Titan Trading Analytics Inc. (TSXV: TTA) Initiating ... · Siddharth Rajeev, B.Tech, MBA ... ATS from scratch could cost a firm US$15 - US$50 million. For example, the London Stock

Investment Analysis for Intelligent Investors

Siddharth Rajeev, B.Tech, MBAAnalyst

Randall Hsu, BBAResearch Associate

March 3, 2010

2010 Fundamental Research Corp. www.researchfrc.com Siddharth Rajeev, B.Tech, MBA

PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT

Titan Trading Analytics Inc. (TSXV: TTA) –Initiating Coverage; Transitioning from research anddevelopment to commercialization

Industry: Application Software (Capital Markets) www.titantrading.com

Market Data (as of March 1, 2010)Current Price C$0.17Fair Value N/ARating* N/ARisk* 5 (Highly Spec)52 Week Range C$0.15 - C$0.39Shares O/S 58.32 mmMarket Cap C$9.91 mmCurrent Yield N/AP/E (forward) N/AP/B N/AYoY Return -45.2%YoY TSXV 77.7%

*see back of report for rating and risk definitions

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Investment HighlightsTitan's flagship product, TickAnalyst, has the capability to automate the

entire process of trading, from initial modeling and testing, to executionand post-trade analytics.

TickAnalyst has the ability to execute 1,000+ trades a second, and tradeacross multiple markets and asset classes from a customizable platform.

Titan has developed over a dozen proprietary models, tested over the past20 years. According to Titan, its proprietary models have been extremelyeffective in the past, with a high probability of success for each trade.

The company released the first version of TickAnalyst in 2008.2009 was the best year so far as the company achieved several milestones

- a) released the second version of TickAnalyst (TAX2), b) signed its firstcommercial client in November 2009, and c) a third party placed US$5million in an account to be managed by Titan’s products.

We believe the next 12 months are important as the company transitionsfrom the research and development phase to commercialization.

Although we have calculated a range of potential fair values on page 21-22of this report, we believe it is too early to assign a fair value and rating atthis time.

RisksThe Automated Trading System (ATS) market is highly competitive.The company has yet to start generating revenues.The company will be adversely affected if it is not able to cope with

changes in technology.It is likely the company will have to pursue equity financings going

forward until it turns cash flow positive.

Financial Summary (YE Oct 31)(C$) 2008 2009 (9 mo)Revenues - -Net Income (3,075,985) (2,619,650)EPS (basic) (0.07) (0.05)Cash, Cash Equiv. and ST Inv. 424,954 138,097Assets 1,528,919 761,670LT Debt to Capital - -

Titan Trading Analytics Inc. has developed an electronic trading platform allowing users to trade in different markets and multipleasset classes. The flagship product, TickAnalyst, has the ability to automate the entire process of trading, from initial modeling andtesting, to high-performance execution and post-trade analytics. The company signed its first commercial client in November 2009.

Titan Trading Analytics Inc. (TTA-V)–Initiating Coverage Page 2



CompanyOverview

AutomatedTrading

Titan Trading Analytics Inc., headquartered in Edmonton (Alberta, Canada), developsinvestment analysis, investment management, and automated trading solutions. Titan'sflagship product, TickAnalyst, has the capability to automate the entire process of trading,from initial modeling and testing, to execution and post-trade analytics.

Automated Trading Systems (ATS) have significant benefits over human traders, ascomputers react more rapidly to temporary mispricings than humans. Automated tradingsystems can not only trade 10,000 - 100,000 times faster than human traders, but also takeemotions out of trading (a common mistake made by human traders), and significantly lowerthe probability of errors. As a result, capital markets have seen a surge in the growth ofautomated trading, especially over the past decade. Although the ATS market is highlycompetitive, Titan differentiates itself from its competitors through its proprietary models,and its ability to offer an end-to-end solution to automate the entire trading process. Thecompany believes that its proprietary models, combined with the ability of its ComplexEvent Processing (CEP) technology to analyze data (real-time and historic data) rightdown to the tick level, allows its products to identify and exploit market trends longbefore they arrive on the screens of the masses.

