UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q


(Mark
One)





x
            Quarterly
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934


For the
quarterly period ended November 30, 2008


or





 ̈
            Transition
      report pursuant Section 13 or 15(d) of the Securities Exchange Act of
      1934


For the
transition period from ____________ to ______________





Commission
file number 000-32847





TITAN
GLOBAL HOLDINGS, INC.


(Exact
name of registrant as specified in its charter)





Utah
            
            87-0433444(State or other jurisdiction of incorporation or organization)
            
            (IRS Employer Identification No.)





1700
Jay Ell Drive, Suite 200


Richardson,
Texas 75081


(Address
of principal executive offices) (Zip Code)





(972) 470-9100


(Registrant’s
telephone number, including area code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes x  No  ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):





Large
accelerated filer  ̈Accelerated filer  ̈  Non-accelerated
filer  ̈  Smaller
reporting company x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes  ̈  No x





As of
January 20, 2009 the Company had53,430,652 shares of
its par value $0.001 common stock outstanding.








TITAN
GLOBAL HOLDINGS, INC.


TABLE
OF CONTENTS





PagePART
      I.
              FINANCIAL
      INFORMATIONItem
      1.
              Unaudited
      Condensed Consolidated Financial Statements
              4Item
      2.
              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
              31Item
      4.
              Controls
      and Procedures
              44PART
      II.
              OTHER
      INFORMATIONItem
      1.
              Legal
      Proceedings
              45Item
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              48Item
      3.
              Defaults
      Upon Senior Securities
              48Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              48Item
      5.
              Other
      information
              48Item
      6.
              Exhibits
              48Signatures
              49









STATEMENT
REGARDING THIS REPORT





FORWARD-LOOKING
INFORMATION





Statements
in this report concerning the future sales, expenses, profitability, financial
resources, product mix, market demand, product development and other statements
in this report concerning the future results of operations, financial condition,
and business of Titan Global Holdings, Inc. are "forward-looking" statements as
defined in the Securities Act of 1933 and Securities Exchange Act of 1934.
Investors are cautioned that the Company's actual results in the future may
differ materially from those projected in the forward-looking statements due to
risks and uncertainties that exist in the Company's operations and business
environment, including competition, need for increased acceptance of products,
ability to continue to develop and extend our brand identity, ability to
anticipate and adapt to a competitive market, ability to effectively manage
rapidly expanding operations, amount and timing of operating costs and capital
expenditures relating to expansion of our business, operations and
infrastructure, ability to provide superior customer service, dependence upon
key personnel and the like.  The Company's most recent filings with
the Securities and Exchange Commission, including Form 10-K, contain additional
information concerning many of these risk factors, and copies of these filings
are available from the Company upon request and without charge.





3





Titan
Global Holdings, Inc.


Unaudited
Condensed Consolidated Balance Sheets


(In
thousands, except common stock share data)





November 30,
                  
                  
                  August 31,2008
                  
                  
                  2008ASSETSCurrent
      assets:Cash
      and cash equivalents
                  
                  $
                  2,921
                  
                  
                  $
                  2,379Restricted
      cash and short term investments
                  
                  
                  624
                  
                  
                  
                  620Accounts
      receivable, trade (less allowance for doubtful accounts of $31 and $109
      and sales allowance of $112 and $0, respectively)
                  
                  
                  3,236
                  
                  
                  
                  6,966Inventory
                  
                  
                  7,179
                  
                  
                  
                  10,910Prepaid
      expenses and other current assets
                  
                  
                  718
                  
                  
                  
                  1,062Assets
      of discontinued operations, current
                  
                  
                  2,680
                  
                  
                  
                  5,583Total
      current assets
                  
                  
                  17,358
                  
                  
                  
                  27,520Equipment
      and improvements, net
                  
                  
                  10,141
                  
                  
                  
                  10,512Definite-lived
      intangible assets, net
                  
                  
                  501
                  
                  
                  
                  584Goodwill
      and indefinite-lived intangible assets
                  
                  
                  9,277
                  
                  
                  
                  9,277Capitalized
      loan fees, net
                  
                  
                  503
                  
                  
                  
                  561Other
      assets
                  
                  
                  51
                  
                  
                  
                  9Assets
      of discontinued operations, non-current
                  
                  
                  1,107
                  
                  
                  
                  1,529Total
      assets
                  
                  $
                  38,938
                  
                  
                  $
                  49,992LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      liabilities:Accounts
      payable
                  
                  $
                  16,639
                  
                  
                  $
                  18,016Accrued
      liabilities
                  
                  
                  4,983
                  
                  
                  
                  4,990Current
      portion of long-term debt
                  
                  
                  1,020
                  
                  
                  
                  1,020Related
      party - notes payable
                  
                  
                  2,856
                  
                  
                  
                  2,791Short-term
      notes payable
                  
                  
                  8
                  
                  
                  
                  8Loss
      in excess of investment of subsidiary
                  
                  
                  12,992
                  
                  
                  
                  12,992Liabilities
      of discontinued operations, current
                  
                  
                  30,683
                  
                  
                  
                  25,679Total
      current liabilities
                  
                  
                  69,181
                  
                  
                  
                  65,496Lines
      of credit
                  
                  
                  9,705
                  
                  
                  
                  12,393Long-term
      debt, net of discount of $3,766 and $4,090, respectively
                  
                  
                  4,526
                  
                  
                  
                  4,865Long-term
      derivative liabilities
                  
                  
                  6,983
                  
                  
                  
                  3,181Other
      long-term liabilities
                  
                  
                  1,913
                  
                  
                  
                  1,901Liabilities
      of discontinued operations, non-current
                  
                  
                  29,741
                  
                  
                  
                  35,722Total
      liabilities
                  
                  
                  122,049
                  
                  
                  
                  123,558Commitments
      and contingenciesStockholders'
      deficit:Common
      stock-$0.001 par value; 950,000,000 shares authorized; 54,754,809 shares
      issued: 53,430,652 outstanding
                  
                  
                  55
                  
                  
                  
                  55Additional
      paid-in capital
                  
                  
                  30,784
                  
                  
                  
                  30,800Accumulated
      deficit
                  
                  
                  (112,236
                  )
                  
                  
                  (102,707
                  )Treasury
      stock, at cost, 1,324,157 shares
                  
                  
                  (1,714
                  )
                  
                  
                  (1,714
                  )Total
      stockholders' deficit
                  
                  
                  (83,111
                  )
                  
                  
                  (73,566
                  )Total
      liabilities and stockholders' deficit
                  
                  $
                  38,938
                  
                  
                  $
                  49,992





The
accompanying notes form an integral part of the condensed consolidated financial
statements.





4


Titan
Global Holdings, Inc.
 Unaudited
Condensed Consolidated Statements of Operations
 (In
thousands, except share and per share amounts)




Three
      Months Ended11/30/2008
                                          
                                          
                                          11/30/2007Sales
      - Energy division
                                          
                                          $
                                          75,682
                                          
                                          
                                          $
                                          90,015Sales
      - Communications division
                                          
                                          
                                          2,714
                                          
                                          
                                          
                                          -Total
      sales
                                          
                                          
                                          78,396
                                          
                                          
                                          
                                          90,015Cost
      of sales - Energy division
                                          
                                          
                                          68,923
                                          
                                          
                                          
                                          84,924Cost
      of sales - Communications division
                                          
                                          
                                          2,684
                                          
                                          
                                          
                                          -Total
      cost of sales
                                          
                                          
                                          71,607
                                          
                                          
                                          
                                          84,924Gross
      margin
                                          
                                          
                                          6,789
                                          
                                          
                                          
                                          5,091Operating
      expenses:Sales
      and marketing
                                          
                                          
                                          136
                                          
                                          
                                          
                                          23General
      and administrative expenses
                                          
                                          
                                          8,204
                                          
                                          
                                          
                                          5,520Amortization
      of intangibles
                                          
                                          
                                          83
                                          
                                          
                                          
                                          69Loss
      from operations
                                          
                                          
                                          (1,634
                                          )
                                          
                                          
                                          (521
                                          )Other
      income (expenses):Other
      income
                                          
                                          
                                          80
                                          
                                          
                                          
                                          52Interest
      expense
                                          
                                          
                                          (1,227
                                          )
                                          
                                          
                                          (628
                                          )Gain
      (loss) on value of derivative instruments
                                          
                                          
                                          (3,802
                                          )
                                          
                                          
                                          2,417Income
      (loss) before income taxes
                                          
                                          
                                          (6,583
                                          )
                                          
                                          
                                          1,320Provision
      (benefit) for income taxes, net of valuation allowances
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Net
      income (loss) from continuing operations
                                          
                                          
                                          (6,583
                                          )
                                          
                                          
                                          1,320Loss
      from discontinued operations
                                          
                                          
                                          (2,946
                                          )
                                          
                                          
                                          (25,793
                                          )Net
      loss
                                          
                                          
                                          (9,529
                                          )
                                          
                                          
                                          (24,473
                                          )Accrual
      of preferred stock dividend
                                          
                                          
                                          (34
                                          )
                                          
                                          
                                          (34
                                          )Net
      loss applicable to common stockholders
                                          
                                          $
                                          (9,563
                                          )
                                          
                                          $
                                          (24,507
                                          )Net
      income (loss) applicable to common stockholders per share:Basic
      and dilutedContinuing
      operations
                                          
                                          $
                                          (0.12
                                          )
                                          
                                          $
                                          0.03Discontinued
      operations
                                          
                                          
                                          (0.06
                                          )
                                          
                                          
                                          (0.51
                                          )Net
      loss
                                          
                                          $
                                          (0.18
                                          )
                                          
                                          $
                                          (0.48
                                          )Number
      of weighted-average common shares outstanding:Basic
      and diluted
                                          
                                          
                                          53,430,652
                                          
                                          
                                          
                                          50,543,634




The
accompanying notes form an integral part of the condensed consolidated financial
statements.




5




Titan
Global Holdings, Inc.


Unaudited
Condensed Consolidated Statements of Cash Flows


(In
thousands)





Three
      Months Ended11/30/2008
                              
                              
                              11/30/2007Cash
      flows from operating activities:Net
      income (loss) from continuing operations
                              
                              $
                              (6,583
                              )
                              
                              $
                              1,320Adjustments
      to reconcile net income (loss) to net cash provided by (used in) operating
      activities:Depreciation
                              
                              
                              563
                              
                              
                              
                              504Bad
      debt and sales return expense
                              
                              
                              236
                              
                              
                              
                              -Non-cash
      compensation
                              
                              
                              18
                              
                              
                              
                              5Non-cash
      asset retirement obligation accretion expense
                              
                              
                              23
                              
                              
                              
                              23Non-cash
      interest expense
                              
                              
                              324
                              
                              
                              
                              123Amortization
      of debt discounts and bank fees
                              
                              
                              58
                              
                              
                              
                              46Amortization
      of intangibles
                              
                              
                              83
                              
                              
                              
                              69Gain
      (loss) on fair value of derivative liabilities
                              
                              
                              3,802
                              
                              
                              
                              (2,417
                              )Changes
      in operating assets and liabilities, net of effects of
      acquisitions:Accounts
      receivable
                              
                              
                              3,494
                              
                              
                              
                              (4,135
                              )Inventory
                              
                              
                              3,730
                              
                              
                              
                              (844
                              )Prepaid
      expenses and other current assets
                              
                              
                              346
                              
                              
                              
                              204Other
      assets
                              
                              
                              (42
                              )
                              
                              
                              53Accounts
      payable and accrued liabilities
                              
                              
                              (2,016
                              )
                              
                              
                              1,801Other
      liabilities
                              
                              
                              (13
                              )
                              
                              
                              426Total
      adjustments
                              
                              
                              10,606
                              
                              
                              
                              (4,142
                              )Net
      cash provided by (used in) operating activities of continuing
      operations
                              
                              
                              4,023
                              
                              
                              
                              (2,822
                              )Net
      cash provided by (used in) operating activities of discontinued
      operations
                              
                              
                              1,721
                              
                              
                              
                              (5,936
                              )Net
      cash provided by (used in) operating activities
                              
                              
                              5,744
                              
                              
                              
                              (8,758
                              )Cash
      flows from investing activities:Equipment
      and improvements expenditures
                              
                              
                              (195
                              )
                              
                              
                              (86
                              )Restricted
      investment to collateralize obligation
                              
                              
                              (3
                              )
                              
                              
                              (4,250
                              )Proceeds
      form sale of fixed assets
                              
                              
                              3
                              
                              
                              
                              -Cash
      paid to sellers of Appco
                              
                              
                              -
                              
                              
                              
                              (30,000
                              )Cash
      provided by acquisitions
                              
                              
                              -
                              
                              
                              
                              3,627Net
      cash provided by (used in) investing activities of continuing
      operations
                              
                              
                              (195
                              )
                              
                              
                              (30,709
                              )Net
      cash used in investing activities of discontinued
    operations
                              
                              
                              -
                              
                              
                              
                              (347
                              )Net
      cash provided by (used in) investing activities
                              
                              
                              (195
                              )
                              
                              
                              (31,056
                              )Cash
      flows from financing activities:Proceeds
      from issuance of common stock
                              
                              
                              -
                              
                              
                              
                              5,000Proceeds
      from sale leaseback transaction
                              
                              
                              -
                              
                              
                              
                              15,000Proceeds
      from issuance of long-term debt
                              
                              
                              -
                              
                              
                              
                              11,000Proceeds
      from lines of credit, net of repayments
                              
                              
                              (3,393
                              )
                              
                              
                              9,543Proceeds
      from related party notes
                              
                              
                              65
                              
                              
                              
                              -Payments
      on long-term debt
                              
                              
                              42
                              
                              
                              
                              (3,972
                              )Capitalized
      loan fees
                              
                              
                              -
                              
                              
                              
                              (775
                              )Purchase
      of treasury stock
                              
                              
                              -
                              
                              
                              
                              (41
                              )Net
      cash provided by (used in) financing activities of continuing
      operations
                              
                              
                              (3,286
                              )
                              
                              
                              35,755Net
      cash provided by (used in) financing activities of discontinued
      operations
                              
                              
                              (1,801
                              )
                              
                              
                              9,779Net
      cash provided by (used in) financing activities
                              
                              
                              (5,087
                              )
                              
                              
                              45,534Net
      increase in cash and cash equivalents
                              
                              
                              462
                              
                              
                              
                              5,720Cash
      and cash equivalents at beginning of period including cash of discontinued
      operations
                              
                              
                              2,469
                              
                              
                              
                              1,190Cash
      and cash equivalents at end of period including cash of discontinued
      operations
                              
                              $
                              2,931
                              
                              
                              $
                              6,910Cash
      and cash equivalents at end of period of discontinued
      operations
                              
                              $
                              10
                              
                              
                              $
                              1,054Cash
      and cash equivalents at end of period of continuing
    operations
                              
                              $
                              2,921
                              
                              
                              $
                              5,856





6




Titan
Global Holdings, Inc.


Unaudited
Condensed Consolidated Statements of Cash Flow Continued


(In
thousands)





Three
      Months Ended11/30/2008
                                
                                
                                11/30/2007Supplemental
      disclosures of cash flow information:Interest
      Paid
                                
                                $
                                350
                                
                                
                                $
                                906Income
      Tax Paid
                                
                                $
                                -
                                
                                
                                $
                                -Non-cash
      activities:Issuance
      of redeemable preferred stock for acquisition of note
      receivable
                                
                                $
                                -
                                
                                
                                $
                                7,245Issuance
      of common stock for  acquisition of note
    receivable
                                
                                $
                                -
                                
                                
                                $
                                4,000





The
accompanying notes form an integral part of the condensed consolidated financial
statements.
  7




TITAN
GLOBAL HOLDINGS, INC.


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
in thousands, except share and per share amounts)





Note
1 - Basis of Presentation and Nature of Business





Basis
of Presentation





The
accompanying unaudited condensed consolidated financial statements of Titan
Global Holdings, Inc. and its subsidiaries, (“Titan”, “We” or the “Company”),
have been prepared in accordance with U.S. generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by U.S. generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation are included herein. Operating results for the
three-month period ended November 30, 2008 are not indicative of the results
that may be expected for the fiscal year ending August 31, 2009. These unaudited
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and the notes thereto included in the
Company’s Annual Report to Shareholders on Form 10-K for the fiscal year ended
August 31, 2008 as filed with the Securities and Exchange Commission on December
1, 2008. All significant intercompany accounts and transactions have been
eliminated in preparation of the condensed consolidated financial statements.
All amounts referenced below are stated in thousands except shares and per share
amounts unless otherwise noted.





The
preparation of unaudited condensed consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the condensed consolidated financial statements
and the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates. Such estimates relate
primarily to the estimated lives of equipment and improvements, reserves for
accounts receivable and inventory, allocation of purchase price for
acquisitions, impairment of intangible assets, valuation of derivatives, fair
value of equity instruments issued, resolution of discontinued operations, loss
in excess of investment in subsidiary and sales returns.





Nature
of Business





Organization:





The
Company was organized under the laws of the State of Utah on March 1, 1985, with
the primary purpose of seeking potential business enterprises which in the
opinion of the Company's management would prove profitable. The Company was
largely inactive through 2001.





Nature
of Operations:





The
Company currently operates in two market segments – (i) energy through our Titan
Global Energy group and (ii) telecommunications through our Titan Communications
group.





Energy
Segment





Our
operations include retail convenience stores and wholesale petroleum
distribution in the Southeastern and Central United States.  We
operate 78 convenience store locations in Tennessee, Oklahoma, Kentucky and
Virginia, where we offer merchandise, foodservice, motor fuel and other services
consistent with the convenience store industry.   In addition, we
sell liquid motor fuels to an additional 160 locations through either wholesale
distribution contracts or consignment arrangements primarily to convenience
stores located in Tennessee, Kentucky, Virginia and North Carolina. During the
three months ended November 30, 2008 and 2007, we distributed approximately
23,800 and 31,600, respectively, gallons of branded and unbranded motor fuel
from refiners and terminal operators for our retail convenience store locations,
wholesale distribution contracts and consigned locations. Our business
experiences substantial seasonality due to customer behaviors during different
seasons. In general, sales and operating income are highest in our third and
fourth fiscal quarters which occur in the spring and summer
months.  Our lowest activity months are during the winter
months.





We offer
Marathon, BP, Citgo and Exxon branded motor fuel and unbranded motor
fuel.  We purchase our gasoline from these major oil companies,
terminal operators and independent refiners.  We purchase our branded
gasoline and diesel fuel from major oil companies under supply agreements at the
stated rack price or the market price quoted at each terminal as adjusted per
the terms of the applicable contracts.  Our inventories of gasoline
generally turn in approximately seven or less days.





8




Communications
Segment




Our
communications division provides its customers efficient, cost-effective
international prepaid telecommunications calling cards.  We provide
our end-user customers through our distribution network international prepaid
calling cards that offer efficient calling options to foreign
countries.  Prepaid, also known as pay-as-you-go and pay-in-advance,
is service that is paid for prior to usage. Many consumers prefer prepaid
because it offers improved budget controls, access and flexibility while not
requiring deposits or constraining contracts. This method of payment has been
widely used in foreign markets and is gaining acceptance in the United States.
We generally design our cards on a region/country specific basis to offer our
customers enhanced value to their preferred call destinations.  Our
cards are generally sold in $2, $3 and $5 denominations.  The prepaid
international calling cards we are currently distributing are sourced from one
provider. We purchase the cards for a fixed price; mark the cards up, taking
into consideration our fixed overhead and profit margin, and sell through our
distribution network.





Discontinued
Operations




In August
2008, the Company evaluated the operations of the Titan Electronics Group, which
has been historically included in the Company’s electronics and homeland
security division and determined to cease operations.  The Electronics
Group includes Nexus, Titan East Inc. f/k/a Titan PCB East, Inc and Titan
Electronics, Inc. The Company began liquidating the remaining assets including
fixed assets, inventory and accounts receivable.  As such, the
operations of Titan Electronics Group have been included as discontinued
operations as of and for the three months ending November 30, 2008 and
2007.





In August
2008, the Company evaluated its communications division and determined to
classify the operations of Oblio Telecom, StartTalk and Titan Wireless as
discontinued. As such, the operations of a portion of the Communications
division have been included as discontinued operations as of and for the three
months ending November 30, 2008 and 2007.





In August
2008, the Company’s Titan Apparel subsidiary ceased operations and we began
liquidating the remaining assets including inventory, accounts receivable and
fixed assets.  The operations of Titan Apparel have been classified as
discontinued operations as of and for the three months ending November 30, 2008
and 2007.





