ITEM 1. BUSINESS
Overview
First Titan Corp., a Nevada corporation, was incorporated on September 16, 2010. Our year-end is September 30. We were 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, we 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.
On May 15, 2015, we reincorporated from Florida to Nevada. As a result of the reincorporation, we effected a reverse split on June 30, 2015. Each shareholder in the Florida corporation received one share in the Nevada corporation for each 100 shares they held in the Florida corporation; fractional shares were rounded up to the nearest whole share and each shareholder received at least five shares.
First Titan Energy’s oil and gas development activities include the following:
Alabama - On May 2, 2012, we acquired a one percent working interest in one well in Little Cedar Creek Field in Alabama. This well was drilled during the fiscal year ended September 30, 2012 and we began receiving revenue during the fiscal year ended September 30, 2013. This well is located in the Little Cedar Field, Alabama’s largest producing oil field. This well is currently producing oil and natural gas from one well.
Louisiana - On January 3, 2012, we entered into a participation agreement in an oil and gas drilling project in Calcasieu Parish, Louisiana (the “Participation Agreement”). The South Lake Charles Prospect is located seven miles south of the city of Lake Charles, Louisiana. It is a middle Oligocene age geo-pressured prospect located in the middle and lower hackberry sands. Under the terms of the Participation Agreement, we will participate in the drilling of one well and may participate in the drilling of future wells if it chooses. We will pay 25% of the drilling cost of the first well and will receive 13.59% of the net revenue from the well. We anticipate that our share of the total drilling and completion cost of the initial well, projected to be drilled to approximately 15,500 feet, will be $3.4 million. On August 12, 2013, the Participation Agreement was amended to reduce our working interest to 1.8%. As a result, our share of the drilling cost is expected to be approximately $181,000. The Company has paid $143,264 of its share of the costs of the well to date. We will receive 1.4% of the revenue from this well. The well began being drilled during the year ended September 30, 2014. During the year ended September 30, 2015, before the completion of the well, the well was damaged by a subcontractor working on the well. The operator of the well is in arbitration with the relevant subcontractors for compensation on the damage to the well.
Texas - On July 7, 2013, the Company acquired a 30% working interest in the Minns Project located in Waller County, Texas. The project included three producing wells and a salt water disposal well within the Brookshire Field. This well was reworked and deepened during the year ended September 30, 2014. It is currently producing oil from one well.
In November 2015, the Company signed a letter of intent with a third-party that is in the business of acquiring midstream oil field equipment. The agreement provides a 90-day option period for the parties to conduct due diligence and determine the prospects of entering into a partnership, joint venture and/or investigating other strategic opportunities.
In December 2015, the Company signed an oil, gas and minerals option for a property on the westernmost edge of the Barnett Shale in Texas. The Company will have 90 days to investigate the property before deciding whether or not to move forward with leasing and/or developing the property.
We have incurred losses since inception, have been issued a going concern opinion from our auditors, and rely upon the sale of our securities and debt financing to fund operations. We will need additional financing in order to continue operations.
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ITEM 1A.
ITEM 1A. RISK FACTORS
This item is not applicable to smaller reporting companies.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
This item is not applicable to smaller reporting companies.
ITEM 2.
ITEM 2. PROPERTIES
We maintain our corporate offices at 500 North Rainbow Boulevard, Suite 300, Las Vegas, Nevada 89107. Our telephone number is 702-448-8148. We also rent an executive suite in Houston, Texas.
ITEM 3.
ITEM 3. 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 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock trades on the “Over the Counter” Bulletin Board’s QB Tier (“OTC”) under the symbol “FTTN”. The following table sets forth, for the period indicated, the prices of the common stock in the over-the-counter market, as reported and summarized by OTC Markets Group, Inc. These quotations represent inter-dealer quotations, without adjustment for retail markup, markdown, or commission and may not represent actual transactions. There is an absence of an established trading market for the Company’s common stock, as the market is limited, sporadic and highly volatile, which may affect the prices listed below.
Holders
As of the date of this filing, there were five holders of record of our common stock.
Dividends
To date, we have not paid dividends on shares of our common stock and we do not expect to declare or pay dividends on shares of our common stock in the foreseeable future. The payment of any dividends will depend upon our future earnings, if any, our financial condition, and other factors deemed relevant by our Board of Directors.
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Common Stock
We are authorized to issue 480,000,000 shares of common stock, with a par value of $0.001. The closing price of our common stock on January 11, 2016, as quoted by OTC Markets Group, Inc., was $0.00. There were 9,738,543 shares of common stock issued and outstanding as of January 11, 2016. All shares of common stock have one vote per share on all matters including election of directors, without provision for cumulative voting. The common stock is not redeemable and has no conversion or preemptive rights. The common stock currently outstanding is validly issued, fully paid and non-assessable. In the event of liquidation of the Company, the holders of common stock will share equally in any balance of the Company’s assets available for distribution to them after satisfaction of creditors and preferred shareholders, if any. The holders of the Company’s common are entitled to equal dividends and distributions per share with respect to the common stock when, as and if, declared by the Board of Directors from funds legally available.
Our Articles of Incorporation, our Bylaws, and the applicable statutes of the state of Nevada contain a more complete description of the rights and liabilities of holders of our securities.
During the year ended September 30, 2015, there was no modification of any instruments defining the rights of holders of the Company’s common stock and no limitation or qualification of the rights evidenced by the Company’s common stock as a result of the issuance of any other class of securities or the modification thereof.
As a result of our reincorporation, we effected a reverse split on June 30, 2015. Each shareholder in the Florida corporation received one share in the Nevada corporation for each 100 shares they held in the Florida corporation; fractional shares were rounded up to the nearest whole share and each shareholder received at least five shares.
Non-cumulative voting
Holders of shares of our common stock do not have cumulative voting rights, which means that the holders of more than 50% of the outstanding shares, voting for the election of directors, can elect all of the directors to be elected, if they so choose, and, in that event, the holders of the remaining shares will not be able to elect any of our directors.
Securities Authorized for Issuance under Equity Compensation Plans
The following table shows the number of shares of common stock that could be issued upon exercise of outstanding options and warrants, the weighted average exercise price of the outstanding options and warrants, and the remaining shares available for future issuance as of September 30, 2015.
Preferred Stock
Our authorized preferred stock consists of 20,000,000 shares of $0.001 par value preferred stock. On August 3, 2015, our board of directors designated 1,000,000 shares of Series E Preferred stock. The Series E Preferred stock is subordinate to our common stock. It does not receive dividends and does not participate in equity distributions. The Series E Preferred stock retained 2/3 of the voting rights in the Company.
On the same date, the board authorized issuing 1,000,000 shares of our Series E Preferred stock to Eaton Central America Inc. (“Eaton”). On that date, Eaton owned 7,295,283 of our common shares, constituting 81.42% of our common shares outstanding.
