Minn Shares Inc. (OTCMKTS:MSHS) Files An 8-K Entry into a Material Definitive Agreement
Item 1.01
Entry into a Material Definitive Agreement.
The disclosures set forth in Item 2.01 below are hereby
incorporated by reference into this Item 1.01.
Item 2.01
Completion of Acquisition or Disposition of
Assets.
to an Agreement and Plan of Securities Exchange dated November
22, 2016 (the Exchange Agreement), by and among Minn Shares Inc.,
a Delaware corporation (the Company), Titan CNG LLC, a Delaware
limited liability company (Titan and together with the Company,
we, us, or our), and the holders of 100% of the outstanding
equity interests of Titan (the Members), the Company acquired all
of the Members equity interests in exchange for 12,424,058 shares
of the Companys common stock (the Securities Exchange). The
number of shares of common stock issued in the Securities
Exchange represents approximately 91.25% of the Companys total
outstanding shares of common stock on a post-transaction basis.
Accordingly, the Securities Exchange resulted in a change in
control of the Company. The Securities Exchange was effective as
of November 22, 2016.
The Securities Exchange will be accounted for as a capital
transaction. At the effective time of the Securities Exchange,
the business plan of Titan became the business plan of the
Company. Upon completion of the Securities Exchange, all officers
of the Company resigned and were replaced by officers designated
by Titan.
The foregoing description of the Exchange Agreement and the
transactions contemplated thereby does not purport to be complete
and is qualified in its entirety by reference to the Exchange
Agreement, a copy of which is filed as Exhibit 2.1 hereto and is
incorporated by reference herein.
On November 23, 2016, the Company and Shock Inc., a Delaware
corporation owned by John P. Yeros, Kirk S. Honour and Randy
Gilbert (the Management Entity) entered into an agreement and
plan of merger (the Merger Agreement) whereby the Management
Entity merged with and into the Company (the Management Entity
Merger). to the Merger Agreement, at the effective time of the
Management Entity Merger the separate corporate existence of the
Management Entity ceased and the issued and outstanding shares of
common stock of the Management Entity converted into 2,244,936
shares of the Companys common stock. As a result of the
Management Entity Merger, the Company succeeded as a party to
employment agreements with each of Messrs. Yeros, Honour and
Gilbert (the J. Yeros Employment Agreement, K. Honour Employment
Agreement and R. Gilbert Employment Agreement, respectively, and
collectively, the Employment Agreements). See Description of the
Business of Titan Employees.
The foregoing description of the Merger Agreement and the
transactions contemplated thereby does not purport to be complete
and is qualified in its entirety by reference to the Merger
Agreement, a copy of which is filed as Exhibit 2.2 hereto and is
incorporated by reference herein.
As of the date of this report, there are 15,860,342 shares of
Company common stock and no shares of Company preferred stock
outstanding.
Description of the Business of Titan
Summary
Titan is a compressed natural gas (CNG) services business based
in Wayzata, Minnesota. We believe that the market for fueling
natural gas vehicles (NGVs) and other CNG applications is growing
for both environmental and economic reasons, and that the CNG
industry in general is currently undervalued as a result of the
fall in oil prices in 2014 and 2015. Despite oil having traded as
low as approximately $30 per barrel and thereby compressing the
price advantage natural gas has over gasoline or diesel, the
number of gallon equivalents of natural gas sold in the U.S. in
2015 increased by approximately 25%. We believe that while fleet
adoption to CNG has slowed relative to pre-2014 levels, the CNG
market will continue to grow over the next several years. Titans
strategy is to acquire existing stations and ancillary businesses
serving the CNG industry and to grow organically by constructing
public and private NGV stations on the back of long-term customer
contracts. Our management team and board of directors has
significant experience in acquiring companies, including
businesses in distress, and expects to use its acquisition and
capital structure experience as well as its operating expertise
to create value in the CNG industry.
We acquire, build and operate public and private CNG stations.
U.S. Gain, the fourth largest CNG station owner in the U.S.,
either currently manages or is expected to manage the point of
sale system, customer billing, and direct costs made up of
natural gas, electricity, and taxes for each of our stations. We
opened our first station in Lake Forest, California in February
2015, and in March 2016 Diamond Bar began operations of its CNG
station under a lease agreement with the State of California
South Coast Air Quality Management District (SCAQMD) in Diamond
Bar, California We also are currently constructing a private
station for Walters Recycling Refuse in Blaine, Minnesota which
we will operate under a seven year take-or-pay contract with
Walters. We believe that there are several potential acquisitions
available and are actively pursuing a number of acquisition
opportunities.
We expect to primarily use capital to:
Pursue additional acquisitions of CNG related businesses;
Upgrade equipment at our El Toro and Diamond Bar stations;
Complete construction of one additional station we have
underway in Blaine, Minnesota;
Refinance short term indebtedness;
Hire additional personnel; and
Provide working capital for our operations and growth.
Market Overview
We believe that there is an immediate opportunity to capture
market share in the growing U.S. natural gas vehicle fueling
market. According to the U.S. Department of Energy, in October
2016 natural gas was selling at retail in the U.S. at
approximately $2.05 per gas gallon equivalent while gasoline and
diesel were selling for approximately $2.24 and $2.38 per gallon,
respectively, per the U.S. Energy Information Administration.