Liquidity:





Our
principal sources of liquidity are our existing cash, cash equivalents and
short-term investments, cash generated from operations, and cash available from
borrowings under our revolving credit facilities. We may also generate liquidity
from offerings of debt and/or equity in the capital markets. As of
November 30, 2008, we had a total of $2,921 in unrestricted cash and cash
equivalents, including $10 in cash from discontinued operations. As of
November 30, 2008, we also had restricted cash and cash equivalents and
short-term investments of $624 that included funds set aside or pledged to
secure lines of credit with key suppliers. We believe that our existing cash and
investments, liquidity under our revolving credit facility and anticipated cash
flows from operations will be sufficient to meet our operating and capital
requirements through at least the next twelve months.





We
currently intend to seek opportunities to acquire strategic assets that will
enhance our holdings in our energy division.  .  On January
15, 2009, the Company closed on the acquisition of Crescent Fuels, Inc.
(“Crescent Fuels”). The acquisition of Crescent Fuels increases the Company’s
aggregate lines of credit with fuel suppliers and our unleveraged asset
base.  Increased lines of credit with fuel suppliers decrease our
reliance on financing our working capital needs through our asset based
revolving credit facilities.  Increasing unleveraged assets creates
more borrowing capacity under our revolving credit facilities.  The
combination of these two factors increases the company’s liquidity and financing
options and lowers our borrowing costs.  We anticipate financing any
purchases of assets, and any related working capital and/or initial operating
cost needs, with cash from operations, our existing cash, cash equivalents and
short-term investments, borrowings under our revolving credit facility, and
proceeds from offerings of debt and/or equity securities. The amounts we may
seek to raise through any such offerings may be substantial.





Operating Activities -Cash
provided by operating activities was $5,744 ($4,023 from continuing operations
and $1,721 from discontinued operations) during the three months ended November
30, 2008 compared to cash used in operating activities of $8,758 ($2,822 used in
continuing operations and $5,936 used in discontinued operations) during the
three months ended November 30, 2007. The increase in cash provided by
operations is due primarily to the decreases in accounts receivable and
inventories net of the decrease in accounts payable. Decreases in accounts
receivable, inventories and accounts payable were primarily due to lower fuels
prices during the three months ended November 30, 2008.


9


Investing Activities -Cash
used in investing activities was $195 ($195 used in continuing operations and $0
used in discontinued operations) during the three months ended November 30,
2008 compared to cash used in investing activities of $31,056 ($30,709 used in
continuing operations and $347 used in discontinued operations) during the three
months ended November 30, 2007. The decrease in cash used in investing
activities is due primarily to $30,000 paid to the sellers of Appco in the three
months ended November 30, 2007.





Financing Activities -Cash
used in financing activities during the three months ended November 30,
2008 was $5,087 ($3,286 used in continuing operations and $1,801 used in
discontinued operations) compared to cash provided by financing activities of
$45,534 ($35,755 provided by continuing operations and $9,779 used in
discontinued operations) during the three months ended November 30, 2007. The
decreases in cash provided from financing activities in the three months ended
November 30, 2008 is due primarily to credit line repayments. In the same period
last year the Company’s received approximately $35,000 from a sale leaseback
transaction, common stock issuance and long-term debt
issuance.





Note 2 –
Acquisition





Acquisition
of Crescent Fuels





The
Company formed Titan Global Energy Group to acquire and manage complementary
energy sector assets. On October 24, 2008 the Company entered into two stock
purchase agreements, one with Phillip Near and one with Johnson Enterprises of
Kansas, LLC, Jeff McReynolds, Karen E. Reeder Trust, Harrison F. Johnson, Jr.,
and Martha M. Johnson Trust, to purchase 100% of the outstanding common and
preferred stock of Crescent Fuels. The acquisition closed on January 15, 2009.
Crescent Fuels distributes motor fuels to approximately 360 wholesale and
consignment locations and operates 36 convenience stores in Kansas, Oklahoma,
Missouri, Louisiana and Arkansas.  The primary reason for the purpose
of the acquisition was to broaden the geographical footprint of our fuel
distribution and convenience store operations in our Titan Global Energy
division.   The purchase price for the common and preferred stock
of Crescent Fuels under the stock purchase agreements included shares of the
Company’s common stock, warrants to purchase the common stock of the Company and
cash.   This transaction will be recorded in the Company’s second
fiscal quarter ending February 28, 2009.





On
September 30, 2008, the Company entered into a continuing unconditional guaranty
with Marshall & Isley Bank (“M&I”), the senior secured lender of
Crescent Fuels’ subsidiary Crescent Oil Inc.  The unconditional
guaranty is limited to $19,000.  In addition to the unconditional
guaranty provided by the Company, additional guarantees are provided to M&I
by a senior member of Crescent Fuels’ management.  Based on the
guarantees, Crescent Fuels is considered a variable interest
entity.  Management performed a quantitative analysis and determined
the Company is not the primary beneficiary of Crescent Fuels and therefore the
results of operations and the balance sheet should not be consolidated with the
Company as of the date of the continuing unconditional guaranty.





Note
3 – Recent Accounting Pronouncements





In
December 2007, the FASB issued FASB 141(R), ("Business Combinations") of which
the objective is to improve the relevance, representational faithfulness, and
comparability of the information that a reporting entity provides in its
financial reports about a business combination and its effects. The new standard
requires the acquiring entity in a business combination to recognize all (and
only) the assets acquired and liabilities assumed in the transaction;
establishes the acquisition-date fair value as the measurement objective for all
assets acquired and liabilities assumed (including contingent payments);
requires expensing of all costs incurred in the transaction; and requires the
acquirer to disclose to investors and other users all of the information they
need to evaluate and understand the nature and financial effect of the business
combination. This Statement applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. An entity may not
apply it before that date. The Company is currently evaluating FASB 141(R) and
the effect that adopting FASB 141 (R) will have on our results of operations or
financial position.





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements — an amendment of ARB No. 51”, (“SFAS
160”). SFAS 160 requires that a noncontrolling interest in a subsidiary be
reported as equity and the amount of consolidated net income specifically
attributable to the noncontrolling interest be identified in the consolidated
financial statements. It also calls for consistency in the manner of reporting
changes in the parent’s ownership interest and requires fair value measurement
of any noncontrolling equity investment retained in a deconsolidation. SFAS 160
is effective for fiscal years beginning on or after December 15, 2008. The
Company is currently evaluating SFAS 160 and the effect that adopting SFAS 160
will have on our results of operations or financial position.





10




In March 2008, the FASB issued FAS 161,
“Disclosures about
Derivative Instruments and Hedging Activities—anamendment of FASB
Statement No. 133(“FAS
161”).FASB
Statement No. 133,Accounting for
Derivative Instruments andHedging
Activities, establishes,
among other things, the disclosure requirements for derivative instruments and
for hedging activities. FAS 161 amends and expands thedisclosure requirements of Statement
133 with the intent to provide users of financialstatements with an enhanced
understanding of(i) How and why an entity
uses derivative instruments(ii) How derivative instruments and
related hedged items are accounted for underStatement 133 and its related
interpretations(iii)How derivative instruments and related
hedged items affect an entity’s financialposition, financial performance, and
cash flows.FAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008.




The
Company is currently evaluating FAS 161, and how the effect that adopting FAS
161 will have on our results of operations or financial position.





In April
2008, the FASB issued Staff Position 142-3, “Determination of the Useful Life of
Intangible Assets” (“FSP 142-3”). This standard amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS 142. FSP
142-3 is effective for financial statements issued for fiscal years beginning
after December 15, 2008 and interim periods within those fiscal years. Early
adoption is prohibited. The Company is currently evaluating FSP 142-3, and has
not yet determined its potential impact on its future results of operations or
financial position.





Note
4 – Income (Loss) per Common Share





The
Company computes net loss per share in accordance with Statement of Financial
Accounting Standards No. 128 “Earnings per Share” (“SFAS
128”) and SEC Staff Accounting Bulletin No. 98 (“SAB 98”). Under the provisions
of SFAS 128 and SAB 98, basic net income or loss per share is computed by
dividing the net income or loss available to common stockholders for the period
by the weighted-average number of common shares during the period. Diluted net
income or loss per share is computed by dividing the net income or loss
available to common stockholders for the period by the total number of common
and common equivalent shares outstanding during the period.





During
the period when they would be anti-dilutive, common stock equivalents (which
during the three months ended November 30, 2008 consisted of employee
options/warrants to purchase 550,000 common shares, warrants to purchase
11,730,000 common shares and preferred stock convertible into 3,252,238 common
shares) are not considered in the computations. During the three months ended
November 30, 2007 the common stock equivalents that were anti-dilutive and
therefore not considered in the calculations consisted of employee
options/warrants to purchase 1,492,500 common shares, warrants to purchase
12,230,000 shares and preferred stock convertible into 3,184,738 common
shares.





Note
5 - Inventory





Inventory
consisted of finished goods. There were no inventory reserves.





Discontinued
operations inventories, net of allowance of $1,249 and $4,095 were $1,632 and
$7,318 at November 30, 2008 and 2007, respectively.





Note
6 - Greystone Business Credit





Titan
Global Energy Division





On
September 17, 2007, the Company acquired Appco.  As part of the
acquisition, the Company entered into a credit facility including a revolving
line of credit in the maximum amount of $20,000 less the outstanding balance
under Term Notes A, B and C under the Loan and Security Agreement dated as of
December 29, 2006. The credit facility also includes term loans of up to $5,200.
An aggregate of approximately $14,909 was advanced under the loan and credit
facility related to the initial Appco acquisition. Advances will be based upon
(i) 90% of eligible accounts receivable, and (ii) the sum of up to 45% of
eligible convenience store inventory plus up to 75% of eligible fuel inventory.
The borrower is required to have a minimum outstanding balance of $10,000. The
revolving credit facility and the term loans bear interest at a rate of 1.5%,
plus the prime interest rate. A loan servicing fee of .25% is payable each month
based on the average daily outstanding balance outstanding under the revolving
facility and the term loans. In the event of a termination of the facility, an
early termination fee will be payable. Such fee equals 1% of the maximum
revolving facility and the term loans if the termination occurs during the first
year, which is reduced to 0.50% if termination occurs in the second year and
0.25% if terminated thereafter. The borrower will also be assessed credit
accommodation fees of 2% of the face amount of the letter of credit for up to 60
days and 1% of the face amount of such letter of credit for each 30 day period
thereafter. The loan and line of credit is due September 16, 2012.





11




The
Company issued Greystone a warrant to purchase 500,000 shares of common stock at
a price of $2.00 per share, exercisable for a period of five
years.  Titan is obligated to register the common stock underlying the
warrant within six months of the closing or by March 17, 2008.  As of
January 20, 2009, the common stock underlying the warrant has not yet been
registered.  No penalties have been assessed by Greystone related to
this obligation.





At
November 30, 2008 the revolver had an outstanding balance of $9,287 and the term
notes had a carrying value of $2,969 (net of discount of $343) and an excess
availability and an excess available credit of $0 based on actual borrowing
capacity. The interest rate on the revolver and term loans was 5.5% at November
30, 2008.





Discontinued
Operations of Communications and Electronics and Homeland Security
Division





On
December 29, 2006, the Company, together with all of its subsidiaries, entered
into a credit facility with Greystone. The new credit facility with Greystone
initially included a revolving line of credit (“Revolver”) in the maximum amount
of $15,000 and also includes senior term loans of up to $7,950.





The
revolver expires in December 2009, subject to earlier termination under certain
circumstances. The revolving credit facility bears interest at a rate of 1.5%,
plus the prime interest rate. Interest payments on the revolver are due monthly
with principal paid at maturity. Revolver loans will be advanced based upon 85%
of eligible accounts receivable and up to a maximum of 85% of eligible
inventory, subject to certain limitations. The Company is required to have a
minimum unused availability under the line of between $200 and $1,000. The
Company was obligated to use any refunds on commercial taxes including Universal
Service Fees (“USF”) to repay the term loans. As of November 30, 2008, the
Company has no excess availability based on collateral under the
line.





The
senior term loans bear interest at a rate of 6%, plus the prime interest rate,
provided that such rate is reduced by .5% for each reduction of principal by
$1,000. The senior term loans are to be paid off in 48 equal installments of
$135 per month which will result in repayment of the principal.





The
Company granted a security interest in all of its assets to Greystone as
security for the financing facility. Such security included a pledge of all
trademarks and the stock of all subsidiaries.





The
Company paid a commitment fee of $369 and will pay an annual commitment fee of
0.5% of the facility, payable on each anniversary. A loan servicing fee of .3%
is payable each month based on the amount outstanding under the revolving
facility. There is also a $20 per month administrative fee. In the event of a
termination of the facility, an early termination fee will be payable. Such fee
equals 1% of the maximum revolving facility and the term loans if the
termination occurs during the first year. As additional consideration for the
facility, the Company issued to Greystone: (i) 500,000 shares of common stock
valued at $505 and was recorded as a debt discount, and (ii) a warrant to
purchase 500,000 shares of common stock at a price of $1.00 per share,
exercisable for a period of five years which was recorded as a derivative
liability. The Company is obligated to register the shares of common stock and
the common stock underlying the warrant.





On
February 14, 2007, the Company entered into Amendment #1 with Greystone. Through
the amendment, Greystone increased the Company’s Revolver line of credit from
$15,000 to $18,000 and provides for senior term loans of up to
$7,608.





On June
1, 2007, the Company entered into Amendment #2 with
Greystone.  Through the amendment, the Company received approval from
Greystone to transfer 100% of the issued and outstanding shares of common stock
related to StartTalk from Oblio to the Company.





On June
11, 2007, the Company received the proceeds from tax refunds owed related to
Federal Excise Tax (“FET”).  The Company used $3,232 of the proceeds
to repay Term Loan B in full.





On July
25, 2007, the Company entered into Amendment #3 with
Greystone.  Through the amendment, Greystone agreed to reestablish
Term Loan B and advance the Company up to $1,500.





12




On August
23, 2007, the Company entered into Amendment #4 with Greystone. Through the
amendment, Greystone agreed to increase Term Loan B by $500 up to a maximum of
$2,000. The monthly principal payment for Term Loan A is $18 and the new monthly
principal payment for reestablished Term Loan B is $83. The amended senior Term
Loan B is to be paid off in 24 equal installments, which will result in
repayment of the principal.  The terms for Loan A were not
changed.





On
September 17, 2007, the Company entered into Amendment #5 with
Greystone.  Through the amendment, Greystone consented to the debt
issuance in favor of YA Global Investments, L.P. of $6,000 and agreed to a Term
Loan C advance of $5,000. This three-year note carries an annual interest rate
of 1.5% in excess of the prime interest rate and is fully collateralized with
$5,000 of cash held in a restricted account. The entire balance of Term Loan C
is due and payable on the maturity date of the loan.





On
October 17, 2007, the Company entered into Amendment #6 with Greystone. Through
the amendment, Greystone consented to the formation of Titan Card Services,
Inc.





On
October 17, 2007, the Company entered into Amendment #7 with Greystone. Through
the amendment, Greystone reduced the amount of the minimum unused availability
to $0 and agreed to increase the minimum unused availability by $16 each month
up to a maximum amount of $750.  In addition, the repayment schedule
was modified for Term Loan B to $43 per month.





On
November 30, 2007 the Company entered into Amendment #8 with Greystone. The
amendment decreased the interest rate on Term Loan C from 1.5% above the prime
rate to 0.75% per annum. The interest rate on Term Loan C was lowered to 0.75%
because the loan was 100% collateralized by cash held in a non-interest bearing
escrow at Greystone which approximates the market rate of interest for loans
with this type of collateral.





On March
3, 2008, effective December 2007, the Company entered into Amendment #9 with
Greystone. Through the amendment, Greystone consented to the formation of Titan
Communications, Inc.





On March
3, 2008, effective February 11, 2008, the Company entered into Amendment #10
with Greystone.  The amendment created Term Loan D, as an advance to
Titan Nexus and increased the revolver amount to $20,000; $7,000 to the
Electronics and Homeland Security segment and $13,000 to the Communications
segment.  Term Loan D shall be repaid in monthly installments
beginning March 1, 2008 with the balance due on the maturity date of February 1,
2011.  The amendment also modified the interest rates as follows: all
revolving loans have an interest rate of 1.5% per annum in excess of the prime
rate except the revolving loans owed by Titan Nexus in excess of $1,000 which
have an interest rate of 4.5% per annum in excess of the prime rate and the
interest rates shall not be lower than 6.0% per annum, the interest rate on Term
Loan A shall be 6.0% per annum in excess of the prime rate and shall be reduced
by one-half of one percent for every $1,000 reduction in the term loan but not
lower than 5.0% per annum in excess of the prime rate, the interest rate for
Term Loan B is 5.0% per annum in excess of the prime rate, the interest rate for
Term Loan C is 0.75% per annum and the interest rate for Term Loan D is 6.0% per
annum in excess of the prime rate.





On
February 29, 2008, the Company entered into Amendment #11 with
Greystone.  The amendment expands the definition of eligible borrowers
under the loan and security agreement for the communications division to include
newly formed entities.





On March
5, 2008, Term Loan C’s outstanding balance of $5,000 was paid in
full.





On May
30, 2008, the Company entered into Amendment #12 with Greystone.  In
the amendment Greystone consented to the Company’s entry into an unsecured
subordinated indebtedness with Mike Kadlec, at the time, the CEO of Titan
Electronics Inc. who resigned as of July 18, 2008.  In addition, the
amendment specified the terms and conditions of term loan E for $300 with $25
per month amortization payments beginning July 1, 2008.  Term loan E
carries interest at prime plus 6%.





On June
9, 2008, the Company entered into Amendment #13 with Greystone.  The
amendment set the term loan D limit at $1,050 and established a 44 month
amortization term for term loan D.





On
October 13, 2008, the Company entered into Amendment #14 with
Greystone.  The amendment created a borrowing account sub-limit for
the loans related to the Company’s Planet Direct subsidiary to $3,000,
acknowledged the formation of our Global Wholesale International Inc. subsidiary
and defined what qualifies as an eligible account for borrowing base calculation
purposes for Planet Direct.





13




As of
November 30, 2008, the Term Loan B balance is $1,618 and the Revolver has a
balance of $12,582 with an excess available credit of $0 based on actual
borrowing capacity. Interest rates on the revolver were 4.25% on $12,282 and
5.5% on $299. Term Loan B has an interest rate of 10.75%. Loans B and the
revolver are included in the Electronic and Homeland Security and Communications
Divisions discontinued operations.





Debt
      Covenant Restrictions Related to Communications and Electronics and
      Homeland Security DebtsMaximum
      Cumulative Net Loss:
              
              $1,000
      on a cumulative basis for the period from September 1, 2006 through the
      end of the TermMaximum
      Leverage Ratio:
              
              Not
      applicableLimitation
      on Purchase Money Security Interests:
              
              $1,000Limitation
      on Equipment Leases:
              
              $1,000Additional
      Financial Covenants:
              
              None





The
Company has met all covenant terms except the maximum cumulative net loss. The
Company has received a written waiver from Greystone related to this covenant
through November 30, 2009.  No penalties have been assessed related to
this violation.





Discontinued
Operations of Global Brands Division





On
December 14, 2007, the Company through its subsidiary Titan Apparel, Inc.
(“TAPP”) entered into a Loan and Security Agreement in connection with a Secured
Party Bill of Transfer of the collateral of Global Brand Marketing Inc. (“GBMI”)
with Greystone.  The credit facility includes a revolving line of
credit in the maximum amount of $14,000.  The credit facility also
includes a term loan of up to $2,000.   Loans will be advanced on
the revolver based on a formula related to certain levels of eligible accounts
receivable and inventory as defined in the agreement.  The agreement
has a maturity date of December 29, 2009.  The revolving credit
facility bears interest at 3% per annum in excess of the prime rate for a period
of six months from the date of the loan and security agreement and 5% thereafter
and the term loan bears interest at a rate of 5% per annum in excess of the
prime rate for a period of six months from the date of the loan and security
agreement and 7% thereafter.  The agreement contains a provision for a
net sales participation fee calculated as 5% of net sales to be applied to the
outstanding balance of the term loan until the term loan is paid in full and
thereafter paid as a fee.  The agreement contains a provision for a
sharing fee calculated as 25% of the net profits for the first four full fiscal
quarters occurring after the loan agreement payable when the financial
statements of the eligible fiscal quarter are delivered. As collateral for
advances under the credit facility, TAPP has granted Greystone a security
interest in all of its assets including all trademarks and
patents.  The Company initially guaranteed the obligations of TAPP up
to $250. In September 2008, the Company entered into an amendment to the parent
guaranty of the TAPP Loan and Security Agreement with Greystone that limited the
amount of the Company’s guaranty to a maximum of $2,500. At November 30, 2008
the revolver had an outstanding balance of $2,888 and the term note had a
balance of $4,351 and an excess available credit of $0 based on actual borrowing
capacity.  The interest rates on the revolving credit facility and
term loans were 9% and 14.5% respectively, at November 30, 2008.