As of the date of this report, there are 1,000,000 shares of Series E Preferred stock outstanding. Dividends, when, as and if declared by the Board of Directors, shall be paid out of funds at the time legally available for such purposes.
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Recent Sales of Unregistered Securities
Set forth below is information regarding securities sold by during the quarter ended September 30, 2015 that were not registered under the Securities Act:
(1)
On August 1, 2015, we issued 7,248,170 shares of common stock to Eaton Central America Inc. upon conversion of principal and accrued interest on a convertible note payable in the amount of $144,963. We relied upon Section 4(2) of the Securities Act, which exempts from registration “transactions by an issuer not involving any public offering.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
This item is not applicable to smaller reporting companies.
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ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS FILING CONTAINS FORWARD-LOOKING STATEMENTS. THE WORDS “ANTICIPATED,” “BELIEVE,” “EXPECT,” “PLAN,” “INTEND,” “SEEK,” “ESTIMATE,” “PROJECT,” “WILL,” “COULD,” “MAY,” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS INCLUDE, AMONG OTHERS, INFORMATION REGARDING FUTURE OPERATIONS, FUTURE CAPITAL EXPENDITURES, AND FUTURE NET CASH FLOW. SUCH STATEMENTS REFLECT THE COMPANY’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, INCLUDING, WITHOUT LIMITATION, GENERAL ECONOMIC AND BUSINESS CONDITIONS, CHANGES IN FOREIGN, POLITICAL, SOCIAL, AND ECONOMIC CONDITIONS, REGULATORY INITIATIVES AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS, THE ABILITY TO ACHIEVE FURTHER MARKET PENETRATION AND ADDITIONAL CUSTOMERS, AND VARIOUS OTHER MATTERS, MANY OF WHICH ARE BEYOND THE COMPANY’S CONTROL. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES OCCUR, OR SHOULD UNDERLYING ASSUMPTIONS PROVE TO BE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY AND ADVERSELY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, OR OTHERWISE INDICATED. CONSEQUENTLY, ALL OF THE FORWARD-LOOKING STATEMENTS MADE IN THIS FILING ARE QUALIFIED BY THESE CAUTIONARY STATEMENTS AND THERE CAN BE NO ASSURANCE OF THE ACTUAL RESULTS OR DEVELOPMENTS.
The following discussion and analysis of our financial condition and plan of operations should be read in conjunction with our financial statements and related notes appearing elsewhere herein. This discussion and analysis contains forward-looking statements including information about possible or assumed results of our financial conditions, operations, plans, objectives, and performance that involve risk, uncertainties, and assumptions. The actual results may differ materially from those anticipated in such forward-looking statements. For example, when we indicate that we expect to increase our product sales and potentially establish additional license relationships, these are forward-looking statements. The words expect, anticipate, estimate or similar expressions are also used to indicate forward-looking statements.
Background of our Company
First Titan Corp., a Nevada corporation, was incorporated on September 16, 2010. Our year-end is September 30. We were 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, we 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.
On May 15, 2015, we reincorporated from Florida to Nevada. As a result of the reincorporation, we effected a reverse split on June 30, 2015. Each shareholder in the Florida corporation received one share in the Nevada corporation for each 100 shares they held in the Florida corporation; fractional shares were rounded up to the nearest whole share and each shareholder received at least five shares.
Plan of Operations
We believe we do not have adequate funds to fully execute our business plan for the next twelve months unless we obtain additional funding. However, should we not raise this capital, we will allocate our funding to first assure that all State, Federal and SEC requirements are met.
As of September 30, 2015, we had cash on hand of $5,687.
We intend to pursue capital through public or private financing, as well as borrowing and other sources in order to finance our business activities. We cannot guarantee that additional funding will be available on favorable terms, if at all. If adequate funds are not available, then our ability to continue our operations may be significantly hindered.
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Results of Operations
During the year ended September 30, 2015, we had a net loss of $1,085,662. Net cash used by operating activities for the year ended September 30, 2015 was $402,457. We had a working capital deficit of $235,650 as of September 30, 2015. We do not anticipate having positive net income in the immediate future.
We continue to rely on advances to fund operating shortfalls and do not foresee a change in this situation in the immediate future. There can be no assurance that we will continue to have such advances available. We will not be able to continue operations without them. We are pursuing alternate sources of financing, but there is no assurance that additional capital will be available to the Company when needed or on acceptable terms.
Fiscal year ended September 30, 2015 compared to the fiscal year ended September 30, 2014.
Oil and Gas Sales, net
Net oil and gas sales decreased to $42,153 for the year ended September 30, 2015, compared to $97,252 for the year ended September, 30, 2014. The decline in sales was driven by lower average sales prices in the current year.
Lease operating expense
We incurred lease operating expenses of $17,641 and $20,214 during the years ended September 30, 2015 and 2014, respectively.
Depletion, depreciation & amortization
We incurred depletion expense of $20,574 during the year ended September 30, 2015, and $30,209 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, 2015 as compared to September 30, 2014.
Impairment of Oil and Gas Properties
As of June 30, 2015, management determined that it was not economically beneficial to continue to develop a parcel of unproved properties with a cost of $100,000. As a result, the Company recognized an expense for impairment of unproved properties of $100,000 during the year ended September 30, 2015. In addition, we recognized impairment of proved properties of $33,833 during the year ended September 30, 2015 as a result of the full cost ceiling test. No such impairment expense was recognized during the comparable period of 2014.
General and Administrative Expenses
We recognized general and administrative expenses in the amount of $566,305 and $502,772 for the years ended September 30, 2015 and 2014, respectively. The increase is due to an increase in professional fees.
Interest Expense
Interest expense decreased from $787,603 for the year ended September 30, 2014 to $387,915 for the year ended September 30, 2015.
Interest expense for the year ended September 30, 2015 included amortization of discount on convertible notes payable in the amount of $314,387, compared to $689,799 for the comparable period of 2014. Excluding the effect of the amortization of discount on convertible notes payable, interest expense was $73,528 and $97,804 for the years ended September 30, 2015 and 2014, respectively.
The remaining decrease is due to a $17,769 decrease in stated interest on our convertible notes payable and a $6,508 decrease in imputed interest on advances payable.
Net Loss
We incurred a net loss of $1,085,662 for the year ended September 30, 2015 as compared to $1,245,170 for the comparable period of 2014. The decrease in the net loss was primarily the result of lower interest expense related to the amortization of the discount on our convertible notes payable.
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Liquidity and Capital Resources
We anticipate needing approximately of $750,000 to fund our operations and to effectively execute our business plan over the next eighteen months. Currently available cash is not sufficient to allow us to commence full execution of our business plan. Our business expansion will require significant capital resources that may be funded through the issuance of common stock or of notes payable or other debt arrangements that may affect our debt structure. Despite our current financial status, we believe that we may be able to issue notes payable or debt instruments in order to start executing our business plan. However, there can be no assurance that we will be able to raise money in this fashion and have not entered into any agreements that would obligate a third party to provide us with capital.