Fleets operating under long term fueling contracts, which
represent a large part of the natural gas vehicle fueling market,
are paying well under $2.00 per gas gallon equivalent (GGE). We
expect this disparity to remain intact for the foreseeable
future, which creates a strong economic incentive for vehicle
operators to switch to CNG. In addition, CNG is a significantly
cleaner fuel than is gasoline or diesel and creates less engine
wear, thereby making its use even more desirable. As of October
2016, there are approximately 950 public CNG stations in the
United States based on information published by the U.S.
Department of Energy, compared to over 124,000 gasoline stations
across the country according to the Association for Convenience
and Fuel Retailing. The number of total CNG stations has been
growing at a compound annual growth rate of 14% since 2009. This
creates an obvious growth opportunity in the U.S. as fleets seek
to lower operating costs, reduce emissions, and meet
sustainability goals.
We believe the opportunity for natural gas as a vehicle fuel
source is permanent and growing in the United States. In
particular, fleets, especially those operated by large
corporations, are continuing to convert vehicles to run on
natural gas as opposed to gasoline or diesel for both
environmental as well as economic reasons. We believe that these
trends will continue for the more detailed reasons below:
According to NGV Journal, a natural gas trade publication, as of
2016 there were more than 22.4 million natural gas vehicles in
the world. Global usage of natural gas vehicles has grown at a
compound annual growth rate of 21.6% for a decade.
The U.S. represents less than 1% of total NGVs with approximately
150,000 natural gas vehicles in operation. That is compared with
over 250 million total vehicles in the U.S. As a result, the U.S.
is expected to see some of the fastest growth due to abundant
proven reserves and the low cost of domestically produced natural
gas. As a percentage of all natural gas consumed, natural gas for
transportation accounts for only 0.1%. Moreover, natural gas
represents less than 0.1% of the 44 billion gasoline gallon
equivalents consumed by fleet customers, the largest segment of
the addressable market. EIA Annual Energy Outlook 2014 estimates
that the U.S. heavy truck market will consume 12 billion diesel
gallon equivalents (DGEs) annually by 2040.
The raw cost of natural gas is less than $0.60 per GGE as of
August 2016. Even after adding electricity expenses to run a
compressor and other station equipment, and taxes, the average
gross margin earned by a station owner is approximately $1.00 per
GGE. At the retail pump average price of $2.05, natural gas
enjoys a $0.30 per GGE price advantage over diesel and a $0.20
per GGE advantage over gasoline as of October 2016. Because the
commodity cost for natural gas is significantly lower than
gasoline or diesel, natural gas could rise in price or oil could
reduce further in price and still allow for a meaningfully lower
price for CNG than for gasoline or diesel. And unlike gasoline
and diesel as oil prices rise CNG prices will likely remain
stable as natural gas is produced as a by product of oil
production.
Traditional natural gas produces up to 21% less greenhouse gases
than gasoline and diesel on a well-to-wheels basis according to
NGVAmerica, a national organization dedicated to the natural gas
vehicle industry, and renewable natural gas can achieve a greater
than 100% reduction in greenhouse gases according to Argonne
National Laboratory. At the same time CNG produces over 90% fewer
particulate emissions than diesel according to the U.S.
Department of Energy. Several municipalities are encouraging the
use of natural gas trucks because of cost savings and their
quieter, cleaner operation in urban settings.
The United States is the largest producer of natural gas in the
world with 689 trillion cubic feet of proven reserves and
production in 2015 of 728 billion cubic meters representing over
20% of the global output according to British Petroleum.
Corporations and governments looking to have a long-term reliable
stably priced transportation fuel source are increasingly
cognizant of the natural gas reserves available to U.S.
producers.
The federal government and numerous state and local governments
have offered grants and tax rebates, and have passed regulations
promoting the use of natural gas as a vehicle fuel source. In
addition many local and state governments operate natural gas
vehicles and have become anchor customers for public CNG stations
in order of promote CNG usage. We expect these incentives to
continue.
Natural gas is considered safer than petroleum products because
natural gas dissipates into the air when spilled, which
significantly reduces the risk of fire caused by spilled fuel.
Natural gas ignites at very high temperatures and a very narrow
oxygen concentration band, making it less ignitable than
gasoline. Also, CNG is not a threat to soil or groundwater as it
is stored in above ground tanks.
The United States natural gas distribution infrastructure has
primarily focused on supplying gas to end users for purposes of
home heating and electrical power generation. The United States
has a highly developed natural gas pipeline transportations
system. These large diameter, high pressure gas lines provide
natural gas to most parts of the country.
While pipelines are in place, there are still very few retail CNG
fueling stations. California has led the way on developing CNG
stations as part of its clean air initiative. However, there are
only approximately 950 public CNG stations and approximately 800
private stations.
