Attached files
file | filename |
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EX-32.2 - Titan Energy Worldwide, Inc. | v166701_ex32-2.htm |
EX-31.1 - Titan Energy Worldwide, Inc. | v166701_ex31-1.htm |
EX-10.1 - Titan Energy Worldwide, Inc. | v166701_ex10-1.htm |
EX-32.1 - Titan Energy Worldwide, Inc. | v166701_ex32-1.htm |
EX-31.2 - Titan Energy Worldwide, Inc. | v166701_ex31-2.htm |
U.S.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
For
the quarterly period ended September 30,
2009
|
¨
|
TRANSITION REPORT PURSUANT TO
SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
For
the transition period from ________ to
________
|
Commission
File No. 000-26139
Titan
Energy Worldwide, Inc.
Nevada
|
26-0063012
|
(State or other jurisdiction
of incorporation or
organization)
|
(I.R.S. Employer Identification
No.)
|
10315
Grand River Avenue, Brighton, MI 48116
(Address
of principal executive offices) (Zip Code)
Company’s
telephone number, including area code: (810)-229-5422
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or 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
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes ¨ No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definition of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b of the Exchange
Act.
Large
accelerated filer
|
¨
|
Accelerated
filer
|
¨
|
Non-accelerated
filer
|
¨
|
Smaller
reporting company
|
x
|
(Do not
check if a smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes ¨ No
x
APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.
Yes ¨; No
¨
Indicate
the number of shares outstanding of each of the issuer’s class of common stock,
as of the latest practicable date:
As of November 11, 2009, the issuer had 12,967,056 shares of its common stock issued and
outstanding.
TABLE
OF CONTENTS
PART
I
|
2
|
||
ITEM
1.
|
FINANCIAL
STATEMENTS
|
2
|
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
24
|
|
ITEM
3.
|
CONTROLS
AND PROCEDURES
|
29
|
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
29
|
|
PART
II
|
31
|
||
ITEM
1.
|
LEGAL
PROCEEDINGS
|
31
|
|
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
31
|
|
ITEM
3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
31
|
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
32
|
|
ITEM
5.
|
OTHER
INFORMATION
|
32
|
|
ITEM
6.
|
EXHIBITS
|
33
|
|
SIGNATURES
|
34
|
1
PART
I
ITEM
1. Financial Statements
Titan
Energy Worldwide, Inc.
CONSOLIDATED
BALANCE SHEETS
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ | 209,107 | $ | 327,166 | ||||
Accounts
receivable, less allowance for doubtful accounts of $82,700 and $52,000,
respectively
|
2,256,433 | 1,349,105 | ||||||
Inventory
|
751,200 | 703,941 | ||||||
Other
current assets
|
142,634 | 161,432 | ||||||
Total
current assets
|
3,359,374 | 2,541,644 | ||||||
Property
and equipment, net
|
262,354 | 225,389 | ||||||
Customer
and distribution lists, net
|
653,988 | 1,134,720 | ||||||
Goodwill
|
1,027,478 | 1,599,160 | ||||||
Other
assets
|
13,008 | 7,302 | ||||||
Total
assets
|
$ | 5,316,202 | $ | 5,508,215 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
liabilities
|
||||||||
Notes
payable-current portion
|
$ | 1,338,631 | $ | 557,085 | ||||
Accounts
payable
|
1,694,663 | 1,007,843 | ||||||
Accrued
compensation
|
155,574 | 115,409 | ||||||
Accrued
liabilities – other
|
315,126 | 183,157 | ||||||
Customer
deposits and deferred revenue
|
57,800 | 3,504 | ||||||
Total
current liabilities
|
3,561,794 | 1,866,998 | ||||||
Notes
payable, less current portion
|
110,083 | - | ||||||
Total
liabilities
|
3,671,877 | 1,866,998 | ||||||
Commitments
and Contingencies
|
||||||||
Stockholders’
equity
|
||||||||
Common
stock 1,800,000,000 shares authorized, $.0001 par value, issued and
outstanding 12,967,056 and 15,732,056
|
1,297 | 1,573 | ||||||
Preferred
Stock Series D, 10,000,000 authorized, $.0001 par value, issued and
outstanding 794 and 657
|
1 | 1 | ||||||
Treasury
stock, at fair value, held 2,740,000 shares of common
stock
|
(1,369,726 | ) | - | |||||
Additional
paid in capital
|
28,592,283 | 27,0003,124 | ||||||
Accumulated
deficit
|
(25,579,330 | ) | (23,363,481 | ) | ||||
Total
stockholders’ equity
|
$ | 1,644,325 | $ | 3,641,217 | ||||
Total
liabilities and stockholders’ equity
|
$ | 5,316,202 | $ | 5,508,215 |
See
accompanying notes to consolidated financial statements.
2
Titan
Energy Worldwide, Inc.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
Three
Months Ended
September
30,
|
||||||||
2009
|
2008
|
|||||||
Sales
of equipment
|
$ | 2,450,759 | $ | 1,727,632 | ||||
Sales
of service and parts
|
902,532 | 577,053 | ||||||
Total
sales
|
3,353,291 | 2,304,685 | ||||||
Material
cost and labor for equipment
|
2,051,344 | 1,481,965 | ||||||
Material
cost and labor for service and parts
|
661,280 | 398,182 | ||||||
Total
cost of sales
|
2,712,624 | 1,880,147 | ||||||
Gross
profit
|
640,667 | 424,538 | ||||||
Salaries,
wages and benefits
|
407,288 | 314,937 | ||||||
Consulting and
professional fees
|
79,583 | (11,402 | ) | |||||
Other
general and administrative expense
|
261,048 | 180,929 | ||||||
Total
general and administrative expenses
|
747,919 | 484,464 | ||||||
Loss
from operations
|
(107,252 | ) | (59,926 | ) | ||||
Interest
expenses, net
|
(74,398 | ) | (11,926 | ) | ||||
Loss
on sale of fixed assets
|
(7,383 | ) | - | |||||
Net
loss from continuing operations
|
(189,033 | ) | (71,852 | ) | ||||
Discontinued
Operation (Note 2)
|
||||||||
Losses
from operation of discontinued business
|
(1,191,564 | ) | (75,468 | ) | ||||
Losses
from settlement of litigation
|
(185,633 | ) | - | |||||
Net
loss from discontinued business
|
(1,377,197 | ) | (75,468 | ) | ||||
Net
Loss from continuing and discontinued business
|
$ | (1,566,230 | ) | $ | (147,320 | ) | ||
Weighted
average number of shares outstanding
|
13,051,839 | 15,642,901 | ||||||
Basic
and diluted from continuing operations loss per common
share
|
$ | (0.01 | ) | $ | (0.00 | ) | ||
Basic
and diluted from discontinued operations loss per common
share
|
$ | (0.11 | ) | $ | (0.01 | ) | ||
Basic
and diluted loss per common share
|
$ | (0.12 | ) | $ | (0.01 | ) |
See
accompanying notes to consolidated financial statements.
3
Titan
Energy Worldwide, Inc.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
Nine
Months Ended
September
30,
|
||||||||
2009
|
2008
|
|||||||
Sales
of equipment
|
$ | 5,078,512 | $ | 4,344,867 | ||||
Sales
of service and parts
|
2,019,360 | 1,517,333 | ||||||
Total
sales
|
7,097,872 | 5,862,200 | ||||||
Material
cost and labor for equipment
|
4,300,432 | 3,725,293 | ||||||
Material
cost and labor for service and parts
|
1,502,526 | 1,108,468 | ||||||
Total
cost of sales
|
5,802,958 | 4,833,761 | ||||||
Gross
profit
|
1,294,914 | 1,028,439 | ||||||
Salaries,
wages and benefits
|
1,065,283 | 968,405 | ||||||
Consulting and
professional fees
|
249,218 | 287,177 | ||||||
Other
general and administrative expense
|
615,271 | 517,616 | ||||||
Total
general and administrative expenses
|
1,929,772 | 1,773,198 | ||||||
Loss
from operations
|
(634,858 | ) | (744,759 | ) | ||||
Interest
expenses, net
|
(105,635 | ) | (47,546 | ) | ||||
Loss
on sale of fixed assets
|
(10,389 | ) | - | |||||
Net
loss from continuing operations
|
(750,882 | ) | (792,305 | ) | ||||
Discontinued
Operation (Note 2)
|
||||||||
Losses
from operation of discontinued business
|
(1,279,334 | ) | (375,514 | ) | ||||
Losses
from settlement of litigation
|
(185,633 | ) | - | |||||
Net
loss from discontinued business
|
(1,464,967 | ) | (375,514 | ) | ||||
Net
loss from continuing and discontinued business
|
(2,215,849 | ) | (1,167,819 | ) | ||||
Preferred
dividend from beneficial conversion feature on Series D
|
- | (593,162 | ) | |||||
Net
loss available to common shareholders
|
$ | (2,215,849 | ) | $ | (1,760,981 | ) | ||
Weighted
average number of shares outstanding
|
14,828,833 | 15,506,910 | ||||||
Basic
and diluted from continuing operations loss per common
share
|
$ | (0.05 | ) | $ | (0.09 | ) | ||
Basic
and diluted from discontinued operations loss per common
share
|
$ | (0.10 | ) | $ | (0.02 | ) | ||
Basic
and diluted loss per common share
|
$ | (0.15 | ) | $ | (0.11 | ) |
See
accompanying notes to consolidated financial statements.