We raised the cash amounts to be used in these activities from the sale of common stock and from advances. We currently have negative working capital of $235,650.
As of September 30, 2015, we had $5,687 of cash on hand. This amount of cash will be adequate to fund our operations for less than one month.
During the years ended September 30, 2015 and 2014, we had net cash used in operating activities of $402,457 and $311,008, respectively. We do not expect to generate positive cash flow from operating activities in the near future. Our ability to generate positive cash flow from operating activities is based on our ability to generate more revenue by either increasing production from properties that we already own or from acquiring additional productive properties. We continue to seek out acquisition targets; however, we have not identified any specific potential acquisitions at this time. Our ability to consummate acquisitions is dependent on our ability to raise the money to fund those acquisitions. There is no guarantee that if an acquisition target were identified that we would be able to raise the money to consummate the transaction.
During the years ended September 30, 2015 and 2014, we had net cash used in investing activities of $14,264 and $139,814, respectively. We used less cash in investing activities, because we did not make any acquisitions during the year ended September 30, 2015.
During the years ended September 30, 2015 and 2014, we had net cash provided by financing activities of $421,197 and $324,285, respectively. This was the result of borrowings to fund our operations during those periods.
We have no known demands or commitments and are not aware of any events or uncertainties as of September 30, 2015 that will result in or that are reasonably likely to materially increase or decrease our current liquidity.
Capital Resources
We had no material commitments for capital expenditures as of September 30, 2015 and 2014. However, should we execute our business plan as anticipated, we would incur substantial capital expenditures and require financing in addition to what is required to fund our present operation.
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.
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Critical Accounting Policies and Estimates
We prepare our financial statements in conformity with GAAP, which requires management to make certain estimates and assumptions 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 financial statements are prepared; actual results could differ from our estimates and such differences could be material. We have identified below the critical accounting policies, which are assumptions made by management about matters that are highly uncertain and that are of critical importance in the presentation of our financial position, results of operations and cash flows. Due to the need to make estimates about the effect of matters that are inherently uncertain, materially different amounts could be reported under different conditions or using different assumptions. On a regular basis, we review our critical accounting policies and how they are applied in the preparation our financial statements.
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 the reported amounts of assets and liabilities and 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.
GOING CONERN - The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. For the year ended September 30, 2015, the Company had a net loss of $1,085,662 and generated negative cash flow from operating activities in the amount of $402,457. In view of these matters, the Company’s ability to continue as a going concern is dependent upon its ability to achieve a level of profitability or to obtain additional capital to finance its operations. The Company intends on financing its future activities and its working capital needs largely from the sale of public equity securities with some additional funding from other traditional financing sources, including term notes until such time that funds provided by operations are sufficient to fund working capital requirements. The financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
New Accounting Pronouncements
For a description of recent accounting standards, including the expected dates of adoption and estimated effects, if any, on our financial statements, see “Note 3: Significant Accounting Polices: Recently Issued Accounting Pronouncements” in Part II, Item 8 of this Form 10-K.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This item is not applicable to smaller reporting companies.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
First Titan Corp.
Consolidated Financial Statements
September 30, 2015
Contents
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
First Titan Corp.
We have audited the accompanying consolidated balance sheets of First Titan Corp. as of September 30, 2015 and 2014 and the related consolidated statement of operations and comprehensive loss, changes in stockholders’ equity (deficit), and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Titan Corp. as of September 30, 2015 and 2014, and the results of its operations, changes in stockholders’ equity (deficit) and cash flows for the periods then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has insufficient working capital, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ M&K CPAS, PLLC
www.mkacpas.com
Houston, Texas
January 13, 2016
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FIRST TITAN CORP.
CONSOLIDATED BALANCE SHEETS
The accompany notes are an integral part of these consolidated financial statements.
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FIRST TITAN CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
On June 30, 2015, we effected a one-for-100 reverse split. All share and per share amounts have been restated to reflect the split.
The accompany notes are an integral part of these consolidated financial statements.
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FIRST TITAN CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
The accompany notes are an integral part of these consolidated financial statements.
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FIRST TITAN CORP.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
On June 30, 2015, we effected a one-for-100 reverse split. All share and per share amounts have been restated to reflect the split.
The accompany notes are an integral part of these consolidated financial statements.
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FIRST TITAN CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompany notes are an integral part of these consolidated financial statements.
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FIRST TITAN CORP.
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2015
Note 1. Background Information
First Titan Corp., a Nevada corporation, was incorporated on September 16, 2010. Our year-end is September 30. We were 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, we 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.
On May 15, 2015, we reincorporated from Florida to Nevada. As a result of the reincorporation, we effected a reverse split on June 30, 2015. Each shareholder in the Florida corporation received one share in the Nevada corporation for each 100 shares they held in the Florida corporation; fractional shares were rounded up to the nearest whole share and each shareholder received at least five shares.
First Titan Energy’s oil and gas development activities include the following:
Alabama - On May 2, 2012, we acquired a one percent working interest in one well in Little Cedar Creek Field in Alabama. This well was drilled during the fiscal year ended September 30, 2012 and we began receiving revenue during the fiscal year ended September 30, 2013. This well is located in the Little Cedar Field, Alabama’s largest producing oil field. This well is currently producing oil and natural gas from one well.
Louisiana - On January 3, 2012, we entered into a participation agreement in an oil and gas drilling project in Calcasieu Parish, Louisiana (the “Participation Agreement”). The South Lake Charles Prospect is located seven miles south of the city of Lake Charles, Louisiana. It is a middle Oligocene age geo-pressured prospect located in the middle and lower hackberry sands. Under the terms of the Participation Agreement, we will participate in the drilling of one well and may participate in the drilling of future wells if it chooses. We will pay 25% of the drilling cost of the first well and will receive 13.59% of the net revenue from the well. We anticipate that our share of the total drilling and completion cost of the initial well, projected to be drilled to approximately 15,500 feet, will be $3.4 million. On August 12, 2013, the Participation Agreement was amended to reduce our working interest to 1.8%. As a result, our share of the drilling cost is expected to be approximately $181,000. The Company has paid $143,264 of its share of the costs of the well to date. We will receive 1.4% of the revenue from this well. The well began being drilled during the year ended September 30, 2014. During the year ended September 30, 2015, before the completion of the well, the well was damaged by a subcontractor working on the well. The operator of the well is in arbitration with the relevant subcontractors for compensation on the damage to the well.
Texas - On July 7, 2013, the Company acquired a 30% working interest in the Minns Project located in Waller County, Texas. The project included three producing wells and a salt water disposal well within the Brookshire Field. This well was reworked and deepened during the year ended September 30, 2014. It is currently producing oil from one well.