The market for CNG fueling solutions is currently served by a few
larger operators and a number of smaller operators with a few
stations. The following are the primary competitors serving the
CNG market:
Clean Energy
$608 million market capitalization as of September 6, 2016
Owns and/or operates more than 570 CNG stations in 42 states
Sold 30 million CNG GGEs in 2015, a 16% increase over 2014
TruStar
Operates 120 stations
Loves Travel Stops (formerly Trillium)
Purchased 40 Trillium stations in February 2016
Now operating over 120 stations
U.S. Gain
Created by US Venture to focus on fleet CNG fueling needs
Owns/operates 52 stations
Other smaller competitors include CNG 4 America, Questar
Fueling, Clean N’ Green, IGS CNG Services, Freedom CNG,
Sparq, Piedmont Natural Gas.
Our Strategy
Our goal is to capitalize on the current and anticipated growth
in the use of natural gas vehicle fuels and to advance our
leadership position in that market. To achieve this, we are
pursuing the following strategies:
Acquire existing CNG stations. Titan
intends to identify, analyze, and acquire CNG refueling
stations, with a particular focus on stations in the Midwest,
West and Southwest regions of the United States. We will seek
to acquire CNG refueling stations that we believe have above
average sales growth and profit potential. Titans management
team will conduct searchesin our target markets for CNG
refueling stations that meet our preliminary acquisition
criteria, which include the following:
demographic markets and geographic suitability;
status of station performance;
potential upside in performance improvement;
sales efficiency processes and resources; and
service market penetration opportunity.
As we identify specific acquisition targets, the Titan management
team will analyze each targeted CNG station to determine if it is
a suitable acquisition target. Ifwe determine thata potential
target meets our criteria, thenwe will move toward more formal
discussions with the target’s ownership. Once negotiations
arecompleted and acquisition documents, including any financing
documents, are finalized, we will complete the transaction and
begin to implement our operating plans with respect to the
acquired station.
Open public stations on the back of anchor fleet
customers. We target high-volume fleet customers
such as public transit, refuse haulers, regional trucking
companies, vehicle fleets that serve airports and seaports
and large national companies with distribution and service
vehicles. For example, our Titan Diamond Bar station serves
the SCAQMD as an anchor customer.
Open private stations serving fleets under
take-or-pay contracts. We intend to leverage our
expertise in building and operating CNG stations by serving
fleet customers that wish to have their own private station
to fuel vehicles overnight using a time-fill system and
during the day with a fast-fill capability. Our Walters
Recycling Refuse station is being built solely for Walters
use and Walters has agreed to purchase a minimum of 144,000
GGEs of fuel from us per year under a seven year contract.
Further develop Gain relationship. We
believe our developing relationship with U.S. Gain (Gain) has
significant potential. Gain has one of the largest networks
of national fleet customers served through Gains 50 owned
stations as well as through joint ventures with other station
owners such as Titan. Gain has indicated a desire to continue
to expand the relationship beyond our initial two stations of
Titan El Toro and Diamond Bar. We believe that by combining
Gains access to national fleets and our ongoing focus on
finding local fleet customers as well as serving retail
customers, we can accelerate our growth, increase sales, and
improve our margins.
Emphasize superior customer service.
We work closely with our customers to understand their
specific needs and provide relevant solutions.
Our Target Customers
We target corporate fleet, government fleet and individual
customers. Our initial focus is on fleet customers with vehicles
that return to a common base each day. We believe that these
customers will benefit most immediately from the economic
advantages available through CNG usage. Specific types of fleets
targeted are:
Corporate Fleets:
Taxi Fleets: Taxis use a significant amount of fuel each day.
Although these vehicles generally have smaller on-board fuel
storage tanks, they fill them every day. Ford is selling the
Transit Connect for use as a NGV taxi and we believe that many
fleets see the value of paying half the price for CNG versus
gasoline and are already converting their entire fleets to run on
CNG. Taxi fleets already using CNG in certain locations, like
Southern California, are a logical target given the local nature
of operation and high mileage.
Waste Haulers: Titan believes that trash trucks are a natural
target market for CNG. The typical garbage truck has a fuel
economy of two to three miles per gallon and returns to its base
each day. Allied Waste, one of the two largest waste companies in
the U.S., only utilizes CNG vehicles at this point.
Oilfield Service Fleets: These truck fleets operate in an
out-and-back model that we believe is well-suited for a home
depot refueling option.
Local Day Job Fleets: We believe that local jobbers that are high
mileage users in a defined location represent an excellent target
market.
Airport Shuttle Buses: Shuttle bus fleets can leverage common
infrastructure around an airport and off-the-shelf engine
conversion options.
Long-Haul Class 8 Trucks: There are a growing number of trucks
utilizing CNG.
Government Fleets:
City Buses: Many municipalities, such as Los Angeles, operate
buses that run on CNG.
Municipal Trash Haulers: The same opportunity exists here as for
corporate fleets.
Other Government Fleets: Local, State and Federal governments
operate a wide range of fleet vehicles which are ripe to benefit
from the economic and ecological attributes of NGVs.
Individual Customers:
Commuter Cars: We expect the individual car market to continue to
develop, though more slowly than the fleet market.
Our Existing and Planned Stations
Our initial station, Titan El Toro in Lake Forest, California,
was opened in February 2015. This station, located immediately
off of Interstate 5 on El Toro Road is in a convenient location
and features a high fill rate compressor with four dispensers.
