During six months ended March 31, 2015, the holders of the Convertible Note Payable dated September 30, 2013 elected to convert principal and accrued interest in the amounts show below into share of common stock at a rate of $0.04 per share. On the conversion date, the unamortized discount related to the principal amount converted was immediately amortized to interest expense. No gain or loss was recognized on the conversions as they occurred within the terms of the agreement that provided for conversion.
During six months ended March 31, 2015, the holders of our convertible notes elected to convert principal and interest into shares of common stock as detailed below:
During six months ended March 31, 2015, the Company recognized imputed interest of $2,465 as an increase to shareholders’ equity.
On April 1, 2015, the Company issued a convertible note payable to Eaton Central America, Inc. (“Eaton”) in the amount of $140,275 in exchange for Eaton paying off accounts payable in the same amount. On April 1, 2015, Eaton owned 4,711,250 shares of common stock of the Company which represented approximately 14% of our outstanding stock. The note bears interest at 10% per year and is convertible into common stock of the Company at the rate of $0.02 per share. All principal and accrued interest is payable on April 1, 2017.
On May 12, 2015, the holders of our convertible notes elected to convert principal and interest in the amount of $64,000 into 1,600,000 shares of common stock.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
First Titan Corp., a Florida corporation, was incorporated on September 16, 2010. The Company’s year-end is September 30. The Company formed to design and manufacture both panel and engineered/tooled custom vacuum formed instrument panels and wiring harnesses, required for the monitoring of any final product that utilizes a gas or diesel engine source. The Company is currently primarily an oil and gas exploration company.
On September 16, 2011, First Titan Corporation created First Titan Energy, LLC to invest in oil and gas properties, greenfield projects and in the development of innovative exploration and production technologies.
On September 16, 2011, we formed a new subsidiary company, First Titan Technical, LLC, to commence business operations designing and marketing automotive electronics custom-designed for heavy-duty vehicles.
Critical Accounting Policies
We prepare our Consolidated financial statements in conformity with GAAP, which requires management to make certain estimates and apply judgments. We base our estimates and judgments on historical experience, current trends, and other factors that management believes to be important at the time the condensed Consolidated financial statements are prepared. On a regular basis, we review our accounting policies and how they are applied and disclosed in our condensed consolidated financial statements.
While we believe that the historical experience, current trends and other factors considered support the preparation of our condensed consolidated financial statements in conformity with GAAP, actual results could differ from our estimates and such differences could be material.
For a full description of our critical accounting policies, please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report for the year ended September 30, 2014 on Form 10-K.
Results of Operations
Six months ended March 31, 2015 compared to the six months ended March 31, 2014.
Oil and Gas Sales
We earned net revenue of $22,397 during the six months ended March 31, 2015, compared to $54,069 during the comparable period of the previous year. The decrease in revenue is due decreased production due to oil wells that are temporarily out of service.
Lease operating expense
We incurred lease operating expenses of $11,073 and $11,324 during the six months ended March 31, 2015 and 2014, respectively. The decrease in is due to wells that are temporarily out of service.
Depletion, depreciation & amortization
We incurred depletion expense of $11,718 during the six months ended March 31, 2015, and $30,630 for the comparable period of the previous year. The decrease in depletion is a lower depletion rate per barrel of oil equivalent (“BOE”) as a result of an increased estimate of reserves as of September 30, 2014 as compared to September 30, 2013.
General and Administrative Expenses
We recognized general and administrative expenses in the amount of $246,822 and $276,313 for the six months ended March 31, 2015 and ended 2014, respectively. The decrease was due to decreased professional fees in 2014.
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Interest Expense
Interest expense increased from $262,359 for the six months ended March 31, 2014 to $281,844 for the six months ended March 31, 2015. Interest expense for the six months ended March 31, 2015 included amortization of discount on convertible notes payable in the amount of $244,138, compared to $227,065 for the comparable period of 2014. The remainder was due to interest of our convertible notes payable and imputed interest expense.
Net Loss
We incurred a net loss of $529,920 for the six months ended March 31, 2015 as compared to $527,083 for the comparable period of 2014. The increase in the net loss was the result of the decreased general and administrative expenses discussed above.