Modification
Agreement with Greystone Business Credit II, LLC





In the
fourth quarter of fiscal 2008, the Company entered into a modification agreement
with Greystone.  The agreement set forth (1) general terms and
conditions of the structure a future working relationship concerning any assets
that may become available from the Chapter 7 bankruptcy proceeding of USAD (2) a
36 month amortization schedule of the over advance attributable to the
discontinued operations of Oblio Telecom (3) terms and conditions of the related
party loan from the Crivello Group to our subsidiary, Titan Nexus (4) an outline
of the working structure for the Planet Direct sub-limit portion of the Titan
Loan Agreement (5) consent to transfer the ownership of certain parcels of real
estate owned by Appco in partial satisfaction of  indebtedness owed by
the Company to the Crivello Group (6) modifications to the Appco monthly
amortization schedule should the Company continue to be unable to obtain certain
leasehold mortgages in favor of Greystone (7) terms and conditions of future
merger transactions with our Titan Apparel subsidiary (8) conditions subject to
additional loan facilities being made available to Titan Apparel  and
(9) an interest surcharge of 3.5% on any over advance with our Titan Apparel
subsidiary.





14




Concurrent
with the modification agreement with Greystone, our Chairman, David Marks and
Frank Crivello executed a joint and severable limited recourse guaranty of
$5,000 for the debts of the Company owed to Greystone. In addition, Farwell
Equity Partners II, LLC, a related party to David Marks and Frank Crivello
executed a limited recourse guaranty for the debts of the Company owed to
Greystone that is secured by 6,000,000 common shares of Marine Growth Ventures,
Inc. common stock shares.  The Farwell Equity Partners II pledge is
limited to the pledged shares.  The pledged Marine Growth Ventures,
Inc. common shares are traded on the OTC Bulletin Board and were trading at
$0.10 per share on January 7, 2009.





Note
7 – YA Global





On
September 17, 2007, the Company issued a secured convertible debenture in the
principal amount of $6,000 to YA Global which funds were advanced to us
immediately. The Company pledged all of its assets and rights to secure this
debenture subordinate to Greystone. Interest on the debenture accrues at 10% per
annum. The debenture is convertible at the option of the holder into shares of
common stock of Titan at a price of $2.25 per share. The debenture matures on
September 17, 2010. Beginning on May 1, 2008 and continuing on the first
business day of each successive month, the Company will make payments by
converting such installment payment into shares of common stock provided certain
equity conditions are met. The conversion price is equal to the lower of (i)
$2.25 per share, or (ii) 90% of the lowest daily volume weighted average price
of the common stock during the 15 consecutive trading days immediately preceding
the conversion date. The Company may also at its option choose to redeem a
portion or all of the installment payment by paying such amounts in cash plus a
redemption premium of 10%. The Company may defer the payment of any installment
payment to the maturity date if the volume weighted average price of the common
stock equals 110% of the applicable conversion price for the consecutive 5
trading days prior to the notice due date for the applicable installment
payment. Each installment amount shall be equal to all accrued and unpaid
interest, plus the lesser of (a) the product of (i) $200 multiplied by a
fraction of which the numerator is the original principal amount and the
denominator of which is the aggregate purchase price paid under the Purchase
Agreement and (b) the principal amount of the debenture on the installment
payment date.





The
Company has the right to redeem a portion or all amounts outstanding under the
Debenture prior to the maturity date at a premium of 10% provided that (i) the
Volume Weighted Average Price (VWAP) of Titan’s Common Stock is less than the
conversion price of $2.25; (ii) no event of default has occurred and (iii) the
underlying Registration Statement is effective.





The
Company also issued YA Global warrants to purchase 525,000 shares of common
stock at a price of $2.47 per share and 525,000 shares of common stock at a
price of $2.81 per share, exercisable for a period of five
years.  Titan is obligated to register the common stock underlying the
warrant within 90 days of the closing. The Company has not yet registered the
common stock underlying the warrants. The Company has received a waiver from YA
Global related to this deficiency.  No penalties have been assessed
related to this violation.





The note
was issued with a beneficial conversion feature. At issuance, the note was
recorded at $1,831 with an associated discount of $4,169.  The
discount will be amortized over the 36 month term of the note. At November 30,
2008, the note had a recorded balance of $2,577 with an unamortized discount of
$3,423. No payments have been made and the Company has not been notified of any
defaults.





Note
8 – Seller-Financed Notes and Preferred Stock in Discontinued
Operations





Seller-financed
debt was provided in connection with the acquisition of Oblio on August 12,
2005, and the Company issued to the Seller, F&L, LLP (“F&L”) formerly
known as Oblio Telecom, LLP, an 18-month promissory note in the principal amount
of $2,500. The note matured on February 12, 2007 and carried an interest rate of
1% per annum. The note was recorded upon issuance at its fair value of $2,245,
and the associated discount of $255 was amortized over the 18-month term of the
note. The effective interest rate on the note was approximately
7.50%.





Additional
seller financing was provided upon the closing of the Oblio acquisition in the
amount of $2,323 in a contractual short term obligation that was not
interest-bearing. On December 14, 2005, a promissory note was executed
acknowledging this amount due to the Seller. The Note bears interest of 4%, and
had an initial maturity date of May 31, 2006 which was extended to March 31,
2009.





On
December 29, 2006, F&L agreed to amend the terms of Oblio Series A Preferred
Stock originally issued to them as part of the Oblio acquisition. The provisions
related to potential additional value of the preferred shares as a result of
attainment of certain financial goals were eliminated and the stated value of
the preferred stock was reduced from $9,000 to $4,500. The preferred stock
agreement was modified as follows:




15




·
            The
      amended Series A Preferred Stock includes the first tranche only and is a
      fixed 3,000 shares with a stated value of $1.50 per
  share.


·
            Holders
      of the Series A Preferred are entitled to preferential cash dividends out
      of the Company’s funds at an annual rate of 3% of the then current stated
      value, payable quarterly.


·
            All
      shares must be redeemed by March 31,
2009.


·
            The
      Series A Preferred is convertible into a number of shares of Common Stock
      equal to the then stated value (plus accrued and unpaid dividends) divided
      by $1.50 (the “Conversion Price”). The Conversion Price is subject to
      adjustments as a result of, among other things, stock splits and
      reclassifications and contains initial anti-dilution provisions including
      adjustments to the Conversion Price in the event of the Company issuing
      Common Stock at prices below the initial Conversion
  Price.


·
            The
      Series A Preferred is non-voting, subordinate to all Greystone debt and
      has a preference in liquidation of $12,345 as of November 30,
      2008.





On the
same date, pursuant to the amendment, F&L agreed to extend the maturity date
of the notes to March 31, 2009, and increase the interest rate to 5% per annum.
Oblio will make monthly payments of $179, commencing January 31, 2007. In
connection with the amendment, the Company issued 250,000 shares of common stock
valued at $253 to F&L LLP. In addition, the Company agreed to guaranty the
payment to be made by Oblio. No payments have been made since July 2007 and the
Company is currently being sued by F&L, as discussed in Note
15.





In
accordance with SEC Accounting Series Release No. 268, Presentation in Financial
Statements of "Redeemable Preferred Stock",the Company has classified
this preferred stock as well as the accrued dividends as long-term liability.
Additionally, due to the potential variability of the Conversion Price as
discussed above, the Company is required to record the embedded conversion
feature of the Series A Preferred Stock as a liability at fair value and to
re-measure that value each reporting period with changes being charged to
operations.





As of
November 30, 2008, the Company has recorded $3,570 as debt related to the note
and $4,912 related to the preferred stock (which includes $412 in accrued
dividends).  No dividend payments have been made as of January 19,
2009. The Series A Preferred Stock in included in the discontinued operations
long-term liabilities at November 30, 2008 and 2007.





Note
9 – Titan Electronics Convertible Preferred Stock in Discontinued
Operations





On
November 30, 2007, Titan Electronics, a direct subsidiary of the Company and the
parent company of Titan Nexus, issued YA Global 103,503 shares of its series A
convertible preferred stock (“Titan Electronics Preferred Stock”), which
contains the following provisions:





• Upon
any dissolution, liquidation, winding-up or change of control of Titan
Electronics, the Titan Electronics Preferred Stock has a liquidation value of
$70 per share, or an aggregate of $7,245;





• The
Titan Electronics Preferred Stock is convertible into shares of Titan
Electronics common stock and initially each share converts into 70 shares of
common stock. At such time as the common stock commences trading, the conversion
ratio shall be amended to the product of the stated value, divided by the lower
of (i) the value weighted average price VWAP of the Titan Electronics common
stock for the first 30 trading days, (ii) the VWAP value weighted average price
for the Titan Electronics common stock for the 20 trading days ending on the
date which is one year after the initial trading date, or (iii) 85% of the
lowest volume weighted average price during the 20 trading days immediately
preceding the conversion date; provided that in no event shall such amount be
less than the figure obtained by dividing $2,000 by the number of shares of
common stock of Titan Electronics outstanding on a fully diluted basis, not
including shares issuable to YA Global or their assignee. The Titan Electronics
Preferred Stock contains customary value weighted anti-dilutions provisions.
Holders of Titan Electronics Preferred Stock may not convert into shares of
Titan Electronics common stock which would result in the holder owning more than
4.99% of the then outstanding shares of common stock, except on 65 days’ prior
notice;





• The
Titan Electronics Preferred Stock votes together with the Titan Electronics
common stock and has the same number of votes as the number of shares of common
stock into which the shares are convertible;





16


• Titan
Electronics has the right to redeem the Titan Electronics Preferred Stock on 30
days notice at any time in cash equal to the stated value of the shares being
redeemed; and





• In the
event at any time after the date which is 18 months from the issuance date of
the shares of Series A Preferred Stock, the Holder has the right to put the
shares to Titan Electronics solely in the event (i) Titan Electronics has not
acquired materially all of the assets of Nexus Nano, and (ii) the Titan
Electronics common stock is not then trading. The redemption price equals the
stated value.





In
accordance with SEC Accounting Series Release No. 268, Presentation in Financial
Statements of "Redeemable Preferred Stock",the Company has classified
this preferred stock as a long-term liability at face value.





Note
10 – Leases





Operating
Leases





The
Company through its Appco subsidiary operates 78 leased convenience stores in
Tennessee, Oklahoma, Kentucky, and Virginia. The convenience store
non-cancellable leases expire at various dates between 2009 and 2027 with
monthly rents from $1 to $20. Real estate taxes, insurance, and maintenance
expenses are obligations of the Company.





The
Company also leases facilities for the telecommunications division and
administrative headquarters.





Rent
expense for continuing operations totaled $1,174 and $907 for the three months
ended November 30, 2008 and 2007, respectively. Rent expense for discontinued
operations totaled $12 and $482 for the three months ended November 30, 2008 and
2007, respectively.





Note
11 – Long-Term Debt





Long-term
debt consisted of the following:




Issue
                    
                    Interest
                    
                    ExpirationDate
                    
                    Rate
                    
                    Date
                    
                    Instrument
                    
                    200809/17/2007
                    
                    5.50%
                    
                    09/17/2012
                    
                    $20,000
      Secured Revolving Note
                    
                    9,28609/17/2007
                    
                    5.5% to 7.25%
                    
                    09/17/2012
                    
                    $5,200
      Term Notes
                    
                    3,31209/17/2007
                    
                    10%
                    
                    09/17/2010
                    
                    $6,000
      Convertible Debentures
                    
                    6,00012/14/2007
                    
                    5.50%
                    
                    12/29/2009
                    
                    $3,000
      Secured Revolving Note
                    
                    419Total
      debt
                    
                    
                    
                    
                    
                    
                    
                    19,017Less
      discount from warrants and derivatives
                    
                    
                    
                    (3,766)Total
      carrying value of debt
                    
                    
                    
                    
                    
                    15,251Less
      current portion of long-term debt
                    
                    
                    
                    (1,020)Total
      long-term debt
                    
                    
                    
                    
                    
                    $                14,231




Long-term
debt repayments are due as follows:




Fiscal Year
              
              YA Global
              
              
              Greystone
                Revolvers
              
              
              Greystone
                Term Debt
              
              
              Total Long-
                Term
      Debt2009
              
              $
              -
              
              
              $
              -
              
              
              $
              1,020
              
              
              $
              1,0202010
              
              
              -
              
              
              
              419
              
              
              
              1,020
              
              
              $
              1,4392011
              
              
              6,000
              
              
              
              -
              
              
              
              1,005
              
              
              $
              7,0052012
              
              
              -
              
              
              
              9,286
              
              
              
              267
              
              
              $
              9,553$
              6,000
              
              
              $
              9,705
              
              
              $
              3,312
              
              
              $
              19,017





17




Note
12 - Derivative Financial Instrument Liability





Pursuant
to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
as amended, and EITF Issue No. 00-19, Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, A Company’s Own Stock, the
Company has identified certain embedded and free-standing derivative
instruments. Generally, where the ability to physical or net-share settle an
embedded conversion option or free standing financial instrument is not deemed
to be within the control of the Company, the embedded conversion option is
required to be bifurcated and both the free-standing instruments and bifurcated
conversion feature are accounted for as derivative liabilities.





At each
reporting date, the Company estimates the fair values of all derivatives and
changes in the fair value are charged to operations. For embedded and
free-standing derivatives valued using the Black-Scholes option pricing model
the following assumptions were used: (1) contractual term of 3 to 7 years; (2)
volatility of 140%, (3) risk free interest rates between 2.27% and 4.11% and (4)
dividend rate of 0%.





The fair
value of the individual long-term embedded and free standing derivatives at
November 30, 2008 is as follows:





Issue Date
                                
                                Expiration
                                  Date
                                
                                Instrument
                                
                                Exercise Price
                                  per Share
                                
                                
                                20089/17/07
                                
                                9/17/12
                                
                                Long-term
      fair value of conversion feature of convertible debenture
                                
                                
                                
                                
                                $
                                6,533Long-term
      embedded derivatives
                                
                                
                                6,5339/17/07
                                
                                9/17/12
                                
                                500,000
      Warrants
                                
                                $
                                2.00
                                
                                
                                
                                1539/17/07
                                
                                9/17/12
                                
                                525,000
      Warrants
                                
                                $
                                2.47
                                
                                
                                
                                1529/17/07
                                
                                9/17/12
                                
                                525,000
      Warrants
                                
                                $
                                2.81
                                
                                
                                
                                145Total
      long-term free-standing derivatives
                                
                                
                                450Total
      embedded and free-standing derivative liabilities
                                
                                
                                
                                
                                
                                $
                                6,983





Note
13 – Related-Party Note Payables and Transactions





The
Company's policy is to enter into transactions with related parties on terms
that, on the whole, are more favorable, or no less favorable, than those
available from unaffiliated third parties. Based on the Company's experience in
the business sectors in which the Company operates and the terms of its
transactions with unaffiliated third parties, the Company believes that all of
the transactions described below met this policy standard at the time they
occurred.





On
September 28, 2007, the Company entered into a 6.5% promissory note with Frank
Crivello, (Crivello) managing partner of the Crivello Group (a
stockholder).  The maturity date of the note was March 28,
2008.  As of November 30, 2008, the outstanding balance of the note
payable was $988.  Payment on the note has not been made and the
revised maturity date has not been determined as of January 20,
2009.





On
February 29, 2008, the Company entered into a 10% promissory note with The
Irrevocable Children’s Trust I and II (a stockholder). The note has a six-month
term with all interest and principal due at maturity.  As of November
30, 2008, the outstanding balance of the promissory note payable was $960 and a
revised maturity date has not been determined as of January 20,
2009.





Effective
March 4, 2008, Titan Electronics entered into a $55 promissory note with Stephen
Kennedy.  The note bears interest at an annual rate of 10% and matured
on September 4, 2008.  Interest is payable monthly and the principal
amount is due at maturity.  As of November 30, 2008, the outstanding
balance of the promissory note payable was $55 and is included in the
discontinued operations current liabilities balance. Stephen Kennedy is
currently a Director of the Company. As of January 20, 2009, the note balance of
$55 is outstanding and a revised maturity date has not been
determined.





As of
November 30, 2008, the Company owes $114 in accrued interest payable and $44 in
other business expense payables.





Related
party interest expense was $ 67 in the three months ended November 30,
2008.





During
the year ended August 31, 2007, the Company entered into a Finder’s Fee
Agreement with Crivello related to the Appco purchase. Upon the closing of the
acquisition, the Company agreed to pay a cash fee of $750 and issue 10,000,000
ten year warrants to Crivello. The Appco acquisition closed on September 17,
2007. As a result of the completion, the Company issued the warrants to Crivello
and recorded a payable for the cash fee. The Company accounted for these
transactions in the first quarter of fiscal year 2008. The warrants were
subsequently cancelled.





18




Note
14 - Stock Options and Stock-Based Compensation





The
Company accounts for its stock-based compensation arrangements in accordance
with the provisions of SFAS No. 123(R), Share-Based Payment. The
Company recognizes compensation expense of a stock-based award over the vesting
period based on the fair value of the award on the grant date, net of
forfeitures. The fair value of stock options granted is calculated under the
Black-Scholes option-pricing model. No stock-based compensation awards were
granted during the three months ended November 30, 2008.





Employee
stock option activity is summarized as follows:





Three Months
                      Ended11/30/2008Outstanding,
      September 1, 2008
                    
                    
                    1,094,167Granted
                    
                    
                    -Exercised
                    
                    
                    -Forfeited/Expired
                    
                    
                    (544,167
                    )Outstanding,
      November 30, 2008
                    
                    
                    550,000Non-vested,
      September 1, 2008
                    
                    
                    16,667Grants
                    
                    
                    -Vested
                    
                    
                    -Forfeitures
                    
                    
                    (16,667
                    )Non-vested,
      November 30, 2008
                    
                    
                    -Average
      exercise price per share:
                    
                    $
                    1.18Outstanding,
      September 1, 2008
                    
                    $
                    -Granted
                    
                    $
                    0.91Forfeited/expired
                    
                    $
                    0.78Outstanding,
      November 30, 2008
                    
                    $
                    0.78Exercisable
                    
                    $
                    1.18Non
      Vested, September 1, 2008
                    
                    $
                    -Non-vested,
      November 30, 2008Weighted-average
      grant date fair value:
                    
                    $
                    1.10Non-vested,
      September 1, 2008
                    
                    $
                    -Grants
                    
                    $
                    -Vested
                    
                    $
                    1.10Forfeited
                    
                    $
                    -Non-vested,
      November 30, 2008Weighted-average
      remaining term of outstanding options and warrants
                    
                    3.83
      yearsWeighted-average
      remaining term of exercisable options and warrants
                    
                    3.83
      years




Note
15– Treasury Stock




On May 9,
2007, the Company’s Board of Directors approved a 4,000,000 share open market
buyback program.  The Board cited its attractive share price, as well
as, reported record financial revenue results and strategic progress from its
various business units in making this decision.  As of November 30,
2008, the Company had repurchased 1,274,157 shares for $1,660 including
transaction costs under the repurchase program. The Company did not make any
repurchases during the three months ended November 30, 2008.




19
  Period
                                
                                Total Number of
                                  Shares
                                  Purchased
                                
                                
                                Average Price
                                  Paid per Share
                                
                                
                                Total
      Number of
                                  Shares
      Purchased
                                  as
      Part of Publicly
                                  Announced
      Plans
                                  or
      Programs
                                
                                
                                Maximum
      Number
                                  of
      Shares that May
                                  Yet
      Be Purchased
                                  Under
      the Plans or
                                  Programs05/09/07
                                05/31/07
                                
                                
                                90,500
                                
                                
                                $
                                1.21
                                
                                
                                
                                90,500
                                
                                
                                
                                3,909,50006/01/07
                                06/30/07
                                
                                
                                291,907
                                
                                
                                
                                1.12
                                
                                
                                
                                241,907
                                
                                
                                
                                3,667,59307/01/07
                                07/31/07
                                
                                
                                32,900
                                
                                
                                
                                1.19
                                
                                
                                
                                32,900
                                
                                
                                
                                3,634,69308/01/07
                                08/31/07
                                
                                
                                672,000
                                
                                
                                
                                1.48
                                
                                
                                
                                672,000
                                
                                
                                
                                2,962,69309/01/07
                                11/30/07
                                
                                
                                24,850
                                
                                
                                
                                1.62
                                
                                
                                
                                24,850
                                
                                
                                
                                2,937,84312/01/07
                                02/29/08
                                
                                
                                212,000
                                
                                
                                
                                0.98
                                
                                
                                
                                212,000
                                
                                
                                
                                2,725,843Total
                                
                                
                                1,324,157
                                
                                
                                $
                                1.30
                                
                                
                                
                                1,274,157
 
 Note
16 – Litigation
 
 From time
to time, the Company may become involved in various lawsuits and legal
proceedings which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm its business. The Company is
currently not aware of any such legal proceedings or claims that the Company
believes will have, individually or in the aggregate, a material adverse affect
on its business, financial condition or operating results.
 
