TITAN TECHNOLOGIES, INC.
ANNUAL REPORT TO SHAREHOLDERS
FOR THE FISCAL YEAR ENDED JULY 31, 2000
TITAN TECHNOLOGIES, INCORPORATED
Unless otherwise indicated, "the Company" and "Titan" are used in this report to
refer to the business of Titan Technologies, Incorporated.
TITAN'S BUSINESS
Summary
Titan Technologies, Incorporated was incorporated under the laws of New Mexico
on July 14, 1954. In its early years, the Company was involved in the uranium
industry under the original name of Titan Uranium Corporation. The corporate
name was changed in 1986 when Titan began to seek business opportunities in
other industries. In recent years, Titan has focused its efforts on several
recycling technologies, particularly in the area of tires, electronic scrap and
certain components of salvaged automobiles. Titan believes it has reached an
advanced stage of development of its tire recycling technology, which has now
been used in three plants which have been built and operated in the Far East
(South Korea and Taiwan).
Historically, much of Titan's business was performed through Tire Recycling
Technologies Corporation ("TRTC"), formerly a wholly owned subsidiary which was
merged into Titan during 1999. TRTC was directly involved in licensing the
Company's proprietary technology, as well as construction of two plants in South
Korea. Both Korean plants have been shut down because of the economic downturn
in the South Korean economy and the insolvency of the owners, which was not
related to operation of the plants. The Company has been informally advised that
these plants would probably resume operations under different ownership, but the
change of ownership did not occur during the year. A third plant utilizing the
Company's tire recycling technology has now been in operation in Taiwan for
nearly two years by Forest All Industry Corporation. Although there has been
some difficulty in obtaining English translations of the operating results and
product information for Korean plants and the Taiwan plant, Forest All has
assured the Company that translated operating results and product information
will be furnished in the near future.
As described below, recycling of tires using the Titan technology results in
production of oil (similar in quality to fuel oil), scrap steel and carbon
black. Forest All reports that it has been easily able to market the oil and
carbon black into Asian markets and that it is stockpiling the scrap steel (a
minor part of production) for future disposal. Forest All has also advised the
Company that pilot plant research has successfully produced activated carbon
from the carbon black and that Forest All plans to implement commercial
production of activated carbon within the next few months, which is expected to
significantly improve the financial results of operation The Company has not yet
received any written information concerning these results or plans but has been
assured by Forest All that such information will be forthcoming. See "Products
and Marketing" below.
During the last quarter of the fiscal year, Titan representatives visited the
Forest All plant in Taiwan with the objective of establishing a new tire
recycling plant in the United States (or other parts of the world) pursuant to a
joint venture between the parties. On June 27,2000, Titan and Forest All entered
into a non-binding Letter of Intent to accomplish this objective, but there can
be no assurance that it will result in construction of a new plant in the United
States or elsewhere.
On the basis of the plant visit and subsequent discussions between the parties,
Titan believes that the Forest All operations to date have established the
commercial viability of the Company's tire recycling technology even though
Forest All modified the original plant design to accommodate geotechnical
restrictions imposed on construction by governmental authorities. In this
regard, Titan also believes that plant throughput can be improved and operations
simplified in a new plant by staying with original design specifications. Titan
and Forest All are also in general agreement as to several modifications which
they believe can improve plant efficiency and throughput in a new plant.
In December, 1999, Titan also completed a new agreement with Skoda Klatovy
s.r.o. ("Skoda"), a company in the Czech Republic which is a wholly owned
subsidiary of a major Czech manufacturing company. Titan has been working with
Skoda for more than 4 years on a project to build a tire recycling plant in
Europe using the Company's tire recycling technology and Skoda's expertise in
civil engineering and in construction and commissioning of industrial furnaces
and accessory equipment, including its willingness to guarantee mechanical
performance of a plant. The agreement contemplated that Skoda would be able to
procure a customer for the first plant, including financing for the plant and
payment of an up-front licensing fee to the Company. Thereafter, Titan and Skoda
would undertake a joint venture to market and build additional plants in Europe,
with provisions for expanding the venture on a world-wide basis (subject to
certain exclusions) after successful operation of the initial plant.
To date, Skoda has been unable to procure a customer for the initial plant but
has completed preliminary engineering and some of the detailed engineering for
an initial plant in conformity with standards of the European Economic
Community. Skoda has advised Titan than its inability to date to procure a
customer has been primarily to due to reluctance of parties to finance the plant
without market guarantees for products, primarily carbon black. (See discussion
of "Products and Marketing" below) The agreement terminates on December 31, 2000
if Skoda has not been able to procure a binding commitment from a customer for a
plant on or before such date. Even if the agreement terminates, however, the
Company plans to remain in discussions with Skoda pending developments in
marketing of carbon products.
