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TFER > SEC Filings for TFER > Form 10-K on 1-Apr-2013All Recent SEC Filings

Show all filings for TITAN IRON ORE CORP. | Request a Trial to NEW EDGAR Online Pro

Form 10-K for TITAN IRON ORE CORP.


1-Apr-2013

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our management's discussion and analysis provides a narrative about our financial performance and condition that should be read in conjunction with the audited and unaudited consolidated financial statements and related notes thereto included in this annual report on Form 10-K. This discussion contains forward looking statements reflecting our current expectations and estimates and assumptions about events and trends that may affect our future operating results or financial position. Our actual results and the timing of certain events could differ materially from those discussed in these forward-looking statements due to a number of factors, including, but not limited to, those set forth in the sections of this annual report on Form 10-K titled "Risk Factors" beginning at page 13 above and "Forward-Looking Statements" beginning at page 4 above.

Overview

We are a mineral exploration company. Our plan of operation is to carry out exploration work on our Wyoming Iron Complex in order to ascertain whether it possesses commercially exploitable quantities of iron ore and other metals. We intend to primarily explore for iron ore but if we discover that our mineral property hold potential for other minerals that our management determines are worth exploring further, then we intend to explore for those other minerals. We will not be able to determine whether or not the property contains a commercially exploitable mineral deposit, or reserve, until appropriate exploratory work is done and an economic evaluation based on that work indicates economic viability.

According to our plan of operation for a full exploration program, we estimate our cash needs for the next 12 months to be as follows:

 Expense                                                                   Amount
 Mineral exploration expenses for Wyoming Complex                     $ 8,000,000
 Amounts payable under acquisition agreement for Wyoming Iron Complex     210,000
 Professional Fees                                                        130,000
 General Administrative Expenses                                          650,000
 Investor Relations                                                       120,000
 Travel                                                                    30,000
 Total                                                                $ 9,140,000

We have no ongoing revenues, have achieved losses since inception, have been issued a going concern opinion by our auditors and rely upon the sale of our securities to fund operations. Accordingly, we will be dependent on future additional financing in order to fund our anticipated cash needs, and to seek other business opportunities in the mining industry or new business opportunities. There are no assurances that we will be able to complete such future additional financings or seek other business opportunities.


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued

We are considered an exploration stage company as we are involved in the examination and investigation of the mineral property that we believe may contain valuable minerals, for the purpose of discovering the presence of ore, if any, and its extent. Since we are an exploration stage company, there is no assurance that a commercially viable mineral deposit exists on our property, and a great deal of further exploration will be required before a final evaluation as to the economic and legal feasibility for our exploration is determined. We have no known reserves of any type of mineral. To date, we have not discovered an economically viable mineral deposit on the mineral property, and there is no assurance that we will discover one.

Results of Operations

Years Ended December 31, 2012 and 2011

We were incorporated in the State of Nevada on June 5, 2007. Our plan after our inception on June 5, 2007 was to produce user-friendly software that creates interactive digital yearbook software for schools and allows them to create and burn their own interactive digital yearbooks on CD/DVD.

On June 13, 2011, we entered into a mineral property option acquisition agreement ("Acquisition Agreement") with J2 Mining Ventures Ltd. pursuant to which J2 Mining agreed to transfer, sell and assign all (100%) of its right, title and interest in and to an iron ore mineral property option agreement (the "Option Agreement") regarding property located in Albany County, Wyoming.

On June 30, 2011, we closed the Acquisition Agreement and entered into an assignment agreement (the "Assignment Agreement") with J2 Mining and the owner of the property, Wyomex LLC, transferring J2 Mining's interest in the Option Agreement to our company.

Our cash as at December 31, 2012 was $120,433. As a result of our minimal amount of revenues and ongoing expenditures in pursuit of our business, we incurred net losses since our inception. For the period from inception (June 5, 2007) to December 31, 2012 we had operating revenues of $4,855 and incurred a net loss of $4,437,953. For the year ended December 31, 2012, our net loss was $3,407,757.

Our operating expenses for our fiscal years ended December 31, 2012 and 2011 and the changes between those periods for the respective items are summarized as follows:

                                                       Year              Year
                                                       Ended             Ended
                                                   December 31,      December 31,
                                                       2012              2011
                                                         $                 $
    REVENUES                                                   -                 -

    OPERATING EXPENSES
      Advertising                                          2,653            22,732
      General and administrative                         586,421           345,928
      Impairment of mineral acquisition costs                  -            50,124
      Accretion on promissory note                       113,394                 -
      Financing costs                                      8,391                 -
      Interest expense                                     2,385                 -
      Investor relations                                 227,687            22,046
      Professional fees                                  154,767            93,056
      Mineral property exploration costs                 164,564           329,107
      Stock-based compensation                         2,133,251           107,772
      Travel                                              14,244             1,543

     TOTAL OPERATING EXPENSES                          3,407,757           972,308


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued

Total operating expenses increased by 251% for the year ended December 31, 2012
compared to the same period ended December 31, 2011. The increase in expenses
over the prior year was due primarily to higher general and administrative
expenses, inverstor relations, and stock based compensation.