 The
following matters are pending:
 
 ACE TECH
CIRCUIT CO., LTD.
 On or
about September 2008, the Company was notified of a collections lawsuit filed by
Ace Tech Circuit Co., Ltd. ("Ace Tech").  The lawsuit alleges the Company
is the dba of its subsidiary Titan PCB West and Titan Electronics.  Ace
Tech is seeking approximately $459 for alleged failure to pay for delivered
product. The Company has accrued $422 of the amounts alleged to be due in its
accounts payable as of November 30, 2008 and is disputing the difference of
$37.
 
 ADVANCED
SURFACE FINISHING
 In July
2008, the Company's subsidiary Titan PCB West n/k/a Titan Electronics, Inc.
(“Titan Electronics”) was notified of a collections lawsuit and a writ of
attachment granted to Advanced Surface Finishing ("AFS").  AFS is seeking
approximately $143 from Titan Electronics for alleged failure to pay for
delivered product. The Company has accrued $58 of the amounts alleged to be due
in its accounts payable as of November 30, 2008 and is disputing the difference
of $85.
 
 ALLSTATE
PRINTING & PACKAGING, INC
 On March
25, 2008, the Company’s subsidiary, Oblio, was notified, via a process server,
that it was being sued by Allstate Printing & Packaging, Inc. (“Allstate”).
Allstate is seeking $86 for alleged unpaid invoices for services rendered in
Passaic County: Superior Court, NJ. This action is currently pending. The
Company has accrued the amounts alleged to be due in its accounts payable at
November 30, 2008.
 
 AMERTEL
COMMUNICATIONS, INC
 On April
2, 2008, the Company’s subsidiaries, Oblio and Titan Wireless, were notified,
via a process server, that it was being sued by Amertel Communications, Inc.
(“Amertel”). Amertel is seeking $275 for alleged unpaid refunds for products
purchased in the US District Court, MD. This action is currently pending. The
Company disputes the amounts alleged to be due, and Management is unable to
estimate the ultimate liability, if any, related to this claim at August 31,
2008.
 
 ASIA
TELECOM CORPORATION
 On March
7, 2008, Oblio filed a lawsuit in Dallas County, Texas, against Asia Telecom
Corporation (“Asia Telecom”) seeking to recover $753 for unpaid
product.  Asia Telecom filed a special appearance claiming that it
does not have sufficient contacts with the State of Texas to warrant being sued
in a Texas Court.  On July 25, 2008, the district court denied Asia
Telecom’s special appearance.  We are now proceeding with pre-trial
discovery against Asia Telecom.
 
 AT&T
CORP.
 On
December 5, 2006, the Company’s subsidiary, Oblio Telecom, Inc. (“Oblio”), filed
a Demand for Arbitration with the American Arbitration Association against
AT&T Corp. (“AT&T”). Oblio sought a refund of amounts paid to AT&T
for the period from 1999 to October 2006 for USF charges paid to AT&T
pursuant the Purchase Order Agreement, which sets forth the parties’ business
relationship. The fees paid to AT&T for AT&T’s Enhanced Prepaid Card
Service (“Prepaid Card Service”) included USF and other Federal Communications
Commission (the “FCC”) charges. AT&T retained this revenue instead of making
the required contributions to the USF and other FCC programs based on AT&T’s
argument that its Prepaid Card Service was exempt under the
law.
  20




On
October 12, 2007, Oblio entered into a Settlement Agreement (the “Settlement
Agreement”) with AT&T, effective as of October 11, 2007. Pursuant to the
Settlement Agreement, AT&T agreed to waive and discharge its right to
receive $7,200 and Oblio issued a promissory note for the payment of the balance
of $600 in interest to AT&T in full settlement of the Partial Final Award
issued in the arbitration proceeding on the counter claims brought by AT&T
against Oblio and in full settlement of the Oblio’s Universal Service Fund claim
against AT&T, which has been paid in full. As Oblio had already recorded its
liability in its accounts payable, the $6,600 net reduction in accounts payable
reduced cost of sales during the three months ended November 30,
2007.





CLIFTON
PREPAID COMMUNICATIONS CORP.


On August
21, 2007, Oblio filed suit against Clifton Prepaid Communications Corp., Clifton
Pre-Paid Corp, and Aref Aref (collectively “Clifton”) for non-payment of
invoices related to services rendered in the District Court, 199th
Judicial District, Collin County, Texas. Oblio seeks $2,199 in payment plus
pre-judgment interest, post judgment interest at the maximum lawful rate from
July 30, 2007 until judgment at the rate of six percent per annum, and
reasonable and necessary attorney fees and costs. Oblio also obtained Writs of
Garnishment against Clifton’s funds on deposit with Bank of America, N.A. and
J.P. Morgan Chase Bank.  As a result of the Writs of Garnishment,
Oblio trapped approximately $140 in Clifton’s bank accounts.  Clifton
has unsuccessfully attempted to dissolve the Writ of Garnishment.  On
September 22, 2008, the district court entered a final judgment against Clifton
Prepaid Communications Corp. and Clifton Pre-Paid Corp. in the amount of
approximately $2,500.  The final judgment did not include Aref Aref
because two weeks prior to trial, Aref Aref filed for personal bankruptcy in an
effort to thwart Oblio’s collection efforts.  On or about October 1,
2008, the district court entered judgment in the bankruptcy action directing
Bank of America, N.A. and J.P. Morgan Chase Bank to release the garnished funds
to Oblio, which was received on December 8, 2008. As of November 30, 2008, the
Company has fully reserved and allowed for the $2,199 in accounts receivable
from Clifton less the amounts captured in the Writ of Garnishment.





FASTPRINT
CIRCUIT TECHNOLOGIES


In August
2008, the Company was notified of a collections lawsuit filed by Fastprint
Circuit Technologies (“Fastprint”). Fastprint is in the process of amending its
lawsuit to name the Company's subsidiary Titan Electronics as the defendant.
 No specific demand has been made although Fastprint seeks damages for
alleged failure to pay for delivered product.





GEOTEL
INTERNATIONAL, LC


On
January 31, 2008, the Company’s subsidiary, StartTalk, was notified, via a
process server, that it was being sued by Geotel International, LC (“Geotel”).
Geotel is seeking $73 for alleged unpaid invoices for services rendered in
Miami-Dade County: Circuit Court, FL. This action is currently pending. The
Company has accrued the amounts alleged to be due in its accounts payable at
November 30, 2008.





HAWAII
GLOBAL EXCHANGE, INC. AND TRANSPAC TELECOM, INC.


On
December 21, 2007, the Company’s subsidiary Oblio, filed a lawsuit against
Hawaii Global in 162nd
Judicial District Court of Dallas County, Texas.  Oblio sought to
recover $1,319 for unpaid product.  Hawaii Global then removed the
lawsuit to the United States District Court for the Northern District of
Texas.  Hawaii Global then moved to dismiss the Texas lawsuit based
upon lack of personal jurisdiction and in the alternative to transfer the Texas
lawsuit to the United States District Court of Hawaii.  The District
Court denied Hawaii Global’s motion to dismiss and or transfer.  On
January 29, 2008, the Company’s subsidiary, Oblio, was notified, via a process
server, that it was being sued by Hawaii Global Exchange, Inc. and Transpac
Telecom, Inc. (“Transpac”). Transpac is alleging violation of the Communications
Act, breach of oral contract, promissory estoppel, and intentional interference
with contractual relations and/or prospective economic advantage in US District
Court, HI. Oblio then filed a motion to dismiss the Hawaii lawsuit based upon
lack of personal jurisdiction or, in the alternative, to transfer the Hawaii
lawsuit to Texas.  Although Hawaii Global and Transpac have opposed
the motion to dismiss, they have consented to the transfer of the Hawaii lawsuit
to the Northern District of Texas.  The Hawaii lawsuit has been
transferred and consolidated with the Texas Lawsuit.  Hawaii Global
has joined the Company, Bryan Chance, Kurt Jensen, Frank Crivello, and David
Marks as parties to the lawsuit. The Company disputes these allegations and will
defend itself, and Management is unable to estimate the ultimate liability, if
any, related to this claim at November 30, 2008. As of November 30, 2008, the
Company has fully reserved and allowed for the $1,319 in accounts receivable
from Hawaii Global.


21





ILDN
WEST, LLC


On
January 5, 2009, the Company and its subsidiaries, Oblio, Titan Communications
and Planet Direct were notified that it was being sued by ILDN West, LLC
(“ILDN”).  ILDN is seeking $239 for alleged unpaid invoices for
services rendered in Los Angeles County: Superior Court,
California.  This action is currently pending.  The Company
has accrued  the amounts alleged to be due in its accounts payable as
of November 30, 2008.





INTERNATIONAL
ELECTRONIC COMPONENTS USA


On or
about September 2008, the Company was notified of a collections lawsuit filed by
International Electronic Components USA ("IEC") against the Company and its
subsidiary Titan PCB West and several individuals.  IEC obtained a writ of
attachment against subsidiary Titan PCB West.  IEC alleges the Company is
the alter ego of its subsidiary Titan PCB West and is seeking approximately $235
for alleged failure to pay for delivered product.  A motion to quash
service of summons and complaint as against the Company has been filed. The
Company has accrued the amounts alleged to be due in its accounts payable at
November 30, 2008.





LANHAM
ACT LAWSUIT


On
February 15, 2008, Oblio filed a lawsuit in the United States District Court for
the Northern District of Texas against various individuals and entities alleging
trademark infringement under the Lanham Act.  Many of the defendants
have filed motion to dismiss which are currently pending before the
Court.





LATIN
AMERICAN VOIP, INC


On
December 26, 2007, the Company and its subsidiaries, Oblio and StartTalk were
notified, via a process server, that it was being sued by Latin American VOIP,
Inc (“Latin American VOIP”).  Latin American VOIP is seeking $723 for
alleged unpaid invoices for services rendered in Palm Beach County: Circuit
Court, Florida.  This action is currently pending.  The
Company has accrued $630 of the amounts alleged to be due in its accounts
payable as of November 30, 2008 and is disputing the difference of
$93.  On December 17, 2008, the plaintiff, Latin American VOIP,
voluntarily dismissed without prejudice all of its claims against the
defendants.





LEVEL 3
COMMUNICATIONS, LLC


On
November 2, 2007, the Company’s subsidiary, Oblio, was notified, via a process
server, that it was being sued by Level 3 Communications, LLC (“Level 3”). Level
3 is seeking $2,379 for alleged unpaid invoices for services rendered in
Broomfield County: District Court, CO. On May 14, 2008, Oblio entered into an
Agreed Judgment in the amount of $2,042.  As of November 30, 2008,
Oblio has accrued the amount of the Agreed Judgment in accounts
payable.





PALPILOT


In August
2008, the Company's subsidiary Titan PCB West f/k/a Titan EMS was notified of a
collections lawsuit filed by Palpilot.  Palpilot is seeking approximately
$99 for alleged failure to pay for delivered product. The Company has accrued
the amounts alleged to be due in its accounts payable at November 30,
2008.





RICO
LAWSUIT


On
February 15, 2008, Oblio filed a lawsuit in the United States District Court for
the Northern District of Texas against various individuals and entities alleging
a conspiracy to defraud Oblio under the Racketeering, Influence Corruption Act
(“RICO”).  Many of the defendants have filed motion to dismiss which
are currently pending before the Court.





STX
COMMUNICATIONS, INC


On
January 16, 2008, STX Communications, LLC d/b/a STX Phone Cards (“STX”) sought a
Temporary Restraining Order (“TRO”) in the 14th
Judicial District Court of Dallas County, Texas against the Company’s subsidiary
Oblio. The TRO immediately restrained Oblio from suspending its network support
for any pre-paid phone card supplied by Oblio to STX and from taking any action
to impair the network supporting any pre-paid phone card supplied by Oblio to
STX. On January 23, 2008, the Company was notified by its attorneys that the TRO
became effective and enforceable and that the Company was in violation of its
TRO and was subject to sanctions for contempt of court. The TRO has since been
dissolved by agreement of the parties.





STX has
added the Company, Bryan Chance, Kurt Jensen, and Frank Crivello as
defendants.  STX claims that Oblio breached a contract to provide
network support for prepaid phone cards, and to accept returns of the cards as
necessary.  STX also alleges that Oblio has been unjustly enriched by STX’s
payments for cards, and that Oblio breached the implied warranty of
merchantability and the express warranty to provide network support for the
cards, and that Oblio’s failure to provide network support breached a duty of
care owed to STX.   STX also claims that Titan, Chance and Crivello
tortiously interfered with the Oblio/STX contract and caused Oblio to
purposefully interrupt network support for the cards sold to STX.  Finally,
STX alleges all defendants tortiously interfered with STX’s business
relationships with STX’s distributors and end consumers by playing recorded
messages for end consumers to return their cards, and changing rate decks on the
cards from the posted rates.  STX’s actual damages are not specified, but
it seeks not less than $1,200 in exemplary damages, together with interest, and
attorney’s fees.


22





Oblio has
filed a counter-claim against STX, alleging STX failed to pay for the cards it
purchased.  Oblio also claims STX, together with Tawfik and Raimondo, STX’s
chief officers, fraudulently induced Oblio to sell pre-paid phone cards for
certain foreign markets at a loss, in exchange for STX’s promise to place Oblio
products in more lucrative local markets.  STX’s failure to place Oblio’s
products in the promised markets caused Oblio damages in an amount not less than
$10,000.





The case
is currently set for trial the week of April 20, 2009.





TOUCH
TELL, INC.


On
December 21, 2007, Oblio filed suit in Dallas County, Texas, against Touch Tell,
Inc. (“Touch Tell”) for $1,300 in unpaid product.  Oblio also
initially obtained a pre-judgment Writ of Garnishment against Touch Tell’s bank
trapping $1,300.  Touch Tell filed a counterclaim that claims that
after allowing for credits, deactivations, and returns, Oblio owes Touch Tell
approximately $268.  Touch Tell successfully reduced the amount of the
garnishment to $477.  At November 30, 2008, Oblio has recorded
accounts receivable from TouchTell equal to the garnishment of $477. No amounts
have been recorded or accrued related to the counter-claim.





WESTERN
PRINT & MAIL, LLC


On
January 25, 2008, the Company’s subsidiary Titan Wireless was notified, via a
process server, that it and Ready Mobile, LLC were being sued by Western Print
& Mail, LLC (“Western”). Western is seeking $71 including late charges from
Ready Mobile, LLC. Western is seeking $183 from Titan Wireless, which includes
the $71 from Ready Mobile, LLC and $112 including late charges from Titan
Wireless, for alleged unpaid invoices for services rendered in Iowa District
Court for Linn County. This action is currently pending.  The Company
has not accrued any amounts related to the charges incurred by Ready Mobile,
LLC. As per the asset purchase agreement with Ready Mobile, LLC, this liability
was not assumed, and therefore is not a responsibility of the Company. In
addition, the Titan Wireless liability was assumed by Boomerang Wireless, Inc.
on January 25, 2008 with the sale of certain CMDA assets.





OTHER
LEGAL MATTERS


As of
November 30, 2008, the Company has fully reserved and allowed (through its
allowance for doubtful accounts $15,736 and its allowance for sales returns
$3,672) $19,408 in accounts receivable recorded for the communications
operations classified as discontinued operations associated with
the  matters referenced above, including Clifton.





Note
17 – Commitments and Contingencies





In
January 2007, prior to the Company’s purchase of Appco, Appco entered into a
settlement agreement with one of its cigarette vendors totaling
$2,500.  The settlement was in response to an investigation by the
Federal Bureau of Alcohol, Tobacco and Firearms related a buy-down marketing
program and certain contractual limitations with a cigarette
vendor.  Appco satisfies this obligation through the application of
marketing funds that would have been otherwise received from the vendor through
a marketing program.  As of November 30, 2008, $632 of the original
settlement obligation remains unpaid all of which is a current
liability.





Note
18 - Segment Information





The
Company currently operates in two market segments – (i) energy through our Titan
Global Energy group and (ii) telecommunications through our Titan Communications
group.





The
Company, through its subsidiaries Titan Communications and Pinless, dba Planet
Direct, is engaged in the creation, marketing, and distribution of prepaid
telephone cards and other related activities.  The Company considers
this its communications business segment.





The
Company, through its Appco subsidiary, distributes petroleum fuels and operates
retail convenience stores.  The Company considers this its energy
business segment.


23





Three Months Ended11/30/2008Comm
                      
                      
                      Energy
                      
                      
                      Corp.
                      
                      
                      TotalSales:
                      
                      $
                      2,714
                      
                      
                      $
                      75,682
                      
                      
                      $
                      -
                      
                      
                      $
                      78,396Interest
      expense:
                      
                      
                      73
                      
                      
                      
                      654
                      
                      
                      
                      500
                      
                      
                      
                      1,227Net
      loss from continuing operations
                      
                      
                      (790
                      )
                      
                      
                      (354
                      )
                      
                      
                      (5,439
                      )
                      
                      
                      (6,583
                      )Identifiable
      assets-continuing operations, net
                      
                      
                      1,400
                      
                      
                      
                      33,095
                      
                      
                      
                      656
                      
                      
                      
                      35,151Accounts
      receivable, net:
                      
                      
                      358
                      
                      
                      
                      2,878
                      
                      
                      
                      -
                      
                      
                      
                      3,236Inventory,
      net
                      
                      
                      700
                      
                      
                      
                      6,479
                      
                      
                      
                      -
                      
                      
                      
                      7,179Equipment
      and improvements, net:
                      
                      
                      118
                      
                      
                      
                      9,877
                      
                      
                      
                      146
                      
                      
                      
                      10,141Depreciation
      expense:
                      
                      
                      1
                      
                      
                      
                      529
                      
                      
                      
                      33
                      
                      
                      
                      563Goodwill
      and indefinite lived intangible assets:
                      
                      
                      -
                      
                      
                      
                      9,277
                      
                      
                      
                      -
                      
                      
                      
                      9,277Definite
      lived intangible assets, net
                      
                      
                      -
                      
                      
                      
                      501
                      
                      
                      
                      -
                      
                      
                      
                      501





Three
      Months Ended11/30/2007Comm
                      
                      
                      Energy
                      
                      
                      Corp.
                      
                      
                      TotalSales:
                      
                      $
                      -
                      
                      
                      $
                      90,015
                      
                      
                      $
                      -
                      
                      
                      $
                      90,015Interest
      expense:
                      
                      
                      -
                      
                      
                      
                      381
                      
                      
                      
                      247
                      
                      
                      
                      628Net
      income (loss) from continuing operations
                      
                      
                      -
                      
                      
                      
                      (435
                      )
                      
                      
                      1,755
                      
                      
                      
                      1,320Identifiable
      assets-continuing operations, net
                      
                      
                      -
                      
                      
                      
                      43,751
                      
                      
                      
                      9,147
                      
                      
                      
                      52,898Accounts
      receivable, net:
                      
                      
                      -
                      
                      
                      
                      9,680
                      
                      
                      
                      -
                      
                      
                      
                      9,680Inventory,
      net
                      
                      
                      -
                      
                      
                      
                      8,732
                      
                      
                      
                      -
                      
                      
                      
                      8,732Equipment
      and improvements, net:
                      
                      
                      -
                      
                      
                      
                      11,978
                      
                      
                      
                      137
                      
                      
                      
                      12,115Depreciation
      expense:
                      
                      
                      
                      
                      
                      
                      547
                      
                      
                      
                      12
                      
                      
                      
                      559Goodwill
      and indefinite lived intangible assets:
                      
                      
                      -
                      
                      
                      
                      9,277
                      
                      
                      
                      -
                      
                      
                      
                      9,277Definite
      lived intangible assets, net:
                      
                      
                      -
                      
                      
                      
                      831
                      
                      
                      
                      -
                      
                      
                      
                      831





All the
Company's facilities are located in the United States and the majority of the
Company's sales are made within the United States.  There were no
intersegment sales during the periods shown above.