Note 2. Going Concern
For the fiscal year ended September 30, 2015, the Company had a net loss of $1,085,662 and negative cash flow from operations of $402,457. As of September 30, 2015, the Company has negative working capital of $235,650.
These factors raise a substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.
The Company does not have the resources at this time to repay its credit and debt obligations, make any payments in the form of dividends to its shareholders or fully implement its business plan. Without additional capital, the Company will not be able to remain in business.
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Management has plans to address the Company’s financial situation as follows:
In the near term, management plans to continue to focus on raising the funds necessary to implement the Company’s business plan. Management will continue to seek out debt financing to obtain the capital required to meet the Company’s financial obligations. There is no assurance, however, that lenders will continue to advance capital to the Company or that the new business operations will be profitable. The possibility of failure in obtaining additional funding and the potential inability to achieve profitability raises doubts about the Company’s ability to continue as a going concern.
In the long term, management believes that the Company’s projects and initiatives will be successful and will provide cash flow to the Company that will be used to finance the Company’s future growth. However, there can be no assurances that the Company’s planned activities will be successful, or that the Company will ultimately attain profitability. The Company’s long-term viability depends on its ability to obtain adequate sources of debt or equity funding to meet current commitments and fund the continuation of its business operations, and the ability of the Company to achieve adequate profitability and cash flows from operations to sustain its operations.
Note 3. Significant Accounting Policies
The significant accounting policies that the Company follows are:
Basis of Presentation
The consolidated financial statements and related disclosures have been prepared pursuant to the rules and regulations of the SEC. The consolidated financial statements have been prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Consolidated Financial Statements
The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries, First Titan Energy, LLC and First Titan Technical, LLC from the date of their formations. Significant intercompany transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Credit Risk due to Certain Concentrations
We extend credit, primarily in the form of uncollateralized oil and gas sales through the operators of our working interests, to various companies in the oil and gas industry, which results in a concentration of credit risk. The concentration of credit risk may be affected by changes in economic or other conditions within our industry and may accordingly affect our overall credit risk. However, we believe that the risk of these unsecured receivables is mitigated by the nature of the companies to which we extend credit. For the year ended September 30, 2015, two operators accounted for 59% and 41% of our oil and gas sales. Those operators account for 63% and 37% of accounts receivable as of September 30, 2015. We did not recognize any credit losses during the year ended September 30, 2015. We have not recognized an allowance for doubtful accounts as of September 30, 2015 and 2014. All amounts receivable as of September 30, 2015 were collected subsequent to year end.
Cash and Cash Equivalents
All cash is maintained with a major financial institution in the United States. Deposits with this bank may exceed the amount of insurance provided on such deposits. For the purpose of the financial statements, cash equivalents include all highly liquid investments with maturity of three months or less. Cash and cash equivalents were $5,687 and $1,211 at September 30, 2015 and 2014, respectively.
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Oil and Gas Properties
The Company follows the full cost method of accounting for its oil and gas properties, whereby all costs incurred in connection with the acquisition, exploration for and development of petroleum and natural gas reserves are capitalized. Such costs include lease acquisition, geological and geophysical activities, rentals on non-producing leases, drilling, completing, and equipping of oil and gas wells and administrative costs directly attributable to those activities and asset retirement costs. Disposition of oil and gas properties are accounted for as a reduction of capitalized costs, with no gain or loss recognized unless such adjustment would significantly alter the relationship between capital costs and proved reserves of oil, in which case the gain or loss is recognized in the statement of operations. Costs of production and general and administrative corporate costs unrelated to acquisition, exploration and development activities are expensed as incurred.
Depletion of capitalized oil and gas properties and estimated future development costs, excluding unproved properties, are based on the units-of-production method based on proved reserves. The company recognized $20,574 and $30,209 of depletion during the years ended September 30, 2015 and 2014, respectively.
Impairment of Oil and Gas Properties
Net capitalized costs of oil and gas properties, less related deferred taxes, are limited to the lower of unamortized cost or the cost ceiling, defined as the sum of the present value of estimated future net revenues from proved reserves based on unescalated prices discounted at ten percent, plus the cost of properties not being amortized, if any, plus the lower of cost or estimated fair value of unproved properties included in the costs being amortized, if any, less related income taxes. Costs in excess of the present value of estimated future net revenues as discussed above are charged to impairment expense. The Company applies the full cost-ceiling test on a quarterly basis on the date of the latest balance sheet presented. The Company recognized expense for impairment of proved properties of $133,833 during the year ended September 30, 2015 as a result of applying the full cost ceiling test. There was no impairment required to be recognized during the year ended September 30, 2014.
Costs associated with unevaluated properties are capitalized as oil and gas properties but are excluded from the amortization base during the evaluation period. When we determine whether the property has proved recoverable reserves or not, or if there is an impairment, the costs are transferred into the amortization base and thereby become subject to amortization and the full cost ceiling test. As of September 30, 2015, the Company has oil and gas properties in the amount of $200,575, which are being excluded from amortization because they have not been evaluated to determine whether proved reserves are associated with those properties. We assess all items classified as unevaluated property on at least an annual basis for inclusion in the amortization base. We assess properties on an individual basis or as a group if properties are individually insignificant. The assessment includes consideration of the following factors, among others: intent to drill; remaining lease term; geological and geophysical evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development if proved reserves are assigned. During any period in which these factors indicate that there would be impairment, or if proved reserves are assigned to a property, the cumulative costs incurred to date for such property are transferred to the amortizable base and are then subject to amortization. During the years ended September 30, 2015 and 2014, costs of $100,000 and $0, respectively, were transferred to the amortization base.
Based on management’s review, 100% of the unproved oil and gas properties balance as of September 30, 2015 are expected to be added to amortization during the year ending September 30, 2015. The table below sets forth the cost of unproved properties excluded from the amortization base as of September 30, 2015 and notes the year in which the associated costs were incurred:
Asset Retirement Obligation
We record the fair value of an asset retirement cost, and corresponding liability, as part of the cost of the related long-lived asset when the asset is placed in service. The cost is subsequently included in the amortization base and amortized over proved reserves using the units of production method. We record an asset retirement obligation to reflect our legal obligations related to future plugging and abandonment of our oil and gas wells. We estimate the expected cash flow associated with the obligation and discount the amount using a credit-adjusted, risk-free interest rate. At least annually, we reassess the obligation to determine whether a change in the estimated obligation is necessary.
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Revenue Recognition
Sales of crude oil are recognized when the delivery to the purchaser has occurred and title has been transferred. This occurs when oil has been delivered to a pipeline or a tank lifting has occurred. Crude oil is priced on the delivery date based upon prevailing prices published by purchasers with certain adjustments related to oil quality and physical location.
Common Stock
The Company records common stock issuances when all of the legal requirements for the issuance of such common stock have been satisfied.
Income Taxes
The Company accounts for income taxes under ASC 740 Income Taxes. Under the asset and liability method of ASC 740, 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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. No deferred tax assets or liabilities were recognized as of September 30, 2015 or September 30, 2014.
