Item 1A.
Risk Factors
If we cannot continue to satisfy the Nasdaq Capital Market continued listing standards and other Nasdaq rules, our common stock could be delisted, which would harm our business, the trading price of our common stock, our ability to raise additional capital and the liquidity of the market for our common stock.
Our common stock is currently listed on the Nasdaq Capital Market (“Nasdaq”). The listing standards of Nasdaq require that a company maintain stockholders’ equity of at least $2.5 million and a minimum bid price subject to specific requirements of $1.00 per share. There is no assurance that we will be able to maintain compliance with the minimum closing price requirement or the minimum stockholders’ equity requirement. Should we fail to comply with the minimum listing standards applicable to issuers listed on Nasdaq, our common stock may be delisted from Nasdaq. If our common stock is delisted, it could reduce the price of our common stock and the levels of liquidity available to our stockholders.
If our common stock were to be delisted from Nasdaq and was not eligible for quotation or listing on another market or exchange, trading of our common stock could be conducted only in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. In such event, it could become more difficult to dispose of, or obtain accurate price quotations for, our common stock, and there would likely also be a reduction in our coverage by securities analysts and the news media, which could cause the price of our common stock to decline further.
In addition to the foregoing, if our common stock is delisted from Nasdaq and it trades on the over-the- counter market, the application of the “penny stock” rules could adversely affect the market price of our common stock and increase the transaction costs to sell those shares. The SEC has adopted regulations which generally define a “penny stock” as an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. If our common stock is delisted from Nasdaq and it trades on the over-the- counter market at a price of less than $5.00 per share, our common stock would be considered a penny stock. The SEC’s penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and the salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules generally require that before a transaction in a penny stock occurs, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s agreement to the transaction. If applicable in the future, these rules may restrict the ability of brokers-dealers to sell our common stock and may affect the ability of investors to sell their shares, until our common stock no longer is considered a penny stock.
We identified a material weakness in our internal control over financial reporting as of December 31, 2023 and this or other material weaknesses could continue to materially impair our ability to report accurate financial information in a timely manner.
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of its disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act for the year ended December 31, 2023. Based on such evaluation, the principal executive officer and principal financial officer has concluded that our disclosure controls and procedures were not effective as of December 31, 2023 due to the identified material weakness in internal control over financial reporting as discussed below.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). Our management, under the supervision and with the participation of the principal executive officer and principal financial officer, conducted an assessment of the effectiveness of internal control over financial reporting as of December 31, 2023, based on the framework and criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO framework). Based on this assessment, management concluded that, as of December 31, 2023, its internal control over financial reporting was not effective due to the existence of the material weakness described below.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that a reasonable possibility exists that a material misstatement of the annual or interim financial statements would not be prevented or detected on a timely basis. Our management identified a deficiency in our internal control over financial reporting that gave rise to a material weakness. The deficiency primarily related to limited finance and accounting staffing levels not commensurate with our complexity and our financial accounting and reporting requirements. We underwent organizational changes in 2023 and 2022, including multiple reductions in our workforce, and operate with a very lean finance and accounting department. This limited staffing resulted in a lack of resources to fully monitor and operate our internal controls over financial reporting as of December 31, 2023, resulting in a deficiency being discovered during our annual auditing process.
Our management continues to evaluate the material weakness discussed above and is implementing its remediation plan as further described in Item 9A below. However, assurance as to when the remediation efforts will be complete cannot be provided and the material weakness cannot be considered remedied until the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Our management cannot provide assurances that the measures that have been taken to date, and are continuing to be implemented, will be sufficient to remediate the material weakness identified or to avoid potential future material weaknesses.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results in a timely manner or prevent fraud, which would adversely affect investor confidence in our company and harm our business.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations in a timely manner, or at all. Testing by us conducted in connection with Section 404(a) of the Sarbanes Oxley Act may reveal material weaknesses in our internal controls over financial reporting related to our limited finance, accounting and IT staffing levels. While we are implementing our remediation plan as further described in Item 9A below, we cannot provide assurances that the measures that have been taken to date, and are continuing to be implemented, will be sufficient to remediate the material weakness identified or to avoid potential future materials weaknesses. Subsequent testing by our independent registered public accounting firm in connection with Section 404(b) of the Sarbanes Oxley Act may reveal continued or additional deficiencies in our internal controls over financial reporting that are deemed to be significant deficiencies or material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.