Titan continues its excellent working relationship with Adherent Technologies,
Inc. ("Adherent"), a research and development laboratory in Albuquerque which
has provided the Company with major assistance in developing its technologies
and product analysis. The President and principal shareholder of Adherent,
Dr.Ronald E. Allred, is a director and shareholder of the Company. During the
year the Company, Adherent and Dr. Allred executed a technical assistance
agreement, the terms of which are discussed in the Company's fiscal 2000 proxy
material under the heading "Certain Transactions." As a result of this
agreement, Adherent and Dr. Allred will receive a substantial percentage of all
future Company revenue that results primarily from advancements made to the
technology by Adherent's research and development efforts.
Business Development
The three plants in Asia have been constructed as a result of a marketing
agreement entered into during 1993 between Titan and Dowon Company, Ltd.
("Dowon"), a South Korean company affiliated with Dong Kook Steel Material
Company, Ltd.. Pursuant to this agreement, the Company's tire recycling
technology was exclusively licensed to Dowon for use in Asia, except for certain
Asiatic portions of the Commonwealth of Independent States. In order to
encourage construction of plants and use of the TRTM technology, Titan
informally waived royalty rights for the two Korean plants but is entitled to
future production royalties from the Taiwan plant once it becomes fully
operational. Titan expects that the royalties will be set at 3.25% of sales for
the first two years of full operations and increase to 5% of sales thereafter.
As described above, however, certain design modifications made by Forest All
(out of necessity and without approval of the Company or Dowon) have impaired
the ability of the plant to achieve rated capacity and the Company cannot
predict when and if such royalties will in fact be paid.
The Company recently notified Dowon that it considers Dowon to be in continuous
default of the terms of the marketing agreement and that Titan intended to
cancel the agreement for all purposes. The default relates to the failure on the
part of Dowon to furnish information to Titan on a quarterly basis as required
by the agreement As an alternative, Dowon has been offered the opportunity to
continue to market plants in Asia on a non-exclusive basis, but it must market
one plant each year in order for the agreement to continue in effect. At
present, the Company cannot predict the outcome of these negotiations but does
not believe resolution of the matter will materially affect development of its
tire recycling technology in the United States and Europe.
Titan has provided engineering and design assistance to Dowon for construction
of the plants and Titan has been reimbursed for its out-of-pocket costs and
expenses, including salaries for the engineering personnel involved.
Management intends that all future plants constructed and operated pursuant to a
license agreement, whether sold under a new arrangement with Dowon or otherwise,
will result in payment to the Company of a production royalty equal to 7.5% of
sales, plus a negotiated up-front fee per plant. However, in order to promote
continued development of its tire recycling technology (and other technologies),
Titan will retain the flexibility to modify these arrangements as it deems
necessary. Titan plans on remaining actively involved in construction and
operation of future plants on a cost-plus basis in addition to receiving
licensing fees. As an alternative and as developments warrant, Titan may also
consider joint venture arrangements in which it would acquire, directly or
indirectly, an ownership interest in new plants.
In addition to its tire recycling technology, Titan has been working closely
with Adherent in developing new technologies for recycling electronic (computer)
scrap and waste plastic recovered from automobile salvage ("fluff"). Titan and
Adherent believe that the plastics contained in these materials can be recycled
and recovered in the form of marketable liquid and gaseous hydrocarbons. Also,
the electronic scrap contains recoverable metals, including precious metals.
Titan and Adherent believe that this technology has now been developed to a
point where a commercial pilot facility is warranted, particularly for the
electronic scrap, and are planning to devote a significant effort to
commercialization of the technology for recycling of these non-tire scrap and
waste items.
Description of Technology
The first step in all of the Company's recycling technology involves shredding
the feed waste using conventional equipment which has been commercially proven
in many applications.
The Titan technology utilizes pyrolysis (together with a proprietary catalyst)
to recycle tires and other scrap material. Pyrolysis is a process which breaks
down its raw material feed into basic products through a combination of elevated
temperature and other components, including absence of oxygen and use of a
proprietary catalyst. In the case of the Company's proprietary tire recycling
technology, pyrolysis is accomplished at lower temperatures than are normally
associated with conventional pyrolysis techniques for recycling. Titan's process
is referred to as a "tertiary" process because it reduces the tire feed to its
primary raw components, which consist of oil, steel and carbon black As
mentioned, the Titan technology uses a proprietary reactor catalyst in
connection with the pyrolysis process. The lower pyrolysis temperature allows
recovery of these products in marketable form and is the key to success of
plants using the technology. Titan also holds process patents covering the feed
and discharge components of its system, which it believes represent an
advancement over conventional pyrolysis equipment. Although not trademarked, the
Titan tire recycling technology is often referred to informally as "TRTM"
technology.