Earnings (Loss) per Common Share
The Company computes basic and diluted earnings per common share amounts in accordance with ASC Topic 260, Earnings per Share. The basic earnings (loss) per common share are calculated by dividing the Company’s net income available to common shareholders by the weighted average number of common shares outstanding during the year. The diluted earnings (loss) per common share are calculated by dividing the Company’s net income (loss) available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted as of the first of the year for any potentially dilutive debt or equity. There are no dilutive shares outstanding for any periods reported.
In periods in which a net loss has been incurred, all potentially dilutive common shares are considered anti-dilutive and thus are excluded from the calculation. The Company’s convertible debt is considered anti-dilutive due to the Company’s net loss for the years ended September 30, 2015 and 2014. As a result, the Company did not have any potentially dilutive common shares for those periods. For the years ended September 30, 2015 and 2014, potentially issuable shares as a result of conversions of convertible notes payable have been excluded from the calculation. At September 30, 2015, the Company had 34,269,307 potentially issuable shares upon the conversion of convertible notes payable and interest.
Financial Instruments
The Company’s balance sheet includes certain financial instruments. The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively short period between the origination of these instruments and their expected realization.
FASB Accounting Standards Codification (ASC) 820 Fair Value Measurements and Disclosures (ASC 820) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
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Level 1 -
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2 -
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 -
Inputs that are both significant to the fair value measurement and unobservable.
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of September 30, 2015. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include accounts receivable, other current assets, accounts payable, and accrued expenses. The fair value of the Company’s notes payable is estimated based on current rates that would be available for debt of similar terms that is not significantly different from its stated value.
The following table presents assets that were measured and recognized at fair value as of September 30, 2015 and September 30, 2014 and the periods then ended on a recurring and nonrecurring basis:
Beneficial Conversion Feature
Beneficial conversion feature is a non-detachable conversion feature that is in the money at the commitment date. The Company follows the guidance of ASC Subtopic 470-20 Debt with Conversion and Other Options to evaluate as to whether beneficial conversion feature exists. Pursuant to Section 470-20-30 an embedded beneficial conversion feature recognized separately under paragraph 470-20-25-5 shall be measured initially at its intrinsic value at the commitment date (see paragraphs 470-20-30-9 through 30-12) as the difference between the conversion price (see paragraph 470-20-30-5) and the fair value of the common stock or other securities into which the security is convertible, multiplied by the number of shares into which the security is convertible. When the Company issues a debt or equity security that is convertible into common stock at a discount from the fair value of the common stock at the date the debt or equity security counterparty is legally committed to purchase such a security (Commitment Date), a beneficial conversion charge is measured and recorded on the Commitment Date for the difference between the fair value of the Company’s common stock and the effective conversion price of the debt or equity security. If the intrinsic value of the beneficial conversion feature is greater than the proceeds allocated to the debt or equity security, the amount of the discount assigned to the beneficial conversion feature is limited to the amount of the proceeds allocated to the debt or equity security.
Commitments and Contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. There are no known commitments or contingencies of September 30, 2015 and September 30, 2014.
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Recently Issued Accounting Pronouncements
We have reviewed the FASB issued Accounting Standards Update (“ASU”) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.
Subsequent events
The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements were issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.
Note 4. Related Party Transactions
Convertible Notes Payable to a Related Party
On April 1, 2015 we issued a $140,275 convertible note to Eaton Central America, Inc. (“Eaton”), a significant shareholder in the company. On April 1, 2015 Eaton owned 47,113 shares of our common stock, which was approximately 53% of our outstanding common stock. The lender paid the note proceeds directly to one our vendors, which reduced accounts payable by the same amount. The note bore interest at 10% per year. Principal and interest were due when the noted matured on April 1, 2017. Eaton had the right to convert principal and interest into shares of common stock a rate of $0.02 per share.
We evaluated the terms of the notes in accordance with ASC Topic No. 815-40, Derivatives and Hedging - Contracts in Entity’s Own Stock and determined that the underlying common stock is indexed to the Company’s common stock. We determined that the conversion feature did not meet the definition of a liability and therefore did not bifurcate the conversion feature and account for it as a separate derivative liability. We evaluated the conversion features for a beneficial conversion feature. The effective conversion price was compared to the market price on the date of the notes and was deemed to be greater than the market value of underlying common stock at the inception of the note. As a result, we determined that no beneficial conversion feature was necessary on this note.
On August 1, 2015, Eaton converted the entire principal and accrued interest on the convertible note into 7,248,170 shares of common stock.
Preferred Stock Issued to a Related Party
On August 3, 2015, our Board of Directors authorized issuing 1,000,000 shares of our Series E Preferred stock to Eaton Central America Inc. (“Eaton”), a significant shareholder of the Company. On that date, Eaton owned 7,295,283 of our common shares, constituting 81.42% of our common shares outstanding.
The Series E Preferred Stock is subordinate to our common stock. It does not receive dividends and does not participate in equity distributions. The Series E Preferred stock retained 2/3 of the voting rights in the Company.
We valued the Series E Preferred stock issued to Eaton at $91,500 based upon a third-party appraisal of the value of the stock issued.
Note 5. Advances from Third Parties
During the years ended September 30, 2015 and 2014, Vista View Ventures, Inc. advanced $421,197 and $324,285, respectively, to the Company for working capital. These advances are non-interest bearing and payable on demand. During the same periods, the Company refinanced $469,197 and $276,285, respectively, of the advances into convertible notes payable with Vista View Ventures, Inc. As of September 30, 2015 and September 30, 2014, advances in the amount of $0 and $48,000, respectively, are included in current liabilities on the consolidated balance sheets. During the years ended September 30, 2015 and 2014, we recognized interest expense on these advances of $5,025 and $11,533, respectively.
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Note 6. Income Taxes
There is no current or deferred income tax expense or benefit for the period ended September 30, 2015.
The provision for income taxes is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes. The items causing this difference for the years ended September 30, 2015 and 2014 are as follows.
We have net operating loss carryforwards of approximately $2,052,239 as of September 30, 2015.
Note 7. Convertible Notes Payable
Convertible notes payable consisted of the following at September 30, 2015 and September 30, 2014:
All principal along with accrued interest is payable on the maturity date. The notes are convertible into common stock at the option of the holder. The holder of the notes cannot convert the notes into shares of common stock if that conversion would result in the holder owning more than 4.9% of the outstanding stock of the Company.
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The Company accrued interest in the amount of $68,503 and $86,272 during the years ended September 30, 2015 and 2014, respectively. As of September 30, 2015 and 2014, accrued interest payable was $47,647 and $11,283, respectively. During the years ended September 30, 2015 and 2014, discounts on convertible notes payable of $314,387 and $689,799, respectively, were amortized to interest expense.
