AI
Monday, August 13, 2012 7:44:26 AM
10Q is out -
*You can access the complete 10Q in "SEC filings" in the Ibox*
Form 10-Q for TITAN ENERGY WORLDWIDE, INC.
13-Aug-2012
Quarterly Report
ITEM 2. Management's Discussion and Analysis or Plan of Operation.
Statements included in this Management's Discussion and Analysis of Financial Condition and Results of Operations, and in future filings by us with the Securities and Exchange Commission (the "SEC"), in our press releases and in oral statements made with the approval of an authorized executive officer which are not historical or current facts are "forward-looking statements" and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The following important factors, among others, in some cases have affected and in the future could affect our actual results and could cause our actual financial performance to differ materially from that expressed in any forward-looking statement: (i) the extremely competitive conditions that currently exist in the market for companies similar to us, and (ii) the lack of resources to maintain our good standing status and requisite filings with the SEC. The foregoing list should not be construed as exhaustive and we disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
OUR BUSINESS
We specialize in the sales and management of onsite power generation for industrial and commercial customers. By utilizing advanced communication technologies, automated data collection, reporting systems and remote monitoring capabilities, we believe we are creating a new standard for power asset management and are leading the way for critical energy programs such as demand response and distributed generation. In fact, we believe we are one of the first companies to combine expertise in power generation asset management with real time information processing to create a more reliable and effective Smart Grid approach to onsite power management.
In 2006, we acquired Stellar Energy, a Minneapolis-based provider of power generation equipment and service. Stellar Energy is now called Titan Energy Systems ('TES") and has expanded its number of sales and service offices to include Nebraska, Iowa, North and South Dakota, New York, New Jersey and Connecticut. TES provides our company and its satellite offices with accounting and administrative support.
In 2009, we acquired the Industrial and Service Division of RB Grove, a 52-year old power generation provider located in Miami, Florida. This company is now called Grove Power Inc. ("GPI") and it is responsible for our long term goal to expansion throughout the Southeastern United States.
In 2009, we acquired a power generation business in New Jersey that provide us with purchase orders, backlog and extensive customer and marketing relationships in New York, Connecticut and New Jersey. This business has been merged into TES.
In 2010, we acquired Sustainable Solutions, Inc. ("SSI"), which is engaged in providing energy audits, energy consulting and energy management services in the Midwest region.
In 2010, Titan Energy Development, Inc. ("TEDI") purchased certain assets and assumed certain liabilities of Stanza Systems, which provide us with a software development company experienced in smart grid and utility operations. The company operates this business as Stanza Technologies ("Stanza")' Stanza has developed network communications software that we plan to utilize in our generator service business.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2012 Compared to the Three Months Ended June 30 2011
Sales
Sales for the three months ended June 30, 2012 were $5,342,261 compared to
$3,545,588 for the three months ended June 30, 2011. The following table
summarizes sales by their business segment:
Power Energy
Distribution Services
2012 $ 3,642,472 $ 1,699,789
2011 2,346,045 1,199,543
Increase $ 1,296,427 $ 500,246
Percent Increase 55 % 42 %
The increased sales in the Power Distribution segment is primarily attributable to higher sales in the Midwest region of approximately $2.9 million compared to $1.4 million for the three months ended June 30, 2011. This increase was attributable to the completion of jobs from the relatively higher backlog we had at the end of 2011 and improvement in the economy in this region. Both Florida and New York are small offices with limited sales staff and can experience large fluctuations in sales from quarter to quarter. Due to a large sale which boosted its sales last year, the Florida office showed a $200,000 decrease in revenues this year. The New York office was approximately even with its sales results in the second quarter of 2011. Overall, our backlog for Power Distribution at July 31, 2012 was $7.3 million compared to $4.7 million at the same period as last year.
The increase in our Energy Services segment sales is attributable to increased sales in our national account program which was $637,000 higher than the second quarter of 2011. In the quarter ended June 30, 2012 the Company launched its asset management program and completed the audit of the power assets at approximately 1800 stores for a major national retailer This was partially offset by a decrease in contract programming of $28,000 and lower service sales at GPI of $95,000 compared to the same quarter in 2011.