The station serves a variety of retail customers including ATT
vans, waste haulers, school buses, taxis and commuters. We
received $450,000 of state grants to assist in the development of
this station which we developed for approximately $2 million.
We lease the property for our El Toro station to a lease
agreement dated February 24, 2014 between Titan and Grace Whisler
Trust and Whisler Holdings LLC. The lease covers approximately
17,550 rentable square feet and has an initial 5-year term that
commenced in July 2014 and expires in February 2019. The lease is
net whereby we are required to pay operating expenses, including
all costs to maintain and repair the roof and structure of the
building, in addition to base rent. The lease contains one
renewal option for sixty months and a base rent ranging from
$10,000 to $11,604 per month through the term of the lease.
We began operating the Titan Diamond Bar station in March 2016.
The station is currently fueling 10,000 GGEs per month. The
SCAQMD is an ongoing customer, and we serve existing and new
retail customers as well. The location of this station is about
30 minutes away from Titan El Toro.
We lease the property for our Titan Diamond Bar station to a
lease agreement effective December 13, 2015 between the SCAQMD
and Titan Diamond Bar LLC, a wholly-owned subsidiary of Titan.
The lease covers approximately 10,000 rentable square feet and
has an initial 5-year term that commenced in December 2015 and
expires in December 2020. The lease provides for a base rent of
$1 for the entire term of the lease, and the SCAQMD has the right
to extend the lease for a period not to exceed five years
commencing January 1, 2021. to the lease, Titan Diamond Bar LLC
supplies the SCAQMD with CNG based on actual costs of CNG fuel,
including costs for natural gas and electricity, federal and
state of California excise taxes plus a fixed fee not to exceed
$0.50 per gas gallon equivalent (GGE).
We have an additional private station under development in
Blaine, Minnesota that will serve Walters Recycling Sanitation as
an anchor customer.
Sales and Marketing
Titan has developed a brand and website as a marketing tool. Our
strategy is to provide fast-fill, high reliability fueling
solutions and outstanding service that is reflected in our brand.
The Titan website, www.TitanNGV.com, is designed to generate new
customers while giving our existing customers and us a single
point of contact for CNG systems management, logistics
coordination, and operations.
Tax Rebate Opportunity
Under the Volumetric Excise Tax Credit (VETC), we are eligible to
receive a credit of $.50 per GGE of CNG sold for vehicle fuel
use. VETC went into effect on October 1, 2006 and has been
extended by Congress a number of times. Most recently, Congress
extended VETC in December 2015 through December31, 2016. There is
no assurance any such federal or state tax credits or incentives
will be renewed or be enacted or maintained in the future.
However, our business is not dependent on taxes or grants for
local, state or federal entities. However, when available, we
will actively pursue such incentives to lower development and
operating costs.
Employees
We currently have no employees. We pay John Yeros, our chief
executive officer, $10,000 per month as an independent contractor
to a consulting agreement entered into in March 2016, and we
expect to continue paying Mr. Yeros in accordance with the
consulting agreement until the effective date of the J. Yeros
Employment Agreement. The Company succeeded as a party to the J.
Yeros Employment Agreement and the other Employment Agreements as
a result of the Management Entity Merger. The Employment
Agreements will become effective upon the Company successfully
acquiring a third party with at least four (4) additional
compressed natural gas stations. We also pay Kirk Honour, our
president, $15,000 per month as an independent contractor to a
verbal agreement with the Company. We paid Kirk Honour $12,500
per month for his services in 2015.
J. Yeros Employment Agreement
The J. Yeros Employment Agreement provides for an initial term of
four years, with automatic extensions (absent notice to the
contrary) of one year upon the expiration of the initial term or
any renewal term. Under the J. Yeros Employment Agreement,
Mr.Yeros will be entitled tobase compensationof $240,000 per
year, incentive compensation based on Mr.Yeros performance as
determined by the Companys board of directors and awards of stock
options to any plans or arrangements the Company may have in
effect from time to time.
If Mr.Yeros is terminated without cause or he resigns with good
reason, he will be entitled to receive severance, subject to his
execution and non-revocation of a release of claims in favor of
the Company and its officers, directors and affiliates, equal to:
(A) any unpaid base salary, reimbursement for unpaid expenses and
all other accrued payments or benefits through his termination
date, plus (B) his monthly base salary at the level in
effect immediately prior to his termination date, multiplied by
the longer of (1)the period between his last day of employment
and the one year anniversary of his employment if his employment
is terminated prior to such one year anniversary or (2) six
months.
The J. Yeros Employment Agreement also includes a customary
confidentiality covenant and two-year post-termination
nonsolicitation and non-interference covenants.
K. Honour Employment Agreement
The K. Honour Employment Agreement provides for an initial term
of four years, with automatic extensions (absent notice to the
contrary) of one year upon the expiration of the initial term or
any renewal term. Under the K. Honour Employment Agreement,
Mr.Honour will be entitled tobase compensationof $180,000 per
year, incentive compensation based on Mr.Honours performance as
determined by the Companys board of directors and awards of stock
options to any plans or arrangements the Company may have in
effect from time to time.