We are required to disclose material changes made in our internal controls over financing reporting and procedures on a quarterly basis and our management are required to assess the effectiveness of these controls annually. We are also required to make a formal assessment of the effectiveness of our internal control over financial reporting, and once we cease to be an emerging growth company or a non-accelerated filer, we will be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. However, for as long as we are a smaller reporting company under the JOBS Act or a non-accelerated filer, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act.
To achieve compliance with Section 404(a) of the Sarbanes-Oxley Act, we engage in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to implement our remediation plan, continue to dedicate internal resources, potentially engage additional outside consultants to assess the adequacy of our internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are designed and operating effectively and implement a continuous reporting and improvement process for internal control over financial reporting.
We determined that, as of December 31, 2023, our disclosure controls and procedures were not effective due to the identified material weakness in internal control and financial reporting as described herein. The effectiveness of our internal controls in future periods is subject to the risk that our controls may become further inadequate because of changes in conditions. We may be unable to timely remediate our material weakness and may discover additional weaknesses in our system of internal financial and accounting controls and procedures that could result in a material misstatement of our financial statements. Our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.
If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain proper and effective internal controls over financial reporting, we may not be able to produce timely and accurate financial statements. If that were to happen, our investors could lose confidence in our reported financial information, the market price of our stock could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities including equivalent foreign authorities.
Our common stockholders are entitled to receive such dividends as may be declared by our Board. To date, we have paid no cash dividends on our shares of our preferred or common stock, and we do not expect to pay cash dividends in the foreseeable future. In addition, the declaration and payment of cash dividends is restricted under the terms of our existing Loan Agreement. We intend to retain future earnings, if any, to provide funds for operations of our business. Therefore, any return investors in our preferred or common stock may have will be in the form of appreciation, if any, in the market value of their shares of common stock.
Titan has incurred, and will continue to incur, significant transaction and transition costs in connection with the Merger.
Titan has incurred, and will continue to incur, significant, non-recurring costs in connection with consummating the Merger. Titan may also incur unanticipated costs associated with the Merger, including costs driven by BSKE Ltd.’s (“BSKE”) becoming a public company and the listing on the Nasdaq of the ordinary shares of BSKE, and these unanticipated costs may have an adverse impact on the results of operations of BSKE following the effectiveness of the Merger. Titan and TalenTec shall be equally responsible for and pay the cost for the preparation, filing and mailing of the proxy statement/prospectus and other related fees. Titan cannot provide assurance that the benefits of the Merger will offset the incremental transaction costs in the near term, if at all.
If the conditions to the Merger Agreement are not met, the Merger may not occur.
Even if the Merger Agreement is approved by Titan stockholders, specified conditions must be satisfied or waived before the parties to the Merger Agreement are obligated to complete the Merger. BSKE and TalenTec may not satisfy all of the closing conditions in the Merger Agreement. If the closing conditions are not satisfied or waived, the Merger will not occur, or will be delayed pending later satisfaction or waiver, and such non-occurrence or delay may cause Titan and TalenTec to each lose some or all of the intended benefits of the Merger.
Since Titan’s officers and directors have interests that are different, or in addition to (and which may conflict with), the interests of the Titan stockholders, a conflict of interest may have existed in determining whether the Merger is appropriate.
Titan’s officers and directors have interests that are different from, or in addition to, those of the Titan stockholders and warrant holders generally. Our Board was aware of and considered these interests, among other matters, in evaluating and negotiating the Merger and transaction agreements and in recommending to Titan stockholders that they vote in favor of the Merger.
These interests include, among other things:
the fact that Titan’s existing officers and directors will be eligible for continued indemnification and continued coverage under a directors’ and officers’ liability insurance policy after the Merger and pursuant to the Merger Agreement; and
In addition, Brynner Chiam, Avraham Ben-Tzvi, Firdauz Edmin Bin Mokhtar and Francisco Osvaldo Flores García will continue to serve on the board of BSKE, and Mr. Chay, our Chief Executive Officer, will serve as Chairman and Chief Executive Officer.