Cost of Sales
Cost of sales was $3,850,286 for the three months ended June 30, 2012 compared
to $2,625,201 for the three months ended June 30, 2011:
Power Energy
Distribution Services
2012 $ 3,009,912 $ 840,374
2011 1,940,723 684,478
Increase $ 1,069,189 $ 155,896
Percent Cost of Sales
2012 82.6 % 49.4 %
2011 82.7 % 57.1 %
The increase in cost of sales in the Power Distribution segment is attributable to the higher sales volume. The Midwest region percentage cost of sales has historically been in the range of 81 to 85 percent and since all the growth in equipment sales was in the Midwest region the Company's overall sales margins did not benefit from the lower costs of sales typically achieved in the New York and Florida markets.
The lower percent cost of sales in the Energy Services segment is attributable to an improvement in our margins in national accounts. We believe the technologies that we deploy to carry out much of the National Account business, including online instructions and wireless consolidation and reporting, is more efficient compared to traditional methods resulting in lower costs and thereby improving overall sales margins.
Selling and Service Expenses
Sales and services expenses include all sales and service personnel, benefits
related to these personnel and other costs in support of these functions. The
Selling and Service expenses were $691,387 for the three months ended June 30,
2012, compared to $594,702 for the three months ended June 30, 2011. The
following table summarizes the area of costs in this category:
Power Energy
2012 Distribution Services
Payroll related costs $ 339,415 $ 262,705
Shared based compensation 9,421 12,376
Other 24,952 42,518
Total $ 373,788 $ 317,599
2011
Payroll related cost $ 274,373 $ 223,217
Shared based compensation 10,098 13,845
Other 20,189 52.980
Total 304,660 $ 290,042
Increase $ 69,128 27,557
Percent of Sales
2012 10 % 19 %
2011 13 % 28 %
The higher costs in Power Distribution payroll related costs are attributable to higher sales commissions resulting from higher sales volume. The higher costs in the Energy Service payroll related costs category are primarily due the addition of support personnel to handle the rapid growth in sales and higher commission due to the higher sales volume.
General and Administrative Expenses
The general and administrative expense category reflects the cost of each subsidiary's management, accounting, facilities and office functions which we allocate to our segments. General and administrative expenses were $448,689 for the three months ended June 30, 2012, compared to $365,770 for the three months ended June 30, 2011. The following table summarizes the areas of costs in this category:
Power Energy
2012 Distribution Services
Payroll related costs $ 24,050 $ 77,963
Shared based compensation 9,026 9,026
Facilities 50,633 52,300
Factoring fees 94,067 19,788
Other 47,356 64,489
Total $ 225,132 $ 223,566
2011
Payroll related cost $ 17,440 105,101
Shared based compensation 2,805 2,805
Facilities 56,862 80,981
Factoring fees 5,159 -
Other 47,934 66,683
Total $ 130,200 $ 255,570
Increase (Decrease) $ 94,932 $ (32,004 )
The major cause for the increase in the Power Distribution Segment Costs is attributable to the factoring fees that we incur when we finance our accounts receivables. The lower cost in Energy Service segment is attributable to reduction in administration costs for Stanza of approximately $41,000 for the three months ended June 30, 2012 compared to $122,000 for the period ended June 30, 2011. This reduction was partially offset by factoring fees of $19,000, higher share-based compensation of $7,500 and the addition of administration personnel to support the growth in national accounts.
Research and Development
We entered into a contract in June 2010 with a third party to design and develop a remote monitoring system dedicated to onsite power generation equipment. We believe that there are few alternatives available in the market place that support the management of onsite power generators in the manner that is required by peak shaving, demand response and energy efficiency programs, and so to better serve these marketplaces, Titan needed to develop its own monitoring program. The Company has completed this software package and has begun to market it to customers. Therefore, there are no Research and Development costs recorded in the second quarter of 2012.