If Mr.Honour is terminated without cause or he resigns with good
reason, he will be entitled to receive severance, subject to his
execution and non-revocation of a release of claims in favor of
the Company and its officers, directors and affiliates, equal to:
(A) any unpaid base salary, reimbursement for unpaid expenses and
all other accrued payments or benefits through his termination
date, plus (B) his monthly base salary at the level in
effect immediately prior to his termination date, multiplied by
the longer of (1)the period between his last day of employment
and the one year anniversary of his employment if his employment
is terminated prior to such one year anniversary or (2) six
months.
The K. Honour Employment Agreement also includes a customary
confidentiality covenant and two-year post-termination
nonsolicitation and non-interference covenants.
R. Gilbert Employment Agreement
The R. Gilbert Employment Agreement provides for an initial term
of four years, with automatic extensions (absent notice to the
contrary) of one year upon the expiration of the initial term or
any renewal term. Under the R. Gilbert Employment Agreement,
Mr.Gilbert will be entitled tobase compensationof $150,000 per
year, incentive compensation based on Mr.Gilberts performance as
determined by the Companys board of directors and awards of stock
options to any plans or arrangements the Company may have in
effect from time to time.
If Mr.Gilbert is terminated without cause or he resigns with good
reason, he will be entitled to receive severance, subject to his
execution and non-revocation of a release of claims in favor of
the Company and its officers, directors and affiliates, equal to:
(A) any unpaid base salary, reimbursement for unpaid expenses and
all other accrued payments or benefits through his termination
date, plus (B) his monthly base salary at the level in
effect immediately prior to his termination date, multiplied by
the longer of (1)the period between his last day of employment
and the one year anniversary of his employment if his employment
is terminated prior to such one year anniversary or (2) six
months.
The R. Gilbert Employment Agreement also includes a customary
confidentiality covenant and two-year post-termination
nonsolicitation and non-interference covenants.
From time to time we may employ additional full-time employees
and may also employ independent contractors, consultants and
temporary employees to support our operations. Our future success
will depend in part on our ability to attract, train, retain and
motivate highly qualified employees, who are in great demand. We
may not be successful in attracting and retaining such personnel.
We have never experienced a work stoppage.
Properties
For a description of our properties, see Description of the
Business of Titan Our Existing and Planned Stations.
Legal Proceedings
We are not currently a party to any litigation and we are not
aware of any pending or threatened litigation against us that
could have a material adverse effect on our business, operating
results or financial condition. We may be involved in various
legal proceedings from time to time.
IMPORTANT FACTORS REGARDING FORWARD-LOOKING
STATEMENTS
Certain of the statements set forth under the caption Description
of the Business of Titan constitute Forward Looking Statements.
Forward-looking statements include, without limitation, any
statement that may predict, forecast, indicate, or imply future
results, performance or achievements, and may contain the words
estimate, project, intend, forecast, anticipate, plan, planning,
expect, believe, will, will likely, should, could, would, may or
words or expressions of similar meaning.
All such forward looking statements involve risks and
uncertainties, including, but not limited to: (i) Titans
business, financial and operating strategies; (ii) our ability to
own, operate and market our stations services; (iii) our results
of operations; (iv) our ability to acquire, finance, develop and
open our stations on favorable terms; (v) our ability to
successfully operate CNG stations; (vi) expectations concerning
the feasibility of Titans business plans and assumptions; (vii)
the availability to secure working capital to grow and expand our
business; (viii) success of Titans efforts and acceptance by the
public of our model and services; and (ix) other statements that
are not historical facts. In addition, our results of operations
are subject to the risks described below under the heading Risk
Factors.
You are cautioned that there can be no assurance that the
forward-looking statements included in this Current Report will
prove to be accurate. In light of the significant uncertainties
inherent to the forward looking statements included herein, the
inclusion of such information should not be regarded as a
representation or warranty by us or any other person that our
objectives and plans will be achieved in any specified time
frame, if at all. Except to the extent required by applicable
laws or rules, we do not undertake any obligation to update any
forward-looking statements or to announce revisions to any of the
forward-looking statements.
RISK FACTORS
Investing in the Companys common stock involves a high degree
of risk. In addition to the other information set forth in this
Current Report on Form 8-K, you should carefully consider the
factors discussed below when considering an investment in our
common stock. If any of the events contemplated by the following
discussion of risks should occur, our business, results of
operations and financial condition could suffer significantly.
Additional risks and uncertainties not presently known to us or
that we currently deem immaterial may also impair our
business.
Risks Related to the Company
We have a limited operating history on which to base
an investment decision.
Titan was organized in 2012 and opened its first CNG station in
February 2015. Thus, we are subject to all the risks associated
with any business enterprise with a limited operating history.