Liquidity and Capital Resources

Working Capital
                                     December 31, 2012       December 31, 2011
                                         (audited)               (audited)
       Current Assets               $           145,433     $           143,066
       Current Liabilities          $           196,525     $            22,104
       Working Capital Deficiency   $           (51,092 )   $           120,962

As of December 31, 2012, we had $120,433 in cash, as compared to $118,066 as of December 31, 2011. Our cash increased due to raising of capital via a private placement, offset by operating expenses during the period. As of December 31, 2012, we had accounts payable of $60,862, as compared to $21,457 as of December 31, 2011. Our accounts payable increased due to increased operating costs.

As of December 31, 2012, we had a current portion of promissory note of $127,353, as compared to nil as of December 31, 2011. Our current portion of promissory note increased due to payments due under the Wyomex property acquisition.

As of December 31, 2012, we had accrued expenses to related parties of $6,479, as compared to $647 as of December 31, 2011. Our accrued expenses to related parties increased due to amounts due to an officer.

We currently do not have sufficient capital to funds our needs for the next 12 months. We anticipate that the equity line, described below, once approved and effective, may be sufficient to meet our needs and we plan to rely upon it at least in part. Other possible sources of capital relate to: (1) sales from the stockpile of iron ore tailings at Iron Mountain which are a potential source of product to area cement producers, which we believe can provide revenue upon sale and delivery with minimal operational costs and under our existing State of Wyoming permit; and (2) the pit and titaniferous iron ore resource at Iron Mountain which is of interest to domestic steel mills as direct-ship feedstock, and which we believes could be developed and put in production upon securing of permits, under a basic mine plan, and after minimal capital outlays of approximately $1,000,000. Both of these mining revenue possibilities are dependent first upon access to Iron Mountain which currently does not exist, and for which we have commenced a lawsuit in Albany County, Wyoming against the recalcitrant landowner.

Assuming that access to Iron Mountain can be gained, and that an operations plan and favorable economic cost data can be calculated, Iron Mountain Ores would be produced on a Run of Mine (ROM) basis and shipped as "Lump Ore" or "Direct Ship Ore". ROM ores generally signifies mined materials, for which processing usually includes only mining (drilling and blasting), crushing and screening to size. Based on preliminary discussions, with our marketing agents and potential customers, Iron Mountain ores would be crushed and screened to 100% > 3 inches, < 1.5 inches to meet general steel industry customer specifications. Currently much of this type of material used by US and Canadian Midwestern blast furnaces, in the Great Lakes region, is imported as ilmenite (FeTiO3) from South Africa, Canada or the Ukraine and has a TiO2 content of 30% to 32% at a landed cost (CIF) at the furnace of $300 per tonne. Fines or undersize material (less than 1.5 inches)will be marketed to the regional cement industry for use in the production of cement where fine, iron-containing material is preferred. The current stockpile at Iron Mountain fits this purpose and Iron Mountain material has been used historically to meet the needs of area cement producers. Pricing and quantity of potential off-take is dependent on the quality and process requirements of each potential cement plant customer. Prices paid by local cement companies for iron ore are in the range of $25-30 per ton FOB minesite.


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued

We currently have no plans to prepay the Note to Wyomex, and intend to remit to
Wyomex in advance of commercial production only the required advance minimum
royalty payments, which are due semi-annually in the amount of $62,500 as
adjusted for inflation.

Cash Flows
                                             Year
                                             Ended            Year Ended
                                           December            December
                                           31, 2012            31, 2011
Net Cash Provided by (Used in)           $  (983,734 )      $   (817,246 )
Operating Activities
Net Cash Provided by (Used in)               (85,000 )          (110,124 )
Investing Activities
Net Cash Provided by (Used in)             1,071,101           1,045,436
Financing Activities
Net Increase in Cash                     $     2,367        $    118,066

Operating Activities

Net cash used in operating activities increased by 25% for our 12-month period ended December 31, 2012 compared to the same period in 2011. The reason for the increase is increased operating expenses.

Investing Activities

Net cash used in investing activities decreased by 23% for our 12-month period ended December 31, 2012 compared to the same period in 2011. The reason for the decrease is fewer payments on mineral properties.

Financing Activities

Net cash provided by financing activities increased by 2% for our 12-month period ended December 31, 2012 compared to the same period in 2011. The reason for the increase is the issuance of new convertible notes.

Securities Purchase Agreement with Ascendiant Capital Partners, LLC (Equity Line of Credit)

On October 18, 2012, we entered into a securities purchase agreement with Ascendiant Capital Partners, LLC, pursuant to which we may sell and issue to Ascendiant Capital Partners, LLC, and Ascendiant Capital Partners, LLC is obligated to purchase from us, up to $10,000,000 worth of shares of our common stock from time to time over a 36-month period, provided that certain conditions are met. The financing arrangement entered into by us and Ascendiant Capital Partners, LLC is commonly referred to as an "equity line of credit" or an "equity drawdown facility." For further information regarding the securities purchase agreement with Ascendiant Capital Partners, LLC, see the section titled "The Offering" in our Registration Statement on Form S-1 dated February 22, 2013.