Corporate Overhead
Included in corporate overhead expenses are the salaries and travel expenses of
our officers, legal fees, audit fees, investor relations and other costs
associated with being a SEC registrant. Corporate overhead for the three months
ended June 30, 2012 was $153,026 as compared to $310,476 for the three months
ended June 30, 2011. The following table shows the costs related to corporate
activities:
2012 2011
Payroll related activates $ 83,098 $ 144,444
Stock Compensation 21,786 24,682
Professional Fees 10,500 88,064
Shared based payments for professional services 10,441 -
Travel 15,163 27,225
Other 12,038 26,055
Total $ 153,026 $ 310,470
Our payroll is lower due to right sizing the number of the executive officers. Currently there are two executive officers, the CEO and the CFO. In 2011 we had two additional executive officers, a President and Vice President of Business Development. These latter positions have been eliminated. The Company's CEO and CFO took significant pay cuts in April of 2011 which reduced the payroll amount by $17,000 for the second quarter of 2012. The lower professional fees in the three months ended June 30, 2012 was due to our decision not to have audited financial statements for the year ended December 31, 2011. The decrease in business travel in the three months ended June, 2012 is associated with the elimination of our fund raising activities and reducing executive travel by moving our corporate office to Minnesota in 2012. In 2012, the Company issued stock to members of our Advisory Board, which will be recognized over their term of service. This cost is non-cash charge and is based on the actual stock price at the time of payment.
Depreciation and Amortization
The amounts in this category include depreciation on our fixed assets and amortization of our intangibles, represented by our customer lists. The expense for the three months ended June 30, 2012 was $86,534 compared to $90,019 in the three months ended June 30, 2011. We have limited our capital expenditures and sold certain fixed assets resulting in a small decrease in depreciation expense.
Other Expenses
The following table below summarizes the items in this category for the three
months ended June 30:
2012 2011
Interest expense, net $ 203,331 $ 106,160
Amortization of debt discount 25,884 309,600
Amortization of deferred financing costs 8,105 41,901
Fair value of embedded conversion feature (37,873 ) -
Fair value of warrants (11,250 ) (86,010 )
Total $ 188,197 $ 371,651
The Company's outstanding debt as of June 30, 2012 before applying any debt discount is $3,025,360 compared to $2,789,716 at June 30, 2011, a net increase of $235,644. In addition, essentially most of our debt is at 12% compared to 10% in the second quarter of 2011. As a result we incurred an increase of approximately $21,000 in additional interest expense in 2012. We also had to replace our bank credit line with a factoring arrangement that has added an additional $6,000 of interest expense. The company also accrued approximately $51,000 in finance charges mainly related to our sales tax liabilities.
The present value of the lease obligation is a calculation used to determine the fair value of a lease that the Company has defaulted on due to its inability to pay. The unexpired lease term is 31 months and the value of this lease obligation will continue to accrue unless there is settlement between the Landlord and the Company. The Landlord has filed a lawsuit against the Company to collect unpaid and future lease payments and seeking a judgment in the amount of $289,206. The Company as accrued the present value of the lease $188,589 at June 30, 2012. The increase in the present value is treated as additional interest expense totaling $24,000 in the second quarter of 2012
Our convertible debt has warrants and beneficial conversion features which are accounted for in accordance with ASC 470, whereas we must determine the fair value of the warrants and the beneficial conversion feature and treat that amount as a debt discount to be amortized over the life of the debt. At June 30, 2012 there are unamortized discounts totaling approximately $20,000 on our balance sheet that will be expensed in 2012. The embedded conversion feature and the warrants are treated as a liability and are re-measured with each reporting period. The gain in the change of fair value of the warrants was the result of a higher volatility rate and a slightly higher interest rate. The gain in the embedded conversion feature reflect a stock price at June 30.2012 of $0.01 compared to a price of $0.03 at March 31 2012.
RESULTS OF OPERATIONS
Six Months Ended June 30, 2012 Compared to the Six Months Ended June 30 2011
Sales
Sales for the six months ended June 30, 2012 were $8,611,946 compared to
$7,017,635 for the six months ended June 30, 2011. The following table
summarizes our sales by their segments:
Power Energy
Distribution Services
2012 $ 5,745,706 $ 2,866,240
2011 4,723,758 2,293,877
Increase $ 1,021,948 $ 572,363
Percent Increase 22 % 25 %
The increased sales in the Power Distribution and the Energy Services segments is primarily attributable to higher sales in the second quarter as explained above. This increase in sales is attributable to the higher backlog of jobs at end of 2011 and an improvement in economy in this region. Overall, our backlog for Power Distribution at July 31, 2012 was $7.3 million compared to $4.7 million at the same period as last year. The increase in our Energy Services segment sales is attributable to increased sales in our national account program which was $569,000 higher than the six months ended June 31, 2011.