Note
19- Deconsolidated Subsidiary and Bankruptcy Filing in Global Brands
Segment





USAD





During
the second quarter of fiscal 2008, the Company ceased its manufacturing
operations for filling and packaging USAD liquid products.  The
Company has segregated the operating results of USAD from the results of
continuing operations and classified them as discontinued operations. As USAD
was acquired on October 17, 2007, during the current fiscal period, prior period
operating results were not restated. On February 12, 2008, several suppliers of
USAD filed an involuntary Chapter 7 bankruptcy petition with the United States
Bankruptcy Court in the District of Delaware.  During the third fiscal
quarter of 2008, the Company converted the Chapter 7 bankruptcy filing to a
Chapter 11 bankruptcy filing and pursued other alternatives for the assets of
USAD. Effective June 12, 2008, the Company’s USAD subsidiary’s asset were seized
by the Bankruptcy Court as a result of an involuntary Chapter 7 bankruptcy
petition filed by several of USAD’s creditors.  As such, the
operations of USAD have been deconsolidated from the operating results of the
Company.





In
connection with the deconsolidation of USAD from the operating results of the
Company on June 12, 2008, a cumulative loss in excess of investment in
subsidiary is carried as a liability until such time as the Company is formally
relieved from its obligations by the bankruptcy court.  As of November
30, 2008, this liability was $12,992.  The loss in excess of
investment in subsidiary is comprised of the net equity in
USAD.


24





Note
20 – Discontinued Operations





Titan Electronics Group Discontinued
Operations





In August
2008, the Company evaluated the operations of the Titan Electronics Group, which
has been historically included in the Company’s electronics and homeland
security division and determined to cease operations.  The Electronics
Group includes Nexus, Titan East Inc. f/k/a Titan PCB East, Inc and Titan
Electronics, Inc. The Company is currently liquidating the remaining assets
including fixed assets, inventory and accounts receivable.  As such,
the operations of Titan Electronics Group have been included as discontinued
operations as of and for the period ending November 30, 2008 and
2007.





The
results of operations for the three months ended November 30, 2008 and 2007 of
the discontinued Electronics Group subsidiaries are as follows:





Three months ended11/30/08
                    
                    
                    11/30/07Sales
                    
                    $
                    (159
                    )
                    
                    $
                    6,781Cost
      of sales
                    
                    
                    239
                    
                    
                    
                    6,120(398
                    )
                    
                    
                    661Operating
      expensesSales
      and marketing
                    
                    
                    83
                    
                    
                    
                    574General
      and administrative
                    
                    
                    239
                    
                    
                    
                    679Bad
      debt expense
                    
                    
                    157
                    
                    
                    
                    33Amortization
      of intangibles
                    
                    
                    -
                    
                    
                    
                    -Loss
      from operations
                    
                    
                    (877
                    )
                    
                    
                    (625
                    )Other
      income (expense)Interest
      expense
                    
                    
                    (131
                    )
                    
                    
                    (189
                    )Gain
      (loss) on value of derivative instruments
                    
                    
                    (933
                    )
                    
                    
                    1,388Gain
      on disposal of assets
                    
                    
                    107
                    
                    
                    
                    -Other
      income
                    
                    
                    20
                    
                    
                    
                    -Gain
      (loss) before provision for income taxes
                    
                    
                    (1,814
                    )
                    
                    
                    574Provision
      for income taxes
                    
                    
                    -
                    
                    
                    
                    -Gain
      (loss) available to common stockholders
                    
                    $
                    (1,814
                    )
                    
                    $
                    574





Depreciation
expense included in Cost of sales was $0 and $180 for the years ended November
30, 2008 and 2007, respectively.


25





The
principal balance sheet items of the assets held for sale as of November 30,
2008 and 2007 are stated below:





11/30/08
                  
                  
                  11/30/07Current
      AssetsCash
      and cash equivalents
                  
                  $
                  -
                  
                  
                  $
                  441Accounts
      receivable, trade (less allowance for doubtful accounts and sales
      allowance of $185 and $1,053)
                  
                  
                  112
                  
                  
                  
                  4,784Inventory,
      net
                  
                  
                  404
                  
                  
                  
                  2,405Prepaid
      expenses and other assets
                  
                  
                  37
                  
                  
                  
                  40Total
      current assets
                  
                  $
                  553
                  
                  
                  $
                  7,670Non-current
      assetsEquipment
      and improvements, net
                  
                  $
                  916
                  
                  
                  $
                  3,217Goodwill
      and indefinite-lived intangibles
                  
                  
                  -
                  
                  
                  
                  8,571Other
      assets
                  
                  
                  -
                  
                  
                  
                  162Total
      non-current assets
                  
                  $
                  916
                  
                  
                  $
                  11,950Current
      liabilitiesAccounts
      payable, trade
                  
                  $
                  4,165
                  
                  
                  $
                  3,069Accrued
      liabilities
                  
                  
                  285
                  
                  
                  
                  1,296Related
      party payable
                  
                  
                  55
                  
                  
                  
                  -Current
      portion of long-term debt, net
                  
                  
                  328
                  
                  
                  
                  339Short-term
      notes
                  
                  
                  439
                  
                  
                  
                  320Total
      current liabilities
                  
                  $
                  5,272
                  
                  
                  $
                  5,024Non-current
      liabilitiesLines
      of credit
                  
                  $
                  300
                  
                  
                  $
                  4,195Redeemable,
      convertible preferred stock
                  
                  
                  7,245
                  
                  
                  
                  7,245Long-term
      derivative liabilities
                  
                  
                  3,016
                  
                  
                  
                  10,702Long-term
      debt
                  
                  
                  338
                  
                  
                  
                  597Other
      long-term liability
                  
                  
                  -
                  
                  
                  
                  118Total
      non-current liabilities
                  
                  $
                  10,899
                  
                  
                  $
                  22,857





Long-term
debt as of November 30, 2008 consisted of the following:





Issue
                                                                          
                                                                          Expiration
                                                                          
                                                                          
                                                                          
                                                                          Outstanding
      atDate
                                                                          
                                                                          Date
                                                                          
                                                                          Instrument
                                                                          
                                                                          11/30/200812/29/2006
                                                                          
                                                                          12/01/2010
                                                                          
                                                                          $20,000
      Line of Credit
                                                                          
                                                                          $
                                                                          30002/11/2008
                                                                          
                                                                          02/01/2011
                                                                          
                                                                          $830
      Term Notes
                                                                          
                                                                          
                                                                          39611/30/2007
                                                                          
                                                                          08/31/2010
                                                                          
                                                                          Other
                                                                          
                                                                          
                                                                          270966Less
      current portion of long-term debt
                                                                          
                                                                          
                                                                          (328
                                                                          )Total
      long-term debt
                                                                          
                                                                          $
                                                                          638


26


Long-term
debt repayments are due as follows:





Fiscal Year
                      
                      Other
                      
                      
                      Greystone
                        Revolvers
                      
                      
                      Greystone
                        Term Debt
                      
                      
                      Total Long-
                        Term Debt2009
                      
                      $
                      120
                      
                      
                      $
                      -
                      
                      
                      $
                      208
                      
                      
                      $
                      3282010
                      
                      
                      120
                      
                      
                      
                      300
                      
                      
                      
                      188
                      
                      
                      
                      6082011
                      
                      
                      30
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      30$
                      270
                      
                      
                      $
                      300
                      
                      
                      $
                      396
                      
                      
                      $
                      966





Communications
Division Discontinued Operations





In August
2008, the Company evaluated its communications division and determined to
classify the operations of Oblio Telecom, StartTalk and Titan Wireless as
discontinued.





In
accordance with SFAS No. 142, “Goodwill and Other Intangible
Assets,” the Company reviews intangibles for impairment annually or more
frequently if an event occurs or circumstances change that would more likely
than not reduce the fair value of the Company's business enterprise below its
carrying value. The impairment test requires management to estimate the fair
value of the Company's overall business enterprise down to the reporting unit
level. The Company performs its annual impairment test in its fiscal fourth
quarter. No impairment charges were recorded in the fiscal year ended August 31,
2007. In the year ended August 31, 2008, management committed to a plan to
dispose of certain assets and liabilities of certain operations in the
Communications division.





Subsequent
to November 30, 2007, the Company’s communications division experienced a
significant decrease in sales and collections of outstanding accounts
receivable. Many of the long-standing distributors of Oblio’s products stopped
placing orders for new product and stopped sending payments for previously
placed orders. While the Company is vigorously pursuing legal action against
many of these customers, the extended collection process significantly disrupted
the operating cash flow cycle of the prepaid international long distance portion
of the Company’s communication division.  These issues along with
losses experienced in its network operations have resulted in the Company
ceasing to do business as Oblio in the prepaid international long distance
market.  As such, the Company evaluated the division’s goodwill and
other intangible assets for impairment based on changes in the business model.
Based on the determination of management, the Company fully impaired the
goodwill and all of the intangible assets of Oblio in the amount of $14,572 with
the exception of the trade names as of November 30, 2007.





Simultaneously,
the Company determined to cease the distribution of CDMA prepaid wireless
handsets and the related airtime through its subsidiary, Titan Wireless RM,
Inc., due to the increasing capital requirements associated with the business
model at Titan Wireless, the Company’s wireless operating subsidiary. As such,
the Company evaluated goodwill and other assets for impairment based on changes
in its business model. Accordingly, the Company incurred an impairment charge
for $14,572 of goodwill and intangible assets related to the Oblio and Titan
Wireless as of November 30, 2007 and committed to plan to discontinue operations
as of August 31, 2008.


27


The
results of operations for the three months ended November 30, 2008 and 2007 of
the discontinued Communications subsidiaries are as follows:
 
 Three
      months ended11/30/08
                                                  
                                                  
                                                  11/30/07Sales
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  22,328Cost
      of sales
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  18,270-
                                                  
                                                  
                                                  
                                                  4,058Operating
      expensesSales
      and marketing
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  98General
      and administrative
                                                  
                                                  
                                                  13
                                                  
                                                  
                                                  
                                                  2,218Bad
      debt expense
                                                  
                                                  
                                                  94
                                                  
                                                  
                                                  
                                                  4,493Depreciation
      expense
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  69Amortization
      of intangibles
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  1,363Loss
      from operations
                                                  
                                                  
                                                  (107
                                                  )
                                                  
                                                  
                                                  (4,183
                                                  )Other
      income (expense)Gain
      (loss) on value of derivative instruments
                                                  
                                                  
                                                  (433
                                                  )
                                                  
                                                  
                                                  738Interest
      expense
                                                  
                                                  
                                                  (413
                                                  )
                                                  
                                                  
                                                  (647
                                                  )Loss
      on impairment
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (14,573
                                                  )Gain
      on disposal of assets
                                                  
                                                  
                                                  159Other
      expense
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (4
                                                  )Loss
      before provision for income taxes
                                                  
                                                  
                                                  (794
                                                  )
                                                  
                                                  
                                                  (18,669
                                                  )Provision
      for income taxes
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Accrual
      of preferred stock dividend
                                                  
                                                  
                                                  (34
                                                  )
                                                  
                                                  
                                                  (34
                                                  )Loss
      available to common stockholders
                                                  
                                                  $
                                                  (828
                                                  )
                                                  
                                                  $
                                                  (18,703
                                                  )
  28
  The
principal balance sheet items of the assets held for sale as of November 30,
2008 and 2007 are stated below:
 
 11/30/08
                                                                    
                                                                    
                                                                    11/30/07Current
      AssetsCash
      and cash equivalents
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    168Accounts
      receivable, trade (less allowance for doubtful accounts and sales
      allowance of $16,060 and $10,798 )
                                                                    
                                                                    
                                                                    776
                                                                    
                                                                    
                                                                    
                                                                    7,605Inventory,
      net
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    251Prepaid
      expenses and other assets
                                                                    
                                                                    
                                                                    79
                                                                    
                                                                    
                                                                    
                                                                    371Total
      current assets
                                                                    
                                                                    $
                                                                    855
                                                                    
                                                                    
                                                                    $
                                                                    8,395Non-current
      assetsEquipment
      and improvements, net
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    626Definite-lived
      intangible assets, net
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    4,633Capitalized
      loan fees
                                                                    
                                                                    
                                                                    191
                                                                    
                                                                    
                                                                    
                                                                    368Total
      non-current assets
                                                                    
                                                                    $
                                                                    191
                                                                    
                                                                    
                                                                    $
                                                                    5,627Current
      liabilitiesAccounts
      payable, trade
                                                                    
                                                                    $
                                                                    12,208
                                                                    
                                                                    
                                                                    $
                                                                    11,613Accrued
      liabilities
                                                                    
                                                                    
                                                                    685
                                                                    
                                                                    
                                                                    
                                                                    676Deferred
      revenue
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    10,471Related
      party note
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    250Current
      portion of long-term debt, net
                                                                    
                                                                    
                                                                    510
                                                                    
                                                                    
                                                                    
                                                                    511Long-term
      seller-financed note, current
                                                                    
                                                                    
                                                                    3,570
                                                                    
                                                                    
                                                                    
                                                                    2,147Total
      current liabilities
                                                                    
                                                                    $
                                                                    16,973
                                                                    
                                                                    
                                                                    $
                                                                    25,668Non-current
      liabilitiesLines
      of credit
                                                                    
                                                                    $
                                                                    12,282
                                                                    
                                                                    
                                                                    $
                                                                    13,343Long-term
      debt
                                                                    
                                                                    
                                                                    1,108
                                                                    
                                                                    
                                                                    
                                                                    1,392Long-term
      seller-financed note
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    1,354Redeemable,
      convertible preferred stock
                                                                    
                                                                    
                                                                    4,912
                                                                    
                                                                    
                                                                    
                                                                    4,777Long-term
      derivative liabilities
                                                                    
                                                                    
                                                                    540
                                                                    
                                                                    
                                                                    
                                                                    2,315Total
      non-current liabilities
                                                                    
                                                                    $
                                                                    18,842
                                                                    
                                                                    
                                                                    $
                                                                    23,181
 
 Long-term
debt as of November 30, 2008 consisted of the following:
 
 Issue
                                        
                                        Expiration
                                        
                                        
                                        
                                        Outstanding
      atDate
                                        
                                        Date
                                        
                                        Instrument
                                        
                                        11/30/200808/12/2005
                                        
                                        03/31/2009
                                        
                                        $4,823
      Seller-Financed Debt
                                        
                                        $
                                        3,57012/29/2006
                                        
                                        12/29/2009
                                        
                                        $20,000
      Line of Credit
                                        
                                        
                                        12,28212/29/2006
                                        
                                        07/01/2009
                                        
                                        $7,608
      Term Notes A & B
                                        
                                        
                                        1,618Total
      debt
                                        
                                        
                                        
                                        
                                        
                                        
                                        17,470Less
      current portion of long-term debt
                                        
                                        
                                        
                                        
                                        (4,080
                                        )Total
      long-term debt and seller financed note
                                        
                                        $
                                        13,390
 
 Long-term
debt repayments are due as follows:
 
 Fiscal
      Year
                                                              
                                                              F&L
      Note
                                                              
                                                              
                                                              Greystone
                                                                Revolvers
                                                              
                                                              
                                                              Greystone
                                                                Term
      Debt
                                                              
                                                              
                                                              Total
      Long-
                                                                Term
      Debt2009
                                                              
                                                              $
                                                              3,570
                                                              
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              510
                                                              
                                                              
                                                              $
                                                              4,0802010
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              12,282
                                                              
                                                              
                                                              
                                                              1,108
                                                              
                                                              
                                                              
                                                              13,390$
                                                              3,570
                                                              
                                                              
                                                              $
                                                              12,282
                                                              
                                                              
                                                              $
                                                              1,618
                                                              
                                                              
                                                              $
                                                              17,470
  29
  Global Brands Discontinued
Operations
 
 In August
2008, the Company’s Titan Apparel subsidiary ceased operations and we began
liquidating the remaining assets including inventory, accounts receivable and
fixed assets.  The operations of Titan Apparel have been classified as
discontinued operations as of and for the period ending November 30,
2008.
 
 The
results of operations of the discontinued Titan Apparel subsidiaries are as
follows:
 
 Three months ended11/30/08
                                              
                                              
                                              11/30/07Sales
                                              
                                              $
                                              372
                                              
                                              
                                              $
                                              3,183Cost
      of sales
                                              
                                              
                                              (13
                                              )
                                              
                                              
                                              3,205385
                                              
                                              
                                              
                                              (22
                                              )Operating
      expensesSales
      and marketing
                                              
                                              
                                              -
                                              
                                              
                                              
                                              515General
      and administrative
                                              
                                              
                                              150
                                              
                                              
                                              
                                              342Bad
      debt expense
                                              
                                              
                                              351
                                              
                                              
                                              
                                              31Depreciation
      expense
                                              
                                              
                                              -
                                              
                                              
                                              
                                              26Amortization
      of intangibles
                                              
                                              
                                              -
                                              
                                              
                                              
                                              64Loss
      from operations
                                              
                                              
                                              (116
                                              )
                                              
                                              
                                              (1,000
                                              )Other
      income (expense)Interest
      income
                                              
                                              
                                              -
                                              
                                              
                                              
                                              41Interest
      expense
                                              
                                              
                                              (232
                                              )
                                              
                                              
                                              (170
                                              )Loss
      on impairment
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (6,569
                                              )Gain
      on disposal of assets
                                              
                                              
                                              10
                                              
                                              
                                              
                                              -Loss
      before provision for income taxes
                                              
                                              
                                              (338
                                              )
                                              
                                              
                                              (7,698
                                              )Provision
      for income taxes
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Loss
      available to common stockholders
                                              
                                              $
                                              (338
                                              )
                                              
                                              $
                                              (7,698
                                              )
  30
  The
principal balance sheet items of the assets held for sale as of November 30,
2008 are stated below:
 
 11/30/08
                                                                    
                                                                    
                                                                    11/30/07Current
      AssetsCash
      and cash equivalents
                                                                    
                                                                    $
                                                                    9
                                                                    
                                                                    
                                                                    $
                                                                    446Accounts
      receivable, trade (less allowance for doubtful accounts of $754 and
      $1,377)
                                                                    
                                                                    
                                                                    35
                                                                    
                                                                    
                                                                    
                                                                    4,176Inventory,
      net
                                                                    
                                                                    
                                                                    1,228
                                                                    
                                                                    
                                                                    
                                                                    4,661Prepaid
      expenses and other assets
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    828Total
      current assets
                                                                    
                                                                    $
                                                                    1,272
                                                                    
                                                                    
                                                                    $
                                                                    10,111Non-current
      assetsEquipment
      and improvements, net
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    2,052Definite-lived
      intangible assets, net
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    2,496Other
      assets
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    98Total
      non-current assets
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    4,646Current
      liabilitiesAccounts
      payable, trade
                                                                    
                                                                    $
                                                                    769
                                                                    
                                                                    
                                                                    $
                                                                    7,794Accrued
      liabilities
                                                                    
                                                                    
                                                                    431
                                                                    
                                                                    
                                                                    
                                                                    2,689Current
      portion of long-term debt, net
                                                                    
                                                                    
                                                                    4,351
                                                                    
                                                                    
                                                                    
                                                                    869Short
      term notes
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    1,250Lines
      of credit, current
                                                                    
                                                                    
                                                                    2,887
                                                                    
                                                                    
                                                                    
                                                                    -Total
      current liabilities
                                                                    
                                                                    $
                                                                    8,438
                                                                    
                                                                    
                                                                    $
                                                                    12,602Non-current
      liabilitiesLines
      of credit
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    6,581Long-term
      debt
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    2,866Other
      Long-term liability
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    300Total
      non-current liabilities
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    9,747
 
 Debt as
of November 30, 2008 consisted of the following:
 
 Issue
                                        
                                        Expiration
                                        
                                        
                                        
                                        Outstanding
      atDate
                                        
                                        Date
                                        
                                        Instrument
                                        
                                        11/30/200812/14/2007
                                        
                                        12/29/2009
                                        
                                        $14,000
      Secured Revolving Note
                                        
                                        $
                                        2,88712/14/2007
                                        
                                        12/29/2009
                                        
                                        $2,000
      Term Notes
                                        
                                        
                                        4,351Total
      debt
                                        
                                        
                                        
                                        
                                        
                                        
                                        7,238Less
      current portion of long-term debt
                                        
                                        
                                        
                                        
                                        (7,238
                                        )Total
      long-term debt
                                        
                                        
                                        $
                                        -
 
  ITEM
2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OR PLAN OF OPERATIONS
 
 This
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other portions of this report contain forward-looking information
that involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated by the forward-looking information. Factors
that may cause such differences include, but are not limited to, availability
and cost of financial resources, product demand, market acceptance and other
factors discussed in this report under the heading “Forward Looking
Information/Risk Factors. ” This Management's Discussion and Analysis of
Financial Condition and Results of Operations should be read in conjunction with
its unaudited condensed consolidated financial statements and the related notes
included elsewhere in this report.
  31
  Overview
 
 All
amounts excluding share and per share amounts referenced below are stated in
thousands unless otherwise noted.
 