The existence of interests of one or more of Titan’s directors may result in a conflict of interest on the part of such director(s) between what he or they may believe is in the best interests of Titan and its stockholders and what he or they may believe is best for himself or themselves in determining to recommend that stockholders vote for the Merger.
The existence of the interests described above may result in a conflict of interest on the part of Titan’s officers and directors or other affiliates in entering into the Merger Agreement and making their recommendation that stockholders vote in favor of the approval of the Merger.
There are risks to the Titan stockholders becoming shareholders of BSKE through the Merger rather than acquiring securities of TalenTec directly in an underwritten public offering, including no independent due diligence review by an underwriter and conflicts of interest of the Titan officers and directors.
Because there is no independent third-party underwriter involved in the Merger or the issuance of ordinary shares of BSKE in connection therewith, investors will not receive the benefit of any outside independent review of Titan’s and TalenTec’s respective finances and operations.
Underwritten public offerings of securities conducted by a licensed broker-dealer are subjected to a due diligence review by the underwriter or dealer manager to satisfy statutory duties under the Securities Act, the rules of Financial Industry Regulatory Authority, Inc. (“FINRA”) and the national securities exchange where such securities are listed. Additionally, underwriters or dealer-managers conducting such public offerings are subject to liability for any material misstatements or omissions in a registration statement filed in connection with the public offering. As no such review will be conducted in connection with the Merger, the Titan stockholders must rely on the information in the proxy statement/prospectus related to the Merger and will not have the benefit of an independent review and investigation of the type normally performed by an independent underwriter in a public securities offering. Although Titan performed a due diligence review and investigation of TalenTec in connection with the Merger and obtained a Fairness Opinion that the consideration to be paid pursuant to the Merger is fair to unaffiliated stockholders of Titan, from a financial point of view, Titan has different incentives and objectives in the Merger than an underwriter would in a traditional initial public offering. The lack of an independent due diligence review and investigation may increase the risk of an investment in BSKE because it may not have uncovered facts that would be important to a potential investor.
In addition, because BSKE will not become a public reporting company by means of a traditional underwritten initial public offering, securities or industry analysts may not provide, or may be less likely to provide, coverage of BSKE. Investment banks may also be less likely to agree to underwrite securities offerings on behalf of BSKE than they might if BSKE became a public reporting company by means of a traditional underwritten initial public offering, because they may be less familiar with BSKE as a result of more limited coverage by analysts and the media. The failure to receive research coverage or support in the market for the ordinary shares of BSKE could have an adverse effect on BSKE’s ability to develop a liquid market for ordinary shares of BSKE.
The exercise of our Board’s discretion in agreeing to changes or waivers in the terms of the Merger Agreement and related agreements, including closing conditions, may result in a conflict of interest when determining whether such changes to the terms or waivers of conditions are appropriate and in the Titan stockholders’ best interest.
In the period leading up to the Merger Closing, events may occur that, pursuant to the Merger Agreement, would require Titan to agree to amend the Merger Agreement to consent to certain actions taken by TalenTec or to waive rights that Titan is entitled to under the Merger Agreement, including those related to Merger Closing conditions. Such events could arise because of changes in TalenTec’s businesses, a request by Titan to undertake actions that would otherwise be prohibited by the terms of the Merger Agreement, or the occurrence of other events that would have a material adverse effect on TalenTec’s business and would entitle Titan to terminate the Merger Agreement. In any of such circumstances, it would be at Titan’s discretion, acting through our Board, to grant its consent or waive those rights. The existence of financial and personal interests of one or more of the directors described in the preceding risk factors (and described elsewhere in the proxy statement/prospectus related to the Merger) may result in a conflict of interest on the part of such director(s) between what he, she or they may believe is best for Titan and its stockholders and what he, she or they may believe is best for himself, herself or themselves in determining whether or not to take the requested action. Titan does not believe there will be any changes or waivers that our Board would be likely to make after stockholder approval of the Merger has been obtained. While certain changes could be made without further stockholder approval, Titan will circulate a new or amended proxy statement/prospectus and resolicit Titan stockholders if changes to the terms of the transaction that would have a material impact on its stockholders are required prior to the vote on the Merger.