4
Titan
Energy Worldwide, Inc.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine
Months Ended
September
30,
|
||||||||
2009
|
2008
|
|||||||
Operating
activities:
|
||||||||
Net
loss from continuing and discontinued operations
|
$ | (2,215,849 | ) | $ | (1,167,819 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Impairment
of intangibles
|
1,146,087 | - | ||||||
Loss
on legal settlement
|
185,633 | - | ||||||
Depreciation
and amortization
|
170,859 | 153,452 | ||||||
Amortization
of debt discount
|
51,012 | 11,133 | ||||||
Compensation
paid by issuance of stock or stock options
|
1,265 | 15,992 | ||||||
Stock
issue for services
|
29,000 | - | ||||||
Stock
retired for cancellation of service contract
|
(31,250 | ) | - | |||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
(609,367 | ) | (430,889 | ) | ||||
Inventory
|
41,497 | 18,999 | ||||||
Other
assets
|
56,934 | (80,782 | ) | |||||
Accounts
payable
|
170,009 | (372,503 | ) | |||||
Accrued
liabilities
|
106,004 | (429,558 | ) | |||||
Customer
deposits
|
26,791 | 5,238 | ||||||
Net
cash used in operating activities
|
(871,375 | ) | (2,276,737 | ) | ||||
Investing
activities:
|
||||||||
Proceed
from sale of fixed assets
|
7,205 | - | ||||||
Net
asset acquired from RB Grove Inc.
|
(183,544 | ) | - | |||||
Increase
in fixed assets
|
(62,225 | ) | (56,658 | ) | ||||
Net
cash used in investing activities
|
(238,564 | ) | (56,658 | ) | ||||
Financing
activities:
|
||||||||
Proceeds
from issuance of Preferred Series D Stock
|
- | 2,153,837 | ||||||
Payment
of financing costs
|
(46,696 | ) | (5,888 | ) | ||||
Proceeds
from issuance of notes
|
121,964 | 594,558 | ||||||
Proceed
provided by Seller Financing
|
86,612 | - | ||||||
Proceeds
provided by Vendor financing accounts payable
|
250,000 | - | ||||||
Payment
of notes
|
- | (674,644 | ) | |||||
Proceeds
from issuance of convertible debt
|
580,000 | - | ||||||
Purchase
of common stock warrants
|
- | (170,000 | ) | |||||
Net
cash provided by financing activities
|
991,880 | 1,897,863 | ||||||
Decrease
in cash and cash equivalents
|
$ | (118,059 | ) | $ | (435,532 | ) | ||
Cash
and cash equivalents, at December 31, 2008 and 2007
|
327,166 | 742,564 | ||||||
Cash
and cash equivalents, at September 30, 2009 and 2008
|
$ | 209,107 | $ | 307,032 |
See
accompanying notes to consolidated financial statements.
5
Titan
Energy Worldwide, Inc. And Subsidiaries
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
NOTE
1 - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Background
Titan
Energy Worldwide, Inc. (the “Company”) was incorporated on December 28, 2006, in
the state of Nevada and was formerly known as “Safe Travel Care, Inc.,” a Nevada
corporation.
Safe
Travel was originally incorporated under the name “Global-Link Enterprises,
Inc.” in the state of Nevada on November 20, 1998. On February 4, 2000, the
Company filed a Certificate of Name Change with the state of Nevada to change
the Company’s name to “MLM World News Today, Inc.” which was granted on April 7,
2000. On August 14, 2002, the Company changed its name to “Presidential Air
Corporation.”
On May 2,
2003, the Company executed an agreement to acquire all of the assets of
“Presidential Air Corporation.,” and changed the Company’s name from
Presidential Air Corporation to “Safe Travel Care, Inc.”
On July
21, 2006, Safe Travel Care, Inc. entered into an agreement and plan of merger
with Titan Energy Development, Inc. (“TEDI”) (“the Merger Agreement”). TEDI is a
manufacturer and distributor of emergency on site survival equipment called the
Sentry 5000TM. In exchange for transferring TEDI to Safe Travel Care, Inc., the
TEDI shareholders received stock consideration consisting of 1,000,000 newly
issued shares of the Company’s preferred stock (the “Merger”), which were
divided proportionately among the TEDI shareholders in accordance with their
respective ownership interests in TEDI immediately before the completion of the
Merger. The TEDI Shareholders also received 1,000,000 shares of common stock.
The Company changed its name to “Titan Energy Worldwide, Inc.” on December 26,
2006. See Note 2, as this reporting unit has been discontinued effective
September 30, 2009.
On
December 28, 2006, the Company acquired Stellar Energy Services, Inc., a
Minnesota corporation (“Stellar”), whereby Stellar exchanged all its common
shares for 750,000 newly issued shares of the Company’s preferred stock, plus a
Note payable to Stellar shareholders of $823,000. The Stellar shareholders also
received 1,000,000 shares of common stock. Stellar provides products and
services to protect an industry’s critical equipment from power outages,
over/under voltage or transient surges and harmonic distortion.
On August
1, 2007, the Company's Articles of Incorporation were amended to effect an up to
Fifty (50) to One (1) reverse stock split of the issued and outstanding shares
of common stock. As a result, a Fifteen (15) to One (1) reverse split took
effect on August 10, 2007. The result of this split was to reduce the
outstanding shares of common stock from approximately 11,602,777 as of August 9,
2007, to approximately 773,518 shares as of August 10, 2007.
On August
10, 2007, the Company changed its trading symbol to “TEWI.OB,” and is currently
trading on the OTCBB.
6
Titan
Energy Worldwide, Inc. And Subsidiaries
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Effective
August 13, 2007, the Company agreed to the conversion of its Series A Preferred
Stock into common stock according to the formulas set forth in the Certificate
of Designation. Each share of Series A Preferred Stock converted 200:1 into
shares of Common Stock. In addition, the Company converted the Series B
Preferred Stock into $2.00 of Common Stock and shares of Series C Preferred
Stock into $1.50 of Common Stock. The effective date for these transactions was
August 13, 2007, and the amount of Common Stock increased by 10,664,508 shares.
The price of the Common Stock, based on the five days closing price before the
effective date was $1.07. The Series B and Series C stockholders had an option
to take a Note due on August 13, 2008, with 11% interest. In total, the Company
has issued Notes totaling $159,882. Since these preferred shares were not yet
convertible under the original conversion terms, these transactions have been
accounted for as an extinguishment of the convertible preferred shares resulting
in charges to retained earnings of $9,767,847 for the excess of the fair market
value of the common stock issued over the recorded amount of the preferred
stock.
On June
11, 2009, the Company through its wholly owned subsidiary, Grove Power, Inc, a
Florida corporation, (“GPI”) acquired certain assets and assumed certain
liabilities of R.B. Grove, Inc.’s (“RBG”), Industrial and Service Divisions. The
purchase was effective as of June 1, 2009. The purchase price consisted of a
cash payment of $214,827 and an $86,612 secured promissory note at 8% due in 18
months. The seller also received five year warrant to purchase 200,000 shares of
the Company common stock at a price of $.01 per share. The Company determined
the fair value of the warrants to be $32,000.
At
September 30, 2009 and December 31, 2008 the Company has no Series A, B and C
Preferred Stock outstanding. The description of these securities is
as follows:
Preferred
Stock, Series A, authorized 10,000,000, $.0001 par
value
|
Preferred
Stock, Series B, authorized 10,000,000, $.0001 par
value
|
Preferred
Stock, Series C, authorized 10,000,000, $.0001 par
value
|
Following
is a summary of the Company’s significant accounting policies.
Principles
of Consolidation
The
financial statements include the accounts of the Company and its 100% owned
subsidiaries, TEDI, Stellar and GPI. All intercompany balances and transactions
have been eliminated during consolidation.
Basis
of Presentation
The
accompanying Unaudited Consolidated Financial Statements (“Financial
Statements”) have been prepared by management in accordance with U.S. generally
accepted accounting principles (“GAAP”) for interim financial information and
applicable rules and regulations of the Securities and Exchange Commission
(the “SEC”). Accordingly, they do not include all of the information and
disclosures required by U.S. GAAP for complete consolidated financial
statements. In the opinion of management, all adjustments, consisting
principally of normal recurring adjustments, considered necessary for a fair
presentation have been included. These financial statements should be read in
conjunction with the Company’s audited consolidated financial statements and
accompanying notes for the year ended December 31, 2008, included in our Annual
Report on Form 10-K filed with the SEC on March 31,
2009. Additionally, our operating results for the three and nine
months ended September 30, 2009 are not necessarily indicative of the results
that can be expected for the year ending December 31, 2009 or for any other
period.