Cost of Sales
Cost of sales was $6,191,267 for the six months ended June 30, 2012 compared to
$5,129,405 for the six months ended June 30, 2011:
Power Energy
Distribution Services
2012 $ 4,827,308 $ 1,363,959
2011 3,889,574 1,239,831
Increase $ 937,734 $ 124,128
Percent of Sales
2012 84.0 % 47.6 %
2011 82.3 % 54.0 %
The increase in cost of sales in the Power Distribution and the Energy Services segments is attributable to the higher sales volume. The Midwest region percentage of sales has historically been in the range of 81 to 85 percent of sales and since all the growth in equipment sales was in the Midwest region the Company's overall margins did not benefit from the lower cost of sales typically achieved in the New York and Florida markets.
The Energy Service segment in the percent of sales is attributable to the improvement in our margins for national accounts due to our use of more cost effective audit and reporting systems.
Selling and Service Expenses
Sales and services expenses include all sales and service personnel, benefits
related to these personnel and other costs in support of these functions.
Selling and Service expenses were $1,335,786 for the six months ended June 30,
2012, compared to $1,247,185 for the six months ended June 30, 2011. The
following table summarizes the area of costs in this category:
Power Energy
2012 Distribution Services
Payroll related costs $ 637,464 $ 517,139
Shared based compensation 18,566 24,383
Other 45,036 93,198
Total $ 701,066 $ 634,720
2011
Payroll related cost $ 559,926 $ 477,455
Shared based compensation 21,550 28,691
Other 44,356 115,207
Total 625,832 $ 621,353
Increase $ 75,234 13,367
Percent of Sales
2012 12 % 22 %
2011 13 % 27 %
The higher costs in Power Distribution payroll related costs are attributable to higher sales commissions resulting from higher sales volume. The higher costs in the Energy Services payroll related costs was primarily due the addition of support personnel to handle the rapid growth in sales and higher commissions due to the higher sales volume. The improvement in the other expense for the Energy Services segment is due to better control over supplies, technician travel and equipment repairs.
General and Administrative Expenses
The general and administrative expense category reflects the cost of each
subsidiary's management, accounting, facilities and office functions which we
can allocate to our segments. General and administrative expenses were $866,683
for the six months ended June 30, 2012, compared to $832,032 for the three
months ended June 30, 2011. The following table summarizes the areas of costs in
this category:
Power Energy
2012 Distribution Services
Payroll related costs $ 51,983 $ 167,277
Shared based compensation 18,143 18,143
Facilities 106,356 113,614
Factoring fees 146,046 22,637
Other 102,095 140,389
Total $ 424,623 $ 462,060
2011
Payroll related cost $ 46,004 226,611
Shared based compensation 5,611 5,611
Facilities 114,855 153,007
Factoring fees 5,159 -
Other 108,489 166,685
Total $ 280,118 $ 551,914
Increase (Decrease) $ 144,505 $ (89,854 )
The major cause for the increase in the Power Distribution Segment Costs is attributable to the factoring fees that we pay to finance our accounts receivables. In June of 2011, we entered into the factor agreement resulting in a half of month of factoring fees. The lower cost in Energy Service segment is attributable to reduction in administration costs for Stanza of approximately $92,300 for the six months ended June 30, 2012 compared to $246,100 for the six months ended June 30, 2011. This reduction was partially offset by factoring fees of $22,600, higher share-based compensation of $12,500 and the addition of administration personnel to support the growth in national accounts.
Research and Development
We entered into a contract in June 2010 with a third party to design and develop a remote monitoring system dedicated to onsite power generation equipment. We believe that there are few alternatives available in the market place that support the management of onsite power generators in the manner that is required by peak shaving, demand response and energy efficiency programs, and so to better serve these marketplaces, Titan needed to develop its own monitoring program. The Company has completed this software package and has begun to market it to customers. Therefore, there are no Research and Development costs recorded in the six months ended June 30, 2012
Corporate Overhead
Included in corporate overhead expenses are the salaries and travel expenses of
our officers, legal fees, audit fees, investor relations and other costs
associated with being a SEC registrant. Corporate overhead for the six months
ended June 30, 2012 was $312,936 as compared to $724,792 for the six months
ended June 30, 2011. The following table shows the costs related to corporate
activities:
2012 2011
Payroll related activates $ 162,731 $ 320,828
Stock Compensation 43,869 49,365
Professional Fees 21,000 185,852
. . .