The company began developing its automated trading system in 2003. In 2008, the companyreleased the first version of TickAnalyst. The year 2009 was the best year so far as thecompany achieved several milestones –a) released the second version of TickAnalyst(TAX2), b) signed its first commercial client, G-2 Trading LLC of New York (G-2 Trading,formerly Royal Bank of Canada Professional Trader Group; has 130 proprietary traders), andc) a third party placed US$5 million in an account to be managed by Titan’s products. Thelast two events, we believe, are a huge vote of confidence for the effectiveness of Titan'sproducts. We believe the next 12 months promises are important as the company transitionsfrom the research and development phase to commercialization. We believe the companywill be a good acquisition target if it is able to prove the commercial viability of itsproprietary models, and the TickAnalyst platform.

Automated trading (also known as algorithmic trading or black-box trading) refers to the useof computer programs for executing trading orders typically without human intervention. Inautomated trading, computer programs decide on the various aspects of an order such as thetiming, price, or quantity. Automated trading is primarily used by institutional traders forsplitting up orders, in order to execute their orders at a better price. They are also used forspeculation, as computers react more rapidly to temporary mispricings than humans, andhave the capability to monitor the prices of thousands of stocks/commodities/currenciestrading on multiple markets.

The key advantages of automated trading are illustrated by the following chart.




Source: Titan Trading Analytics

As shown in the chart, fully automated computers can trade 10,000 - 100,000 times faster,and monitor 100 - 1,000 times more symbols than human traders. The power of automatedtrading significantly reduces the need for human traders.

Automated trading is primarily based on technical analysis - an investment philosophy,widely used by day traders and market makers, based solely on patterns/trends seen inhistoric price/volume, while ignoring the fundamentals of a company. The following tablehighlights the main advantages and disadvantages of automated trading:

Advantages Disadvantages

Can trade 10,000 - 100,000 times fasterthan human traders

Identify and react to opportunities quickerHas the capability to track thousands of

stocks/commodities/currencies trading onmultiple markets

Takes emotion out of tradingLow probability of errorIncreases trading disciplineSignificantly reduces the need for human

traders

Large losses can occur very quickly if thesystem is not properly programmed or tested

It is not possible to incorporate all the rules(identified patterns or trends) into codes allthe time

As automated trading is primarily based ontechnical analysis, a sudden change fromhistoric patterns/trends could result in hugelosses

Like other trading techniques, returns are notguaranteed

Rapid growth in automated trading: The industry has experienced a rapid growth in the




use of automated trading by financial institutions. According to the TABB group (a researchand strategic advisory firm), automated trading accounts for over 25% of all the tradedshares by buy side firms. In addition, high-frequency trading (buy/sell shares based on trendsidentified in milliseconds) accounted for more than 70% of the U.S. equity trading volume in2009. Using DJIA (Dow Jones Industrial Average) monthly volume data as an illustration(see below), the following chart shows a major transformation in market activity levels,especially over the past decade. We believe that technological advancement in algorithmtrading was of the key contributors to this tremendous growth.

DJIA Index and Volume

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Automated Trading Systems (ATS) –An increasing number of financial institutions areeither starting to adopt, or trying to improve their current automated trading systems becauseof - a) the significant advantages offered by automated trading, and b) firms that do notcurrently use automated trading are not equipped to compete with others that deployautomated trading.

However, implementing automated trading requires access to cutting edge technology,increased I.T. staff, infrastructure, and capital investment. Internally funding and building anATS from scratch could cost a firm US$15 - US$50 million. For example, the London StockExchange spent about £40 million (US$65 million) to develop a trading platform. Such ahigh capital investment is prohibitive to most firms, and yet, most hedge funds, andasset management firms, do not want to compromise on their growth by not adoptingautomated trading.

