To OTC Journal Members:
 

The Titan (OTC BB: TTGL) Tango: 2 Steps Forward, 1 Back

It always seems to happen when I'm traveling, and I seem to be traveling quite a bit these days. Last week Titan Global filed it's year end 10K audited financial statement, which comes at a pretty weird time. Their fiscal year ends at the end of August. It's unusual. I was a bit behind the 8 ball digesting the news, as I was locked in a big, silver tube at 35,000 feet headed somewhere.  I know I was up there, I just don't remember where I was going.

The knee jerk reaction- the stock sold off in pretty dramatic fashion in very short order. The stock had been hanging in the $1.80 to $2 range in this fairly tumultuous market environment. On a high volume day (368,000 shares), the stock sold off to as low as $1.39, and rebounded the next day. We're within about $.10 of where we were when this whole thing started.

So, what didn't the market like about the 10K, or any other issue? Could it have been the $23.8 million in net losses the company booked? How about the possibility of a reverse split, which was mentioned in a subsequent release. The microcap market hates reverse splits.

I believe the abrupt sell off in the stock was a combo package- the $23.8 million in losses, the potential reverse split, and the overall climate of fear in today's market. 

There is unrecognized value here, and you have to drill down to find it. The stock does not trade efficiently. There simply isn't a big enough audience. If they can deliver on promised results, this stock will eventually have to trade up from the current level. 

$23.8 million in losses? Is that a real number? Here's the facts- you tell me. $14 million of the losses were booked because the stock went up in price. Imagine that. The underlying value of previously issued warrants went up because the stock went up- forcing the company to book non cash losses- it's the new Draconian accounting procedures that skew these presentations.

Another $7.1 million or so went to depreciation and amortization. These kinds of expenses are a bit more traditional, but still are non cash.

The last non cash charge was booked as "deferred revenue"- a treatment the company had not engaged in before- out of their telecom division. It relates to their 30 million phone cards sold annually. In this case, $12 million worth of long distance time has already been sold on their cards- it just hasn't been used. Therefore, it's booked as an expense. Once it gets used, it becomes revenues. TTGL already has that $12 million in cash to use as it sees fit. Their product has already been sold.

Here's how it all pencils out in the end:

• $23.8 million in losses
• Less $14 million because the stock went up (non cash)
• Less $7.1 million in depreciation and amortization (non cash)
• Less $12 million in deferred revenue in the telecom division (they already have the cash)
• Equals: $9.3 million in operating, cash flow profits for the year.
• That's a little over $.16 per share in positive cash flow.

On a go forward basis, this gets really intriguing. Future financial filings will contain results from their recent leverage buy out divisions- specifically Appalachian Oil and USA Detergent. Both companies were bought in September, so none of their performance shows up in year end numbers.

With these two acquisitions, TTGL believes it can generate nearly $750 million (yes, that's 3/4 of $1 billion) in revs in fiscal 2008, and make $15 to $20 million. All this, with little or no equity dilution (straight debt).

Here's the chart- look familiar? In this turbulent market, it is a familiar pattern. Stocks have definitely come down in the last month, and many are very close to their 61.8% retracement levels.

Right now, I believe these pullbacks are buying opportunities, but investors are unwilling to act. There is too much headline shock every day related to the financial services behemoths that are being forced to take these big write downs in loan portfolios. 

It's the wrong season for the market to go into a comatose state. There is a lot more upside. There might be a few more weeks or a month of headline shock, but the shock is a bit overdone. Once bids start firming up the values of performing loan portfolios, financials will turn, and the headline shock will be long forgotten.

In the meantime, TTGL stock continues its pattern of two steps forward, one back. Financially, the company is moving forward quite nicely. The reverse split contemplated to attain the $4 minimum to get a NASDAQ Listing does not seem imminent. If it happens with a NASDAQ listing, it will be a positive. They delivered $9.3 million more than their expenses in 2007. 

Remember this- earnings are nice, but earnings are an accounting opinion; cash flow is a fact. If you have more money coming in than going out, you will be around for a long time. This past fiscal year, TTGL had $9.3 million more coming in than going out. 

I believe TTGL will be the first OTC Journal featured company to come from nowhere to $1 billion in annual revenues. I'm just not sure when it will be reflected in the stock price. The stock market is all about rooting out growth and value before the rest of the world finds out, then having the patience to wait for others to want to bid up the stock.

You can just wait for a more favorable market, or accumulate. Like the Hollywood writers, microcap buyers are currently on strike. They will be back, and you should be positioned ahead of them. 

TTGL- the $95 million market cap vs $750 million in annual sales this coming fiscal year- still, the most "undervalued" and least recognized company I follow.
 

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