Our prospects must be considered in light of the risks, expenses
and difficulties frequently encountered by companies in their
early stages of operation, especially in a relatively nascent and
capital intensive industry such as ours. We have not achieved
substantial revenues or profitability to date and have limited
operating history for you to consider in evaluating our business
and prospects. When evaluating our business and prospects, you
must consider the risks, expenses and difficulties that we may
encounter as a young company in a rapidly evolving consumer
market. These risks include, but are not limited to:
our initial station, Titan El Toro, is not yet profitable,
nor is Titan as a whole;
we need to develop, protect and market our CNG
stations/services successfully;
we need to implement and successfully execute our sales and
marketing strategies;
we need to manage our rapidly developing and changing
operations;
we may require additional capital to acquire or develop
additional CNG stations;
fleet and consumer vehicle preferences are subject to change;
and
we need to recruit, build, retain and manage a larger
management team.
We will need substantial additional capital to fund
our growth plans and operate our business.
We require substantial additional capital to fund our planned
marketing and sales activities, to achieve profitability and to
otherwise execute on our business plan. The most likely sources
of such additional capital include private placements and public
offerings of shares of our capital stock, including shares of our
common stock or securities convertible into or exchangeable for
our common stock, debt financing or funds from potential
strategic transactions. We may seek additional capital from
available sources, which may include hedge funds, private equity
funds, venture capitalists, lenders/banks and other financial
institutions, as well as additional private placements. Any
financings in which we sell shares of our capital stock will
likely be dilutive to our current stockholders. If we raise
additional capital by incurring debt a portion of our cash flow
would have to be dedicated to the payment of principal and
interest on such indebtedness. In addition, typical loan
agreements also might contain restrictive covenants that may
impair our operating flexibility. Such loan agreements, loans, or
debentures would also provide for default under certain
circumstances, such as failure to meet certain financial
covenants. A default under a loan agreement could result in the
loan becoming immediately due and payable and, if unpaid, a
judgment in favor of such lender which would be senior to the
rights of our stockholders. A judgment creditor would have the
right to foreclose on any of our assets resulting in a material
adverse effect on our business, operating results or financial
condition.
Our ability to raise additional capital may depend in part on our
success in meeting station development, sales and marketing
goals. We currently have no committed sources of additional
capital and there is no assurance that additional financing will
be available in the amounts or at the times required, or if it
is, on terms acceptable or favorable to us and our current
members. If we are unable to obtain additional financing when and
if needed, our business will be materially impacted and you may
lose the value of your entire investment.
If we do not obtain sufficient additional capital or
generate substantial revenue, we may be unable to pursue our
objectives. This raises doubt related to our ability to continue
as a going concern.
Our independent registered public accounting firm has included an
explanatory paragraph in their opinion that accompanies our
audited financial statements as of and for the years ended
December 31, 2015 and 2014 indicating that our accumulated
deficit raises substantial doubt about our ability to continue as
agoing concern. If we are unable to improve our liquidity
position we might be unable to continue as agoing concern. This
could significantly reduce the value of our investors investment
in the Company.
We may incur significant costs to comply with public
company reporting requirements and other costs associated with
being a public company.
We may incur significantcosts associated withour public company
reporting requirements and other rules implemented by the
Securities and Exchange Commission. We expect all of these
applicable rules and regulations to increase our legal and
financial compliance costs and to make some activities more
time-consuming and costly. As a public company, we are required
to comply with rules and regulations of the SEC, including
expanded disclosure and more complex accounting rules. We will
need to implementadditional finance and accounting systems,
procedures and controls as we grow to satisfy these reporting
requirements. In addition, we may need to hire additional legal
and accounting staff to enable us to comply with these reporting
requirements. These costs could have an adverse effect on our
financial condition and limit our ability to realize our
objectives.
We may not be able to meet the internal control
reporting requirements imposed by the SEC.
As directed by Section 404 of the Sarbanes-Oxley Act, the SEC
adopted rules requiring each public company to include a report
of management on the companys internal controls over financial
reporting in its annual reports. While we expect to expend
significant resources in developing the necessary documentation
and testing procedures required by Section 404 of the
Sarbanes-Oxley Act, there is a risk that we may not be able to
comply timely with all of the requirements imposed by this rule.
If we are unable to do timely comply with all of these
requirements, potential investors might deem our financial
statements to be unreliable and our ability to obtain additional
capital could suffer.
Additionally, if our independent registered public accounting
firm is unable to rely on our internal controls in connection
with its audit of our financial statements, and in the further
event that it is unable to devise alternative procedures in order
to satisfy itself as to the material accuracy of our financial
statements and related disclosures, it is possible that we would
be unable to file our Annual Report on Form 10-K with the SEC,
which could also adversely affect our ability to secure
additional capital.
Our business faces intense competition.
There are numerous other companies that presently compete with us
in the CNG fleet fueling station market, such as Clean Energy
Fuels, Trillium, TruStar and U.S. Gain amongst others. Many of
the companies that compete or may compete with us have greater
market exposure, personnel, and financial resources than we do.
We also face competition in many of the markets where we operate
or intend to operate from natural gas utilities that operate
public CNG stations. These utilities have a lower cost of capital
and easier access to natural gas lines than we do. There can be
no assurance that the Companys plans for marketing our services
will be successful, or that the Company will attain significant
sales or profitability. We anticipate that we will incur losses
for some time into the future until such time, if any, that we
achieve sales sufficient to support our operations. There can be
no assurance that we will be successful in addressing any of the
many risks we face.
Our near-term results of operations are dependent on
sales from our initial California CNG stations.