Securities Purchase Agreements (Debentures)

On October 18, 2012, we entered into securities purchase agreements with two investors, pursuant to which we sold an aggregate of $235,300 face value in principal amount of 5% convertible debentures due October 18, 2013. In addition to the debentures, we issued an aggregate of 705,901 common stock purchase warrants with each warrant entitling the holder to acquire one share of our common stock at a price of $0.25 per share for three years. The investors paid us the aggregate subscription amount of $200,000 for the debentures and the warrants, which subscription amount was at a 15% discount from the principal amount of the debentures. For further information regarding the debentures, see the section titled "The Offering" in our Registration Statement on Form S-1 dated February 22, 2013.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued

Going Concern

At December 31, 2012, we had an accumulated deficit of $4,440,179 since our inception and incurred a net loss of $3,409,983 for the period ended December 31, 2012. We expect to incur further losses in the development of our business, all of which casts substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate future profitable operations and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. Our independent auditors included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern in their report on our annual financial statements for the year ended December 31, 2012.

We have generated minimal revenues and have incurred losses since inception. Accordingly, we will be dependent on future additional financing in order to seek other business opportunities in the mining industry or new business opportunities. We are considered an exploration stage company as we are involved in the examination and investigation of the mineral property that we believe may contain valuable minerals, for the purpose of discovering the presence of ore, if any, and its extent. Since we are an exploration stage company, there is no assurance that a commercially viable mineral deposit exists on our property, and a great deal of further exploration will be required before a final evaluation as to the economic and legal feasibility for our exploration is determined. We have no known reserves of any type of mineral. To date, we have not discovered an economically viable mineral deposit on the mineral property, and there is no assurance that we will discover one.

Application of Critical Accounting Policies

Basis of Presentation

Our financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in US dollars. Our fiscal year-end is December 31, 2012.

Use of Estimates

The preparation of these statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. We regularly evaluates estimates and assumptions related to useful life and recoverability of long-lived assets, deferred income tax asset valuations, asset retirement obligations, financial instrument valuations, and loss contingencies. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Revenue Recognition

We recognize revenue when products are fully delivered or services have been provided and collection is reasonably assured.

Advertising Costs

Our policy regarding advertising is to expense advertising when incurred.


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued

Cash and Cash Equivalents

We consider all highly liquid instruments purchased with a maturity of six months or less to be cash equivalents to the extent the funds are not being held for investment purposes.

Impairment of Long-Lived Assets

We continually monitor events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows.

If the total of the future cash flows is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.

Stock-based compensation

We record stock-based compensation in accordance with ASC 718, Compensation - Stock Based Compensation, which requires the measurement and recognition of compensation expense based on estimated fair values for all share-based awards made to employees and directors, including stock options.

ASC 718 requires companies to estimate the fair value of share-based awards on the date of grant using an option-pricing model. We use the Black-Scholes option pricing model as its method in determining fair value. This model is affected by our stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to our expected stock price volatility over the terms of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the statement of operations over the requisite service period.

Mineral Property Costs

We are in the exploration stage and have not yet realized any revenues from operations. We are primarily engaged in the acquisition and exploration of mineral properties. Mineral property exploration costs are expensed as incurred. Mineral property acquisition costs are initially capitalized. We assess the carrying costs for impairment, whenever events or changes in circumstances indicate that the carrying cost may not be recoverable under ASC 360, Property, Plant, and Equipment at each reporting date. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, the costs then incurred to develop such property, will be capitalized. Such costs will be amortized using the units-of-production method over the estimated recoverable reserves. If mineral properties are subsequently abandoned or impaired, any capitalized costs will be charged to operations.

Asset Retirement Obligations

We record asset retirement obligations in accordance with ASC 410-20, Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and normal use of the asset. ASC 410-20 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. The liability is accreted at the end of each period through charges to operating expense. If the obligation is settled for other than the carrying amount of the liability, we will recognize a gain or loss on settlement. As at December 31, 2012, we have not incurred any asset retirement obligation related to the exploration and development of its resource properties.


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued

Comprehensive Loss

ASC 220, Comprehensive Income establishes standards for the reporting and display of comprehensive loss and its components in the consolidated financial statements. As at December 31, 2012 and December 31, 2011, we have no items that represent other comprehensive loss and, therefore, have not included a schedule of other comprehensive loss in the financial statements.

Financial Instruments

FASB ASC 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques used to measure fair value, as required by ASC 820, must maximize the use of observable inputs and minimize the use of unobservable inputs.

Our assessment of the significance of a particular input to the fair value measurements requires judgment, and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy. The carrying values of cash, accounts payable, and due to related parties approximate fair values because of the short-term maturity of these instruments. Unless otherwise noted, it is management's opinion that we are not exposed to significant interest, currency or credit risks arising from these financial instruments.

Basic and Diluted Net Loss Per Share

We compute net loss per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the statement of operations. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. Shares underlying these securities totaled approximately 5,000,000 as of December 31, 2012.

Income Taxes

We account for income taxes using the asset and liability method in accordance with ASC 740, Income Taxes. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

Recent Accounting Pronouncements

We have implemented all other new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

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