In addition to its relatively low operating temperatures, the Company's
technology is regarded as environmentally friendly. The TRTM process is a closed
system and the only emissions are exhaust gases from clean-burning fuels (most
of which are generated by the process itself) and a small amount of dirt and ash
which is environmentally suitable for normal landfill. In fact, non-condensable
gases recovered using TRTM technology provide the fuel to generate required
process heat for pyrolysis.
The technology used to recover hydrocarbons, carbon and metals from electronic
scrap and automobile fluff also utilizes pyrolysis to recover the hydrocarbons
and carbon followed by other conventional processes to recover the metals.
Titan has also designed and built a fully operational mobile unit which it has
used for research and development on most plastics, oil recovery from oil soaked
sand, the neutralization of poultry waste and other uses. Unlike laboratory
testing, this unit has the capacity to test large volumes of material and ,
because it is mounted on a trailer, can be operated at any location. The Company
believes that it can manufacture and market this type of unit worldwide for oil
spill recovery and for processing animal waste.
Products and Marketing
Titan estimates that a single plant using TRTM technology at the rate of 100
tons of tires per day will produce on an annual basis:
(1) approximately 80,000 barrels of oil (34 degree API);
(2) approximately 3,300 tons of high quality scrap steel; and
(3) approximately 8,000 tons of carbon black.
The supply of tires available for recycle is virtually unlimited in terms of
plants processing 100 tons per day, and Titan believes that the commercial
viability of its TRTM technology and the resulting products has been fully
established through pilot plant operations and the three operating plants in
Asia.
Oil
Management believes that Titan has established a legitimate potential to become
a major player in the fields of oil production from recycling and alternative
energy production. The oil produced using TRTM technology is low in sulfur
content and viscosity (it flows readily at room temperature) and contains a high
percentage of "fuel" oils which are attractive for direct feed (without
blending) into refineries. Accordingly, the oil is readily marketable at prices
comparable to light, sweet crude oil. As an example of the dynamics of this new
source of energy, a stockpile of 165,000 tons of tires, not an uncommon number -
about a 5 year supply for a single TRTM plant -- contains more than 400,000
barrels of recoverable oil. Similarly, more than 250 million tires are being
disposed of annually in the United States, which represents a potential supply
of about 1 million barrels of recoverable oil per year.
Steel
The scrap steel recovered using TRTM technology is good quality carbon-steel
used in manufacturing tires and is also readily marketable. Except for having
been shredded, it is essentially the same steel wire which was incorporated into
the original manufacture of tires. Although the quantity recovered in a 100 ton
per day plant is relatively minor, it nevertheless represents about $300,000 per
year in revenue recovered at minimal cost.
Carbon Products
Titan, working with its licensees and others, will be closely involved in the
effort to optimize the market for the third component of tire recycling, which
is commonly referred to as "carbon black."
Conventional carbon black is produced through controlled burning of natural gas
or oil (much like soot) and it relatively free of impurities. The largest use of
carbon black (by a significant margin) is for manufacture of tires, although
carbon black is also used extensively in production of ink, paint, shoe polish,
plastics, moldings, gaskets and similar applications in which a black product is
necessary or deemed desirable. Many different grades of carbon black are
produced, depending upon the intended use, but virtually all conventionally
produced carbon black is nearly ash-free.
The carbon black produced through TRTM pyrolysis consists of the various grades
which went into manufacture of the tire. Because of the very fine physical
composition of the material, it is not realistically practicable to separate the
product by grade. In addition, carbon black produced through pyrolysis contains
varying amounts of ash attributable to other minor materials used in
manufacturing the tire.
Because relatively pure carbon black has been in abundant supply at all grades
(which determines price), there has been little incentive for carbon black
consumers to investigate use of pyrolysis-produced carbon black with its
impurities, since the product has not been commercially available in any event,
at least in any significant quantities.
The successful experience of Forest All in marketing carbon black in certain
Asian markets would seem to dictate a change in attitude on the part of carbon
black consumers for certain applications, including low-speed tires. Moreover,
it may well be possible to use TRTM carbon black in normal tire production in
the United States when blended with other grades of carbon black. Titan believes
that once a TRTM plant has been established in the United States or Europe,
there will be ample demand for the product once consumers have had an
opportunity to evaluate a steady and consistent supply of the product. In this
regard, TRTM carbon black, as a relative by-product, can be produced much
cheaper than conventional carbon black, which should be of major significance in
achieving market penetration once a plant is operational in the United States.
Nevertheless, Titan recognizes that the ability to market the carbon black (or a
further refined carbon product) into U.S. and European markets will be a key
factor in obtaining commitments for new plants in these geographical areas.