7
Titan
Energy Worldwide, Inc. And Subsidiaries
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Going
Concern
The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplate continuation of the Company as a going concern. The Company incurred
a net loss for the nine months ended September 30, 2009 of $2,215,849 and at
September 30, 2009, had an accumulated deficit of $25,579,330. The loss for the
nine months ended September 30, 2009 includes a non-cash charge for the
discontinued operation of TEDI in the amount of $1,464,497. The accumulated
deficit includes a charge of $9,767,847 for the early extinguishment of the
Series A, B and C Preferred Stock and issuance of Common Stock in 2007. In
addition, the Company issued Series D Convertible Preferred Stock with a
beneficial conversion feature which resulted in recording a preferred stock
dividend of $4,076,646. The accumulated deficit without these transactions would
have been $10,270,340. However, these conditions raise substantial doubt as to
the Company’s ability to continue as a going concern. These financial statements
do not include any adjustments that might result from the outcome of this
uncertainty. These financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts, or amounts
and classification of recorded asset amounts, or amounts and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern. Management has taken the following steps that it believes will
be sufficient to provide the Company with the ability to continue its
operations.
|
·
|
Management
has acquired companies that it believes will be cash flow
positive.
|
|
·
|
Management
has been able to raise $580,000 through a convertible debt
offering.
|
|
·
|
The
Company’s loss from operations was reduced by $110,000 as compared to the
first nine months of 2008.
|
|
·
|
The
Company has discontinued the operations of one of its subsidiaries, Titan
Energy Development, Inc.
|
Supplemental
Cash Flow Information Regarding Non-Cash Transactions
During
the three and nine months ended September 30, 2009, and 2008, the Company has
entered into several non-cash transactions in order to provide financing for the
Company in order to conserve cash. The table below shows the transactions that
occurred during the three months and nine months ended September 30, 2009 and
2008.
8
Titan
Energy Worldwide, Inc. And Subsidiaries
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Three
Months Ended Sept. 30,
|
Nine
Months Ended Sept.30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Stock
Warrants issued for acquisition
|
$ | 32,000 | - | $ | 32,000 | - | ||||||||||
Stock
issued for Services
|
$ | 29,000 | $ | 44,177 | $ | 29,000 | $ | 44,177 | ||||||||
Stock
returned for cancellation of services
|
$ | (31,250 | ) | - | $ | (31,250 | ) | - | ||||||||
Stock
issued to convert long -term debt
|
- | - | - | $ | 29,968 | |||||||||||
Asset
given as part of legal settlement
|
$ | 145,633 | - | $ | 145,633 | - | ||||||||||
Accrued
value of stock to be issued as
|
||||||||||||||||
part
of legal settlement
|
$ | 40,000 | - | $ | 40,000 | - |
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
Revenue
Recognition
The
Company recognizes revenue when the significant risks and rewards of ownership
have been transferred to the customer pursuant to applicable laws and
regulations, including factors such as when there has been evidence of sales
arrangement, delivery has occurred, or services have been rendered, the price to
the buyer is fixed or determinable, and collectability is reasonably
assured.
Cash
Equivalents
For
purposes of reporting cash flows, the Company considers all short-term
investments with an original maturity of three months or less to be a cash
equivalent.
Concentration
of Credit Risk
Financial
instruments which subject the Company to concentrations of credit risk include
cash and cash equivalents.
The
Company maintains its cash in well-known banks selected based upon management’s
assessment of the bank’s financial stability. Balances may periodically exceed
the Federal Deposit Insurance Corporation limit which is currently $250,000
however; the Company has not experienced any losses on deposits.
Significant
Customer
The
Company has one customer that purchased generators during the three and nine
months ended September 30, 2009 totaling approximately $697,000 and $885,000,
respectively. For the three and nine months ended September 30, 2008, this
customer purchased approximately $148,500 and $170,000,
respectively.
9
Titan
Energy Worldwide, Inc. And Subsidiaries
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Property
and Equipment
Property
and equipment are recorded at cost, net of accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets, which range from three to seven years. Expenditures
for major renewals and betterments that extend the original estimated economic
useful lives of the applicable assets are capitalized. Expenditures for normal
repairs and maintenance are charged to expense as incurred. The cost and related
accumulated depreciation of assets sold or otherwise disposed of are removed
from the accounts, and any gain or loss is included in operations.
Intangible
Assets
The
Company evaluates intangible assets and other long-lived assets for impairment,
at least on an annual basis and whenever events or changes in circumstances
indicate that the carrying value may not be recoverable from its estimated
future cash flows. Recoverability of intangible assets and other long-lived
assets is measured by comparing their net book value to the fair value of the
related operating unit. If the net book value of the asset exceeds the fair
value of the related operating unit, the asset is consider impaired, and a
second test is performed to measure the amount of the impairment
loss.
Advertising
Costs
Advertising
and marketing costs are expensed as incurred. There were advertising and
marketing cost for the three months ended September 30, 2009 and 2008, of
$11,400 and $20,700, respectively. There were advertising and marketing cost for
the nine months ended September 30, 2009 and 2008, of $20,000 and $107,500
respectively.
Income
Taxes
The
Company accounts for income taxes under the asset and liability method whereby,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. As of September 30, 2009
and December 31, 2008 the Company had no unrecognized tax benefits due to
uncertain tax positions.
Loss
per Share
The basic
income (loss) per common share is computed by dividing net income (loss)
available to common stockholders by the weighted average number of common shares
outstanding. Diluted income per common share is computed similar to basic income
per share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive.
The loss for common shareholders would be increased for any undeclared preferred
dividends.
10
Titan
Energy Worldwide, Inc. And Subsidiaries
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Stock-Based
Compensation
The
company uses the fair value method of accounting for share-based payments.
Accordingly, the Company’s recognize the cost of employee services
received in exchange for awards of equity instruments based on the grant date
fair value of those rewards. GAAP permits public companies to adopt its
requirements using either the modified prospective method or the modified
retrospective method. The Company elected to use the modified prospective
method. Options or share awards issued to non-employees are valued using the
fair value method and expensed over the period services are
provided.
Stock
Split
In August
2007, the Company’s Board of Directors approved a fifteen (15) to one (1)
reverse stock split of common stock. The par value of the Company’s common stock
remains $.0001 per share. All share and per share amounts have been restated to
reflect the fifteen (15) to one (1) reverse stock split, except for the
statements of stockholders’ equity which reflect the stock split by
reclassifying from Common Stock to Additional Paid-in Capital an amount equal to
the par value of the shares cancelled to effect the reverse stock
split.
Fair
value of financial instruments
The
Company uses the following methods and assumptions to estimate the fair value of
derivative and other financial instruments at the relative balance sheet
date:
|
·
|
Short-term
financial instruments (cash equivalents, accounts receivable and payable,
short-term borrowings, and accrued liabilities) - cost approximates fair
value because of the short maturity
period.
|
|
·
|
Long-term
debt - fair value is based on the amount of future cash flows associated
with each debt instrument discounted at our current borrowing rate for
similar debt instruments of comparable
terms.
|
Segment
Reporting
Based on
the Company’s integration and management strategies, the Company operated in a
single business segment.
Impairment
of Long-Lived Assets
In the
event that facts and circumstances indicate that the carrying value of a
long-lived asset, including associated intangibles, may be impaired, an
evaluation of recoverability is performed by comparing the estimated future
undiscounted cash flows, associated with the asset or the asset’s estimated fair
value, to the asset’s carrying amount to determine if a write-down to market
value or discounted cash flow is required.
11
Titan
Energy Worldwide, Inc. And Subsidiaries
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Recent
Accounting Pronouncements Issued but Not Effective
The
following are new accounting standards and interpretations that may be
applicable in the future to the Company.
In June
2009, the Financial Accounting Standards Board (FASB) issued its final Statement
of Financial Accounting Standards (SFAS) No. 168 – The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles a
replacement of FASB Statement No. 162 . SFAS No. 168 made
the FASB Accounting Standards Codification (the Codification) the single source
of U.S. GAAP used by nongovernmental entities in the preparation of
financial statements, except for rules and interpretive releases of the SEC
under authority of federal securities laws, which are sources of authoritative
accounting guidance for SEC registrants. The Codification is meant to simplify
user access to all authoritative accounting guidance by reorganizing
U.S. GAAP pronouncements into roughly 90 accounting topics within a
consistent structure; its purpose is not to create new accounting and reporting
guidance. The Codification supersedes all existing non-SEC accounting and
reporting standards and was effective for the company beginning July 1,
2009. Following SFAS No. 168, the Board will not issue new standards
in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force
Abstracts; instead, it will issue Accounting Standards Updates. The FASB will
not consider Accounting Standards Updates as authoritative in their own right;
these updates will serve only to update the Codification, provide background
information about the guidance, and provide the bases for conclusions on the
change(s) in the Codification.
Accounting
Standards Updates Not Yet Effective
In June
2009, the FASB amended its guidance on determining whether an entity’s variable
interests constitute controlling financial interests in a variable interest
entity. Among other things, the updated guidance replaces the calculation
for determining which entities, if any, have a controlling financial interest in
a variable interest entity (“VIE”) from a quantitative based risks and rewards
calculation, to a qualitative approach that focuses on identifying which
entities have the power to direct the activities that most significantly impact
the VIE’s economic performance and the obligation to absorb losses of the VIE or
the right to receive benefits from the VIE. The update also requires ongoing
assessments as to whether an entity is the primary beneficiary of a VIE
(previously, reconsideration was only required upon the occurrence of specific
events), modifies the presentation of consolidated VIE assets and liabilities,
and requires additional disclosures about a company’s involvement in VIEs. This
update will be effective for the Company beginning January 1, 2010.