*You can access the complete 10Q in "SEC filings" in the Ibox*
Form 10-Q for TITAN ENERGY WORLDWIDE, INC.
13-Aug-2012
Quarterly Report
ITEM 2. Management's Discussion and Analysis or Plan of Operation.
Statements included in this Management's Discussion and Analysis of Financial Condition and Results of Operations, and in future filings by us with the Securities and Exchange Commission (the "SEC"), in our press releases and in oral statements made with the approval of an authorized executive officer which are not historical or current facts are "forward-looking statements" and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The following important factors, among others, in some cases have affected and in the future could affect our actual results and could cause our actual financial performance to differ materially from that expressed in any forward-looking statement: (i) the extremely competitive conditions that currently exist in the market for companies similar to us, and (ii) the lack of resources to maintain our good standing status and requisite filings with the SEC. The foregoing list should not be construed as exhaustive and we disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
OUR BUSINESS
We specialize in the sales and management of onsite power generation for industrial and commercial customers. By utilizing advanced communication technologies, automated data collection, reporting systems and remote monitoring capabilities, we believe we are creating a new standard for power asset management and are leading the way for critical energy programs such as demand response and distributed generation. In fact, we believe we are one of the first companies to combine expertise in power generation asset management with real time information processing to create a more reliable and effective Smart Grid approach to onsite power management.
In 2006, we acquired Stellar Energy, a Minneapolis-based provider of power generation equipment and service. Stellar Energy is now called Titan Energy Systems ('TES") and has expanded its number of sales and service offices to include Nebraska, Iowa, North and South Dakota, New York, New Jersey and Connecticut. TES provides our company and its satellite offices with accounting and administrative support.
In 2009, we acquired the Industrial and Service Division of RB Grove, a 52-year old power generation provider located in Miami, Florida. This company is now called Grove Power Inc. ("GPI") and it is responsible for our long term goal to expansion throughout the Southeastern United States.
In 2009, we acquired a power generation business in New Jersey that provide us with purchase orders, backlog and extensive customer and marketing relationships in New York, Connecticut and New Jersey. This business has been merged into TES.
In 2010, we acquired Sustainable Solutions, Inc. ("SSI"), which is engaged in providing energy audits, energy consulting and energy management services in the Midwest region.
In 2010, Titan Energy Development, Inc. ("TEDI") purchased certain assets and assumed certain liabilities of Stanza Systems, which provide us with a software development company experienced in smart grid and utility operations. The company operates this business as Stanza Technologies ("Stanza")' Stanza has developed network communications software that we plan to utilize in our generator service business.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2012 Compared to the Three Months Ended June 30 2011
Sales
Sales for the three months ended June 30, 2012 were $5,342,261 compared to
$3,545,588 for the three months ended June 30, 2011. The following table
summarizes sales by their business segment:
Power Energy
Distribution Services
2012 $ 3,642,472 $ 1,699,789
2011 2,346,045 1,199,543
Increase $ 1,296,427 $ 500,246
Percent Increase 55 % 42 %
The increased sales in the Power Distribution segment is primarily attributable to higher sales in the Midwest region of approximately $2.9 million compared to $1.4 million for the three months ended June 30, 2011. This increase was attributable to the completion of jobs from the relatively higher backlog we had at the end of 2011 and improvement in the economy in this region. Both Florida and New York are small offices with limited sales staff and can experience large fluctuations in sales from quarter to quarter. Due to a large sale which boosted its sales last year, the Florida office showed a $200,000 decrease in revenues this year. The New York office was approximately even with its sales results in the second quarter of 2011. Overall, our backlog for Power Distribution at July 31, 2012 was $7.3 million compared to $4.7 million at the same period as last year.
The increase in our Energy Services segment sales is attributable to increased sales in our national account program which was $637,000 higher than the second quarter of 2011. In the quarter ended June 30, 2012 the Company launched its asset management program and completed the audit of the power assets at approximately 1800 stores for a major national retailer This was partially offset by a decrease in contract programming of $28,000 and lower service sales at GPI of $95,000 compared to the same quarter in 2011.