In order to enhance marketability of the carbon black which is produced through
the TRTM process, Titan (and Forest All) have been working on process additions
to pelletize the carbon black and convert it into activated carbon. Activated
carbon is a product which is extensively used in water purification and commands
a significantly higher market price than the price for carbon black. The results
of this work are particularly important to Titan because the carbon black
recovered in the TRTM process is by far and away the largest portion of material
produced through tire recycling. The Company is encouraged as a result of work
conducted to date by its independent contractors and results reported by Forest
All, which has advised Titan that it plans to start up its activated carbon
circuit in the near future. The Company's own testing is being conducted on a
bulk sample of carbon black produced by Forest All in Taiwan and is expected to
be completed during November, 2000 using commercially available equipment.
Although the activation process is expected to generate only about 50-60% of the
product weight of the carbon black fed to process, this is more than offset by
the much higher market price and the ability to obtain a secure market for
product.
Once a plant is operating in the United States, Management is optimistic that
plants using its process will ultimately be able to develop a sufficient share
of the market for a number of carbon black applications in addition to sale of
activated carbon. Titan is fully aware of the significance of being able to
secure these markets and expects it will encounter strong resistance from
existing producers of carbon black to protect their current markets. However,
the Company believes that its costs of production will be less than those of
current producers of the product and that it will have access to available
markets for the product once consistent quality of its carbon has been
established commercially. In addition, the Company and Adherent have already
demonstrated at bench scale the technical ability to remove much of the ash
impurities from the carbon black and are optimistic that further work will allow
ash removal on a commercial scale, which would enhance product use in
applications requiring higher product specifications.
Review of 2000
Asia
The fiscal year ended July 31, 2000 was a year of continued progress for the
Company, particularly with respect to the operation of the plant in Taiwan,
which has now been operating for nearly two years. The Taiwan plant has
demonstrated the ability to operate on a continuous basis and is selling all of
the plant's oil and carbon black as it is produced. Titan is awaiting receipt of
English translations of operating results from the plant in order to analyze the
day-to-day production runs and product quality. However, based upon visits to
the plant and preliminary information furnished by the Forest All, the Company's
management is confident that a TRTM plant is capable of operating at design
capacity.
Titan enjoys an excellent relationship with its licensees and believes that the
work performed at the Taiwan plant has been useful in establishing a wider range
of operating parameters and capabilities for the TRTM technology. In this
regard, the Taiwan plant incorporated modifications to the process design, which
have further improved the overall technology, on the basis of observations made
from operation of the Korean plants. Such improvements are part of normal
commercial process development and the Company expects that further improvements
will be made as additional plants are constructed and operated.
Europe
Fiscal 2000 continued the adverse impact of the failure Environmental Solutions
Agency, Inc. ("ESA"), which had been licensed by Titan (and TRTC) to market the
Company's technology in Europe and other arenas in the world market for tire
recycling . These efforts collapsed following the arrest and prosecution of its
principles for bank fraud in Austria.
As previously reported by the Company, at the time this collapse, arrangements
were well advanced with Skoda construction of a TRTM plant in Austria under
license from Titan. As mentioned above, Skoda is a wholly-owned subsidiary of a
major manufacturing company in the Czech Republic and had performed a
significant amount of design and engineering work on the anticipated plant
construction pursuant to a 1996 Memorandum of Agreement with the Company, which
also terminated following the problems with ESA. During the year, discussions
with Skoda continued following their renewal in 1999, resulting in a new
agreement with the objective of proceeding with construction of a plant in the
Czech Republic under direct license from Titan. Although there can be no
assurance that licenses for new plant construction and operation will result
from these efforts, the Company is very encouraged by the discussions and
believes that there is a strong level of European interest in the Titan TRTM
technology.
Research and Development
Fiscal 2000 continued the long ongoing process of development by Titan's of
other recycling technologies for electronic scrap and plastics recovered from
automobile salvage fluff. These efforts have continually been conducted in
conjunction with Adherent and represent a significant potential for independent
recycling plants, as well as for expansion of plants based upon the TRTM
technology.
Outlook
During the fiscal year ending July 31, 2001, the Company's efforts will be
directed toward continued efforts with Forest All and others to optimize and
expand profitable operations in the North American, European and Asian markets.
This will include:
o Efforts to conclude contractual arrangements in Europe and Asia to
establish the Company's technologies for the TRTM technology.
o Additional research and development (working with Adherent) of Titan
technologies for recovery of saleable products.
o Completion of preliminary arrangements to construction and operation of a
TRTM plant in the United States during the year.
o Establish financing for a North American market for the construction of a
TRTM plant designed for the specific purpose of recycling scrap electronics
and perhaps auto fluff.
Titan believes that its technologies offer an environmentally sound and
commercially viable solution for dealing with significant world-wide waste
disposal problems which are growing at an alarming rate. For example, it is
estimated that more than 3 billion tires are now in U.S. dumps and that tire
stockpiles continue to grow at an ever-increasing rate. Similarly, little
thought has been given to disposal of computer waste and auto fluff which
contains a large amount of non-biodegradable plastic waste. Through the Titan
processes, these can be converted into marketable hydrocarbon products. In
addition, electronic scrap contains several metals (including precious metals)
which Titan believes can be recovered and marketed on a commercially viable
basis based upon research and development work performed to date. Although a
considerable amount of additional research and development work must be
performed in order to confirm commercial viability of the electronic scrap and
auto fluff technologies, Titan and Adherent are very encouraged at the results
achieved to date and intend to continue work towards establishing commercial
processes in these technologies.
MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information: The Company's common stock is listed on the 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:
Quarter Ended High Low
Quarter ended September 30, 1998: $0.37 $0.125
Quarter ended December 31, 1998: $0.25 $0.10
Quarter ended March 31, 1999: $0.34 $0.08
Quarter ended June 30, 1999: $0.18 $0.009
Quarter ended September 30, 1999: $0.165 $0.125
Quarter ended December 31, 1999: $0.22 $0.135
Quarter ended March 31, 2000: $0.66 $0.20
Quarter ended June 30, 2000: $0.36 $0.1875
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 theCompany could
result in no dividends being paid in the foreseeable future.
Shareholders: At October 20, 2000, the Company had approximately 600
shareholders of record.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
As stated above, the Company's objectives and its primary activities are related
to the manufacture and sale of commercial plants designed to recycle waste tires
and plastics. Plants are or will be licensed to use the Company'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 Company
performs on-going research and analysis devoted to establishing additional uses
for its technology.
Results of Operations
The delay in completion and full commercial operation of the TRTM plants in
Korea, and Taiwan has continued to have a material and adverse impact upon the
Company's ability to market additional plants. Prospective purchasers of the
TRTM technology continue to await the ongoing operations of the plants
(including information with respect to marketability of products) to measure
their economics. Management believes that the Taiwan plant can demonstrate to
any prospective purchaser that new plants can be profitable. The Company
continues to believe that construction of a plant in Austria will occur as
envisioned by ESA Gmbh and that the sale and construction of plants in both Asia
and Europe should result in ever increasing plant sales. However, these delays
and frustrations have cast doubt on the Company's prior predictions and its
ability to perform. Hopefully, those days are soon to be behind the Company's
efforts.
The Company continues to discuss the sale of additional licenses in Austria, the
United Kingdom and the Czech Republic (as well as joint venture prospects with
Forest All), but the prospective purchasers have not yet been able to secure the
funding necessary to purchase a plant.
During the years ended July 31, 1999 and 2000, the Company had no revenue from
plant licensing. Total revenues were $32,585 in fiscal 2000 compared to $93,054
in fiscal 1999. As a result of the lack of revenue and the ongoing operating
expenses and costs associated with selling activities, the Company experienced a
loss of $375,068 during the current fiscal year compared to a net loss of
$227,173 for the previous fiscal year.
Management anticipated receipt of a license payment for a second plant in Taiwan
that did not materilize during fiscal 2000 and no revenue was received from
license fees. Management anticipates that royalty revenue from the operating
Taiwan plant will commence in the near future, but cannot predict when such
royalties will commence or when the plant will be deemed fully operational.
Management continues to be optimistic that a plant will be started in Austria at
some time during this fiscal year and believes that it will receive a license
fee for that plant when the licensing process is completed. During the second
half of fiscal 2001, the Company began efforts to establish a plant in the
United States. Substantial progress toward that goal has been accomplished with
the target area for the plant being in Tennessee. Permitting for that plant is
now underway and it is hoped that it will be completed in the near future.
Funding for the first plant in the United States is expected to be provided
through efforts of Forest All, although the structure of the transactions has
not yet been agreed upon. Discussions are now also taking place related to
proposed plants in Germany and in mainland China. If licensing of any of the
plants that are in discussion are made, the Company expects to receive
substantial additional revenue. However, there can be no present assurance when
the Company will receive any payment from any purchaser or the time that any
closing of any such sale might occur.
Financial Condition
The Company's cash position increased decreased to $157,180 in fiscal 2000, up
from $6,881 in fiscal 1999. Following the end of the fiscal year, the Company
sold additional shares of its common stock in reliance upon certain exemptions
from registration under the Securities Act of 1933, as amended. The proceeds of
these limited sales and the Company's cash position provides the cash believed
by Management to be adequate for the next fiscal year.
The Company still has no significant debt.
The 2,000,000 shares to be returned by ESA Gmbh, for cancellation have still not
been located and returned to the Company for cancellation. The transfer agent
has been instructed to cancel the shares if and when delivered to it by any
person, but for the time being the transfer agent shows those shares as being
issued and outstanding.
The Company's costs and expenses of operations went up from $320,000 in fiscal
1999 to $407,653 during fiscal 2000, primarily from the Company's efforts to
establish a plant in Europe, to supervise operations of the Tiawan plant and to
conduct research and development for applications of new technology. As stated
above, operations provided no revenue during either year.