Management is currently evaluating the effect that adoption of this update will
have, if any, on the Company’s financial position and results of operations when
it becomes effective in 2010.
12
Titan
Energy Worldwide, Inc. And Subsidiaries
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
In
September 2009, the FASB issued a new accounting standard that permits entities
to measure the fair value of certain investments, including those with fair
values that are not readily determinable, on the basis of the net asset value
per share of the investment (or its equivalent) if such net asset value is
calculated in a manner consistent with established fair value measurement
principles. The standards update also requires enhanced disclosures about the
nature and risks of investments within its scope that are measured at fair value
on a recurring or nonrecurring basis. This update will be effective for the
Company beginning October 1, 2009. Management is currently evaluating the
effect that adoption of this update will have, if any, on the Company’s
financial position and results of operations when it becomes
effective.
In
October 2009 the
FASB issued an update to its revenue recognition standards that (1) removes the
objective-and-reliable-evidence-of-fair-value criterion from the separation
criteria used to determine whether an arrangement involving multiple
deliverables contains more than one unit of accounting, (2) replaces references
to “fair value” with “selling price” to distinguish from other fair value
measurement guidance, (3)
provides a hierarchy that entities must use to estimate the selling price, (4)
eliminates the use of the residual method for allocation, and (5)
expands the ongoing disclosure requirements. The
new standard is effective for the Company beginning January 1, 2011 and can
be applied prospectively or retrospectively. Management is currently evaluating
the effect that adoption of this update will have, if any, on the Company’s
financial position and results of operations when it becomes effective in
2011.
Other
Accounting Standards Updates not effective until after September 30, 2009
are not expected to have a significant effect on the Company’s consolidated
financial position or results of operations.
NOTE
2 – DISCONTINUED OPERATION
The
Company has reached a settlement with ERBUS, Inc. on a complaint that alleged
that the Company violated a confidentiality agreement with ERBUS and used
unspecified and allegedly confidential, proprietary and trade secret information
related to a mobile emergency response unit that the Company had developed. The
terms of the settlement include that the Company will give ERBUS certain
inventory, fixed assets and intellectual property, and 200,000 shares of common
stock. The settlement is in no way an admission of guilt or wrongdoing by the
Company; the Company chose to settle rather than incur the costs of going to
court.
The
Company’s subsidiary TEDI was dedicated to producing the product that was the
subject of this dispute. Based on this settlement and the Company’s decision to
no longer be involved in this business, the Company has decided to discontinue
the operations of TEDI. The Company has recorded the estimated loss
based on the recorded value of the assets and the fair market value of the
common stock to be approximately $185,633 at September 30, 2009. The settlement
agreement is effective as of November 1, 2009.
13
Titan
Energy Worldwide, Inc. And Subsidiaries
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
The
Company has reviewed the customer list and goodwill at September 30, 2009
related to the TEDI subsidiary. The Company tests for impairment whenever events
occur or circumstances change that would more likely than not reduce the fair
value of these assets below its carrying value. When the Company purchased the
TEDI subsidiary it had a new product for the emergency response industry. The
Company has agreed to a non-compete clause for five years and therefore there is
no foreseeable cash flow to justify the fair value of these assets. The Company
has taken a non-cash impairment charge on intangible assets of $1,146,087 at
September 30, 2009. For the nine months ended September 30, 2009 the revenue and
net loss from the operations of TEDI was $19,825 and $133,247, respectively. In
the nine months ended September 30, 2008 the revenue was $1,240,242 and the loss
from operations was $375,514. All assets have been written down to net
realizable and the only remaining assets of TEDI are negligible.
The
following table summarizes the carrying amounts at September 30, 2009 and
December 31, 2008 of the major classes of assets and liabilities of the
Company’s businesses classified as discontinued operations:
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Assets
|
||||||||
Cash
|
$ | 622 | $ | 259,745 | ||||
Inventory
|
- | 157,962 | ||||||
Other
current assets
|
367 | 16,007 | ||||||
Total
current assets
|
989 | 433,714 | ||||||
Customer
list (net of amortization)
|
- | 505,769 | ||||||
Goodwill
|
- | 690,339 | ||||||
Other
asset
|
- | 2,172 | ||||||
Total
Assets
|
$ | 989 | $ | 1,631,994 | ||||
Liabilities
|
||||||||
Accounts
payable
|
72,962 | 74,982 | ||||||
Accrued
liabilities
|
53,704 | 13,796 | ||||||
Total
Liabilities
|
$ | 126,666 | $ | 88,778 |
NOTE
3 - INVENTORIES
Inventories
are stated at the lower of cost, determined by a first in, first out method, or
market. Inventories are adjusted for estimated obsolescence and written down to
net realizable value based upon estimates of future demand, technology
developments and market conditions. Inventories are comprised of the following
at September 30, 2009, and December 31, 2008:
14
Titan
Energy Worldwide, Inc. And Subsidiaries
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
September 30,
2009
|
December 31,
2008
|
|||||||
Parts
|
$ | 408,193 | $ | 376,246 | ||||
Work
in Process
|
118,859 | 185,172 | ||||||
Finished
Goods
|
294,148 | 197,523 | ||||||
Obsolescence
Reserve
|
(70,000 | ) | (55,000 | ) | ||||
$ | 751,200 | $ | 703,941 |
NOTE
4 - NOTES PAYABLE
Notes
Payable consists of the following at September 30, 2009, and December 31,
2008:
September 30,
2009
|
December 31,
2008
|
|||||||
Revolving
line of credit, prime plus 2.0% with minimum interest rate of 7.5% and due
April 22, 2010
|
$ | 536,910 | $ | 449,558 | ||||
Promissory
note payable, bearing interest at 11% due April 1, 2009
|
103,969 | 103,969 | ||||||
Promissory
notes payable, bearing interest at 8% due between June and August
2010
|
580,000 | - | ||||||
Promissory
note payable bearing interest at 6% due May 2, 2010
|
250,000 | - | ||||||
Secured
promissory note payable, bearing interest at 8% due December 11,
2010
|
86,612 | - | ||||||
Other
Loans
|
37,633 | 3,558 | ||||||
Less
Unamortized Discount
|
(147,059 | ) | - | |||||
Total
|
1,448,065 | 557,058 | ||||||
Less
current portion
|
1,337,982 | 557,058 | ||||||
Long
-term Debt
|
$ | 110,083 | $ | - |
The
promissory notes payable due between June and August, 2010 include 1,160,000
warrants at $.01 per share. This is a beneficial conversion feature that was “in
the money” at the commitment date requiring the Company to determine the
discount related to this debt. The Company allocated the proceeds based on fair
value with the warrants, using the Black-Scholes method, $188,739 and $391,261
to the promissory note. The warrants are exercisable to 2014. The fair value
will be amortized to interest expense over the terms of the promissory notes.
Included in these notes is a $25,000 related party note from the President of
the Company.
The
secured promissory note payable was part of the consideration given to the
Seller of the RBG assets purchased by Grove Power Inc. (“GPI”). The security for
this note is all the assets that were purchased.
On August
5, 2009, a major vendor agreed to exchange $250,000 of accounts payable
currently due related to the acquisition of GPI for a promissory note payable
due May 2, 2010. This note payable has the personal guaranty of the CEO,
President and the COO.
15
Titan
Energy Worldwide, Inc. And Subsidiaries
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
In April
2009, Stellar refinanced their bank credit line with a Revolving Line of Credit
due April 22, 2010. Borrowings under this facility are subject to a borrowing
base formula consisting of 75% of the accounts receivable balances under 90 days
plus 50% of the inventories, up to a maximum of $125,000. The maximum borrowing
under the line is $1,000,000.
The
Company issued a private placement memorandum (the “Offering”) through which it
sold 657 Units from October 3, 2007, through January 31, 2008. Each Unit was
sold at $10,000 and consisted of one share of Series D Convertible Preferred
Stock, one Class A warrant and one Class B warrant. Gross funds from the
Offering totaled approximately $6.0 million. Also during this time, holders of
$1,929,921 of 11% Secured Convertible Notes converted their Notes and accrued
interest into shares of common stock at $0.50 per share, and holders of $491,000
of 11% Promissory Notes due in December 2008 converted their Notes into the
Offering. Net proceeds from the Offering were approximately $5.2 million in cash
with a reduction in convertible debt of $2.3 million in proceeds from the
converted debt. Approximately $1.5 million of the cash proceeds has been used to
pay down debt.
The due
date of the 11% Promissory Notes was extended from August 23, 2008 until April
1, 2009. On October 16, 2009, the noteholder agreed to a settlement of this note
as explained in Note 14. During the first quarter of 2008, one of the
former noteholders elected to convert his Note and accrued interest of $29,968
into 23,962 shares of common stock.
Accrued
interest is included in accrued liabilities at September 30, 2009, and December
31, 2008, in the amounts of $27,885 and $4,355, respectively.