Cost of Sales
Cost of sales was $3,850,286 for the three months ended June 30, 2012 compared
to $2,625,201 for the three months ended June 30, 2011:
Power Energy
Distribution Services
2012 $ 3,009,912 $ 840,374
2011 1,940,723 684,478
Increase $ 1,069,189 $ 155,896
Percent Cost of Sales
2012 82.6 % 49.4 %
2011 82.7 % 57.1 %
The increase in cost of sales in the Power Distribution segment is attributable to the higher sales volume. The Midwest region percentage cost of sales has historically been in the range of 81 to 85 percent and since all the growth in equipment sales was in the Midwest region the Company's overall sales margins did not benefit from the lower costs of sales typically achieved in the New York and Florida markets.
The lower percent cost of sales in the Energy Services segment is attributable to an improvement in our margins in national accounts. We believe the technologies that we deploy to carry out much of the National Account business, including online instructions and wireless consolidation and reporting, is more efficient compared to traditional methods resulting in lower costs and thereby improving overall sales margins.
Selling and Service Expenses
Sales and services expenses include all sales and service personnel, benefits
related to these personnel and other costs in support of these functions. The
Selling and Service expenses were $691,387 for the three months ended June 30,
2012, compared to $594,702 for the three months ended June 30, 2011. The
following table summarizes the area of costs in this category:
Power Energy
2012 Distribution Services
Payroll related costs $ 339,415 $ 262,705
Shared based compensation 9,421 12,376
Other 24,952 42,518
Total $ 373,788 $ 317,599
2011
Payroll related cost $ 274,373 $ 223,217
Shared based compensation 10,098 13,845
Other 20,189 52.980
Total 304,660 $ 290,042
Increase $ 69,128 27,557
Percent of Sales
2012 10 % 19 %
2011 13 % 28 %
The higher costs in Power Distribution payroll related costs are attributable to higher sales commissions resulting from higher sales volume. The higher costs in the Energy Service payroll related costs category are primarily due the addition of support personnel to handle the rapid growth in sales and higher commission due to the higher sales volume.
General and Administrative Expenses
The general and administrative expense category reflects the cost of each subsidiary's management, accounting, facilities and office functions which we allocate to our segments. General and administrative expenses were $448,689 for the three months ended June 30, 2012, compared to $365,770 for the three months ended June 30, 2011. The following table summarizes the areas of costs in this category:
Power Energy
2012 Distribution Services
Payroll related costs $ 24,050 $ 77,963
Shared based compensation 9,026 9,026
Facilities 50,633 52,300
Factoring fees 94,067 19,788
Other 47,356 64,489
Total $ 225,132 $ 223,566
2011
Payroll related cost $ 17,440 105,101
Shared based compensation 2,805 2,805
Facilities 56,862 80,981
Factoring fees 5,159 -
Other 47,934 66,683
Total $ 130,200 $ 255,570
Increase (Decrease) $ 94,932 $ (32,004 )
The major cause for the increase in the Power Distribution Segment Costs is attributable to the factoring fees that we incur when we finance our accounts receivables. The lower cost in Energy Service segment is attributable to reduction in administration costs for Stanza of approximately $41,000 for the three months ended June 30, 2012 compared to $122,000 for the period ended June 30, 2011. This reduction was partially offset by factoring fees of $19,000, higher share-based compensation of $7,500 and the addition of administration personnel to support the growth in national accounts.
Research and Development
We entered into a contract in June 2010 with a third party to design and develop a remote monitoring system dedicated to onsite power generation equipment. We believe that there are few alternatives available in the market place that support the management of onsite power generators in the manner that is required by peak shaving, demand response and energy efficiency programs, and so to better serve these marketplaces, Titan needed to develop its own monitoring program. The Company has completed this software package and has begun to market it to customers. Therefore, there are no Research and Development costs recorded in the second quarter of 2012.