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:
o Improve marketing efforts for recycling plants and bring plastics
technology to a marketable product.
o Reduce operating and administrative expenses, and issue stock and notes
payable where possible for payment of expenses.
o Defer officer salaries if required.
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, 2000, 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 NOVEMBER 20, 2000. 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 L. WILDER,
PRESIDENT, TITAN TECHNOLOGIES, INC., 3206 CANDELARIA ROAD, N.E., ALBUQUERQUE,
NEW MEXICO 87107.
Report of Independent Certified Public Accountants
Stockholders
Titan Technologies, Inc.
We have audited the accompanying balance sheets of Titan Technologies, Inc., as
of July 31, 2000 and 1999, and the related 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 auditing standards generally accepted
in the Unites States of America. 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 financial position of Titan Technologies, Inc., as of
July 31, 2000 and 1999, and the results of its operations and its cash flows for
the years then ended in conformity with auditing standards generally accepted in
the Unites States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note I to the
financial statements, the Company has suffered recurring losses and net cash
outflows from operations that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note I. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
GRANT THORNTON LLP
Oklahoma City, Oklahoma
September 1, 2000
<PAGE>
Titan Technologies, Inc.
BALANCE SHEETS
July 31,
ASSETS
2000 1999
------------ ------------
CURRENT ASSETS
Cash ..................................... $ 157,180 $ 6,881
Prepaid expenses ......................... 1,025 5,555
------------ ------------
Total current assets ........... 158,205 12,436
PROPERTY AND EQUIPMENT - AT COST
Furniture and fixtures ................... 5,407 5,407
Machinery ................................ 7,706 7,706
------------ ------------
13,113 13,113
Less accumulated depreciation ......... 9,598 7,843
------------ ------------
3,515 5,270
OTHER ASSETS ................................. 609 609
------------ ------------
$ 162,329 $ 18,315
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ......................... $ 2,835 $ 3,062
Accounts and note payable to
stockholders and officers (note C) .... -- 7,634
Other accrued liabilities ................ 3,056 4,577
------------ ------------
Total current liabilities ...... 5,891 15,273
COMMITMENTS AND CONTINGENCIES
(notes H, I, and J) ...................... -- --
STOCKHOLDERS' EQUITY (notes F and G)
Common stock - no par value;
authorized, 50,000,000 shares;
issued and outstanding, 33,736,561
shares in 2000 and 28,120,411 shares
in 1999 .................................. 2,347,932 1,819,468
Accumulated deficit ...................... (2,191,494) (1,816,426)
------------ ------------
156,438 3,042
------------ ------------
$ 162,329 $ 18,315
============ ============
The accompanying notes are an integral part of these statements.
<PAGE>
Titan Technologies, Inc.
STATEMENTS OF OPERATIONS
Year ended July 31,
2000 1999
------------ ------------
Revenues
Other income (note C) .................... $ 32,585 $ 93,054
Costs and expenses
General and administrative ............... 261,369 304,476
Research and development ................. 90,000 --
Outside services ......................... 54,529 9,744
Depreciation and amortization ............ 1,755 2,646
Interest ................................. -- 3,361
------------ ------------
407,653 320,227
------------ ------------
Net loss before income taxes ... (375,068) (227,173)
Provision for income taxes (note D) .......... -- --
------------ ------------
NET LOSS ................... $ (375,068) $ (227,173)
============ ============
Weighted average common shares outstanding ... 31,024,758 26,912,274
============ ============
Net loss per common share .................... $ (.01) $ (.01)
============ ============
The accompanying notes are an integral part of these statements.
<PAGE>
Titan Technologies, Inc.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Years ended July 31, 2000 and 1999
<TABLE>
<CAPTION>
Common stock
no par value Accumulated
-------------------------
Shares Amount deficit Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at August 1, 1998 ....... 23,095,411 $ 1,426,944 $(1,589,253) $ (162,309)
Issuance of common stock (note F) 5,025,000 392,524 -- 392,524
Net loss ........................ -- -- (227,173) (227,173)
----------- ----------- ----------- -----------
Balance at July 31, 1999 ........ 28,120,411 1,819,468 (1,816,426) 3,042
Issuance of common stock (note F) 5,616,150 528,464 -- 528,464
Net loss ........................ -- -- (375,068) (375,068)
----------- ----------- ----------- -----------
Balance at July 31, 2000 ........ 33,736,561 $ 2,347,932 $(2,191,494) $ 156,438
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Titan Technologies, Inc.