NOTE
5 - INCOME TAXES
The
Company’s effective income tax rate of 0.0% differs from the federal statutory
rate of 34% for the reason set forth below for the three and nine months ended
September 30:
Three
Months Ended September 30
|
Nine
Months Ended September 30
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Continuing
Operations
|
||||||||||||||||
Income
taxes at the statutory rate
|
$ | (192,185 | ) | $ | (24,430 | ) | $ | (690,273 | ) | $ | (269,384 | ) | ||||
Valuation
Allowance
|
171,480 | 14,685 | 653,277 | 243,945 | ||||||||||||
Permanent
differences and other
|
20,705 | 9,745 | 36,996 | 25,439 | ||||||||||||
Total
income taxes continuing operations
|
$ | - | $ | - | $ | - | $ | - | ||||||||
Discontinued
Operations
|
||||||||||||||||
Income
taxes at the statutory rate
|
$ | (468,247 | ) | $ | (25,659 | ) | $ | (498,089 | ) | $ | (127,675 | ) | ||||
Valuation
Allowance
|
72,909 | 19,700 | 91,390 | 76,841 | ||||||||||||
Permanent
differences and other
|
395,338 | 5,959 | 406,699 | 50,834 | ||||||||||||
Total
income taxes discontinued operations
|
$ | - | $ | - | $ | - | $ | - |
16
Titan
Energy Worldwide, Inc. And Subsidiaries
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Deferred
tax assets and liabilities reflect the net effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes.
The
Company has a net operating loss carry forward of approximately
$7,600,000.
The
Company may offset net operating loss carry forwards against future taxable
income through the year 2029. No tax benefit has been reported in the financial
statements as the utilization of the tax benefits related to the carry-forward
is not assured. Accordingly, the potential tax benefits of the net operating
loss carry-forwards are offset by valuation allowance of the same
amount.
NOTE
6 – TREASURY SHARES
On June
30, 2009, the Company offered to the common shareholders that were converted in
the Offering the opportunity to exchange the common shares received into units
of Series D Preferred Stock. A total of 2,740,000 shares of common stock were
exchanged for 137 Units of Series D Preferred Stock and 456,621 of detachable
Class A Warrants and 456,621 of detachable Class B Warrants. This transaction
has been accounted for using the Black–Scholes method to determine the value of
the treasury shares, Series D Preferred Stock and the warrants. This method
resulted in a fair value of the treasury shares of $1,369,726, the Series D
Preferred Stock of $1,285,553, and the value of the warrants of
$84,467.
NOTE
7 - SERIES D CONVERTIBLE PREFERRED STOCK
On
October 3, 2007, the Company commenced a private placement to sell up to
$10,000,000 of Units consisting of one share of Series D Convertible Preferred
Stock, one Class A warrant and one Class B warrant. Each Unit was offered at
$10,000 (the “Offering”). The holder of the Convertible Preferred Stock may, at
any time, convert their shares, in whole or in part, into shares of the
Company’s Common Stock. Assuming an initial conversion price of $1.00, each one
(1) share of Preferred Stock is convertible into 10,000 shares of Common Stock.
Each Class A Warrant and Class B Warrant entitles the holder to purchase three
thousand three hundred and thirty-three (3,333) shares of Common Stock with
exercise prices of $1.20 and $1.40, respectively.
The Units
were offered by the Company on a “reasonable efforts” basis only to “accredited
investors” (as defined in Rule 501(a) of Regulation D promulgated under the
Securities Act of 1933, as amended), on a minimum of 100 Units ($1,000,000), and
a maximum of 1,000 Units ($10,000,000) at a price of $10,000 per Unit. The
Offering closed on January 31, 2008. The Company had closings for cash gross
proceeds of approximately $6.0 million. Approximately $513,000 of 11% Promissory
Notes and accrued interest were converted into the Offering at a 10% discount
from the Offering price. Net cash proceeds to the Company were approximately
$5.2 million. The proceeds from the closings have been used to retire debt,
repurchase stock warrants and fund inventory and operating
costs.
17
Titan
Energy Worldwide, Inc. And Subsidiaries
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
The Units
offered include warrants and a beneficial conversion feature as the Series D
Preferred Stock was convertible and “in the money” at closing dates. The Company
has determined the value of the warrants to be $2,135,434 and the value of
Series D Preferred Stock to be $3,521,558. The Company has valued the beneficial
conversion feature at $4,217,541. This amount is treated as a preferred stock
dividend with the amount increasing paid-in capital and reducing retained
earnings. The increase in the preferred dividend in 2008 was
$593,162.
In an
Event of Liquidation (as defined below) of the Company, holders of any
then-unconverted shares of Preferred Stock will be entitled to immediately
receive accelerated redemption rights in the form of a Liquidation Preference
Amount. The Liquidation Preference Amount shall be equal to 125% of the sum of:
(i) the Stated Value ($10,000) of any then-unconverted shares of Preferred Stock
and (ii) any accrued and
unpaid dividends thereon. An “Event of Liquidation” shall mean any liquidation,
dissolution, or winding up of the Company, whether voluntary or involuntary, as
well as any change of control of the Company which shall include, for the
purposes hereof, sale by the Company of either (x) substantially all of its
assets or (y) that portion of its assets which comprises its core business
technology, products or services.
NOTE
8 - COMMON STOCK TRANSACTIONS
During
the third quarter ended September 30, 2009 the Company issued 100,000 shares of
common stock to an investor relations firm for services to be provided. The fair
value of the common stock on the day it was issued was 29 cents a share. This
fair value of $29,000 was charged to expense in the third quarter. Also, in the
third quarter, an investor relation firm returned 125,000 shares of common stock
that were issued in July 2008. The issuance of this stock resulted in expense
over 2008 and 2009.The stock was returned as the investor relations firm did not
perform on its contract which was terminated. The Company has retired this stock
and recognized a gain for the fair value of $31,250.
During
the first quarter of 2008, the Company settled an 11% Noteholder obligation by
converting the Note to common stock. This transaction resulted in the issuance
of 23,962 common shares. The price for conversion was based on the current
market price for the stock of $1.25 per share.
In
conjunction with the Company’s Offering, noteholders with $1,929,921 of 11%
convertible debt plus accrued interest elected to convert their debt into common
stock. The conversion price was $0.50 per share resulting in the issuance of
3,859,844 common shares. As explained in Note 6, several of these shareholders
have exchanged their common stock for Series D Preferred Stock.
NOTE
9 - STOCK OPTIONS
On May 1,
2009, the Board approved an employee stock option plan (the “2009 Plan”) and
recommended that the 2009 Plan be submitted to the shareholders for approval. In
event the stockholders of the Company do not approve the 2009 plan within 12
months of the adoption of the 2009 Plan by the board, the 2009 Plan shall be
terminated.
The
Company has granted to employees 305,000 options to purchase common stock at an
exercise price of $.10, subject to the 2009 Plan’s approval. Using the
Black-Scholes formula, these options have a fair value of $12,148 which will be
amortized to expense over the 4 year vesting period. The expense for
the nine months ended September 30, 2009 was $1,265.
18
Titan
Energy Worldwide, Inc. And Subsidiaries
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
NOTE
10 - COMMON STOCK WARRANTS
The total
number of warrants issued for the nine months ended September 30, 2009, and for
the year ended December 31, 2008, was 2,317,492 and 1,750,736, respectively.
None of the warrants have been exercised this year. During the third quarter,
the Company repriced certain warrants to a group of brokers that are finding
investors for future financing initiatives. The warrants for 320,205 common
shares were amended from an exercise price of $0.625 per share to an exercise
price of $0.10 per share. The following table shows the warrants
outstanding at September 30, 2009:
Number
of
|
Exercise
|
Expiration
|
|||
Warrants
|
Price
|
Date
|
|||
1,360,000
|
$ | 0.01 |
Jun-14
|
||
364,455
|
$ | 0.10 |
Jun-14
|
||
1,172,500
|
$ | 0.35 |
Jan-12
|
||
553,800
|
$ | 0.50 |
April-July
2012
|
||
212,297
|
$ | 0.63 |
Jun-12
|
||
1,098
|
$ | 0.63 |
Jan-13
|
||
79,000
|
$ | 0.75 |
Sep-10
|
||
158,000
|
$ | 0.75 |
Dec-12
|
||
2,646,411
|
$ | 1.20 |
Jan-13
|
||
801,540
|
$ | 1.25 |
Jan-13
|
||
2,646,411
|
$ | 1.40 |
Jan-13
|
NOTE
11 – FAIR VALUE
In
September 2006, “Fair Value Measurements” was adopted for measuring assets and
liabilities. GAAP provides a single definition of fair value, together with a
framework for measuring it, and requires additional disclosure about the use of
fair value to measure assets and liabilities. GAAP also emphasizes that fair
value is a market-based measurement, not an entity-specific measurement, and
sets out a fair value hierarchy with the highest priority being quoted prices in
active markets. The fair value measurements are disclosed by level within that
hierarchy. The fair value measurements are effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years. The Company adopted the provisions of fair
value measurements as of January 1, 2008. Hierarchical levels are directly
related to the amount of subjectivity associated with the inputs to fair
valuation of these assets and liabilities, are as follows:
19
Titan
Energy Worldwide, Inc. And Subsidiaries
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Level 1 —
Inputs were unadjusted, quoted prices in active markets for identical assets or
liabilities at the measurement date.