 Summary
Corporate Background
 
 Titan
Global Holdings (the “Company”, “We”, “Us”, “Our” or “Titan”) is a holding
company owning subsidiaries engaged in a number of diverse business
activities.  The most material of these are in the energy and
telecommunications industries.  We own and are in the process of
discontinuing operations in the electronics manufacturing, and apparel
industries.  The Company is domiciled in the state of Utah and its
corporate headquarters are in Richardson, Texas.
 
 Our
operating subsidiaries are managed in a decentralized fashion.  Our
corporate headquarters provides very limited support to our operating
subsidiaries and there is minimal involvement by the corporate headquarters in
running the day-to-day business activities of our operating
units.  Our corporate headquarters participates and is ultimately
responsible for arranging financing, allocating capital, sourcing senior
leadership and influencing the strategic direction of each operating
unit.
 
 We are
opportunistic buyers of companies that offer a value proposition either through
initiating operating efficiencies by our experienced management team and or
synergies with our existing operations.  In either case, our
management team is experienced in financing acquired operations with innovative
lenders with what we perceive as minimal dilution to our existing
shareholders.  The Company is committed to serving our shareholders
and customers through our endeavors in a variety of
businesses.   The Company pursues opportunities in a variety of
industries as part of a diversification strategy coupled with opportunistic
acquisitions.  Once acquired, our management assesses specific
industry appropriate strategies to build revenue, enhance margins and contain
general and administrative expenses.
 
 The
Company has two active wholly-owned subsidiaries operating in two divisions –
Titan Global Energy Group and the Communications Division.  Titan
Global Energy division includes Appalachian Oil Company, Inc.
(“Appco”).  Appco is primarily engaged in the distribution of
petroleum fuels and the operation of retail convenience stores. The
Communications division consists of Planet Direct Inc., an innovative
distributor of prepaid international long distance calling cards.  We
are in the process of winding down and or liquidating several other subsidiaries
including Oblio Telecom, Inc. (“Oblio”) which was previously a distributor of
prepaid international long distance calling cards that ran on a network operated
by another subsidiary that we are discontinuing, StartTalk Inc. (“StartTalk”),
Titan Wireless Communications, Inc. (“Titan Wireless”), whose primary assets
were liquidated in January 2008, Titan Global Brands that includes USA
Detergents, Inc. (“USAD”), which was a manufacturer and distributor of
value-branded home care products and Titan Apparel Inc, (“Titan Apparel’) which
designed and distributed footwear, the Titan Electronics and Homeland Security
division including Titan PCB East, Inc. (“Titan East”), whose primary assets
were sold in a transaction that closed on August 1, 2008, Titan Electronics Inc.
(formerly PCB West, Inc.) whose primary assets were sold in a transaction that
closed effective July 18, 2008, and Titan Nexus Inc., which is in the process of
being liquidated.
 
 Business
Overview
 
 The
Company’s business strategy is to create shareholder value in each of its
operating divisions, which include energy and communications. The Company may
continue to evaluate acquisition, spin-off, and/or divestiture opportunities in
its operating divisions. Additionally, the Company may pursue acquisition
opportunities in new market segments.
 
 The
Company’s business strategy, by division is as follows:
 
 Titan
Global Energy Group
 
 Titan
Global Energy Group was formed in the fourth quarter of fiscal year 2007. Titan
Global Energy Group is a division engaged in the acquisition and management of
complementary energy sector assets.
 
 On
September 17, 2007 Titan completed the acquisition of Appco. Appco, formed in
1923 and based in Blountville, Tennessee, is a regional petroleum company that
owns and operates an extensive petroleum product distribution network that is
comprised of 160 dealers in the southeastern United States.  Appco operates
78 convenience store locations in Tennessee, Kentucky, Oklahoma and
Virginia.
  32


On
October 24, 2008, Titan entered into two stock purchase agreements to purchase
all of the outstanding common and preferred stock of Crescent Fuels. The
acquisition closed on January 15, 2009.  Crescent Fuels based in
Independence, Kansas, is a regional petroleum company that owns and operates an
extensive petroleum distribution network that is comprised of 324 dealer
locations and 56 store locations in Kansas, Missouri, Oklahoma, Arkansas and
Louisiana.





Titan
Global Energy Group’s business strategy is to:




·
            Integrate
      the operations and distribution network of Appco and
    Crescent.


·
            Increase
      conversion of dealer locations to store operations in markets we
      serve.


·
            Increase
      the integration of biofuel products through strategic agreements and
      acquisitions that will enhance core profitability at wholesale and retail
      distribution and environmental responsibility in the markets we
      serve.


·
            Integrate
      vertically in the supply chain of purchasing
  petroleum.


·
            Increase
      inside store margins and volume through alignment with strategic
      distribution partners, product placement and aggressive liquid fuel
      pricing.





Titan
Communications Division





The
business strategy of the communications division is to re-establish the company
in the prepaid international calling card distribution business through direct
relationships with terminating carriers in destination countries.  
Our focus is on the distribution segment of the business not involving providing
inbound or outbound termination or end user customer service.  We are
developing a new distribution network that ultimately serves independently owned
and operated convenience stores through a direct relationship with our owned and
operated stores and a network of distributors.  We are currently
operating this segment of our business through Planet Direct
Inc.




Prior to
the creation of Planet Direct, the Company operated Oblio Telecom and
StartTalk.  StartTalk provided network support for prepaid
international communications products and Oblio distributed prepaid
international communications products in independently owned wholesale and
retail channels. In the quarter ended February 29, 2008, the Company experienced
a significant decrease in sales and collections of outstanding accounts
receivable.  Many of the long-standing distributors of Oblio’s products
stopped placing orders for new product and stopped sending payments for
previously placed orders.  While we are vigorously pursuing legal action
against many of these customers, the extended collection process has
significantly disrupted the operating cash flow cycle of the prepaid
international long distance portion of our communication’s division.  These
issues along with losses experienced in its network operations have resulted in
the Company ceasing to do business as a terminating communications network
provider in the prepaid international long distance market.





ACCOUNTING
PRINCIPLES; ANTICIPATED EFFECT OF GROWTH





Below the
Company describes a number of basic accounting principles which the Company
employs in determining its recognition of revenues and expenses, as well as a
brief description of the effects that the Company believes that its anticipated
growth will have on its revenues and expenses in the future.





Revenue
recognition





The
Company recognizes revenues when the following criteria are met: (1) the Company
has persuasive evidence of an arrangement, such as contracts, purchase orders or
written requests; (2) the Company has completed delivery and no significant
obligations remain; (3) its price to its customer is fixed or determinable and
(4) collection is probable.





In our
energy division, we recognize sales of petroleum and other items when the title
passes to the customer. We recognize the gross amounts earned from sales to
wholesale customers as revenues. Shipping and handling costs charged to
customers are included in our sales. At November 30, 2008 we had an allowance
for doubtful accounts of $31. Actual returns may differ materially from our
estimates, and revisions to the allowances may be required from time to time.
Sales in our energy division are subject to volatility based on trading prices
of petroleum and the competitive forces in our markets.





In the
communications division, we recognize sales upon the activation of our prepaid
calling cards by our customers.  We provide our customers with a
limited right of return.  We record net sales as gross sales less an
allowance for returns.  At November 30, 2008, we had a $112 allowance
for sales returns.  Actual returns may differ materially from our
estimates and revisions to the allowance may be required from time to
time.


33


Cost
of sales





In our
energy division, cost of sales consists of costs of acquiring petroleum and
related products in our stores.  Additionally, we include
transportation costs of petroleum, shipping costs and handling costs in the cost
of sales.  Our cost of sales can fluctuate based on the changing
market pricing of petroleum products on a daily basis.  We
occasionally mitigate our risk of market fluctuations in petroleum pricing by
purchasing fuel on the spot market at the refineries, through strategic
relationships with terminal operators and prevailing rates on the open
market.





In the
communications division, cost of sales consists of printing, shipping and the
cost of the cards from the service provider.  We accrue for the cost
of the cards from the service provider as the cards are activated by our
customers.  Our payment terms with the service provider vary based on
the first use of the card by the end user of the telecommunication
services.





Derivative
Liabilities





The
Company reviews the terms of convertible debt and equity instruments issued to
determine whether there are embedded derivative instruments, including embedded
conversion and other features that are required to be bifurcated and accounted
for separately as derivative financial instruments.  Generally, where
the ability to physical or net-share settle an embedded conversion option is not
deemed to be within the control of the Company, the embedded conversion option
is required to be bifurcated and accounted for as a derivative
liability.





In
connection with the sale of convertible debt and equity instruments, we may also
issue freestanding options or warrants.  Additionally, we may issue
options or warrants to non-employees in connection with consulting or other
services they provide. Although the terms of the options and warrants may not
provide for net-cash settlement, in certain  circumstances, physical
or net-share  settlement is deemed to not be within our control and,
accordingly, we are required to account for these freestanding options and
warrants as derivative liabilities, rather than as equity. Certain instruments,
including convertible debt and equity instruments and freestanding options and
warrants, may be subject to registration rights agreements, which impose
penalties for failure to register the underlying common stock. The existence of
these potential cash penalties may require that the embedded conversion option
and the freestanding options or warrants be accounted for as derivative
instrument liabilities.





Derivative
liabilities are initially measured at their fair value and then re-valued at
each reporting date, with changes in the fair value reported as charges or
credits to the statement of operations. For derivative liabilities related to
freestanding warrants and embedded conversion features, we use the Black-Scholes
option pricing model to determine the fair value. For derivative liabilities
related to registration rights agreements and cash payment premiums, we used a
discounted present value of expected future cash flows to determine the fair
value.





To the
extent that the initial fair values of the bifurcated and/or freestanding
derivative liabilities exceed the total proceeds received, an immediate charge
to the statement of loss is recognized, in order to initially record the
derivative liabilities at fair value. The discount from the face value of the
convertible debt resulting from allocating part or all of the proceeds to the
derivative liabilities, together with the stated interest on the instrument, is
amortized over the life of the instrument through periodic charges to the
statements of loss, using the effective interest method. The classification of
derivative instruments, including whether such instruments should be recorded as
liabilities or as equity, is re-assessed at the end of each reporting period.
Derivative liabilities are classified in the balance sheet as current or
non-current based on the classification of the host instrument.





Interest
Expense





Interest
expense reflects interest paid or accrued on debt instruments, the amortization
of debt issuance costs, and finance charges.  Interest expense
includes, for derivative instrument liabilities, the amortization of the
discount from the face value of convertible debt resulting from allocating part
or all of the proceeds to the derivative instruments, together with the stated
interest on the instrument, which is amortized over the life of the instrument,
using the effective interest method.





Operating
and Non-Operating Expenses





Each
division’s operating expenses for the three months ended November 30, 2008 and
2007 are comprised of marketing, general and administrative, certain
non-recurring costs and costs related to mergers and acquisitions.





Selling
and marketing expenses consist primarily of salaries and commissions paid to its
internal sales team, commissions paid to independent sales representatives and
costs associated with advertising and marketing activities. We expect our
selling and marketing expenses to fluctuate as a percentage of sales as we add
new personnel, develop new independent sales representative channels and
advertise the products and company.


34


General
and administrative expenses include all corporate and administrative functions
that serve to support its current and future operations and provide an
infrastructure to support future growth. Major items in this category include
management and staff salaries and benefits, travel, network administration and
systems/data processing, training, rent/leases and professional
services.





Results
of Operations





As of
November 30, 2008, the Company has a working capital deficit of $51,823
including current assets and current liabilities from discontinued operations, a
working capital deficit of $23,820 excluding current assets and current
liabilities from discontinued operations and an accumulated deficit of $112,236.
The Company generated sales of $78,396 and $90,015 for the three months ended
November 30, 2008 and 2007, respectively; and incurred a net loss of $9,529 and
$24,473 for the three months ended November 30, 2008 and 2007,
respectively.





Three
Months Ended November 30, 2008 Compared to the Three Months Ended November 30,
2007





Sales





Energy





Sales
decreased $14,333 or 15.9% to $75,682 in the three months ended November 30,
2008 from $90,015 in the three months ended November 30, 2007.  Sales
decreased in the energy division due to decreases in the amount of fuel
purchased from refiners in Texas and Louisiana and sold to other fuel
distributors for nominal margin and a decrease in gallons sold in the Company’s
retail locations sold offset by changes in the retail prices of fuel products
between the comparable periods.





Communications





Sales
increased to $2,714 in the three months ended November 30, 2008 from $0 in the
three months ended November 30, 2007. During January 2008, the Company created
Titan Communications and began operations in the Company’s Pinless Inc.
subsidiary as Planet Direct Inc. Through these subsidiaries, the communications
division will further its strategic endeavors in the prepaid international long
distance marketplace and develop distribution business
through direct relationships with terminating carriers in destination
countries.





Cost of
Sales





Energy





Cost of
sales decreased $16,001 or 18.8% to $68,923 in the three months ended November
30, 2008 from $84,924 in the three months ended November 30, 2007. Cost of sales
as a percentage of sales was 94.3% compared to 91.1% in the same period in the
prior year.  The decrease in cost of sales at Appco due to decreases
in the amount of fuel purchased from refiners in Texas and Louisiana and sold to
other fuel distributors for nominal margin and a decrease in gallons sold in the
Company’s retail locations sold offset by changes in the wholesale prices of
fuel products between the comparable periods.





Communications





Cost of
sales increased to $2,684 in the three months ended November 30, 2008 from to $0
in the three months ended November 30, 2007. In January 2008, the Company
created Titan Communications and began operations in the Company’s Pinless Inc.
subsidiary as Planet Direct Inc. Through these subsidiaries, the communications
division will further its strategic endeavors in the prepaid international long
distance marketplace and develop distribution business
through direct relationships with terminating carriers in destination
countries.





Sales and
Marketing





Energy





Sales and
marketing expenses increased by $15 to $38 in the three months ended November
30, 2008 from $23 in the three months ended November 30, 2007. This nominal
increase is insignificant for explanation.


35


Communications





Sales and
marketing expenses increased to $98 in the three months ended November 30, 2008
from $0 in the three months ended November 30, 2007. In January 2008, the
Company created Titan Communications and began operations in the Company’s
Pinless Inc. subsidiary as Planet Direct Inc. Through these subsidiaries, the
communications division will further its strategic endeavors in the prepaid
international long distance marketplace and develop distribution business
through direct relationships with terminating carriers in destination
countries.





General and Administrative
Expenses





Energy





General
and administrative expenses increased $1,255 or 24.5% to $6,368 for the three
months ended November 30, 2008 from $5,113 for the three months ended November
30, 2007. As a percentage of energy sales, general and administrative expense
were 8.4% in the three months ended November 30, 2008 compared to 5.7% in the
same period in 2007.  The $1,255 increase is due to the inclusion of
the operating results of Appco for the full quarter for the three months ending
November 30, 2008 and from the acquisition date of September 17, 2007 through
November 30, 2007 for the prior comparable period.  Additionally,
general and administrative expenses as a percent of sales increased between the
comparable periods due to sales of fuel purchased from refiners in Texas and
Louisiana and sold to other fuel distributors for nominal margin in the prior
period not occurring in the current period.





Communications





General
and administrative expenses increased to $648 in the three months ended November
30, 2008 from $0 in the three months ended November 30, 2007. As a percentage of
communication sales, general and administrative expense was 24% in the three
months ended November 30, 2008.  In January 2008, the Company created
Titan Communications and the Pinless Inc. subsidiary dba Planet Direct Inc.
Through these subsidiaries, the communications division will further its
strategic endeavors in the prepaid international long distance marketplace and
develop distribution
business through direct relationships with terminating carriers in destination
countries





Corporate





General
and administrative expenses increased $781 or 191.9% to $1,188 in the three
months ended November 30, 2008 from $407 in the three months ended November 30,
2007, an increase of $781.  The increase in corporate general and
administrative expenses from the prior year is due primarily to an increase in
salaries and wages of $516 and an increase of $156 in professional and
consulting expenses. General and administrative expenses as a percentage of
sales was 0.6% in the three months ended November 30, 2008 compared to 0.5 % in
the same period of the prior year. The prior period included a one time $375
credit in accrued bonus expenses that were not paid. Corporate general and
administrative expenses are comprised primarily of salaries and wages, investor
relation expenses, professional fees, consulting expenses, travel and insurance
expenses.





Amortization
Expense





Energy





Amortization
expenses increased $14 or 20.3% to $83 in the three months ended November 30,
2008 from $69 in the three months ended November 30, 2007. As a percentage of
sales, amortization expense was less than 1%. The increase in amortization
expense is due to the inclusion of the operating results of Appco for the full
quarter for the three months ending November 30, 2008 and from the acquisition
date of September 17, 2007 through November 30, 2007 for the prior comparable
period.





Other Income
(Expense)





Energy





Interest
expense increased $273 or 71.7% to $654 in the three months ended November 30,
2008 from $381 in the three months ended November 30, 2007. As a percentage of
Energy sales, interest expense was 0.9% in the three months ended November 30,
2008 compared to 0.4% in the same period in the prior year. The increase in
interest expense is partially due to the inclusion of the operating results of
Appco for the full quarter for the three months ending November 30, 2008 and
from the acquisition date of September 17, 2007 through November 30, 2007 for
the prior comparable period and certain annual fees charged by the primary
lender in the three months ending November 30, 2008 that were not charged in the
comparable prior year period.


36


Derivative
liabilities are initially measured at their fair value and then re-valued at
each reporting date, with changes in the fair value reported as charges or
credits to the statements of loss.  The Energy segment recognized
non-cash expense from the change in fair value of its derivative liabilities of
$52 in the three months ended November 30, 2008 compared to $176 in non-cash
income in the in the three months ended November 30, 2007.





Communications





Interest
expense increased to $73 in the three months ended November 30, 2008 compared to
$0 in the in the three months ended November 30, 2007. As a percentage of
Telecommunications sales, interest expense was 2.7% in the three months ended
November 30, 2008. In January 2008, the Company created Titan Communications and
began operations in the Company’s Pinless Inc. subsidiary as Planet Direct
Inc.





Corporate





Interest
expense increased $253 or 102.4% to $500 in the three months ended November 30,
2008 from $247 in the three months ended November 30, 2007. Interest expense is
primarily related to the non-cash interest expense of derivative
liabilities.





Derivative
liabilities are initially measured at their fair value and then re-valued at
each reporting date, with changes in the fair value reported as charges or
credits to the statements of loss.  The Corporate segment recognized
non-cash expense from the change in fair value of its derivative liabilities of
$3,750 in the three months ended November 30, 2008 compared to $2,241 in
non-cash income in the in the three months ended November 30, 2007.





Discontinued
operations





During
the year ended August 31, 2008, the Company’s management committed to a plan to
dispose of certain assets and liabilities of its Telecommunications Division,
Electronic Homeland Security Division and its Titan Global Brands
division.