Our near-term financial success and revenue will result entirely
from marketing our services at our initial California CNG
stations, Titan El Toro and Titan Diamond Bar, which will
generate all of our near-term net sales over the next three
months. Thus, our financial performance remains dependent on
these stations success. We may not be able to complete the
development of the Titan Blaine Station for economic or other
reasons, which would make us more dependent on our initial Titan
El Toro and Titan Diamond Bar locations going forward.
We partially funded the construction of our Titan El
Toro station using grant funds that we are required to repay if
we do not satisfy certain operational metrics.
We received grants in the amount of $450,000 in 2013 from the
California Energy Commission (CEC)to provide funds to assist in
the construction andequipping of our Titan El Toro station. We
used the grant funds to complete the construction of our Titan El
Toro station ascontemplated in the grant agreement. The project
was completed by an affiliate of the Company, as defined in the
grant agreement. The grant proceeds are subjectto repayment if we
do not satisfy certain operational metrics contained in the grant
agreement through September 2018. Webelieve that we can satisfy
theseobjectives, although we cannot provide assurance that we
will succeed in satisfying them. In addition, the use of an
affiliate of the Company on the project could be construed
asrequiring an amendment to the grant agreement or consent from
the CEC, neither ofwhich has been obtained by the Company. Our
financial condition could be materially adversely affected if we
are required to repay the grant proceeds that we used to
construct our Titan El Toro station.
Many of the key personnel on which we depend to
operate our company provide their services to us on a part-time
basis and have other business or employment
obligations.
Our ability to execute our business plans and objectives depends,
in large part, on our ability to attract and retain qualified
personnel. Competition for personnel is intense and there can be
no assurance that we will be able to attract and retain
personnel. In particular, we are presently dependent upon the
services of our management team and founder members, most of whom
are part-time. John Yeros, chief executive officer, and Kirk
Honour, president, are the only full-time members of our
management team. Our inability to utilize their services could
have an adverse effect on us and there would likely be a
difficult transition period in finding replacements for any of
them. The execution of our strategic plan will place increasing
demands on our management and operations. There can be no
assurance that we will be able to effectually manage any
expansion of our business. Managements inability to manage our
growth effectively could have a material adverse effect on our
business, financial condition and results of operations.
We are controlled by our current executive officers,
directors and principal stockholders.
Immediately following the completion of the Securities Exchange
with the members of Titan CNG and the Management Entity Merger,
our executive officers, directors and principal stockholders
beneficially own approximately 87% of our outstanding common
stock. Accordingly, our executive officers, directors and
principal stockholders will have the ability to exert substantial
influence over our business affairs, including electing
directors, appointing officers, determining officers
compensation, issuing additional equity securities or incurring
additional debt, effecting or preventing a merger, sale of assets
or other corporate transaction and amending our articles of
incorporation. See Security Ownership of Certain Beneficial
Owners and Management.
We may not successfully manage our planned
growth.
We plan on expanding our business through developing additional
CNG refueling facilities. Any expansion of operations we may
undertake will entail risks and such actions may involve specific
operational activities that may negatively impact our
profitability. Consequently, investors must assume the risk that
(i) such expansion may ultimately involve expenditures of funds
beyond the resources available to us at that time, and (ii)
management of such expanded operations may divert managements
attention and resources away from its existing operations. These
factors may have a material adverse effect on our present and
prospective business activities.
Our business is dependent on fluctuating oil prices
and general U.S. economic conditions.
Demand for our products is dependent on fluctuating oil prices.
Generally, if the price of oil is high, then we expect more
demand for CNG, which costs less than gasoline or diesel fuels
derived from oil. On the other hand, if oil prices are lower,
then we expect that potential users of CNG may feel less
compelled to use CNG-fueled vehicles, lowering demand for CNG.
Several economic and other factors can cause fluctuations in the
price of oil, such as economic recession, inflation, unemployment
and interest rates. Such changing conditions could reduce demand
in the marketplace for our services. We have no control over
these macroeconomic trends or the price of crude oil. Moreover,
our operating results may fluctuate significantly from period to
period as a result of a variety of factors, including purchasing
patterns of customers, partner requirements, competitive pricing,
debt service and principal reduction payments and general U.S.
economic conditions. Consequently, our revenues may vary by
quarter, and our operating results may experience resulting
fluctuations that may be material.
RISKS RELATED TO THE CNG INDUSTRY
Our success depends on the continued adoption of
natural gas as a vehicle fuel.
We solely serve operators of natural gas vehicles. Our business
model is predicated on the continued purchase of natural gas by
existing customers and on the expectation that fleets and other
customers will operate more vehicles on natural gas in the future
and that new customers will come to our public stations in the
future. In the event that demand for CNG does not increase, or
even decreases, we will be unlikely to achieve our forecasted
results. Reasons for a decrease in demand for CNG could include
significant decreases in oil prices or increases in natural gas
prices, changes in regulations, alternative technologies being
deemed as superior, lack of availability of NGVs and engines for
conversion, lack of availability of vehicle servicing and a
reduction in the number of CNG stations in the U.S.
There are a limited number of original manufacturers
producing NGVs and NGV fuel tanks, which limits our customer base
and sales.