Level 2 —
Inputs (other than quoted prices included in Level 1) were either directly or
indirectly observable for the asset or liability through correlation with market
data at the measurement date and for the duration of the instrument’s
anticipated life.
Level 3 —
Inputs reflected management’s best estimate of what market participants would
use in pricing the asset or liability at the measurement date. Consideration was
given to the risk inherent in the valuation technique and the risk inherent in
the inputs to the model.
Determining
which hierarchical level an asset or liability falls within requires significant
judgment. The Company will evaluate its hierarchy disclosures each
quarter. The following table summarizes the financial instruments
measured at fair value in the Consolidated Balance Sheet as of September 30,
2009:
Fair Value Measurements
|
||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
Assets
|
||||||||||||||||
Customer
list
|
$ | - | $ | - | $ | 90,000 | $ | 90,000 | ||||||||
Goodwill
|
$ | - | $ | - | $ | 118,656 | $ | 118,656 | ||||||||
Liabilities
|
$ | - | $ | - | $ | - | $ | - |
NOTE
12 – ACQUISITION
On June
11, 2009, the Company, through its wholly owned subsidiary, Grove Power, Inc.
(“GPI”) a Florida corporation, entered into an asset purchase agreement with
R.B. Grove Inc. (“RBG”). Under this agreement, GPI acquired certain assets and
assumed certain liabilities of RBG’s Industrial and Service Departments
(collectively referred to herein as the “Business”) effective June 1, 2009. The
Business is engaged in the marketing, selling, distribution and servicing of
backup and emergency power equipment in the state of Florida and Caribbean
Islands. The fair value of the consideration paid, assets acquired and
liabilities assumed at June 1, 2009 were as follows:
20
Titan
Energy Worldwide, Inc. And Subsidiaries
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
June 1, 2009
|
||||
Fair
value of consideration
|
||||
Cash
payment
|
$ | 214,827 | ||
Note
payable for 18 months at 8%
|
86,612 | |||
200,000
Common Stock Warrants excisable at .01 for
five years
|
32,000 | |||
Fair
value of consideration
|
$ | 333,439 | ||
Fair
value of assets acquired
|
||||
Account
receivables
|
$ | 297,961 | ||
Inventory
|
370,409 | |||
Fixed
Assets
|
26,860 | |||
Fair
value of assets acquired
|
$ | 695,230 | ||
Fair
value of liabilities assumed
|
||||
Accounts
payable
|
$ | 516,811 | ||
Accrued
liabilities
|
26,130 | |||
Customer
Deposits
|
27,506 | |||
Fair
value of liabilities assumed
|
$ | 570,447 | ||
Net
fair value of assets
|
$ | 124,783 | ||
Excess
consideration over fair value of net assets
|
$ | 208,656 | ||
Intangible
assets
|
||||
Fair
value of customer list
|
$ | 90,000 | ||
Goodwill
|
$ | 118,656 |
The fair
value of the customer list was based on the present value of the gross margin on
service contracts over the next five years that are renewable, at the customer
option, on an annual basis. The fair value was adjusted for estimated lost
contracts during the next five years. The goodwill in this transaction is
attributable to a distribution agreement with major suppliers, an educated
workforce that has sold this product for many years and the synergies related to
TESI controls and procedures. The goodwill is expected to be fully deductible
for tax purposes.
The sales
and earnings included in the Consolidated Financial Statement since the
acquisition date of June 1, 2009 were $1,160,822 and $19,194. The acquisition
related costs recorded in Corporate Overhead were approximately $48,000 and are
included in consulting and professional fees.
The
following unaudited pro forma financial information presents the combined
results of the Company and GPI as if the acquisition had occurred and does not
include net loss from the discontinued operations of $1,464,967 and $375,514 for
the nine months ended September 30, 2009 and 2008, respectively. The unaudited
pro forma financial information is not necessarily indicative of what the
Company’s consolidated results of operations actually would have been had the
Company completed the acquisition at the beginning of each period. In addition,
the unaudited pro forma financial information does not attempt to project the
future results of operations of the combined company.
21
Titan
Energy Worldwide, Inc. And Subsidiaries
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Nine
Months Ended September 30,
|
||||||||
2009
|
2008
|
|||||||
Revenue
|
$ | 8,473,154 | $ | 8,323,508 | ||||
Cost
of Sales
|
6,917,771 | 6,644,693 | ||||||
Gross
profit
|
1,555,383 | 1,678,815 | ||||||
General
and administrative expenses
|
2,103,969 | 2,323,896 | ||||||
Loss
from Operation
|
(548,586 | ) | (645,080 | ) | ||||
Interest
Expense
|
(119,923 | ) | (73,264 | ) | ||||
Loss
on sale of fixed assets
|
(10,389 | ) | - | |||||
Net
Loss from continuing business
|
(678,898 | ) | (718,345 | ) | ||||
Preferred
dividend from beneficial
|
||||||||
conversion
feature on Series D
|
- | (593,162 | ) | |||||
Net
loss available to common shareholders
|
$ | (678,898 | ) | $ | (1,311,507 | ) | ||
Weighted
average number shares
|
14,828,833 | 15,506,910 | ||||||
Basic
and diluted net loss per shareholder
|
$ | (0.05 | ) | $ | (0.08 | ) |
NOTE
13 – SUBSQUENT EVENTS SETTLEMENT OF DEBTS
On
October 16, 2009, the Company reached a settlement with a Noteholder to exchange
an 11% promissory note with principal balance of $103,969 and accrued interest
of $12,389 which was in default, for the following securities: 646,439 shares of
common stock valued at $155,145, and 500,000 common stock options with an
exercise price of $0.25. The Company has guaranteed to buy back the options at
the election of the Noteholder at $0.25 on December 31, 2010. The
fair value of the guarantee is $125,000.
On
October 6, 2009, the Company reached a settlement with a vendor that had
outstanding invoices totaling $44,381. The vendor agreed to accept a $25,000
cash payment and 100,000 shares of common stock.
NOTE
14 – SUBSEQUENT EVENTS STOCK OPTIONS GRANTED
On
November 12, 2009, the Company granted 2,750,000 options for the purchase of
common shares at an exercise price of $0.25 per share, to the employees of the
Company. Under the plan for these options, vesting begins November 12, 2011. The
vesting schedule from this date is 33% for each subsequent year. The Company has
estimated the value of these options to be approximately $500,000, which will be
amortized from grant date to the end of the vesting period.
22
Titan
Energy Worldwide, Inc. And Subsidiaries
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
The
Company has performed a review of events subsequent to the balance sheet date
through November 16, 2009 and except for the matters described above in Note 13
and in this note no other matters require disclosure.
23
ITEM
2. Management’s Discussion and Analysis or Plan of Operation.
Statements
included in this Management’s Discussion and Analysis or Plan of Operation, and
in future filings by us with the Securities and Exchange Commission (the “SEC”),
in our press releases and in oral statements made with the approval of an
authorized executive officer which are not historical or current facts are
“forward-looking statements” and are subject to certain risks and uncertainties
that could cause actual results to differ materially from historical earnings
and those presently anticipated or projected. We wish to caution readers not to
place undue reliance on any such forward-looking statements, which speak only as
of the date made. The following important factors, among others, in some cases
have affected and in the future could affect our actual results and could cause
our actual financial performance to differ materially from that expressed in any
forward-looking statement: (i) the extremely competitive conditions that
currently exist in the market for companies similar to us, and (ii) the lack of
resources to maintain our good standing status and requisite filings with the
SEC. The foregoing list should not be construed as exhaustive and we
disclaim any obligation subsequently to revise any forward-looking statements to
reflect events or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events.
OVERVIEW
Titan
Energy provides the power generation equipment, service and expertise to enable
companies, institutions and governments to safely maintain their critical
operations and services during times of power outages, suboptimal power
conditions and emergencies. We deliver power generation equipment and
service to a wide range of industrial customers including: hospitals and
healthcare institutions, apartment buildings, schools and universities, telecom
companies, data centers, financial institutions, grocery stores, manufacturers,
and municipalities. Our products range from 25kW to multiple megawatt
power generation systems provided by manufacturers such as Generac Power
Systems, Inc and MTU Onsite Energy Corporation. In addition, we offer
engineering, design services and specialized maintenance support for all of
our customers.
In 2006,
we acquired two companies in the distributed energy and power generator
manufacturing industries: Titan Energy Development Inc., (“TEDI”), and
Stellar Energy Services, Inc. (“Stellar”). TEDI merged with us on
July 21, 2006 which made us a manufacturer and supplier of a unique disaster
recovery mobile utility system. As described in Note 2 to our
Consolidated Financial Statements, this business has been discontinued effective
September 30, 2009. Stellar was acquired by us on December 28, 2006 giving us an
established distributorship for emergency and standby power in four Midwestern
states. Stellar is operating under the name of Titan Energy Systems
(“TES”).
On June
11, 2009, the Company, through its wholly owned subsidiary, Grove Power, Inc.