This opportunity led to the emergence of ATS vendors who license their automated tradingsolutions to financial institutions. As these vendors handle all the research and development,




and IT infrastructure, financial institutions do not have to build their ATS from scratch,maintain a large IT department, and, most importantly, can free up their resources to focuson their core business goals.

Highly competitive ATS market and consolidation in the industry: As a result of thesignificant increase in demand for automated trading systems, the ATS industry experiencedrapid growth in the past decade. The market, which is highly competitive, is filled withcompanies offering various types of solutions related to automated trading. Most of thecompanies in this space are relatively small, privately held companies. Examples of somepublic companies include, Investment Technology Group (NYSE: ITG), Neonet (STO:NEO), and Orc Software (STO: ORC).

The industry has seen a number of acquisitions by major financial institutions over thepast decade. The following table shows a list of some of the major acquisitions since 2000.The acquisitions ranged between US$25 million and US$680 million.

Year Firm Acquired Acquirer Price (US$, mm)2000 CyberCorp Schwab $4882001 ProTrader Instinet $1502004 Lava Trading Citigroup $3502005 Instinet Silver Lake Partners $2072005 MacGregor ITG $2302005 Apama Progress Software $252006 QouteTrader/CornTech Ameritrade $902007 Automated Trading Desk Citigroup $6802008 Trayport GFI $1672009 MilleniumIT London Stock Exchange $30

Source: Titan Trading and FRC

Besides using acquisitions as a strategy for financial institutions to gain access to automatedtrading platforms, purchasing off-the-shelf solutions has been a trend in the industry,because, as we mentioned earlier, developing proprietary trading platforms from scratch canbe prohibitive for small to mid size firms. Companies such as Orc Software and Neonet, thatprovide ready to use platforms, have seen double-digit annual revenue growth in the past 10years. The revenues of Orc Software (market capitalization - US$342 million) grew at acompounded annual growth rate (CAGR) of 24% in the past 10 years, while revenues ofNeonet (market capitalization - US$165 million) grew at a CAGR of 18%. In January 2010,Orc announced its plans to acquire Neonet for US$166 million - which is another signof consolidation in the industry.

In summary, financial institutions, in order to remain competitive, must always haveaccess to the latest automated trading technology to stay competitive in the market.

The ongoing development of ATS automatically led to an increasing demand for high speedhardware, software, automated functions, and algorithms to implement complex tradingstrategies, and process, store, and analyze billions of ticks of market data. Before we presentTitan's products, it is essential to have an understanding on the core of Titan's technology,




Complex EventProcessing

which incorporates Complex Event Processing (CEP).

CEP is a method of processing multiple events in real-time, and analyzing the potentialimpact of such events occurring simultaneously. It is primarily used to build systems thatcan analyze and act on real-time streaming data. CEP basically incorporates computerarithmetical power to detect indicators, such as complex patterns, event correlation, andevent causality, for instantaneous decision-making.

As real-time streaming data is used in several different applications, an increasing number oforganizations are adopting CEP engines to process and analyze massive data streams, andmanage systems that can be easily built and modified. A few major commercial applicationsof CEP include automated trading, credit card fraud detection, security monitoring, businessinventory management, and real-time transaction monitoring for e-Businesses.

CEP has become an important tool for algorithmic trading and is being adopted in thefinancial industry. The following chart shows that CEP is in an infancy stage, and gainingmomentum; major industry players like IBM (NYSE: IBM), Oracle Corporation (NASDAQ:ORCL), and Microsoft Corporation (NASDAQ: MSFT) have recently made significantinvestments in this space.

Source: TIBCO Software

IBM acquired Aptsoft in 2008Aleri acquired Coral8 in 2008Coral8 was selected to join the Microsoft Startup Accelerator Program in 2008

According to the Aite Group, although CEP vendor revenues were just US$50 millionin 2006, the potential market opportunity is close to US$1 billion by 2010, primarilydue to expanding data rates, and increasing reliance on real-time and event-driven




TitanTechnology

CompetitiveAdvantage -Titan'sProprietaryModels

solutions across the capital markets space.