37


A summary
of the results of operations are below:





Three
      Months Ended11/30/2008
                                        
                                        
                                        11/30/2007%
      of
                                          Sales
                                        
                                        
                                        
                                        
                                        
                                        %
      of
                                          Sales
                                        
                                        
                                        $
      Change
                                        
                                        
                                        %
      ChangeSales
      - Communications division
                                        
                                        $
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        $
                                        22,328
                                        
                                        
                                        
                                        69
                                        
                                        
                                        $
                                        (22,328
                                        )
                                        
                                        
                                        -100
                                        %Sales
      - Electronics and Homeland Security division
                                        
                                        
                                        (159
                                        )
                                        
                                        
                                        (75
                                        )
                                        
                                        
                                        6,781
                                        
                                        
                                        
                                        21
                                        
                                        
                                        
                                        (6,940
                                        )
                                        
                                        
                                        -102
                                        %Sales
      - Global Brands division
                                        
                                        
                                        372
                                        
                                        
                                        
                                        175
                                        
                                        
                                        
                                        3,183
                                        
                                        
                                        
                                        10
                                        
                                        
                                        
                                        (2,811
                                        )
                                        
                                        
                                        -88
                                        %Total
      sales
                                        
                                        
                                        213
                                        
                                        
                                        
                                        100
                                        
                                        
                                        
                                        32,292
                                        
                                        
                                        
                                        100
                                        
                                        
                                        
                                        (32,079
                                        )
                                        
                                        
                                        -99
                                        %Cost
      of sales - Communications division
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        18,270
                                        
                                        
                                        
                                        82
                                        
                                        
                                        
                                        (18,270
                                        )
                                        
                                        
                                        -100
                                        %Cost
      of sales - Electronics and Homeland Security division
                                        
                                        
                                        239
                                        
                                        
                                        
                                        109
                                        
                                        
                                        
                                        6,120
                                        
                                        
                                        
                                        90
                                        
                                        
                                        
                                        (5,881
                                        )
                                        
                                        
                                        -96
                                        %Cost
      of sales - Global Brands division
                                        
                                        
                                        (13
                                        )
                                        
                                        
                                        (3
                                        )
                                        
                                        
                                        3,205
                                        
                                        
                                        
                                        101
                                        
                                        
                                        
                                        (3,218
                                        )
                                        
                                        
                                        -100
                                        %Total
      cost of sales
                                        
                                        
                                        226
                                        
                                        
                                        
                                        106
                                        
                                        
                                        
                                        27,595
                                        
                                        
                                        
                                        85
                                        
                                        
                                        
                                        (27,369
                                        )
                                        
                                        
                                        -99
                                        %(13
                                        )
                                        
                                        
                                        (6
                                        )
                                        
                                        
                                        4,697
                                        
                                        
                                        
                                        15
                                        
                                        
                                        
                                        (4,710
                                        )
                                        
                                        
                                        -100
                                        %Operating
      expenses:Sales
      and marketing
                                        
                                        
                                        83
                                        
                                        
                                        
                                        39
                                        
                                        
                                        
                                        1,187
                                        
                                        
                                        
                                        4
                                        
                                        
                                        
                                        (1,105
                                        )
                                        
                                        
                                        -93
                                        %General
      and administrative
                                        
                                        
                                        402
                                        
                                        
                                        
                                        189
                                        
                                        
                                        
                                        3,239
                                        
                                        
                                        
                                        10
                                        
                                        
                                        
                                        (2,837
                                        )
                                        
                                        
                                        -88
                                        %Bad
      debt expense
                                        
                                        
                                        602
                                        
                                        
                                        
                                        283
                                        
                                        
                                        
                                        4,557
                                        
                                        
                                        
                                        14
                                        
                                        
                                        
                                        (3,954
                                        )
                                        
                                        
                                        -87
                                        %Depreciation
      expense
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        95
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (95
                                        )
                                        
                                        
                                        -100
                                        %Amortization
      of intangibles
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        1,427
                                        
                                        
                                        
                                        4
                                        
                                        
                                        
                                        (1,427
                                        )
                                        
                                        
                                        -100
                                        %Total
      operating expenses
                                        
                                        
                                        1,087
                                        
                                        
                                        
                                        511
                                        
                                        
                                        
                                        10,505
                                        
                                        
                                        
                                        32
                                        
                                        
                                        
                                        (9,418
                                        )
                                        
                                        
                                        -90
                                        %Loss
      from operations
                                        
                                        
                                        (1,100
                                        )
                                        
                                        
                                        (517
                                        )
                                        
                                        
                                        (5,808
                                        )
                                        
                                        
                                        (18
                                        )
                                        
                                        
                                        4,708
                                        
                                        
                                        
                                        -81
                                        %Other
      income
                                        
                                        
                                        20
                                        
                                        
                                        
                                        10
                                        
                                        
                                        
                                        37
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (17
                                        )
                                        
                                        
                                        -45
                                        %Interest
      expense
                                        
                                        
                                        (776
                                        )
                                        
                                        
                                        (364
                                        )
                                        
                                        
                                        (1,006
                                        )
                                        
                                        
                                        (3
                                        )
                                        
                                        
                                        230
                                        
                                        
                                        
                                        -23
                                        %Gain
      on disposal of assets
                                        
                                        
                                        276
                                        
                                        
                                        
                                        129
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        276
                                        
                                        
                                        
                                        0
                                        %Loss
      on impairment
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (21,142
                                        )
                                        
                                        
                                        (65
                                        )
                                        
                                        
                                        21,142
                                        
                                        
                                        
                                        -100
                                        %Gain
      (loss) on value of derivative instruments
                                        
                                        
                                        (1,366
                                        )
                                        
                                        
                                        (641
                                        )
                                        
                                        
                                        2,126
                                        
                                        
                                        
                                        7
                                        
                                        
                                        
                                        (3,492
                                        )
                                        
                                        
                                        -164
                                        %Loss
      before provision for income taxes
                                        
                                        $
                                        (2,946
                                        )
                                        
                                        
                                        (1,383
                                        )%
                                        
                                        $
                                        (25,793
                                        )
                                        
                                        
                                        (79
                                        )%
                                        
                                        
                                        22,847
                                        
                                        
                                        
                                        -89
                                        %





Liquidity
and Capital Resources





Our
principal sources of liquidity are our existing cash, cash equivalents and
short-term investments, cash generated from operations, and cash available from
borrowings under our revolving credit facilities. We may also generate liquidity
from offerings of debt and/or equity in the capital markets. As of
November 30, 2008, we had a total of $2,921 in unrestricted cash and cash
equivalents, including $10 in cash from discontinued operations. As of
November 30, 2008, we also had restricted cash and cash equivalents and
short-term investments of $624 that included funds set aside or pledged to
secure lines of credit with key suppliers. We believe that our existing cash and
investments, liquidity under our revolving credit facility and anticipated cash
flows from operations will be sufficient to meet our operating and capital
requirements through at least the next twelve months.





We
currently intend to seek opportunities to acquire strategic assets that will
enhance our holdings in our energy division.  On January 15, 2009, the
Company closed on the acquisition of Crescent Fuels. The acquisition of Crescent
Fuels increases the Company’s aggregate lines of credit with fuel suppliers and
our unleveraged asset base.  Increased lines of credit with fuel
suppliers decrease our reliance on financing our working capital needs through
our asset based revolving credit facilities.  Increasing unleveraged
assets creates more borrowing capacity under our revolving credit
facilities.  The combination of these two factors increases the
company’s liquidity and financing options and lowers our borrowing
costs.  We anticipate financing any purchases of assets, and any
related working capital and/or initial operating cost needs, with cash from
operations, our existing cash, cash equivalents and short-term investments,
borrowings under our revolving credit facility, and proceeds from offerings of
debt and/or equity securities. The amounts we may seek to raise through any such
offerings may be substantial.


38


Operating Activities -Cash
provided by operating activities was $5,744 ($4,023 from continuing operations
and $1,721 from discontinued operations) during the three months ended November
30, 2008 compared to cash used in operating activities of $8,758 ($2,822 used in
continuing operations and $5,936 used in discontinued operations) during the
three months ended November 30, 2007. The increase in cash provided by
operations is due primarily to the decreases in accounts receivable and
inventories net of the decrease in accounts payable. Decreases in accounts
receivable, inventories and accounts payable were primarily due to lower fuels
prices during the three months ended November 30, 2008.





Investing Activities -Cash
used in investing activities was $195 ($195 used in continuing operations and $0
used in discontinued operations) during the three months ended November 30,
2008 compared to cash used in investing activities of $31,056 ($30,709 used by
continuing operations and $347 used in discontinued operations) during the three
months ended November 30, 2007. The decrease in cash used in investing
activities is due primarily to $30,000 paid to the sellers of Appco in the three
months ended November 30, 2007.





Financing Activities -Cash
used in financing activities during the three months ended November 30,
2008 was $5,087 ($3,286 used in continuing operations and $1,801 used in
discontinued operations) compared to cash provided by financing activities of
$45,534 ($35,755 provided by continuing operations and $9,779 used by
discontinued operations) during the three months ended November 30, 2007. The
decreases in cash provided from financing activities in the three months ended
August 31, 2008 is due primarily to credit line repayments. In the same period
last year the Company’s received approximately $35,000 from a sale leaseback
transaction, common stock issuance and long-term debt
issuance.





Impact
of Inflation





The cost
of our products produced in our energy segment is influenced by the cost of
fuel. Crude oil and domestic wholesale petroleum markets are volatile. General
political conditions, acts of war or terrorism and instability in oil producing
regions, particularly in the Middle East, Russia and South America, could
significantly impact crude oil supplies and wholesale petroleum costs.
Significant increases and volatility in wholesale petroleum costs could result
in significant increases in the retail price of petroleum products and in lower
motor fuel gross margin per gallon. Increases in the retail price of petroleum
products could impact consumer demand for motor fuel and convenience
merchandise.





Seasonality





Our
energy experiences substantial seasonality due to customer activity behaviors
during different seasons; in general, sales and operating income are highest in
our third and fourth fiscal quarters which occur in the spring and summer
months.  Our lowest activity months are during the winter
months.





Critical
Accounting Policies





The SEC has issued Financial
Reporting Release No. 60, "Cautionary Advice Regarding Disclosure About Critical
Accounting Policies" ("FRR 60"), suggesting companies provide additional
disclosure and commentary on their most critical accounting policies. In FRR 60,
the SEC defined the most critical accounting policies as the ones that are most
important to the portrayal of a company's financial condition and operating
results, and require management to make its most difficult and subjective
judgments, often as a result of the need to make estimates of matters that are
inherently uncertain. Based on this definition, the Company's most critical
accounting policies include: revenue recognition, which affects sales, inventory
valuation, which affects its cost of sales and gross margin; and allowance for
doubtful accounts and stock-based compensation, which affects general and
administrative expenses. The methods, estimates and judgments the Company uses
in applying these most critical accounting policies have a significant impact on
the results the Company reports in its consolidated financial
statements.





Consolidation
Policy





The
accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All material inter-company
transactions have been eliminated.


39


Use
of Estimates





The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates. Such estimates relate primarily to the estimated lives of
equipment and improvements, valuation reserves for accounts receivable,
calculation of deferred revenue, allocation of purchase price, inventory,
impairment of intangible assets, deferred tax accounts, fair value of equity
instruments issued and sales returns.





Revenue
Recognition





The
Company recognizes revenues when the following criteria are met: (1) the Company
has persuasive evidence of an arrangement, such as contracts, purchase orders or
written requests; (2) the Company has completed delivery and no significant
obligations remain; (3) its price to its customer is fixed or determinable and
(4) collection is probable.





The
Company recognizes sales of petroleum and other items when the title passes to
the customer.  We recognize the amounts earned from sales to wholesale
customers as revenues, net of sales or excise tax. Shipping and handling costs
charged to customers are included in our sales.





In the
communications division, we recognize sales upon the activation of our prepaid
calling cards by our customers.  We provide our customers with a
limited right of return.  We record net sales as gross sales less an
allowance for returns.  At November 30, 2008, we had a $112 allowance
for sales returns.  Actual returns may differ materially from our
estimates and revisions to the allowance may be required from time to
time.





Cash
and Cash Equivalents





The
Company considers highly liquid investments with a maturity of three months or
less to be cash equivalents and consist primarily of interest-bearing bank
accounts.





Accounts
Receivable





The
Company’s accounts receivable are due from a variety of customers. Credit is
extended based on an evaluation of a customer’s financial condition. Accounts
receivable are generally due between 7 to 30 days and are stated at amounts due
from customers, net of an allowance for doubtful accounts. Accounts outstanding
longer than the contractual payment terms are considered past due. The Company
performs ongoing credit evaluation of its customers and generally does not
require collateral. The Company maintains reserves for potential credit losses
and such losses have been within management’s expectations. The Company
determines its allowance by considering a number of factors, including the
length of time accounts are past due, the Company’s previous loss history, the
customer’s current ability to pay its obligations to the Company, and the
condition of the general economy and industry as a whole. The Company writes off
accounts receivable when they become uncollectible. At November 30, 2008, the
Company provided an allowance for doubtful accounts totaling $31.





Asset
Retirement Obligation





In 2001,
the FASB issued SFAS 143, “Accounting for Asset Retirement Obligations.” SFAS
143 addresses financial accounting and reporting for obligations associated with
the retirement of tangible long-lived assets and the associated asset retirement
costs. This statement requires companies to record the present value of
obligations associated with the retirement of tangible long-lived assets in the
period in which it is incurred. The liability is capitalized as part of the
related long-lived asset’s carrying amount. Over time, accretion of the
liability is recognized as an operating expense, and the capitalized cost is
amortized over the expected useful life of the related asset. The Company’s
asset retirement obligations (“ARO”) relate primarily to the future shutdown of
fuel storage tanks.





The
Company has adopted the provisions of SFAS 143 to record the ARO that could be
incurred upon the future closure of facilities. Accretion of the ARO on
properties from which production has commenced has been calculated using the
estimated life of the facility. The amounts recognized upon adoption are based
upon numerous estimates and assumptions, including future retirement costs,
future inflation rates and the credit-adjusted risk-free interest rate. At
November 30, 2008, the Company has recorded a liability of $1,424 related to
ARO.


40


Concentration
of Credit Risk





The
Company generally extends credit to its customers and performs ongoing credit
evaluations of its customers. Typically, the Company does not require
collateral. The Company routinely reviews the collectibility of its accounts
receivable and considers the following factors when determining collectibility
of specific customer accounts: customer credit-worthiness, past transaction
history with the customer, current economic industry trends, and changes in
customer’s financial condition. If the financial condition of a customer were to
deteriorate, adversely affecting its ability to make payments, an allowance
would be required. There are no individual customers that comprise a significant
amount of total sales in either the Titan Global Energy group or the
communications group in the three months ended November 30, 2008.




Inventories





In our
energy division, liquid fuel and all other inventories are valued at the lower
of cost, using the FIFO method, or market.





In our
communications division, our policy is to value activated prepaid international
cards at the lower of cost or market.





Equipment
and Improvements





Equipment
and improvements are carried at cost less depreciation and amortization which is
provided using the straight-line method.





Depreciable
assets acquired through an asset or stock purchase agreement are depreciated
over their remaining useful life from the date of the asset or stock purchase
agreement based on the respective assets purchase date and or the date the asset
was initially placed in service.




Intangible
Assets





In
accordance with SFAS No. 142, “Goodwill and Other Intangible
Assets,” the Company reviews intangibles for impairment annually or more
frequently if an event occurs or circumstances change that would more likely
than not reduce the fair value of the Company's business enterprise below its
carrying value. The impairment test requires management to estimate the fair
value of the Company's overall business enterprise down to the reporting unit
level. The Company performs its annual impairment test in its fiscal fourth
quarter.





Impairment
of Long-Lived Assets





Pursuant
to SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-lived Assets," the Company
continually monitors events and changes in circumstances that could indicate
carrying amounts of long-lived assets may not be recoverable. An impairment loss
is recognized when expected cash flows are less than the asset's carrying value.
Accordingly, when indicators of impairment are present, the Company evaluates
the carrying value of such assets in relation to the operating performance and
future undiscounted cash flows of the underlying assets. The Company’s policy is
to record an impairment loss when it is determined that the carrying amount of
the asset may not be recoverable. The Company performs its annual impairment
test in its fiscal fourth quarter.





Advertising





The
Company expenses advertising costs when incurred. Advertising expense totaled
$136 and $23 for the three months ended November 30, 2008, and 2007,
respectively. Advertising expense in discontinued operations totaled $84 and
$1,187 for the three months ended November 30, 2008, and 2007,
respectively.





Income
Taxes





Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities, and their respective tax basis. Deferred tax
assets, including tax loss and credit carry forwards, and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Deferred income tax expense represents the change during the period in the
deferred tax assets and deferred tax liabilities. The components of the deferred
tax assets and liabilities are individually classified as current and
non-current based on their characteristics. Realization of the deferred tax
asset is dependent upon generating sufficient taxable income in future years.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized.


41


Loss
in excess of investment in USAD





Under
Accounting Research Bulletin No. 51 (“ARB No. 51”), consolidation of a
majority-owned subsidiary is precluded where control does not rest with the
majority owners. Under these rules, legal reorganization or bankruptcy
represents conditions which can preclude consolidation or equity method
accounting as control rests with the Bankruptcy Court, rather than the majority
owner. Accordingly, we deconsolidated USAD as of June 12, 2008, eliminating all
future operations from the financial results of operations. Therefore, in
accordance with ARB No. 51, we follow the cost method of accounting to record
the interest in USAD, our wholly owned subsidiary which declared bankruptcy on
June 12, 2008. Under cost method accounting, income will only be recognized to
the extent of cash received in the future or when the Company is discharged from
the bankruptcy, at which time, any loss in excess of the investment in
subsidiary can be recognized into income as discussed below. As a result of the
deconsolidation, The Company had a negative basis in its investment in USAD
because the subsidiary generated significant losses in excess of its asset
balances. This negative investment, “Loss in excess of investment in subsidiary”
is reflected as a single amount on the audited consolidated statement of
financial condition as a $12,992 liability as of November 30, 2008. This balance
was comprised of a negative investment in USAD. Since USAD results are no longer
consolidated and management believes that it is not probable that it will be
obligated to fund future operating losses at USAD, any adjustments reflected in
USAD financial statements subsequent to June 12, 2008 are not expected to affect
the results of operations of the Company. The reversal of our liability into
income will occur when either USAD bankruptcy is discharged and the amount of
the Company’s remaining investment in USAD is determined or we reach a final
settlement in the Bankruptcy Court related to any claims against the Company.
The Company will continue to evaluate our cost method investment in USAD
quarterly to review the reasonableness of the liability balance.





Stock
Based Compensation





Effective
September 1, 2006, the Company adopted the fair value recognition provisions of
SFAS 123(R) (revised 2004), “Share Based Payment” using
the modified-prospective method. Under SFAS 123(R), stock-based compensation
expense recognized during the period is based on the value of the portion of
stock-based payment awards that is ultimately expected to vest. Stock-based
compensation expense recognized in the consolidated statement of operations
during the three months ended November 30, 2007 includes compensation expense
for stock-based payment awards of $18.




The
Black-Scholes option valuation model was developed for estimating the fair value
of traded options that have no vesting restrictions and are fully transferable.
Because option valuation models require the use of subjective assumptions,
changes in these assumptions can materially affect the fair value of the
options. The Company's options do not have the characteristics of traded
options; therefore, the option valuation models do not necessarily provide a
reliable measure of the fair value of its options.





Fair
Value of Financial Instruments





SFAS
No. 157 defines and establishes a framework for measuring fair value and
expands related disclosures. This Statement does not require any new fair value
measurements. We use fair value measurements to measure, among other items,
purchased assets and investments, leases and derivative contracts. We also use
them to assess impairment of properties, plants, and equipment, intangible
assets, and goodwill. The Statement does not apply to share-based payment
transactions and inventory pricing. SFAS No. 157 is effective for the
Company’s financial assets and financial liabilities beginning in 2008. In
February 2008, FASB Staff Position 157-2, Effective Date of Statement 157,
deferred the effective date of SFAS No. 157 for all nonfinancial assets and
nonfinancial liabilities to fiscal years beginning after November 15, 2008.
The nonfinancial assets and nonfinancial liabilities held by the Company include
asset retirement obligations, assets held for sale, goodwill, and trade
names.





Fair
value is defined as the price at which an asset could be exchanged in a current
transaction between knowledgeable, willing parties. A liability’s fair value is
defined as the amount that would be paid to transfer the liability to a new
obligor, not the amount that would be paid to settle the liability with the
creditor. Where available, fair value is based on observable market prices or
parameters or derived from such prices or parameters. Where observable prices or
inputs are not available, use of unobservable prices or inputs are used to
estimate the current fair value, often using an internal valuation model. These
valuation techniques involve some level of management estimation and judgment,
the degree of which is dependent on the item being valued.





SFAS
No. 157 prioritizes the inputs used in measuring fair value into the
following hierarchy:




Level 1
            Quoted
      prices (unadjusted) to active markets for identical assets and
      liabilities;


42





Level 2
            Inputs
      other than quoted prices included within Level 1 that are either directly
      or indirectly observable;Level
      3
            Unobservable
      inputs in which little or no market activity exits, therefore requiring an
      entity to develop its own assumptions about the assumptions that market
      participants would use in pricing.





At
November 30, 2008, the carrying amount of the Company's cash and cash
equivalents, accounts receivable, long-term debt, redeemable preferred stock,
lines of credit and accounts payable, approximates their estimated fair values
due to the market rates and short-term maturities of those financial instruments
using Level 1 observable inputs.





Derivative
Liabilities





The
Company reviews the terms of convertible debt and equity instruments issued to
determine whether there are embedded derivative instruments, including embedded
conversion and other features that are required to be bifurcated and accounted
for separately as derivative financial instruments.