Corporate Overhead
Included in corporate overhead expenses are the salaries and travel expenses of
our officers, legal fees, audit fees, investor relations and other costs
associated with being a SEC registrant. Corporate overhead for the three months
ended June 30, 2012 was $153,026 as compared to $310,476 for the three months
ended June 30, 2011. The following table shows the costs related to corporate
activities:
2012 2011
Payroll related activates $ 83,098 $ 144,444
Stock Compensation 21,786 24,682
Professional Fees 10,500 88,064
Shared based payments for professional services 10,441 -
Travel 15,163 27,225
Other 12,038 26,055
Total $ 153,026 $ 310,470
Our payroll is lower due to right sizing the number of the executive officers. Currently there are two executive officers, the CEO and the CFO. In 2011 we had two additional executive officers, a President and Vice President of Business Development. These latter positions have been eliminated. The Company's CEO and CFO took significant pay cuts in April of 2011 which reduced the payroll amount by $17,000 for the second quarter of 2012. The lower professional fees in the three months ended June 30, 2012 was due to our decision not to have audited financial statements for the year ended December 31, 2011. The decrease in business travel in the three months ended June, 2012 is associated with the elimination of our fund raising activities and reducing executive travel by moving our corporate office to Minnesota in 2012. In 2012, the Company issued stock to members of our Advisory Board, which will be recognized over their term of service. This cost is non-cash charge and is based on the actual stock price at the time of payment.
Depreciation and Amortization
The amounts in this category include depreciation on our fixed assets and amortization of our intangibles, represented by our customer lists. The expense for the three months ended June 30, 2012 was $86,534 compared to $90,019 in the three months ended June 30, 2011. We have limited our capital expenditures and sold certain fixed assets resulting in a small decrease in depreciation expense.
Other Expenses
The following table below summarizes the items in this category for the three
months ended June 30:
2012 2011
Interest expense, net $ 203,331 $ 106,160
Amortization of debt discount 25,884 309,600
Amortization of deferred financing costs 8,105 41,901
Fair value of embedded conversion feature (37,873 ) -
Fair value of warrants (11,250 ) (86,010 )
Total $ 188,197 $ 371,651
The Company's outstanding debt as of June 30, 2012 before applying any debt discount is $3,025,360 compared to $2,789,716 at June 30, 2011, a net increase of $235,644. In addition, essentially most of our debt is at 12% compared to 10% in the second quarter of 2011. As a result we incurred an increase of approximately $21,000 in additional interest expense in 2012. We also had to replace our bank credit line with a factoring arrangement that has added an additional $6,000 of interest expense. The company also accrued approximately $51,000 in finance charges mainly related to our sales tax liabilities.
The present value of the lease obligation is a calculation used to determine the fair value of a lease that the Company has defaulted on due to its inability to pay. The unexpired lease term is 31 months and the value of this lease obligation will continue to accrue unless there is settlement between the Landlord and the Company. The Landlord has filed a lawsuit against the Company to collect unpaid and future lease payments and seeking a judgment in the amount of $289,206. The Company as accrued the present value of the lease $188,589 at June 30, 2012. The increase in the present value is treated as additional interest expense totaling $24,000 in the second quarter of 2012
Our convertible debt has warrants and beneficial conversion features which are accounted for in accordance with ASC 470, whereas we must determine the fair value of the warrants and the beneficial conversion feature and treat that amount as a debt discount to be amortized over the life of the debt. At June 30, 2012 there are unamortized discounts totaling approximately $20,000 on our balance sheet that will be expensed in 2012. The embedded conversion feature and the warrants are treated as a liability and are re-measured with each reporting period. The gain in the change of fair value of the warrants was the result of a higher volatility rate and a slightly higher interest rate. The gain in the embedded conversion feature reflect a stock price at June 30.2012 of $0.01 compared to a price of $0.03 at March 31 2012.
RESULTS OF OPERATIONS
Six Months Ended June 30, 2012 Compared to the Six Months Ended June 30 2011
Sales
Sales for the six months ended June 30, 2012 were $8,611,946 compared to
$7,017,635 for the six months ended June 30, 2011. The following table
summarizes our sales by their segments:
Power Energy
Distribution Services
2012 $ 5,745,706 $ 2,866,240
2011 4,723,758 2,293,877
Increase $ 1,021,948 $ 572,363
Percent Increase 22 % 25 %
The increased sales in the Power Distribution and the Energy Services segments is primarily attributable to higher sales in the second quarter as explained above. This increase in sales is attributable to the higher backlog of jobs at end of 2011 and an improvement in economy in this region. Overall, our backlog for Power Distribution at July 31, 2012 was $7.3 million compared to $4.7 million at the same period as last year. The increase in our Energy Services segment sales is attributable to increased sales in our national account program which was $569,000 higher than the six months ended June 31, 2011.