There are a limited number of original equipment manufacturers of
NGVs and the engines, fuel tanks and other equipment required to
upfit a gasoline or diesel engine to run on natural gas. In the
past, manufactures of NGVs have entered the market and then
stopped production of NGVs. If existing customers are unable to
replace their natural gas vehicles or new customers are unable to
obtain NGVs, our business will be adversely affected.
Our business, and our relationship with Gain in
particular, is dependent on Class 8 truck use of CNG continuing
to develop, which might not happen.
We believe the execution of our strategy in general, and in
particular our relationship with U.S. Gain, which serves Class 8
truck fleets, is dependent on the development of a meaningful
market in the U.S. for heavy-duty natural-gas trucks. Natural gas
equipment manufacturers may not produce engines or tanks in the
quantities we expect and Class 8 fleet operators may not adopt
CNG as rapidly as we expect. If this were to occur, our results
would be negatively impacted.
Government incentives promoting CNG may be reduced or
eliminated.
We received state government grants to assist us in building our
Titan El Toro station and many of our customers received tax
incentives to offset part or all of the additional up front cost
to acquire NGVs or convert vehicles to run on natural gas. In
addition, many states offer waivers on vehicle weight to allow
for NGVs to operate. These incentives may not continue and if
that were to occur, our business may be adversely affected.
Improvements in technologies relating to gasoline and
diesel emission reduction or in electric vehicle power could
reduce NGV demand.
We believe that our customers operate NGVs in part due to the
lower emissions relative to gasoline and diesel, yet higher power
relative to electric or other alternative fuel vehicles. In the
event that technologies are developed that either reduce the
emissions in gasoline and diesel powered vehicles or improve the
operating capabilities of electric, solar, or other alternative
fuel technology vehicles, the demand for NGVs could be
significantly reduced. Any such reduction in the demand for NGVs
will adversely affect our financial performance.
Our station development could be delayed or have cost
overruns due to permitting processes or lack of availability of
suitable properties.
We rely on acquiring or leasing suitable properties on which to
build our CNG stations. In addition, we are required to obtain a
number of permits from various government agencies in order to
build and operate our stations. Any inability to find suitable
properties in a timely manner and with the right value
proposition, or a delay in permitting or a requirement to change
our architectural and engineering plans to obtain permits could
adversely affect our business.
Breaches in information technology security could
harm our business.
In the event that our networks and data are compromised by
hackers or other external threats, our ability to operate our
business could be harmed. In addition, if our customer data is
stolen, we may lose customers. In any such event or related
event, our business could be materially harmed or damaged.
Government customers could be subject to reduced
funding or a change in mission.
We serve the State of California South Coast Air Quality
Management District (SCAQMD) as a customer at our Titan Diamond
Bar station, and will continue to seek long-term CNG contracts
with various federal, state and local government entities. If
these government agencies no longer receive funding or there is a
change in their mission, we may lose them as customers which may
adversely affect our business.
CNG stations could experience safety
issues.
Our stations operate under high pressure and could potentially
explode or catch on fire and cause death or injury. If this were
to occur, we could face liabilities that could negatively impact
our business.
Our business is subject to various government
regulations that could change in a way that harms our
business.
Various aspects of our business are regulated by a variety of
federal, state and local government agencies. Compliance with
these regulations is difficult and costly. In addition, these
regulations change frequently and may become more onerous or
costly to comply with. Our failure to comply with these
regulations or adjust to regulatory changes could result in
costly monetary penalties or prohibit us from providing services
to government entities, either of which would negatively impact
our business.
RISKS RELATED TO OUR SECURITIES
Because we were considered to be a shell company
under applicable securities rules, investors might not be able to
rely on the resale exemption provided by Rule 144 of the
Securities Act and might therefore be unable to resell their
shares.
We were considered to be a shell company under Rule 405 of
Regulation C of the Securities Act. A shell company is a company
with either no or nominal operations or assets, or assets
consisting solely of cash and cash equivalents. to Rule 144, one
year must elapse from the time a company ceases to be a shell
company before a restricted shareholder can resell their holdings
in reliance on Rule 144. Under Rule 144, restricted or
unrestricted securities that were initially issued by a reporting
or non-reporting shell company or a company that was at any time
previously a reporting or non-reporting shell company, can only
be resold in reliance on Rule 144 if the following conditions are
met: (1) the issuer of the securities that was formerly a
reporting or non-reporting shell company has ceased to be a shell
company; (2) the issuer of the securities is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange
Act; (3) the issuer of the securities has filed all reports and
material required to be filed under Section 13 or 15(d) of the
Exchange Act, as applicable, during the preceding twelve months
(or shorter period that the issuer was required to file such
reports and materials), other than Form 8-K reports; and (4) at
least one year has elapsed from the time the issuer filed the
current Form 10 type information with the SEC reflecting its
status as an entity that is not a shell company. As a result, our
investors are not allowed to rely on Rule 144 of the Securities
Act for a period of one year from the filing date of this report.
Because investors may not be able to rely on an exemption for
theresaleof their shares other than Rule 144, and there is no
guarantee that we will continue to fi