STATEMENTS OF CASH FLOWS
Year ended July 31,
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Increase (Decrease) in Cash
Cash flows from operating activities
Cash received from subcontractor ..................................... $ 32,165 $ 50,040
Interest and insurance proceeds received ............................. -- 3,724
Cash paid to suppliers and employees ................................. (320,330) (344,609)
--------- ---------
Net cash used in operating activities .................. (288,165) (290,845)
Cash flows from financing activities
Proceeds from sale of common stock ................................... 438,464 252,299
--------- ---------
NET INCREASE (DECREASE) IN CASH ........................ 150,299 (38,546)
Cash at beginning of year ................................................ 6,881 45,427
--------- ---------
Cash at end of year ...................................................... $ 157,180 $ 6,881
========= =========
Reconciliation of Net Loss to Net Cash Used in Operating Activities
Net loss ................................................................. $(375,068) $(227,173)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization ........................................ 1,755 2,646
Expense on issuance of common stock at a discount .................... 90,000 --
Change in assets and liabilities
Decrease (increase) in prepaid expenses ........................... 4,530 (5,555)
Increase (decrease) in accounts payable ........................... (227) 2,148
Increase in accrued interest payable .............................. -- 3,361
Increase (decrease) in accrued liabilities ........................ (1,521) 1,097
Decrease in deferred revenue ...................................... -- (39,353)
Decrease in accounts and note payable to stockholders and officers (7,634) (28,016)
--------- ---------
Net cash used in operating activities .................. $(288,165) $(290,845)
========= =========
</TABLE>
Noncash investing and financing activities:
During 2000, the Company sold 1,000,000 shares of common stock to a director at
a discount which resulted in expense of $90,000.
During 1999, the Company exchanged 2,500,000 shares of common stock in
settlement of debt and accrued interest to a stockholder which had a book value
at the time of the exchange of $140,225.
The accompanying notes are an integral part of these statements.
<PAGE>
Titan Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
July 31, 2000 and 1999
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES
Titan Technologies, Inc. (the "Company"), located in Albuquerque, New
Mexico, invests in businesses developing new technology and markets a
proprietary tire recycling process throughout the world.
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows.
1. Cash
The Company maintains its cash in bank deposit accounts and money market
funds which may not be federally insured. The Company has not experienced
any losses in such accounts and believes it is not exposed to any
significant credit risk on such accounts.
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.
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 or the contract has expired with no further
obligation of the Company.
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. 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 additional shares
of stock (Notes F and G) are antidilutive.
<PAGE>
Titan Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
July 31, 2000 and 1999
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES - CONTINUED
6. Use of Estimates
The preparation of financial statements in conformity with auditing
standards generally accepted in the Unites States of America requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures; accordingly, actual results could differ from those
estimates.
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, 2000.
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 2000 and 1999, the Company was paid $32,165 and $50,040,
respectively, for a Company employee used by a research company owned by a
director of the Company.
Interest expense of approximately $3,300 to a stockholder was recorded
during the year ended July 31, 1999.
NOTE D - INCOME TAXES
The Company had no current or deferred income tax expense for the years
ended July 31, 2000 and 1999.
The income tax provision is reconciled to the tax computed at statutory
rates as follows:
July 31,
--------------------------
2000 1999
--------- ---------
Tax benefit at statutory rates ............... $(127,523) $ (77,239)
Change in valuation allowance ................ 74,622 (6,991)
Other ........................................ 4,511 (12,560)
Expiration of foreign tax credits ............ 48,390 96,790
--------- ---------
$ -- $ --
========= =========
<PAGE>
Titan Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
July 31, 2000 and 1999
NOTE D - INCOME TAXES - CONTINUED
At July 31, 2000, the Company has loss carryforwards of approximately
$2,077,000, which can be used to reduce taxable income and will expire 2005
through 2020.
At July 31, 2000, the Company has a "research credit" of $49,076 available
to offset income tax liabilities through 2006.
Amounts of deferred tax assets and valuation allowance are as follows at
July 31:
2000 1999
--------- --------
Deferred tax assets
Accounts receivable allowance ................ $ -- $ 10,183
Net operating loss carryforwards ............. 810,079 676,885
Research credit .............................. 49,076 49,076
Foreign tax credit ........................... -- 48,389
-------- --------
859,155 784,533
Less valuation allowance .................. 859,155 784,533
-------- --------
Net deferred tax asset ......... $ -- $ --
======== ========
Due to a previous change in controlling ownership, the use of net operating
losses 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 E - 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. Under the terms of the agreement,
the director purchased 1,000,000 shares of common stock at $.01 per share.
As a result of this transaction, the Company recognized expense of $90,000
due to issuing common stock below its fair market value. Additionally, the
research company is entitled to 50% of the net proceeds received by the
Company as income resulting from the sale and/or licensing or product,
plant, technology or otherwise of its technology related to feedstock other
than those for tires and pay the research company a sum of money derived
from the revenue from tires computes as follows: 5% of the first $2,000,000
of net revenues, 3% of net revenue of $2,000,000 to $5,000,000, 2% of net
revenue of $5,000,000 to $10,000,000, and 1% of all net revenue in excess of
$10,000,000.