(“GPI”) a Florida corporation, entered into an asset purchase agreement with
R.B. Grove Inc. (“RBG”). Under this agreement, GPI acquired certain assets and
assumed certain liabilities of RBG’s Industrial and Service Departments
(collectively referred to herein as the “Business”) effective June 1, 2009. The
Business is engaged in the marketing, selling, distribution and servicing of
backup and emergency power equipment in the state of Florida and Caribbean
Islands.
24
STRATEGY
Our goal
is to be a leading provider of power generation and energy management
solutions. To date, we have focused on providing thousands of
customers with the most advanced power generation equipment to enable their
operations to continue uninterrupted during times of power failures or
disasters. We are also offering advanced ways for customers to better
manage their energy usage and their power generation assets.
We see
ourselves as an important participant in the development and implementation of
the Smart Grid (or Intelligent Grid), a government and business initiative that
management believes will transform the way we live and work. By offering
advanced equipment and smarter services to better manage energy utilization, we
are striving to support efforts to modernize how our customers use and conserve
power.
Our plans
to grow our operations across the United States and internationally include the
following:
|
·
|
Offer
newer, larger and more advanced power generation systems to help companies
better cope with power failures and
interruptions.
|
|
·
|
Offer
newer and better monitoring technologies to our power generation
customers.
|
|
·
|
Provide
advanced metering systems that allow selected customers to better utilize
their power generation capabilities to avoid peak utility
rates.
|
|
·
|
Work
with more alternative power providers so as to help companies use solar,
wind and other technologies to lessen their dependence on the electrical
utility grid as well as take advantage of opportunities to sell some of
their power back to the utilities.
|
|
·
|
Acquire
companies that will offer us timely and competitive ways to move forward
with new Smart Grid technologies and
solutions.
|
Management
believes that we have enough capital through reserves and expected revenues
to operate at least until September 30, 2010; however, it is likely that we will
need additional capital to continue operations. We plan to raise
funds through the sale of equity, debt and revenues from operations. There can
be no assurance that we will generate revenues from operations or obtain
sufficient capital on acceptable terms, if at all. Failure to obtain such
capital or generate such operating revenues would have an adverse impact on our
financial position and results of operations and our ability to continue as a
going concern. Operating and capital requirements during the next fiscal year
and thereafter will vary based on a number of factors, including the level of
sales and marketing activities for services and products. There can be no
assurance that additional private or public finances, including debt or equity
financing, will be available as needed, or, if available, on terms favorable to
us. Any additional equity financing may be dilutive to stockholders and such
additional equity securities may have rights, preferences or privileges that are
senior to those of our existing Common Stock.
25
RESULTS
OF OPERATIONS
Three
Months Ended September 30, 2009 Compared to the Three Months Ended September 30,
2008
Sales
Sales for
the three months ended September 30, 2009 were $3,353,291 compared to $2,304,685
for the three months ended September 30, 2008. The sales for the
quarter were the highest quarterly sales in our history. The increase in sales
for this period is attributable to higher sales of annual maintenance contracts,
parts and other service-related programs. In the three months ended September
30, 2009, sales of service and parts were $902,532 compared with $557,053 in the
three months ended September 30, 2008. The majority of this increase was
attributable to our acquisition of GPI which had service sales of $292,450. TES
service sales increased 11% in the three months ended September 30, 2009 as
compared to the three months ended September 30, 2008 which indicates that our
program to grow the service business is continuing to be successful. The sale of
equipment for the three months ended September 30, 2009 increased $723,127 from
the three months ended September 30, 2008. This increase was partially
attributable to the acquisition of GPI which had equipment revenues of $507,000
for the quarter ended September 30, 2009. In the third quarter of 2009, sales of
equipment by our TES subsidiary increased by 12% over the third quarter of 2008.
This increase was partially attributable to a major customer that purchased
$697,000 worth of generators in the quarter.
Cost
of Sales
Cost of
sales was $2,712,624 for the three months ended September 30, 2009, compared to
$1,880,147 for the three months ended September 30, 2008. Cost of sales as a
percentage of sales was 80.9% for the three months ended September 30, 2009, as
compared to 81.6% for the three months ended September 30, 2008. This decrease
in the cost of sales as a percentage of sales is attributable to strong
equipment sales with higher margins. The cost of
sales percentage for service was impacted adversely by GPI. Cost of sales as
percentage of service sales was 73.2% for three months ended September 30, 2009
compared to 69% for the three months ended September 30, 2008. We expect the GPI
service program to begin achieving improved margins now that we have implemented
our sales and administrative programs and trained GPI personnel on these new
procedures. As we have demonstrated at TES, the results of
these measures have improved prices on parts and equipment and greater
efficiencies leading to higher margins.
General
and Administrative Expenses
General
and administrative (“G&A”) expenses were $747,919 for the three months ended
September 30, 2009, compared to $484,464 for the three months ended September
30, 2008, an increase of $263,455. Part of this increase was due to the
accounting practice of deferring consulting fees as part of the purchase price
for an acquisition. A total of $104,000 was deferred at September 30, 2008. At
December 31, 2008, the accounting treatment of these costs were to expense them
under FASB 141R. In the third quarter of 2008, we adjusted certain
accruals for marketing and consulting services based on the current facts
resulting in a reduction of expenses by approximately $140,000. Without these
two adjustments G&A expense for the third quarter of 2008 would have been
$728,464, an increase of only approximately $20,000. The
addition of GPI increased G&A expenses in the third quarter of 2009 by
$128,000. Therefore, without the acquisition of GPI, G&A in the
nine months ended September 30, 2009 would have decreased by $100,000 compared
to the same period in 2008, which was primarily attributable to lower investor
relations fees and consulting fees.
26
Interest
Expense
Net
interest expense for the three months ended September 30, 2009, was $74,398
compared to $11,926 for the three months ended September 30, 2008. The higher
cost was attributable to amortization of financing fees and the beneficial
conversion feature and interest expense related to the convertible debt issued
in the second and third quarter of 2009. In addition we exchanged accounts
payable with a vendor for a 6% promissory note that matures in May 2010. There
was no gain or loss on this transaction.
Discontinued
Operations
In the
third quarter, we made the decision to discontinue the operations of TEDI. This
decision was based partly on our decision to no longer be involved in the
business segment of emergency utility systems manufacturing and marketing, the
sole business of TEDI. This decision also was influenced by our
settlement of a complaint that alleged that we violated a confidentiality
agreement with a third party and used unspecified and allegedly confidential,
proprietary and trade secret information related to a mobile emergency response
unit that we had developed. The decision to settle this lawsuit was in no way an
admission of guilt or wrongdoing by us, but was made to avoid the unnecessary
legal costs of going to court to resolve this claim. The significant
costs from discontinued operations are attributable to the impairment of the
intangible assets that were established at the purchase date of the TEDI
subsidiary. This represents a noncash charge of $1,146,087. The remaining costs
relate to amortization of customer lists and legal expenses. In the quarter
ended September 30, 2008, this division had sales of $905,122 and a net loss of
$75,468, which includes legal expenses of $54,300.
Nine
Months Ended September 30, 2009 Compared to the Nine Months Ended September 30,
2008
Sales
Sales for
the nine months ended September 30, 2009 were $7,097,872, compared to $5,862,200
for the nine months ended September 30, 2008, an increase of
$1,235,672. The sales for the nine month period were the highest
sales for any nine month period in our history. As noted in the
discussion of the third quarter results, GPI contributed sales of $1,160,622 for
the nine months ended September 30, 2009. The increase in TES sales was $75,050.
This increase is attributable to an increase in sales of TES service products.
The improvement in this line of business is attributable to improving our sales
and marking program, emergency repairs, and implementing sales procedures that
ensure a greater renewal rate of customer service contracts.
Cost
of Sales
Cost of
sales was $5,802,958 for the nine months ended September 30, 2009, compared to
$4,833,761 for the nine months ended September 30, 2008. Cost of
sales as a percentage of sales was 81.8% for the first nine months of 2009 as
compared to 82.5% for the nine months ended September 30, 2008. As explained in
the three month discussion above, if you exclude the impact of GPI, the
percentage cost of sales for the nine months ended September 30, 2009 would
decrease to 81.4%.
27
General
and Administrative Expenses
General
and administrative (“G&A”) expenses were $1,929,772 for the nine months
ended September 30, 2009, compared to $1,773,198 for the nine months ended
September 30, 2008, an increase of $156,754. GPI has increased our G&A
expenses for the four months since the acquisition by
$161,000. Without the GPI acquisition, G&A would have decreased
slightly. The G&A expense as a percentage of sales was 27.2% for
the nine months ended 2009 as compared to 30.2% for the nine months ended
September 30, 2008. Going forward, we intend to focus on improving
operating efficiencies, cost reductions, and increasing revenue to achieve a
lower ratio of G&A expenses compared to sales.
Interest
Expense
Net
interest expense for the nine months ended September 30, 2009 was $105,635,
compared to $47,546 for the nine months ended September 30, 2008. The
issuance of convertible promissory notes and the financing associated with the
acquisition of GPI are the main reasons for the increase in the interest
expense. Included in interest expense are the amortization of deferred financing
costs and the beneficial conversion feature related to the warrants issued as
part of the convertible promissory notes. In the nine months ended September 30,
2009 the amount amortization was $45,500. The remainder of the increase is
attributable to higher debt levels on our line of credit.