Titan was originally focusing on the application of artificial intelligence (using neuralnetworks) to trading.

A neural network is a software/hardware used to recognize patterns. Once a neural networkhas been trained on samples of data, it can make predictions by identifying similar patternsin future data.

The company has since then evolved into a company with the capability to offer an end-to-end electronic trading and financial analysis software platform that can basically automatethe entire process of trading, starting from strategy development, charting, quantitativeresearch, generating trading signals, and executing orders, to pre and post trade analytics.Titan's technology employs a high speed CEP engine (which can analyze over 200,000ticks per second per server) which enables its products to process massive amounts ofstreaming data, and identify patterns to generate trading signals.

The company has so far spent over US$12 million in developing its infrastructure, whichprimarily consists of:

A database hosting 15 terabytes of data from the NYSE and the NASDAQ since 2004.Titan manages and hosts the technological infrastructure at a 5,000 square foot data

center located at its headquarters in Edmonton, AB.Disaster risk is mitigated by a 100kw diesel powered electrical generator backup facility,

an air conditioning system, and an inert gas fire suppression system to maintain theoptimum environment.

In addition to the technological capabilities of a platform, effective trading strategies(algorithms) play a key role in automated trading. Typically, automated trading platformsprocess and analyze real-time data, and if the right combination of events occur (as specifiedby an algorithm/model), a trading signal is generated, and an order is sent to be executed.Most commercially available products related to automated trading, such as ElectronicTrading Platforms, Event Processing Engines, and Black Box offerings, invite end-users tocreate their own models for trading. This is because most end users prefer to use their ownmodels and strategies, rather than use models built by third parties. Titan's products,however, come with proprietary models, in addition to allowing users to create theirown models. Titan considers this to be one of their key strengths, and differentiatingfactors, as it believes that its proprietary models have been extremely effective in thepast, with a high probability of success for each trade.

Titan's proprietary models are based on classic technical analysis. Technical analysisinvolves the prediction of future prices based on historical market data, primarily price andvolume. Technical analysts use several types of indicators (developed based on price,volume and time) to predict the likely direction of future prices. The following is a simpleexample of how indicators, such as MACD (Moving Average Convergence / Divergence)




and MA (Moving Average), are used in technical analysis:

In the following chart, the circles on the left indicate BUY signals, while the circles on theright indicate SELL signals.

Signals based on MACD: It is generally interpreted as a BUY signal when the MACD(which is the difference between the moving averages of two time horizons) crosses upthrough the signal line, and a SELL signal when MACD crosses down through the signalline. The two circles in the bottom half of the chart indicate signals based on MACD.

Signals based on MA: A BUY signal is generated when a shorter MA crosses up through alonger MA, and a SELL signal is generated when a shorter MA crosses down through alonger MA. The two circles in the top half of the image indicate signals based on MA.

Titan has developed over a dozen non-correlated and diversified models (incorporatingmultiple indicators). The company believes that its proprietary models, combined with theability of its CEP technology to analyze data (real-time and historic data) right down to thetick level, allow its products to identify and exploit market trends long before they arrive onthe screens of the masses. One of the other main features of Titan's software is that it allowsfor almost infinite customization and scalability, which allows its models (and user-generated modes) to be tweaked and tested even further.

The only way to evaluate the effectiveness of Titan's models is by verifying historic returnsachieved through the models. As Titan has yet to disclose any performance figures, we haveto wait for Titan to disclose its long-term returns before we can properly evaluate theeffectiveness of their models.