Generally,
where the ability to physical or net-share settle an embedded conversion option
is not deemed to be within the control of the Company, the embedded conversion
option is required to be bifurcated and accounted for as a derivative
liability.





In
connection with the sale of convertible debt and equity instruments, the Company
may also issue freestanding options or warrants.  Additionally, the
Company may issue options or warrants to non-employees in connection with
consulting or other services they provide. Although the terms of the options and
warrants may not provide for net-cash settlement, in certain circumstances,
physical or net-share settlement is deemed to not be within company control and,
accordingly, the Company is required to account for these freestanding options
and warrants as derivative liabilities, rather than as equity.





Certain
instruments, including convertible debt and equity instruments and freestanding
options and warrants, may be subject to registration rights agreements, which
impose penalties for failure to register the underlying common
stock.  The existence of these potential cash penalties may require
that the embedded conversion option and the freestanding options or warrants be
accounted for as derivative instrument liabilities.





Derivative
liabilities are initially measured at their fair value and then re-valued at
each reporting date, with changes in the fair value reported as charges or
credits to the statement of operations.  For derivative liabilities
related to freestanding warrants and embedded conversion features, the Company
uses the Black-Scholes option pricing model to determine the fair
value.  For derivative liabilities related to registration rights
agreements and cash payment premiums, the Company uses a discounted present
value of expected future cash flows to determine the fair value.





To the
extent that the initial fair values of the bifurcated and/or freestanding
derivative liabilities exceed the total proceeds received, an immediate charge
to the statements of operations is recognized, in order to initially record the
derivative liabilities at fair value.  The discount from the face
value of the convertible debt resulting from allocating part or all of the
proceeds to the derivative instruments, together with the stated interest on the
instrument, is amortized over the life of the instrument through periodic
charges to the statement of loss, using the effective interest
method.  The classification of derivative instruments, including
whether such instruments should be recorded as liabilities or as equity, is
re-assessed at the end of each reporting period.  Derivative
liabilities are classified in the balance sheet as current or non-current based
on the classification of the host instrument.





The
Company does not use derivative instruments to hedge exposures to cash flow,
market, or foreign currency risks.





Segment
Reporting





Based on
a number of factors, including differences in products and services, regulatory
environment, customers and the Company's integration and management strategies,
the Company determined that it operated in two distinct business
segments.


43


ITEM
4. CONTROLS AND PROCEDURES





Evaluation of Disclosure Controls
and Procedures:Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
we conducted an evaluation of the effectiveness of the design and operations of
our disclosure controls and procedures, as defined in Rule 13a-15(f) and
15d-15(f) under the Securities Exchange Act, as of the end of the period covered
by this Quarterly Report.





Based on
this evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that the Company’s disclosure controls and procedures were not
adequate and effective to ensure that material information required to be
disclosed in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms, including ensuring
that such material information is accumulated and communicated to our Chief
Executive and our Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure. The matters identified are with regard
to insufficient documentation of our board of directors meetings, insufficient
maintenance of stock option and warrant grant documents, inadequate
documentation of processes and procedures surrounding our system of internal
controls, inadequate maintenance of executed copies of corporate documents from
debt agreements and lack of proper segregation of duties in the cash
disbursements processing cycle. A material weakness is a significant deficiency,
or combination of significant deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected. Significant deficiencies are
control issues that could have a significant adverse effect on the ability to
record, process, summarize and report financial data in the financial
statements.





Changes in internal controls:The Company continued strengthening its system of internal controls
during the first quarter of fiscal 2009. During the later half of our
fiscal 2008, we consolidated the accounting function for our discontinued
operations in our corporate headquarters in Richardson, Texas.  This
consolidation process continued through the first quarter of 2009 as we added
additional accounting resources to facilitate proper segregation of duties,
implement additional review procedures and improve the monthly and quarterly
reconciliation process.  There have been no other
changes in the Company’s internal control over financial reporting during the
three months ended November 30, 2008 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.


44


PART
II





OTHER
INFORMATION





ITEM
1. LEGAL PROCEEDINGS





From time
to time, the Company may become involved in various lawsuits and legal
proceedings which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm its business. The Company is
currently not aware of any such legal proceedings or claims that the Company
believes will have, individually or in the aggregate, a material adverse affect
on its business, financial condition or operating results.





Unless otherwise indicated, all
numbers (except per share amounts) presented under this Item 1 are stated in
thousands.





ACE TECH
CIRCUIT CO., LTD.


On or
about September 2008, the Company was notified of a collections lawsuit filed by
Ace Tech Circuit Co., Ltd. ("Ace Tech").  The lawsuit alleges the Company
is the dba of its subsidiary Titan PCB West and Titan Electronics.  Ace
Tech is seeking approximately $459 for alleged failure to pay for delivered
product. The Company has accrued $422 of the amounts alleged to be due in its
accounts payable as of November 30, 2008 and is disputing the difference of
$37.





ADVANCED
SURFACE FINISHING


In July
2008, the Company's subsidiary Titan PCB West n/k/a Titan Electronics, Inc.
(“Titan Electronics”) was notified of a collections lawsuit and a writ of
attachment granted to Advanced Surface Finishing ("AFS").  AFS is seeking
approximately $143 from Titan Electronics for alleged failure to pay for
delivered product. The Company has accrued $58 of the amounts alleged to be due
in its accounts payable as of November 30, 2008 and is disputing the difference
of $85.





ALLSTATE
PRINTING & PACKAGING, INC


On March
25, 2008, the Company’s subsidiary, Oblio, was notified, via a process server,
that it was being sued by Allstate Printing & Packaging, Inc. (“Allstate”).
Allstate is seeking $86 for alleged unpaid invoices for services rendered in
Passaic County: Superior Court, NJ. This action is currently pending. The
Company has accrued the amounts alleged to be due in its accounts payable at
November 30, 2008.





AMERTEL
COMMUNICATIONS, INC


On April
2, 2008, the Company’s subsidiaries, Oblio and Titan Wireless, were notified,
via a process server, that it was being sued by Amertel Communications, Inc.
(“Amertel”). Amertel is seeking $275 for alleged unpaid refunds for products
purchased in the US District Court, MD. This action is currently pending. The
Company disputes the amounts alleged to be due, and Management is unable to
estimate the ultimate liability, if any, related to this claim at August 31,
2008.





ASIA
TELECOM CORPORATION


On March
7, 2008, Oblio filed a lawsuit in Dallas County, Texas, against Asia Telecom
Corporation (“Asia Telecom”) seeking to recover $753 for unpaid
product.  Asia Telecom filed a special appearance claiming that it
does not have sufficient contacts with the State of Texas to warrant being sued
in a Texas Court.  On July 25, 2008, the district court denied Asia
Telecom’s special appearance.  We are now proceeding with pre-trial
discovery against Asia Telecom.





AT&T
CORP.


On
December 5, 2006, the Company’s subsidiary, Oblio Telecom, Inc. (“Oblio”), filed
a Demand for Arbitration with the American Arbitration Association against
AT&T Corp. (“AT&T”). Oblio sought a refund of amounts paid to AT&T
for the period from 1999 to October 2006 for USF charges paid to AT&T
pursuant the Purchase Order Agreement, which sets forth the parties’ business
relationship. The fees paid to AT&T for AT&T’s Enhanced Prepaid Card
Service (“Prepaid Card Service”) included USF and other Federal Communications
Commission (the “FCC”) charges. AT&T retained this revenue instead of making
the required contributions to the USF and other FCC programs based on AT&T’s
argument that its Prepaid Card Service was exempt under the law.




On
October 12, 2007, Oblio entered into a Settlement Agreement (the “Settlement
Agreement”) with AT&T, effective as of October 11, 2007. Pursuant to the
Settlement Agreement, AT&T agreed to waive and discharge its right to
receive $7,200 and Oblio issued a promissory note for the payment of the balance
of $600 in interest to AT&T in full settlement of the Partial Final Award
issued in the arbitration proceeding on the counter claims brought by AT&T
against Oblio and in full settlement of the Oblio’s Universal Service Fund claim
against AT&T, which has been paid in full. As Oblio had already recorded its
liability in its accounts payable, the $6,600 net reduction in accounts payable
reduced cost of sales during the three months ended November 30,
2007.


45


CLIFTON
PREPAID COMMUNICATIONS CORP.


On August
21, 2007, Oblio filed suit against Clifton Prepaid Communications Corp., Clifton
Pre-Paid Corp, and Aref Aref (collectively “Clifton”) for non-payment of
invoices related to services rendered in the District Court, 199th
Judicial District, Collin County, Texas. Oblio seeks $2,199 in payment plus
pre-judgment interest, post judgment interest at the maximum lawful rate from
July 30, 2007 until judgment at the rate of six percent per annum, and
reasonable and necessary attorney fees and costs. Oblio also obtained Writs of
Garnishment against Clifton’s funds on deposit with Bank of America, N.A. and
J.P. Morgan Chase Bank.  As a result of the Writs of Garnishment,
Oblio trapped approximately $140 in Clifton’s bank accounts.  Clifton
has unsuccessfully attempted to dissolve the Writ of Garnishment.  On
September 22, 2008, the district court entered a final judgment against Clifton
Prepaid Communications Corp. and Clifton Pre-Paid Corp. in the amount of
approximately $2,500.  The final judgment did not include Aref Aref
because two weeks prior to trial, Aref Aref filed for personal bankruptcy in an
effort to thwart Oblio’s collection efforts.  On or about October 1,
2008, the district court entered judgment in the bankruptcy action directing
Bank of America, N.A. and J.P. Morgan Chase Bank to release the garnished funds
to Oblio, which was received on December 8, 2008. As of November 30, 2008, the
Company has fully reserved and allowed for the $2,199 in accounts receivable
from Clifton less the amounts captured in the Writ of Garnishment.





FASTPRINT
CIRCUIT TECHNOLOGIES


In August
2008, the Company was notified of a collections lawsuit filed by Fastprint
Circuit Technologies (“Fastprint”).  Fastprint is in the process of
amending its lawsuit to name the Company's subsidiary Titan Electronics as the
defendant.  No specific demand has been made although Fastprint seeks
damages for alleged failure to pay for delivered product.





GEOTEL
INTERNATIONAL, LC


On
January 31, 2008, the Company’s subsidiary, StartTalk, was notified, via a
process server, that it was being sued by Geotel International, LC (“Geotel”).
Geotel is seeking $73 for alleged unpaid invoices for services rendered in
Miami-Dade County: Circuit Court, FL. This action is currently pending. The
Company has accrued the amounts alleged to be due in its accounts payable at
November 30, 2008.





HAWAII
GLOBAL EXCHANGE, INC. AND TRANSPAC TELECOM, INC.


On
December 21, 2007, the Company’s subsidiary Oblio, filed a lawsuit against
Hawaii Global in 162nd
Judicial District Court of Dallas County, Texas.  Oblio sought to
recover $1,319 for unpaid product.  Hawaii Global then removed the
lawsuit to the United States District Court for the Northern District of
Texas.  Hawaii Global then moved to dismiss the Texas lawsuit based
upon lack of personal jurisdiction and in the alternative to transfer the Texas
lawsuit to the United States District Court of Hawaii.  The District
Court denied Hawaii Global’s motion to dismiss and or transfer.  On
January 29, 2008, the Company’s subsidiary, Oblio, was notified, via a process
server, that it was being sued by Hawaii Global Exchange, Inc. and Transpac
Telecom, Inc. (“Transpac”). Transpac is alleging violation of the Communications
Act, breach of oral contract, promissory estoppel, and intentional interference
with contractual relations and/or prospective economic advantage in US District
Court, HI. Oblio then filed a motion to dismiss the Hawaii lawsuit based upon
lack of personal jurisdiction or, in the alternative, to transfer the Hawaii
lawsuit to Texas.  Although Hawaii Global and Transpac have opposed
the motion to dismiss, they have consented to the transfer of the Hawaii lawsuit
to the Northern District of Texas.  The Hawaii lawsuit has been
transferred and consolidated with the Texas Lawsuit.  Hawaii Global
has joined the Company, Bryan Chance, Kurt Jensen, Frank Crivello, and David
Marks as parties to the lawsuit. The Company disputes these allegations and will
defend itself, and Management is unable to estimate the ultimate liability, if
any, related to this claim at November 30, 2008. As of November 30, 2008, the
Company has fully reserved and allowed for the $1,319 in accounts receivable
from Hawaii Global.





ILDN
WEST, LLC


On
January 5, 2009, the Company and its subsidiaries, Oblio, Titan Communications
and Planet Direct were notified that it was being sued by ILDN West, LLC
(“ILDN”).  ILDN is seeking $239 for alleged unpaid invoices for
services rendered in Los Angeles County: Superior Court,
California.  This action is currently pending.  The Company
has accrued the amounts alleged to be due in its accounts payable as of November
30, 2008.





INTERNATIONAL
ELECTRONIC COMPONENTS USA


In or
about September 2008, the Company was notified of a collections lawsuit filed by
International Electronic Components USA ("IEC") against the Company and its
subsidiary Titan PCB West and several individuals.  IEC obtained a writ of
attachment against subsidiary Titan PCB West.  IEC alleges the Company is
the alter ego of its subsidiary Titan PCB West and is seeking approximately $235
for alleged failure to pay for delivered product.  A motion to quash
service of summons and complaint as against the Company has been filed. The
Company has accrued the amounts alleged to be due in its accounts payable at
November 30, 2008.


46


LANHAM
ACT LAWSUIT


On
February 15, 2008, Oblio filed a lawsuit in the United States District Court for
the Northern District of Texas against various individuals and entities alleging
trademark infringement under the Lanham Act.  Many of the defendants
have filed motion to dismiss which are currently pending before the
Court.





LATIN
AMERICAN VOIP, INC


On
December 26, 2007, the Company and its subsidiaries, Oblio and StartTalk were
notified, via a process server, that it was being sued by Latin American VOIP,
Inc (“Latin American VOIP”).  Latin American VOIP is seeking $723 for
alleged unpaid invoices for services rendered in Palm Beach County: Circuit
Court, Florida.  This action is currently pending.  The
Company has accrued $630 of the amounts alleged to be due in its accounts
payable as of November 30, 2008 and is disputing the difference of $93. On
December 17, 2008, the plaintiff, Latin American VOIP, voluntarily dismissed
without prejudice all of its claims against the defendants.





LEVEL 3
COMMUNICATIONS, LLC


On
November 2, 2007, the Company’s subsidiary, Oblio, was notified, via a process
server, that it was being sued by Level 3 Communications, LLC (“Level 3”). Level
3 is seeking $2,379 for alleged unpaid invoices for services rendered in
Broomfield County: District Court, CO. On May 14, 2008, Oblio entered into an
Agreed Judgment in the amount of $2,042.  As of November 30, 2008,
Oblio has accrued the amount of the Agreed Judgment in accounts
payable.





PALPILOT


In August
2008, the Company's subsidiary Titan PCB West f/k/a Titan EMS was notified of a
collections lawsuit filed by Palpilot.  Palpilot is seeking approximately
$99 for alleged failure to pay for delivered product. The Company has accrued
the amounts alleged to be due in its accounts payable at November 30,
2008.





RICO
LAWSUIT


On
February 15, 2008, Oblio filed a lawsuit in the United States District Court for
the Northern District of Texas against various individuals and entities alleging
a conspiracy to defraud Oblio under the Racketeering, Influence Corruption Act
(“RICO”).  Many of the defendants have filed motion to dismiss which
are currently pending before the Court.





STX
COMMUNICATIONS, INC


On
January 16, 2008, STX Communications, LLC d/b/a STX Phone Cards (“STX”) sought a
Temporary Restraining Order (“TRO”) in the 14th
Judicial District Court of Dallas County, Texas against the Company’s subsidiary
Oblio. The TRO immediately restrained Oblio from suspending its network support
for any pre-paid phone card supplied by Oblio to STX and from taking any action
to impair the network supporting any pre-paid phone card supplied by Oblio to
STX. On January 23, 2008, the Company was notified by its attorneys that the TRO
became effective and enforceable and that the Company was in violation of its
TRO and was subject to sanctions for contempt of court. The TRO has since been
dissolved by agreement of the parties.





STX has
added the Company, Bryan Chance, Kurt Jensen, and Frank Crivello as
defendants.  STX claims that Oblio breached a contract to provide
network support for prepaid phone cards, and to accept returns of the cards as
necessary.  STX also alleges that Oblio has been unjustly enriched by STX’s
payments for cards, and that Oblio breached the implied warranty of
merchantability and the express warranty to provide network support for the
cards, and that Oblio’s failure to provide network support breached a duty of
care owed to STX.   STX also claims that Titan, Chance and Crivello
tortiously interfered with the Oblio/STX contract and caused Oblio to
purposefully interrupt network support for the cards sold to STX.  Finally,
STX alleges all defendants tortiously interfered with STX’s business
relationships with STX’s distributors and end consumers by playing recorded
messages for end consumers to return their cards, and changing rate decks on the
cards from the posted rates.  STX’s actual damages are not specified, but
it seeks not less than $1,200 in exemplary damages, together with interest, and
attorney’s fees.





Oblio has
filed a counter-claim against STX, alleging STX failed to pay for the cards it
purchased.  Oblio also claims STX, together with Tawfik and Raimondo, STX’s
chief officers, fraudulently induced Oblio to sell pre-paid phone cards for
certain foreign markets at a loss, in exchange for STX’s promise to place Oblio
products in more lucrative local markets.  STX’s failure to place Oblio’s
products in the promised markets caused Oblio damages in an amount not less than
$10,000.





The case
is currently set for trial the week of April 20, 2009.


47


TOUCH
TELL, INC.


On
December 21, 2007, Oblio filed suit in Dallas County, Texas, against Touch Tell,
Inc. (“Touch Tell”) for $1,300 in unpaid product.  Oblio also
initially obtained a pre-judgment Writ of Garnishment against Touch Tell’s bank
trapping $1,300.  Touch Tell filed a counterclaim that claims that
after allowing for credits, deactivations, and returns, Oblio owes Touch Tell
approximately $268.  Touch Tell successfully reduced the amount of the
garnishment to $477.  At November 30, 2008, Oblio has recorded
accounts receivable from TouchTell equal to the garnishment of $477. No amounts
have been recorded or accrued related to the counter-claim.





WESTERN
PRINT & MAIL, LLC


On
January 25, 2008, the Company’s subsidiary Titan Wireless was notified, via a
process server, that it and Ready Mobile, LLC were being sued by Western Print
& Mail, LLC (“Western”). Western is seeking $71 including late charges from
Ready Mobile, LLC. Western is seeking $183 from Titan Wireless, which includes
the $71 from Ready Mobile, LLC and $112 including late charges from Titan
Wireless, for alleged unpaid invoices for services rendered in Iowa District
Court for Linn County. This action is currently pending.  The Company
has not accrued any amounts related to the charges incurred by Ready Mobile,
LLC. As per the asset purchase agreement with Ready Mobile, LLC, this liability
was not assumed, and therefore is not a responsibility of the Company. In
addition, the Titan Wireless liability was assumed by Boomerang Wireless, Inc.
on January 25, 2008 with the sale of certain CMDA assets.





OTHER
LEGAL MATTERS


As of
November 30, 2008, the Company has fully reserved and allowed (through its
allowance for doubtful accounts $15,736 and its allowance for sales returns
$3,672) $19,408 in accounts receivable recorded for the communications
operations classified as discontinued operations associated with
the  matters referenced above, including Clifton.





ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


Not
applicable.





ITEM
3. DEFAULTS UPON SENIOR SECURITIES





Not
applicable.





ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





Not
applicable.





ITEM
5. OTHER INFORMATION





Not
applicable.





ITEM
6. EXHIBITS





31.1 -
Certification of Principal Executive Officer pursuant to Rule 13a-14 and
Rule


15d-14(a),
promulgated under the Securities and Exchange Act of 1934, as
amended





31.2 -
Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule
15d


14(a),
promulgated under the Securities and Exchange Act of 1934, as
amended





32.1 -
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section


906 of
the Sarbanes-Oxley Act of 2002 (Chief Executive Officer)





32.2 -
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section


906 of
the Sarbanes-Oxley Act of 2002 (Chief Financial Officer)


48


SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized





TITAN
      GLOBAL HOLDINGS, INC.By:
                /s/  Bryan
  ChanceBryan
      ChanceChief
      Executive Officer andPresident(Principal
      Executive Officer)TITAN
      GLOBAL HOLDINGS, INC.By:
                /s/  Scott
  HensellScott
      HensellChief
      Financial Officer(Principal
      Financial andAccounting
      Officer)


49