Titan may issue notes or other debt securities, or otherwise incur substantial debt, to complete the Merger, which may adversely affect Titan’s leverage and financial condition and thus negatively impact the value of Titan stockholders’ investments.
Although Titan has no commitments to issue any notes or other debt securities, or to otherwise incur outstanding debt following the Merger, Titan may choose to incur substantial debt to complete its Merger. The incurrence of debt could have a variety of negative effects, including:
default and foreclosure on assets if operating revenues after a Merger are insufficient to repay debt obligations;
acceleration of Titan obligations to repay the indebtedness even if Titan makes all principal and interest payments when due if Titan breaches certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;
our immediate payment of all principal and accrued interest, if any, if the debt is payable on demand;
our inability to obtain necessary additional financing if the debt contains covenants restricting Titan’s ability to obtain such financing while the debt is outstanding;
using a substantial portion of cash flow to pay principal and interest on our debt, expenses, capital expenditures, acquisitions and other general corporate purposes;
limitations on Titan’s flexibility in planning for and reacting to changes in its business and in the industry in which Titan operates;
increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and
limitations on Titan’s ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of its strategy and other purposes and other disadvantages compared to companies with less debt.
Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect Titan’s business, including its ability to negotiate and complete the Merger, and results of operations.
Titan is subject to laws and regulations enacted by national, regional and local governments. In particular, Titan is required to comply with certain SEC and other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application may also change from time to time and those changes could have a material adverse effect on Titan’s business, investments and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our business, including its ability to negotiate and complete the Merger, and results of operations.
Legal proceedings in connection with the Merger, the outcomes of which are uncertain, could delay or prevent the completion of the Merger.
In connection with business combination transactions similar to the proposed Merger, it is not uncommon for lawsuits to be filed against the parties and/or their respective directors and officers alleging, among other things, that the proxy statement/prospectus provided to stockholders contains false and misleading statements and/or omits material information concerning the transaction. Although no such lawsuits have been filed in connection with the Merger to date, it is possible that such actions may arise and, if such actions do arise, they generally seek, among other things, injunctive relief and an award of attorneys’ fees and expenses. Defending such lawsuits could require BSKE, Titan and/or TalenTec to incur significant costs and draw the attention of their respective management teams away from the Merger. Further, the defense or settlement of any lawsuit or claim that remains unresolved at the time the Merger is consummated may adversely affect BSKE’s business, financial condition, results of operations and cash flows. Such legal proceedings could delay or prevent the Merger from becoming effective within the expected timeframe.
The ordinary shares of BSKE to be received by Titan stockholders as a result of the Merger will have different rights from shares of Titan common stock.
Following completion of the Merger, Titan stockholders will no longer hold shares of Titan common stock but will instead be shareholders of BSKE. There will be important differences between your current rights as a Titan stockholder and your rights as a BSKE shareholder.
The Merger is with a company located outside of the United States, and the laws applicable to such company will likely govern all material agreements related to TalenTec, and as a result Titan may not be able to enforce its legal rights under United States law.
The laws of the country in which TalenTec presently operates will govern almost all of the material agreements relating to its operations. Titan cannot assure you that TalenTec will be able to enforce any of its material agreements or that remedies will be available in this new jurisdiction. The system of laws and the enforcement of existing laws in such jurisdiction may not be as certain in implementation and interpretation as in the United States. The inability to enforce or obtain a remedy under any of its future agreements could result in a significant loss of business, business opportunities or capital.
We may be obligated to purchase outstanding warrants in connection with the Merger.
A holder of those certain Titan warrants initially exercisable July 9, 2020, expiring July 9, 2025; or those certain Titan warrants initially exercisable January 20, 2021, expiring July 20, 2026; or those certain Titan warrants initially exercisable February 4, 2022, expiring August 4, 2027 (the “Repurchase Warrants”), may, within 30 days after the consummation of the Merger, require the Surviving Corporation to purchase the unexercised portion of those warrants from the holder at the Black Scholes Value of that portion (the “Repurchase Option”).