TickAnalyst -ProductFeatures

Titan's TickAnalyst suite is an end to end software application comprising a black-box,automated order entry and management, charting, and pre and post-trade analytics (whichincludes historical analysis and back-testing functionality). Its key components include:1. Signus, also known as black-box - used to generate trading signals2. Titan Order Management Software (TOMS) - used to execute and manage trades3. QuickTick Charting - used for charting data4. TradeViewer - used to display results5. TopView and TopViewClient - used to distribute real-time and historical trading signals

Titan plans to combine these key components and license them as a total solution, or licenseeach component separately to provide a customized approach. Titan has provisional patentsin place for certain components. The company intends to maintain the other areas of itstechnology as trade secrets.

The following chart illustrates the processes involved within the TickAnalyst:


The system monitors data arriving from real-time data feeds and looks for pre-definedpatterns of movement in price, volume, or time. If and when a particular pattern is identified,a trading signal is generated. The automatic order execution software processes the tradingsignals, and converts them into online trading orders, which are sent over the internet totrade execution engines. Titan currently uses RediPlus (owned by Goldman Sachs; NYSE:GS) Direct Market Access (DMA) execution software. Although several other tradeexecution engines (such as RealTick, FIX, ODL, and ChoiceFX) can be supported, they are




not currently used by Titan.

According to Titan, TickAnalyst has ultra high-speed analytical capabilities designed toexecute thousands of trades per second on a single platform with a high probability ofsuccess for each trade. The company has already testedTickAnalyst’s functionality, stability, and scalability with both real time and historical market data.

The following section discusses the key components in detail.

The Black-Box basically generates trading signals based on Titan’s proprietary models or user-generated models. Customers can utilize Titan's models or create, test, and deploycustom models quickly and efficiently. It is termed a black-box because users can view theinputs and outputs without any knowledge of its internal workings.


Clients can use variations of Titan’s models in fully-automated black-box mode, semi-automated grey-box mode (in this case, the models are used as starting points in decision-making), and passive mode (backtesting/research).

QuickTick Charting is an application that has sub-second chart loading speeds. Charts areupdated on a real-time, tick by tick basis, and can be viewed on various time frames, rangingfrom one minute to one week. Proprietary studies are overlaid on the charts to serve as visualcues (note the red, green and white spots in the following image) for end-users. Unlikeseveral other platforms, QuickTick Charting has no limit on the number of symbolsallowable in a window.





TopView is a software tool that displays generated signals in chronological order as theyoccur during the day. This allows the user to monitor the signals in real-time as they occur.


If multiple computers are running numerous models simultaneously, Titan's TopView Clientreceives signals from each computer, combines them, and displays them in a window verysimilar to TopView.

Titan Order Management System (TOMS) –TOMS’s takes the trading signals generatedby the signal generator, and turns them into online trading orders, which are sent over theinternet to trade execution engines. Each symbol can be traded on multiple timeframessimultaneously. Like other order management systems, TOMS handles entry and exit orders,stores them in a database, and keeps track of all the positions in a brokerage account. TOMS




also ensures that multiple orders are not executed, and that orders are not placed againsterroneous positions.


TradeViewer (Post Trade Analytics) generates on-demand, in-depth statistics (such asequity curves, total net profit, winning percentages, etc.) on Titan’smodels (or usergenerated models), which can be used by users to analyze their trading performance.TradeViewer can also be used to simulate how performance would have differed based onvarying amounts of capital and position sizing.





Competitiveadvantages

As mentioned earlier, the ATS market is a highly competitive market filled with severalsmall to medium size (mostly private) companies. In order to succeed in this space, acompany has to differentiate itself from the rest. Most automated trading systems haveidentical features, such as the ability to execute trades quicker, monitor and trade thousandsof stocks on multiple exchanges, the ease with which models can be incorporated inplatforms, back testing, charting, pre and post-trade analytics, and real-time ordermanagement systems. Titan's key competitive advantage lies in the effectiveness of itsproprietary models, and its ability to offer an end-to-end solution to automate theentire trading process. Most competitors do not offer the general functionality in DirectMarket Access (DMA) technology, while also offering the ability to quickly andefficiently build, test and deploy fully-automated custom models into a full productionenvironment. We believe these features, combined with the following features, give Titan acompetitive advantage in the industry:

1. No Symbol limitations in GUI on 3 or moretimeframes simultaneously.

2. Model Edges - layers of 3 or moretimeframes.

3. The Complex Event Processing (CEP) engine canprocess model filters at up to 200,000 ticks per second.

4. Automated order execution is possible -1000+ trades per second.

5. Over a dozen pre-built models, with multiplevariations and flexible configurations.

6. Historical testing at 1000x real-time.Fine tune models in a fraction of the time.


The following table highlights the key difference between Titan and competing productfeatures.




Comparison Chart

Models Platform Venues

TitanProvides Titan's proprietary models

and allows end users to buildadditional models

Provides a platform that can performcomplex calculations with addedhardware to adjust order size and

determine execution speed

Provides access to thousands ofsecurities on multiple global

exchanges and across asset classes

CompetitorsInvites end users / third parties to

build models

Most competitors claim to have thisfeature. According to Titan,

competing technologies havelimitations on the number and depth

of calculations and symbol sets.

This is a common feature in theindustry. For example, Neonet and

Orc offer cross-border trades acrossvarious asset classes

Latency Charting Number of trades

TitanFocuses on alpha trading (longer

holding periods); ultra-low latency isnot required

Offers charting tools (sub secondload speeds) integrated with its

trading platformOver 1,000 trades per second

CompetitorsSome competitors have ultra-low

latency trading targeting highfrequency trading

Most competitors typically do notoffer charting tools with their

solutions, but their platforms can beintegrated with charting tool

softwares such as eSignal

Companies such as Millennium IT(acquired by LSE in 2009) has a

scale from 1,000 orders per second,to 500,000+ orders per second

Customized Order Slicing and Prevention ofTrading Models Fragmentation Information

Leakage

TitanOffers users the option to customize

existing Titan models to adapt tochanging market conditions

Reduces price impact throughexecution of a large order in smallclips over a specific period of time

Decreases trading informationleakage, and helps users to stay

competitive

Competitors

Competitors (such as StreamBaseand Investment Technology Group)

offer flexible and customizedinterface as well.

Most competitors (eg:TradingScreen) also have this

function for smart order execution

Most competitors (eg: EdgeTrade)also have this feature to protect their

clients

Focus on alpha trading - It is important to note that Titan is not focusing on HighFrequency Trading (HFT) that is aimed to capture arbitrage opportunities in milli-seconds.Low latency is key for a HFT firm to capture market arbitrage opportunities before others.For example, it will take approximately 39 milliseconds for a data signal to travel in fibre




History andProductDevelopment

optic cable from San Francisco, to New York, and immediately back to San Francisco.However, HFT requires 1 millisecond accuracy or better. As a result, HFT firms must belocated near an Exchange’s data servers, and have software that is capable of executingtrades at a very high speed. In comparison, alpha trading and low frequency trading requireapproximately 100 millisecond accuracy. Titan’s products will compete primarily in thealpha trading space where ultra-low latency is not a requirement.

Titan Trading was incorporated in 1993 as a financial software developer and internet website publisher (providing independent stock screening research services, daily stock marketindicators, and daily market commentaries). Titan's shares commenced trading on the TSXVenture Exchange (previously known as Canadian Venture Exchange) in 1996.

Subsidiaries: Titan Trading has four wholly owned subsidiaries, Titan Trading USA, LLC,Titan Holdings USA LLC, Titan Trading GP Inc., and Titan Trading Corp. Titan Trading GPInc and Titan Trading Corp are presently inactive. Titan Trading USA LLC serves as aproprietary trading arm and capital management division of Titan Trading Analytics Inc.

It was only in 2003 that the company started developing an ATS, subsequent to theacquisition of rights to certain automated trading and analytic software from CignalTechnologies, LLC, which was owned Mr. Philip Carrozza, Titan's current President andDirector. Highlights of the company's product development history follows:

2003

Acquired rights to certain automated trading and analytic software from CignalTechnologies, LLC.