Three months ended March 31, 2015 compared to the three months ended March 31, 2014.
Oil and Gas Sales
We earned net revenue of $3,236 during the three months ended March 31, 2015, compared to $21,859 during the comparable period of the previous year. The decrease in revenue is due decreased production due to oil wells that are temporarily out of service.
Lease operating expense
We incurred lease operating expenses of $5,347 and $7,507 during the three months ended March 31, 2015 and 2014, respectively. The decrease in is due to wells that are temporarily out of service.
Depletion, depreciation & amortization
We incurred depletion expense of $4,932 during the three months ended March 31, 2015, and $7,730 for the comparable period of the previous year. The decrease in depletion is a lower depletion rate per barrel of oil equivalent (“BOE”) as a result of an increased estimate of reserves as of September 30, 2014 as compared to September 30, 2013.
General and Administrative Expenses
We recognized general and administrative expenses in the amount of $142,396 and $111,245 for the three months ended March 31, 2015 and ended 2014, respectively. The increase was due to decreased professional fees in 2014.
Interest Expense
Interest expense increased from $66,761 for the three months ended March 31, 2014 to $154,411 for the three months ended March 31, 2015. Interest expense for the three months ended March 31, 2015 included amortization of discount on convertible notes payable in the amount of $057,607, compared to $0148,198 for the comparable period of 2014. The remainder was due to interest on convertible notes payable and imputed interest expense.
Net Loss
We incurred a net loss of $304,278 for the three months ended March 31, 2015 as compared to $171,562 for the comparable period of 2014. The increase in the net loss was the result of the decreased general and administrative expenses discussed above.
Liquidity and Capital Resources
At March 31, 2015, we had cash on hand of $3,131. The company has negative working capital of $517,872 . Net cash used in operating activities for the six months ended March 31, 2015 was $116,998. Cash on hand is adequate to fund our operations for less than one month. We do not expect to achieve positive cash flow from operating activities in the near future. We will require additional cash in order to implement our business plan. There is no guarantee that we will be able to attain fund when we need them or that funds will be available on terms that are acceptable to the Company. We have no material commitments for capital expenditures as of March 31, 2015.
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Additional Financing
Additional financing is required to continue operations. Although actively searching for available capital, the Company does not have any current arrangements for additional outside sources of financing and cannot provide any assurance that such financing will be available.
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES
Management’s Report on Internal Control over Financial Reporting
We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2015. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of March 31, 2015, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed by us under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
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| As of March 31, 2015, we did not maintain effective controls over the control environment. Specifically we have not developed and effectively communicated to our employees our accounting policies and procedures. This has resulted in inconsistent practices. Further, the Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.
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| As of March 31, 2015, we did not maintain effective controls over financial statement disclosure. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Accordingly, management has determined that this control deficiency constitutes a material weakness.
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Our management, including our principal executive officer and principal financial officer, who is the same person, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
Change in Internal Controls Over Financial Reporting
There was no change in our internal controls over financial reporting that occurred during the period covered by this report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We know of no material, active or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceedings or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered beneficial shareholder are an adverse party or has a material interest adverse to us.
ITEM 1A. RISK FACTORS
Not applicable to a smaller reporting company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no sales of unregistered equity securities during the six months ended March 31, 2015.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company has not defaulted upon senior securities.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable to the Company.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
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3.1
| Articles of Incorporation (1)
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3.2
| Bylaws (1)
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21
| Subsidiaries of the Registrant (2)
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31.1
| Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer and principal financial and account officer. (2)
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32.1
| Section 1350 Certification of principal executive officer and principal financial accounting officer. (2)
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101
| XBRL data files of Financial Statement and Notes contained in this Quarterly Report on Form 10-Q. (2) ,(3)
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(1)
| Incorporated by reference to our Form S-1 filed with the Securities and Exchange Commission on November 3, 2010.
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(2)
| Filed or furnished herewith.
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(3)
| In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed.”
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| First Titan Corp.
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Date: September 17, 2015
| BY: /s/ Sydney Jim
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| Sydney Jim
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| Chief Executive Officer, President, Secretary, Treasurer, Principal Executive Officer, Principal Finance and Accounting Officer and Sole Director
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