completed
in September 1998.
( Deferral of officer salaries if required.
NOTE L - COMMITMENTS
The Company entered into an agreement in the current year for legal services.
The minimum commitment payments for five years are as follows:
1999 $ 36,000
2000 36,000
2001 36,000
2002 36,000
2003 27,000
---------
$ 171,000
=========
NOTE M - SUBSEQUENT EVENT
On September 28, 1998, the Company sold 2,000,000 shares of common stock for
$200,000. 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.
On October 16, 1998 the Company agreed to issue 2,500,000 shares of common
stock in payment of a note payable of $112,000 and accrued interest of
approximately $28,000 and settlement of litigation. The Company has also
agreed to register the stock at its own expense if requested by the
stockholder and to include up to 50% (1,250,000) of the shares in any
offering of its stock to the public during the next three years.
TITAN TECHNOLOGIES, INC.
FORM 10-KSB
July 31, 1998 ??
Titan Technologies, Inc. and Subsidiary
The accompanying notes are an integral part of these statements.
The accompanying notes are an integral part of these statements.
Titan Technologies, Inc. and Subsidiaries
The accompanying notes are an integral part of this statement.
Titan Technologies, Inc. and Subsidiary
The accompanying notes are an integral part of this statement.
Titan Technologies, Inc. and Subsidiary
The accompanying notes are an integral part of these statements.
Titan Technologies, Inc. and Subsidiary