Cost of Sales
Cost of sales was $6,191,267 for the six months ended June 30, 2012 compared to
$5,129,405 for the six months ended June 30, 2011:
Power Energy
Distribution Services
2012 $ 4,827,308 $ 1,363,959
2011 3,889,574 1,239,831
Increase $ 937,734 $ 124,128
Percent of Sales
2012 84.0 % 47.6 %
2011 82.3 % 54.0 %
The increase in cost of sales in the Power Distribution and the Energy Services segments is attributable to the higher sales volume. The Midwest region percentage of sales has historically been in the range of 81 to 85 percent of sales and since all the growth in equipment sales was in the Midwest region the Company's overall margins did not benefit from the lower cost of sales typically achieved in the New York and Florida markets.
The Energy Service segment in the percent of sales is attributable to the improvement in our margins for national accounts due to our use of more cost effective audit and reporting systems.
Selling and Service Expenses
Sales and services expenses include all sales and service personnel, benefits
related to these personnel and other costs in support of these functions.
Selling and Service expenses were $1,335,786 for the six months ended June 30,
2012, compared to $1,247,185 for the six months ended June 30, 2011. The
following table summarizes the area of costs in this category:
Power Energy
2012 Distribution Services
Payroll related costs $ 637,464 $ 517,139
Shared based compensation 18,566 24,383
Other 45,036 93,198
Total $ 701,066 $ 634,720
2011
Payroll related cost $ 559,926 $ 477,455
Shared based compensation 21,550 28,691
Other 44,356 115,207
Total 625,832 $ 621,353
Increase $ 75,234 13,367
Percent of Sales
2012 12 % 22 %
2011 13 % 27 %
The higher costs in Power Distribution payroll related costs are attributable to higher sales commissions resulting from higher sales volume. The higher costs in the Energy Services payroll related costs was primarily due the addition of support personnel to handle the rapid growth in sales and higher commissions due to the higher sales volume. The improvement in the other expense for the Energy Services segment is due to better control over supplies, technician travel and equipment repairs.
General and Administrative Expenses
The general and administrative expense category reflects the cost of each
subsidiary's management, accounting, facilities and office functions which we
can allocate to our segments. General and administrative expenses were $866,683
for the six months ended June 30, 2012, compared to $832,032 for the three
months ended June 30, 2011. The following table summarizes the areas of costs in
this category:
Power Energy
2012 Distribution Services
Payroll related costs $ 51,983 $ 167,277
Shared based compensation 18,143 18,143
Facilities 106,356 113,614
Factoring fees 146,046 22,637
Other 102,095 140,389
Total $ 424,623 $ 462,060
2011
Payroll related cost $ 46,004 226,611
Shared based compensation 5,611 5,611
Facilities 114,855 153,007
Factoring fees 5,159 -
Other 108,489 166,685
Total $ 280,118 $ 551,914
Increase (Decrease) $ 144,505 $ (89,854 )
The major cause for the increase in the Power Distribution Segment Costs is attributable to the factoring fees that we pay to finance our accounts receivables. In June of 2011, we entered into the factor agreement resulting in a half of month of factoring fees. The lower cost in Energy Service segment is attributable to reduction in administration costs for Stanza of approximately $92,300 for the six months ended June 30, 2012 compared to $246,100 for the six months ended June 30, 2011. This reduction was partially offset by factoring fees of $22,600, higher share-based compensation of $12,500 and the addition of administration personnel to support the growth in national accounts.
Research and Development
We entered into a contract in June 2010 with a third party to design and develop a remote monitoring system dedicated to onsite power generation equipment. We believe that there are few alternatives available in the market place that support the management of onsite power generators in the manner that is required by peak shaving, demand response and energy efficiency programs, and so to better serve these marketplaces, Titan needed to develop its own monitoring program. The Company has completed this software package and has begun to market it to customers. Therefore, there are no Research and Development costs recorded in the six months ended June 30, 2012
Corporate Overhead
Included in corporate overhead expenses are the salaries and travel expenses of
our officers, legal fees, audit fees, investor relations and other costs
associated with being a SEC registrant. Corporate overhead for the six months
ended June 30, 2012 was $312,936 as compared to $724,792 for the six months
ended June 30, 2011. The following table shows the costs related to corporate
activities:
2012 2011
Payroll related activates $ 162,731 $ 320,828
Stock Compensation 43,869 49,365
Professional Fees 21,000 185,852
. . .
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