In return, the Company will receive 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, 2000 and 1999.
<PAGE>
Titan Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
July 31, 2000 and 1999
NOTE F - COMMON STOCK
During the year ended July 31, 2000, the Company sold 5,351,150 shares of
common stock for which it received $438,464. In conjunction with the sale of
common stock during the year ended July 31, 2000, the Company issued two
individuals 265,000 shares of common stock for brokering the sale.
Additionally, one consultant received an option to purchase 400,000 shares
of common stock with an exercise price of $.10 which expires on March 15,
2005. During the year ended July 31, 1999, the Company sold 2,525,000 shares
of common stock for which it received $252,300. Additionally, the Company
exchanged 2,500,000 shares of common stock in settlement of debt and accrued
interest which had a book value at the time of the exchange of $140,224.
None of the shares or options issued in fiscal 2000 or 1999 have 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 had no operations but
planned to develop a tire recycling plant in Europe. The Company shares
issued were not registered under the Securities Act and, as restricted
securities, could be sold only upon compliance with Rule 144 under the
Securities Act. Under a settlement agreement, the 3,000,000 shares of the
common stock were to be transferred back to the Company in exchange for its
28.5% interest in ESA. At July 31, 2000, the Company is seeking return of
2,000,000 shares of common stock from the former holders in Europe and the
appropriate signatures from former stockholders to retire the 1,000,000
shares currently in the possession of the Company. Due to the uncertainty of
the Company's ability to gain possession, all of the shares have been
reflected as outstanding through July 31, 2000. Also, as part of the
settlement, 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 $1,500 a month through
May 2003 (see Note J) and granted each consultant options to purchase up to
150,000 shares of the Company's common stock at an exercise price per share
equal to the bid price for such shares published by the National Quotation
Bureau on the date of the agreement ($.26 per share). 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, as amended.
<PAGE>
Titan Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
July 31, 2000 and 1999
NOTE G - STOCK OPTIONS
In December 1998, the Company approved a stock option plan for issuance of
up to 1,500,000 shares of stock to key employees and directors of the
Company. The stock options vest immediately.
The Company uses the intrinsic value method to account for its stock option
plan in which compensation is recognized only when the fair value of each
option exceeds its exercise price at the date of grant. Accordingly, no
compensation cost has been recognized for the options issued. Had
compensation cost been determined based on the fair value of the options at
the grant dates, the Company's net loss and loss per share would have been
increased to the pro forma amounts for the year ended July 31, 2000 and
1999.
2000 1999
----------- -----------
Net loss
As reported ................... $ (375,068) $ (227,173)
Pro forma ..................... $ (375,068) $ (272,347)
Loss per share
As reported ................... $ (.01) $ (.01)
Pro forma ..................... $ (.01) $ (.01)
The fair value of each grant is estimated on the date of grant using the
Black-Scholes options-pricing model with the following weighted-average
assumptions used for grants in 1999: no expected dividends; expected
volatility of 168%; risk-free interest rate of 6.5%; and expected life of
five years. The exercise price of all options equaled or exceeded market
price of the stock at the date of grant.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input
of highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
<PAGE>
Titan Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
July 31, 2000 and 1999
NOTE G - STOCK OPTIONS - CONTINUED
A summary of the status of the Company's stock options as of July 31, 2000
and 1999 and changes during the years then ended is presented below.
<TABLE>
<CAPTION>
2000 1999
Weighted Weighted
average average
exercise exercise
Shares price Shares price
--------- -------- ---------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year .. 1,500,000 $ 0.16 -- $ --
Granted ....................... -- -- 1,500,000 0.16
Exercised ..................... -- -- -- --
Forfeited ......................... -- -- -- --
--------- -------- --------- --------
Outstanding at end of year ........ 1,500,000 $ 0.16 1,500,000 $ 0.16
========= ======== ========= ========
Options exercisable at year end ... 1,500,000 $ 0.16 1,500,000 $ 0.16
========= ======== ========= ========
</TABLE>
Weighted average fair value of
options granted during the year $ -- $ 0.03
The following table summarizes information about stock options outstanding
at July 31, 2000:
Weighted-
average Weighted-
remaining average
Number contractual exercise
outstanding life price
----------- ----------- ---------
1,500,000 3.22 $.16
NOTE H - 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.
<PAGE>
Titan Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
July 31, 2000 and 1999
NOTE I - 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.
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 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:
o Improve marketing efforts for recycling plants and bring plastics
technology to a marketable product.
o Reduce operating and administrative expenses, and issue stock and notes
payable where possible for payment of expenses.
o Defer officer salaries if required.
NOTE J - COMMITMENTS
The Company entered into an agreement in 1998 for legal services. The
minimum commitment payments are as follows:
2001 $ 36,000
2002 36,000
2003 27,000
--------
$ 99,000
========