Discontinued
Operations
As noted
in the third quarter discussion above, we have discontinued the operations of
the TEDI subsidiary as part of a settlement of a legal complaint against us. The
loss for the nine months ended September 30, 2009 includes the impairment of the
intangible assets and losses related to the one month of operations before we
decided to limit the operations of the TEDI subsidiary at the end of January
2009. The sales for the nine months ended September 30, 2009 were $19,295
compared to $1,240,424 for the nine months ended September 30, 2008. We decided
that the amount of financial and other resources that would have been required
to properly and effectively market these emergency utility products were beyond
the capabilities of the Company. We were seeking a partner that would
assume the marketing and sales expenses of this program and pay us royalties in
future years, however, with the settlement of the legal case, there is no future
cash flow from this product. We believe that our resources are better spent in
other, more productive segments of our business.
LIQUIDITY
AND CAPITAL RESOURCES
During
the nine months ended September 30, 2009, cash used by operations was $871,375
compared to the nine months ended September 30, 2008, where cash used by
operations was $2,276,737. Improved operating performance and more
effective management of our accounts payable contributed to this
improvement.
For the
nine months ended September 30, 2009, we raised $580,000 of convertible notes to
pay for the acquisition of certain assets of RBG by GPI and working capital.
These notes are for one year at an 8% interest rate. They also have two
detachable warrants at $0.01 per share for each dollar of principal. The notes
are convertible into common stock at any time during their term, which expires
in June to August of 2010.
The
financing of the GPI acquisition was done through cash payments of $214,857, the
assumption of liabilities from a major supplier of approximately $500,000, and
an 18 month note of $86,612 from the seller. We reached an agreement in July
with a major supplier to pay an aggregate of $521,509, consisting of $207,000 in
cash, a $250,000 nine month note at 6%, and the balance applied to equipment
purchases that are to be paid between 30 and 90 days after the date of
purchase.
28
In April
2009, we increased our revolving credit line from $750,000 to $1,000,000. This
credit facility is an asset-based loan. We were able to obtain a reduction in
the interest rate to 7.5%. Under the amended credit facility, there is
approximately $400,000 of borrowings available at September 30, 2009. Our
qualified receivables under the line are approximately $1,600,000.
We intend
to continue to find ways to expand our business through strategic acquisitions.
We believe that our revenues and earnings will increase as we grow. We
anticipate that we will incur smaller losses in the near future if we are able
to expand our business, however, we may experience losses if the costs of the
anticipated acquisitions and marketing are greater than the income from
operations.
During
the nine months ended September 30, 2009, we incurred a net loss of $2,215,849
compared to $1,760,981 for the nine months ended September 30, 2008. The net
losses for the nine months ended September 30, 2009 and 2008 include non-cash
charges of $1,552,606 and $773,739, respectively. The non-cash charges in 2009
are primarily attributable to the impairment of the intangible assets due to the
discontinuation of operations in one of our subidiaries. The higher non-cash
charges in 2009 were the result of the issuance of our Series D Preferred Stock
which has the beneficial conversion feature of a preferred dividend of $593,162.
As of September 30, 2009, we have approximately $209,000 in cash. We believe
that with the completion of our convertible debt offering, the collection of
receivables and any additional offering of our securities, we will have adequate
cash to fund our operations through September 30, 2010.
Off-Balance
Sheet Arrangements
We do not
have any off-balance sheet arrangements.
ITEM
3. Quantitative and Qualitative Disclosures about Market Risk.
Not
applicable.
ITEM
4. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
We
maintain a set of disclosure controls and procedures, as defined in Rule
13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), that are designed to ensure that information required to be disclosed by
us in the reports that we file under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms and to ensure that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required
disclosure. In accordance with Rule 13a-15(b) of the Exchange Act, we
carried out an evaluation, under the supervision and with the participation of
our Chief Executive Officer and our Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures as of September 30, 2009. Based on that evaluation, our
Chief Executive Officer and our Chief Financial Officer concluded that our
disclosure controls and procedures were effective in ensuring that material
information required to be disclosed in the reports that we file with or submit
to the SEC under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms, and is
effective in ensuring that such information is accumulated and communicated to
our management, including the Chief Executive Officer and the Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.
29
Notwithstanding
the foregoing, we cannot assure you that our disclosure controls and procedures
will detect or uncover all failures of persons within the Company to disclose
material information otherwise required to be set forth in our periodic reports.
There are inherent limitations to the effectiveness of any system of disclosure
controls and procedures, including the possibility of human error and the
circumvention or overriding of the controls and procedures. Accordingly, even
effective disclosure controls and procedures can only provide reasonable, not
absolute, assurance of achieving their control objectives.
Changes
in Internal Controls
There
were no changes in our internal control over financial reporting that occurred
during the quarter ended September 30, 2009, that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.
30
PART
II - OTHER INFORMATION
ITEM
1. Legal Proceedings
On April
1, 2008, the Company and its wholly-owned subsidiary, Titan Energy Development,
Inc. (“TEDI”), along with Thomas Black, the Company’s President, and Donald
Snede, a former director of TEDI, were served with a summons and complaint (the
“Complaint”) by ERBUS, Inc. (“ERBUS”) in the United States District Court,
Fourth Judicial District, State of Minnesota, County of Hennepin. The Complaint
alleged that the Company violated a confidentiality agreement with ERBUS and
used unspecified and allegedly confidential, proprietary and trade secret
information related to a mobile emergency response unit which ERBUS had been
trying to develop. The Complaint sought injunctive relief and damages in an
amount greater than $50,000.
On
November 18, 2009, the Company entered into a settlement agreement with ERBUS,
effective as of November 1, 2009 (the “Settlement Agreement”), pursuant to which
the Company agreed to give ERBUS (i) certain assets related to the Sentry 5000 ™
and Remus mobile units which the Company was no longer using and which were not
material to the Company’s business and (ii) 200,000 restricted shares of the
Company’s common stock. The Company had independently determined that it
was not going to continue in the mobile emergency response unit market and,
therefore, also agreed to a five-year non-compete clause relating to the
production and sale of any Sentry-type or Remus-type units.
The foregoing
description of the Settlement Agreement does not purport to be complete and is
qualified in its entirety by reference to the Settlement Agreement, a copy of
which is attached hereto as Exhibit 10.1 and is herein incorporated by
reference.
ITEM
2. Unregistered Sales of Equity Securities and Use of
Proceeds
During
the quarter ended September 30, 2009, we issued 100,000 shares of common stock
to an investor relations firm for services to be rendered. The
aggregate fair value of the shares on the date of issue was
$29,000.
This
stock was issued in reliance on an exemption from registration set forth in
Section 4(2) of the Securities Act of 1933 and Rule 506 of Regulation D
promulgated thereunder as a transaction not involving any public offering and
the purchaser met the “accredited investor” criteria required by the rules and
regulations promulgated under the Securities Act.
ITEM
3. Defaults Upon Senior Securities
We were
previously in default of our 11% Promissory Note due April 1, 2009, in the
amount of $113,977. On October 16, 2009, we reached a settlement with this
noteholder by agreeing to issue the following securities: (i) 646,439 shares of
our common stock and (ii) an option to purchase 500,000 shares of our common
stock, with an exercise price of $0.25 per share, with an agreement to buy back
the options at $0.25 on December 31, 2010, at the noteholder’s
option.
31
ITEM
4. Submission of Matters to a Vote of Security
Holders
None.
ITEM
5. Other Information
None.
32
ITEM
6. Exhibits
Exhibit No.
|
Description
|
|
10.1
|
Settlement
Agreement, effective as of November 1, 2009, between the Company and
ERBUS, Inc. (without exhibits)
|
|
31.1
|
Certification
of Jeffrey W. Flannery, Chief Executive Officer of the Company,
pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
31.2
|
Certification
of James J. Fahrner, Chief Financial Officer of the Company, pursuant to
Rules 13a-14(a) and 15d-14(a) of the Exchange Act, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification
of Jeffrey W. Flannery, Chief Executive Officer of the Company, pursuant
to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
32.2
|
Certification
of James J. Fahrner, Chief Financial Officer of the Company, pursuant to
18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
33
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TITAN
ENERGY WORLDWIDE, INC.
|
||
Dated:
November 19, 2009
|
By:
|
/s/ Jeffrey W.
Flannery
|
Jeffrey
W. Flannery
Chief
Executive Officer
|
||
Dated:
November 19, 2009
|
By:
|
/s/ James J.
Fahrner
|
James
J. Fahrner
Chief
Financial Officer
|
34
EXHIBIT
INDEX
Exhibit No.
|
Description
|
|
10.1
|
Settlement
Agreement, effective as of November 1, 2009, between the Company and
ERBUS, Inc. (without exhibits)
|
|
31.1
|
Certification
of Jeffrey W. Flannery, Chief Executive Officer of the Company,
pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
31.2
|
Certification
of James J. Fahrner, Chief Financial Officer of the Company, pursuant to
Rules 13a-14(a) and 15d-14(a) of the Exchange Act, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification
of Jeffrey W. Flannery, Chief Executive Officer of the Company, pursuant
to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
32.2
|
Certification
of James J. Fahrner, Chief Financial Officer of the Company, pursuant to
18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
35