Convertible notes issued
During the year ended September 30, 2015, the Company signed convertible promissory notes of $469,197 in total with Vista View Ventures Inc., which refinanced non-interest bearing advances. These notes are payable at maturity and bear interest at 10% per annum. The holder of the notes may not convert the convertible promissory note into common stock if that conversion would result in the holder owing more than 4.99% of the number of shares of common stock outstanding on the conversion date. The convertible promissory notes are convertible into common stock at the option of the holder.
On June 30, 2014, we issued a Convertible Promissory Note for $276,285 to refinance advances. The note is payable, with accrued interest, on June 30, 2016. The note bears interest at rate of 10% per year, and is convertible into common stock at a rate of $0.03 per share.
The Company evaluated the terms of these notes in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity’s Own Stock and determined that the underlying common stock is indexed to the Company’s common stock. The Company determined that the conversion features did not meet the definition of a liability and therefore did not bifurcate the conversion feature and account for it as a separate derivative liability. The Company evaluated the conversion feature for a beneficial conversion feature. The effective conversion price was compared to the market price on the date of the notes and was deemed to be less than the market value of underlying common stock at the inception of the notes. Therefore, the Company recognized beneficial conversion features of $102,013; $49,190; $66,074; and $235,313 on December 31, 2014; March 31, 2015; June 30, 2015; and September 30, 2015, respectively. The beneficial conversion feature was recognized as an increase in additional paid-in capital and a discount to the Convertible Notes Payable. The discount to the Convertible Notes Payable is being amortized to interest expense over the life of the notes using the effective interest method.
The Company evaluated the application of ASC 470-50-40/55, Debtor’s Accounting for a Modification or Exchange of Debt Instrument as it applies to the note listed above and concluded that the revised terms constituted a debt modification rather than a debt extinguishment because the present value of the cash flow under the terms of each of the new instruments was less than 10% from the present value of the remaining cash flows under the terms of the original notes. No gain or loss on the modifications was required to be recognized.
Conversions to Common Stock
During year ended September 30, 2014, the holders of the Convertible Note Payable dated February 28, 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, which provided for conversion at $0.04 per share.
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As of September 30, 2014, there was no remaining balance of the note dated February 28, 2013.
During year ended September 30, 2014, the holders of the Convertible Note Payable dated June 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, which provided for conversion at $0.04 per share.
As of September 30, 2014, there was no remaining balance on the note dated June 30, 2013.
During years ended September 30, 2015 and 2014, 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, which provided for conversion at $0.04 per share.
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As of September 30, 2015, there was a $15,338 balance on the note dated September 30, 2013.
Note 8. Shareholders’ Equity
Reverse Split
On May 15, 2015, the company reincorporated from Florida to Nevada. As a result of the reincorporation, we effected a one-for-100 reverse split on June 30, 2015 (the date that the reverse split was approved and effective by FINRA). Each shareholder in the Florida corporation received one share in the Nevada corporation for each 100 shares they held in the Florida corporation; fractional shares were rounded up to the nearest whole share and each shareholder received at least five shares.
Conversions to Common Stock
During the year ended September 30, 2015, the Company issued 1,283,500 shares of common stock to third parties for the conversion of convertible notes payable in the amount of $504,760 and 7,248,170 shares of common stock to third parties for conversion of convertible notes payable in the amount of $144,963. During the year ended September 30, 2014, the Company issued 147,564 shares of common stock to third parties for the conversion of convertible notes payable in the amount of $590,256. No gain or loss was recognized on the conversions as they occurred within the terms of the respective notes. See Note 7 for details of the transactions.
Series E Preferred Stock
On August 3, 2015, our Board of Directors designated 1,000,000 Series E preferred stock. The shares of Series E Preferred stock is subordinate to our common stock. It does not receive dividends and does not participate in equity distributions. The Series E Preferred stock retained 2/3 of the voting rights in the Company.
On the same date, our Board of Directors authorized issuing 1,000,000 shares of our Series E Preferred stock to Eaton Central America Inc. (“Eaton”), a significant shareholder of the Company. On that date, Eaton owned 7,295,283 of our common shares, constituting 81.42% of our common shares outstanding. We valued the Series E Preferred stock issued to Eaton at $91,500 based on a valuation performed by an independent valuation firm. The valuation was performed in accordance with the fair value standard set forth in ASC 820-10-35-37 Fair Value in Financial Instruments, defined as the amount at which the liability could be incurred in a current transaction between willing parties, that is, other than in a forced or liquidation sale. The valuation used a market approach to estimate the fair value of the Series E Preferred stock which represent a permanent controlling voting interest in the Company.
Imputed Interest
During years ended September 30, 2015 and 2014, the Company recognized imputed interest of $5,025 and $11,533, respectively, as an increase to shareholders’ equity.
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Note 9. Subsequent Events
The Company evaluated material events occurring between the end of our fiscal year, September 30, 2015, and through the date when the consolidated financial statements were available to be issued for disclosure consideration.
On October 8, 2015, the holder of our convertible promissory note dated September 30, 2013, converted $3,280 of principal and accrued interest into 82,000 shares of common stock at a rate of $0.04 per share.
On October 26, 2015, the holder of our convertible promissory noted dated September 30, 2013, converted $3,409 of principal and accrued interest into 85,225 shares of common stock at a rate of $0.04 per share.
On November 16, 2015, the holder of our convertible promissory note dated June 30, 2014, converted $8,760 of principal and accrued interest into 292,000 shares of common stock at a rate of $0.03 per share.
On December 3, 2015, the holder of our convertible promissory note dated September 30, 2013, converted $6,560 of principal and accrued interest into 164,000 shares of common stock at a rate of $0.04 per share.
On December 22, 2015, the holder of our convertible promissory note dated June 30, 2014, converted $9,657 of principal and accrued interest into 321,900 shares of common stock at a rate of $0.03 per share.
Note 10. Supplemental Oil and Gas Information (Unaudited)
The following supplemental information regarding our oil and gas activities is presented pursuant to the disclosure requirements promulgated by the SEC and ASC 932, Extractive Activities -Oil and Gas, (ASC 932).
Users of this information should be aware that the process of estimating quantities of “proved” and “proved developed” oil and natural gas reserves is very complex, requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. The data for a given reservoir may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. As a result, revisions to existing reserve estimates may occur from time to time. Although every reasonable effort is made to ensure reserve estimates reported represent the most accurate assessments possible, the subjective decisions and variances in available data for various reservoirs make these estimates generally less precise than other estimates included in the financial statement disclosures.