“Black Scholes Value” means the value of the Repurchase Warrant based on the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg determined as of the day of consummation of the Merger for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between August 19, 2024, the date of the public announcement of the Merger, and the Repurchase Warrant expiration date, (B) an expected volatility equal to the lesser of 75% and the 100 day volatility of our common stock as of August 20, 2024, (C) the underlying price per share used in the calculation shall be the greater of (i) $5.46, the price per share of our common stock used in determining the Exchange Ratio and (ii) the highest VWAP during the period beginning on August 16, 2024, the trading day immediately preceding the announcement of the Merger and ending on the trading day of the holder’s exercise of the Repurchase Option, (D) a remaining option time equal to the time between the date of the public announcement of the Merger and the Repurchase Warrant expiration date, and (E) a zero cost of borrow.
The tax consequences of the Merger may adversely affect holders of our common stock or warrants.
It is intended that for U.S. federal income tax purposes that the transactions effected pursuant to the Merger, will constitute an integrated transaction that qualifies as an exchange generally eligible for the tax-deferred treatment under Section 351(a) of the Code (the “Intended Tax Treatment”). However, if it does not qualify for the Intended Tax Treatment (and does not otherwise qualify for tax-deferred treatment under another section of the Code), the Merger would be a taxable transaction to holders of our common stock and warrants. Further, the receipt of BSKE warrants in exchange for Titan warrants pursuant to the Merger is generally expected to be a taxable transaction to holders of Titan warrants notwithstanding the Intended Tax Treatment.
In addition, Section 367(a) of the Code generally requires a U.S. holder of stock in a U.S. corporation to recognize gain (but not loss) when such stock is exchanged for stock of a non-U.S. corporation in an exchange that would otherwise qualify for nonrecognition treatment unless certain conditions are met. It is currently expected that Section 367(a) of the Code will not apply to cause the exchange of our common stock for ordinary shares of BSKE pursuant to the Merger to be taxable (provided that the holder will, to the extent required, enter into a gain recognition agreement with the IRS). However, holders are cautioned that the potential application of Section 367(a) of the Code to the Merger is complex and depends on factors that cannot be determined until the closing of the Merger, and the interpretation of legal authorities and facts relating to the Merger. Accordingly, there can be no assurance that the IRS will not take the position that Section 367(a) of the Code applies to cause U.S. holders to recognize gain as a result of the Merger or that a court will not agree with such a position of the IRS in the event of litigation.
The requirements for the Intended Tax Treatment, including the application of Section 367(a) of the Code, are highly complex and subject to uncertainty. If you are a U.S. holder exchanging Titan common stock in the Merger or holding Titan warrants at the time of the consummation of the Merger, you are urged to consult your tax advisor to determine the tax consequences thereof.
Titan has incurred net losses in almost every year since its inception, which losses will continue for the foreseeable future and raise substantial doubt about its ability to continue as a going concern.
Titan incurred net losses in almost every year since its inception. Titan’s financial statements have been prepared assuming that Titan will continue as a going concern. For the years ended December 31, 2024 and 2023, Titan had net losses of approximately $4.7 million and $5.6 million, respectively, and had net cash used in operating activities of approximately $3.9 million and $7.1 million, respectively. These net losses and negative cash flows have had, and will continue to have, an adverse effect on Titan’s stockholders’ equity and working capital, which have declined in the past year. At December 31, 2024, Titan had working capital of approximately $2.4 million compared to working capital of approximately $6.6 million at December 31, 2023. At December 31, 2024, Titan had cash of approximately $2.8 million. Titan expects to continue to incur net losses and negative operating cash flow for the foreseeable future. These factors, among others, raise substantial doubt about our ability to continue as a going concern. The financial statements contained elsewhere in this proxy statement/prospectus do not include any adjustments that might result from its inability to continue as a going concern.
We currently do not have a full-time CFO. This lack of senior leadership raises serious doubts about ability to continue to run our Company effectively.
While we have appointed an acting principal financial officer, we currently do not have a full-time Chief Financial Officer. Accordingly, we have a crucial role that is not currently being filled. We are actively seeking a full-time Chief Financial Officer; however, because of our financial condition, we may not be able to find a suitable individual to fill this role. Because competition for skilled employees is highly competitive, and the process of finding qualified individuals can be lengthy and expensive, we believe that the loss of the services of key personnel may adversely affect our financial condition and results of operations .