Proved reserves represent estimated quantities of natural gas, crude oil and condensate that geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under economic and operating conditions in effect when the estimates were made. Proved developed reserves are proved reserves expected to be recovered through wells and equipment in place and under operating methods used when the estimates were made. In the following table, natural gas liquids are included in natural gas reserves. The oil and natural gas liquids price as of September 30, 2015 is based on the 12-month unweighted average of the first of the month prices of the NYMEX (Cushing, OK WTI) posted price which equates to $50.68 per barrel. The gas prices as of September 30, 2015 is based on the 12-month unweighted average of the first of the month prices of the NYMEX (Cushing, OK WTI) spot price which equates to $2.97 per Mcf. The oil and natural gas liquids price as of September 30, 2014 is based on the 12-month unweighted average of the first of the month prices of the NYMEX (Cushing, OK WTI) posted price which equates to $96.57 per barrel. The gas prices as of September 30, 2014 is based on the 12-month unweighted average of the first of the month prices of the NYMEX (Cushing, OK WTI) spot price which equates to $4.11 per Mcf. The base prices were adjusted for heating content, premiums and product differentials based on historical revenue statements. All prices are held constant in accordance with SEC guidelines. All proved reserves are located in the United States in the states of Alabama and Texas.
The following table illustrates our estimated net proved reserves, including changes, and proved developed reserves for the periods indicated, as estimated by third party reservoir engineers. Our proved reserves are located in the United States of America, our home country.
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Proved Reserves
The reserves in this report have been estimated using deterministic methods. For wells classified as proved developed producing where sufficient production history existed, reserves were based on individual well performance evaluation and production decline curve extrapolation techniques. For undeveloped locations and wells that lacked sufficient production history, reserves were based on analogy to producing wells within the same area exhibiting similar geologic and reservoir characteristics, combined with volumetric methods. The volumetric estimates were based on geologic maps and rock and fluid properties derived from well logs, core data, pressure measurements, and fluid samples. Well spacing was determined from drainage patterns derived from a combination of performance-based recoveries and volumetric estimates for each area or field. Proved undeveloped locations were limited to areas of uniformly high quality reservoir properties, between existing commercial producers.
Capitalized Costs Related to Oil and Gas Activities
The following table illustrates the total amount of capitalized costs relating to oil and natural gas producing activities and the total amount of related accumulated depreciation, depletion and amortization. All oil and gas properties are located in the United States of America.
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Costs Incurred in Oil and Gas Activities
All costs incurred associated with oil and gas activities were incurred in the United States of America. Costs incurred in property acquisition, exploration and development activities were as follows.
Costs Excluded
Our excluded costs relate to an ongoing project in Louisiana. As of September 30, 2015, the well has been drilled.
Costs Excluded by Year Incurred as of September 30, 2015
Changes in Costs Excluded by Country
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Natural Gas Reserves
The following Standardized Measure of Discounted Future Net Cash Flow information has been developed utilizing ASC 932, Extractive Activities -Oil and Gas, (ASC 932) procedures and based on estimated oil and natural gas reserve and production volumes. It can be used for some comparisons, but should not be the only method used to evaluate us or our performance. Further, the information in the following table may not represent realistic assessments of future cash flows, nor should the Standardized Measure of Discounted Future Net Cash Flow be viewed as representative of our current value.
We believe that the following factors should be taken into account when reviewing the following information:
·
future costs and selling prices will probably differ from those required to be used in these calculations;
·
due to future market conditions and governmental regulations, actual rates of production in future years may vary significantly from the rate of production assumed in the calculations;
·
a 10% discount rate may not be reasonable as a measure of the relative risk inherent in realizing future net oil and natural gas revenues; and
·
future net revenues may be subject to different rates of income taxation.
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Under the Standardized Measure, the future cash inflows were estimated by applying the un-weighted 12-month average of the first day of the month cash price quotes, except for volumes subject to fixed price contracts, to the estimated future production of year-end proved reserves. Estimates of future income taxes are computed using current statutory income tax rates including consideration for estimated future statutory depletion and tax credits. The resulting net cash flows are reduced to present value amounts by applying a 10% discount factor.
The Standardized Measure is as follows:
Changes in Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Natural Gas Reserves
The following is a summary of the changes in the Standardized Measure of discounted future net cash flows for our proved oil and natural gas reserves during of the years ended September 30, 2015 and 2014:
The following schedule includes only the revenues from the production and sale of oil and gas. There is no income tax provision, because the results of operations for producing activities resulted in a loss for the year ended September 30, 2015. There is no income tax provision because of net operating loss carryforwards from prior years for the year ended September 30, 2014. The results of operations exclude general office overhead and interest expense attributable to oil and gas activities.
Results of Operations for Producing Activities
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ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Changes in Accounts
None.
Disagreements with Accountants
There were no disagreements with accountants on accounting and financial disclosures for the years ended September 30, 2015 and 2014.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
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)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed 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.
Limitations on Systems of Controls
Our management, including our principal executive officer and principal financial officer, 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. To address the material weaknesses identified in our evaluation, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this annual report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:
·
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
·
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
·
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
As of September 30, 2015, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.
The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: lack of a functioning audit committee; lack of a majority of independent members and a lack of a majority of outside directors on our board of directors; inadequate segregation of duties consistent with control objectives; and, management is dominated by a single individual. The aforementioned material weaknesses were identified by our Chief Executive Officer in connection with the review of our financial statements as of September 30, 2015.
Management believes that the material weaknesses set forth above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Our sole officer and director will serve until a successor is elected and qualified. Our officers are elected by the board of directors to a term of one (1) year and serve until their successor is duly elected and qualified, or until they are removed from office. The board of directors has no nominating, auditing or compensation committees.
The name, address, age and position of our president, secretary/treasurer, and director and vice president is set forth below:
Name
Age
Position
Sydney Jim
500 North Rainbow Boulevard,
Suite 300
Las Vegas, Nevada 89107
Chief Executive Officer, President, Secretary,
Treasurer, Principal Executive Officer, Principal
Finance and Accounting Officer and Sole Director
On November 14, 2014, Mr. G. Piña resigned as our Chief Executive Officer, President and Director to pursue other interests.
On the same date, our Board of Directors appointed Mr. Sydney Jim as CEO and a member of the board of directors. Mr. Jim has not been appointed to any committees of the board, as our board does not have any committees.
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Biographies
Mr. Jim has a proven track record of adding value for public company shareholders. From 2004 to 2010, Mr. Jim was an ATP World Tour and International Business Federation tennis touring professional competing on the professional tennis circuit. From 2010 to 2012, he was co-owner and Junior Program Director of the Sugar Creek Elite Tennis Academy in Houston, Texas. From 2012 to 2013, Mr. Jim was a business development consultant with Synopsis Winery in Houston, Texas. During the same time period, he was also Vice President of Business Development with Rockspring Capital, a Houston, Texas-based private equity firm with more than $260 million in assets. From 2013 to 2014, Mr. Jim was the CEO of Neutra Corp., a publicly traded nutraceuticals corporation. During his year and a half tenure at Neutra Corp., Mr. Jim worked to increase shareholder value and build the operations of that company. Mr. Jim has a bachelor of science degree in business finance from the University of Houston.
Family Relationships
There are no family relationships among our directors, executive officers or persons nominated to become executive officers or directors.
Involvement in Certain Legal Proceedings
During the past ten (10) years, none of our directors, persons nominated to become directors, executive officers, promoters or control persons was involved in any of the legal proceedings listen in Item 401 (f) of Regulation S-K.
Arrangements
There are no arrangements or understandings between an executive officer, director or nominee and any other person pursuant to which he was or is to be selected as an executive officer or director.
Committees of the Board of Directors
Our sole director has not established any committees, including an Audit Committee, a Compensation Committee, or a Nominating Committee, any committee performing a similar function. The functions of those committees are being undertaken by our sole director. Because we do not have any independent directors, our sole director believes that the establishment of committees of the Board would not provide any benefits to our company and could be considered more form than substance.
We do not have a policy regarding the consideration of any director candidates that may be recommended by our stockholders, including the minimum qualifications for director candidates, nor has our sole director established a process for identifying and evaluating director nominees. We have not adopted a policy regarding the handling of any potential recommendation of director candidates by our stockholders, including the procedures to be followed. Our sole director has not considered or adopted any of these policies, as we have never received a recommendation from any stockholder for any candidate to serve on our Board of Directors. Given our relative size and lack of directors and officers insurance coverage, we do not anticipate that any of our stockholders will make such a recommendation in the near future.
While there have been no nominations of additional directors proposed, in the event such a proposal is made, all current members of our Board will participate in the consideration of director nominees.
Our sole director is not an “audit committee financial expert” within the meaning of Item 401(e) of Regulation S-K. In general, an “audit committee financial expert” is an individual member of the audit committee or Board of Directors who:
·
understands generally accepted accounting principles and financial statements,
·
is able to assess the general application of such principles in connection with accounting for estimates, accruals and reserves,
·
has experience preparing, auditing, analyzing or evaluating financial statements comparable to the breadth and complexity to our financial statements,
·
understands internal controls over financial reporting, and
·
understands audit committee functions
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Our Board of Directors is comprised of solely of Mr. Jim who is involved in our day-to-day operations. We would prefer to have an audit committee financial expert on our board of directors. As with most small, early stage companies until such time our company further develops its business, achieves a stronger revenue base and has sufficient working capital to purchase directors and officers insurance, the Company does not have any immediate prospects to attract independent directors. When the Company is able to expand our Board of Directors to include one or more independent directors, the Company intends to establish an Audit Committee of our Board of Directors. It is our intention that one or more of these independent directors will also qualify as an audit committee financial expert. Our securities are not quoted on an exchange that has requirements that a majority of our Board members be independent and the Company is not currently otherwise subject to any law, rule or regulation requiring that all or any portion of our Board of Directors include “independent” directors, nor are we required to establish or maintain an Audit Committee or other committee of our Board of Directors.
WE DO NOT HAVE ANY INDEPENDENT DIRECTORS AND THE COMPANY HAS NOT VOLUNTARILY IMPLEMENTED VARIOUS CORPORATE GOVERNANCE MEASURES, IN THE ABSENCE OF WHICH, STOCKHOLDERS MAY HAVE MORE LIMITED PROTECTIONS AGAINST INTERESTED DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST, AND SIMILAR MATTERS.
Code of Business Conduct and Ethics
We have adopted a code of ethics meeting the requirements of Section 406 of the Sarbanes-Oxley Act of 2002. We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely, and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of violations; and provide accountability for adherence to the provisions of the code of ethic.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Mr. Jim is paid $120,000 per year for his services to the company. He does not have a written employment agreement with the company.
The table below summarizes all compensation awards to, earned by, or paid to our named executive officer for all service rendered in all capacities to us for the fiscal years ended September 30, 2015 and 2014.
SUMMARY COMPENSATION TABLE
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OUTSTANDING EQUITY AWARDS AT SEPTEMBER 30, 2015
Employment Agreements & Retirement Benefits
None of our executive officers is subject to employment agreements, but we may enter into such agreements with them in the future. We have no plans providing for the payment of any retirement benefits.
Director Compensation
Directors receive no compensation for serving on the Board. We have no non-employee directors.
Our Board of Directors is comprised of Sydney Jim. Mr. Jim also serves as the CEO of the Company. None of our directors has or had a compensation arrangement with the Company for director services, nor have any of them been compensated for director services since the Company’s inception.
We reimburse our directors for all reasonable ordinary and necessary business related expenses, but we did not pay director’s fees or other cash compensation for services rendered as a director in the year ended September 30, 2015 to any of the individuals serving on our Board during that period. We have no standard arrangement pursuant to which our directors are compensated for their services in their capacity as directors. We may pay fees for services rendered as a director when and if additional directors are appointed to the Board of Directors.
Director Independence
We do not currently have any independent directors and we do not anticipate appointing additional directors in the foreseeable future. If we engage further directors and officers, however, we plan to develop a definition of independence.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
We do not currently have a stock option plan in favor of any director, officer, consultant, or employee of our company. No individual grants of stock options, whether or not in tandem with stock appreciation rights known as SARs or freestanding SARs have been made to our sole director and officer since our inception; accordingly, no stock options have been granted or exercised by our sole director and officer since we were founded.
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The following table sets forth certain information as of January 11, 2016, with respect to the beneficial ownership of our common stock by each beneficial owner of more than 5% of the outstanding shares of common stock of the Company, each director, each executive officer named in the “Summary Compensation Table” and all executive officers and directors of the Company as a group, and sets forth the number of shares of common stock owned by each such person and group. Unless otherwise indicated, the owners have sole voting and investment power with respect to their respective shares.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
None.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table summarize the fees billed to the Company by its independent accountants, M&K CPAs PLLC, for the years ended September 30, 2015 and 2014:
Notes to the Accountants Fees Table:
(1)
Consists of fees for assurance and related services by our principal accountants that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported under “Audit Fees.”
(2)
Consists of fees for professional services rendered by our principal accountants for tax related services.
(3)
Consists of fees for products and services provided by our principal accountants, other than the services reported under “Audit Fees,” “Audit-Related Fees” and “Tax Fees” above.
As part of its responsibility for oversight of the independent registered public accountants, the Board has established a pre-approval policy for engaging audit and permitted non-audit services provided by our independent registered public accountants. In accordance with this policy, each type of audit, audit-related, tax and other permitted service to be provided by the independent auditors is specifically described and each such service, together with a fee level or budgeted amount for such service, is pre-approved by the Board. All of the services provided by M&K CPAs PLLC described above were approved by our Board.
The Company’s principal accountant did not engage any other persons or firms other than the principal accountant’s full-time, permanent employees.
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PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
______________
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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.
First Titan Corp.
Date: January 13, 2016
BY: /s/ Sydney Jim
Sydney Jim
Chief Executive Officer, President, Secretary, Treasurer, Principal Executive Officer, Principal Finance and Accounting Officer and Sole Director
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