2004

Titan began beta testing and trading in a third party account. In addition, Mr. PhilipCarrozza (pursuant to a personal arrangement) began trading in an account for the samethird party. Trading results were not disclosed.

2005

Released the first version of its automated trading platform known as TOMS.Titan Trading Limited Partnership 1 (TTLP1) was created to trade funds using Titan's

software. Titan GP was the general partner, and the limited partners were accreditedinvestors. Titan GP received 50% of the profits (the limited partners received theremaining 50%), and an annual administrative fee equal to 2% of the net asset value ofTTLP1. The partnership was dissolved after its two year term in February 2007, and theprincipal plus interest was returned to investors. Trading results were not disclosed.

Retained the services of Coralwood Technologies of Edmonton, Alberta, Canada, to assistin developing a proprietary data analysis platform.




2006

The main focus in 2006/07 was to develop TickAnalyst.Titan Trading Limited Partnership 2 (TTLP2) was created in January 2006. However, this

partnership has yet to be activated.Entered into a software transfer agreement with Mr. Phillip Carrozza, Cignal, and Mr.

Michael Gossland (Founder, Director and CTO of Titan) with respect to the transfer ofcertain trading models for stocks/futures and software-based formulas. According to theagreement, Titan was supposed to grant 4.50 million shares, and 2 million performancewarrants (issued in 2006; exercisable at $0.50 per share upon Titan achieving at least $1.2million of gross revenues for the one-year period ended May 31, 2010). The 4.50 millionshares will be issued in tranches of 1.50 million upon Titan achieving cumulative grossrevenues from TOMS of each of $0.40 million, $0.80 million, and $1.20 million in yearsone to three commencing June 2006. The agreement was subsequently amended to extendthe milestone compliance date to May 31, 2009.

2007

Completed development of the black-box software.

2008

Completed development of TickAnalyst.Received a six-figure capital investment from an accredited third-party investor to

trade in currencies. Results are yet to be disclosed.Completed its testing phase in currencies.In the last quarter of 2008, Titan was focused on testing the TickAnalyst suite of products.

2009

In February 2009, Titan released version 2.0 of its TickAnalyst software platform(TAX2).

In April 20009, the company announced that Compo Investment Partners LP of NewYork placed US$5 million in an institutional FOREX Trading account to bemanaged by Titan's wholly owned subsidiary, Titan Holdings USA LLC (THU).Compo Investment is an incubator fund. Compo is run by Mr. Ron Shear, a Wall Streetveteran and founder of Carlin Financial Group. THU and Compo will equally share theprofits. Trading results are yet to be disclosed.

On June 5, 2009, Titan announced it has completed development and testing of TAX2.In November 2009, the company announced it has commenced installation of its

TickAnalyst software platform with G-2 Trading LLC of New York. G-2, formerly RBCProfessional Trader Group, with 130 proprietary traders is the first commercialclient for Titan’s proprietary trading platform. Titan will receive a monthly licensefee, and certain incentives based on G-2's usage of the TAX2 platform. Our discussionswith management indicated that the monthly license fees will be a percentage of trading




Business Model

Management

revenues generated by the platform. The company is expecting to receive fees startingMarch 2010.

2010

In January 2010, the company announced that its TAX2 has been licensed by a veteranCanadian equities trader - the first retail end-user to enter into a licensing agreement withTitan. The user will pay a monthly license fee to Titan.

In February 2010, the company announced it has opened an institutional proprietarytrading desk, comprising four traders, in New York.

In summary, although Titan has been around since 1993, it was only in 2003 that thecompany started developing its automated trading systems. Although it is a concernthat the company has not been able to license its products sooner, we do not believe itshould be a major concern as the first version of TickAnalyst was only completed in2008.

We believe developments in the next 12 months will prove whether or not the companyhas a viable business model as the company transitions from the research anddevelopment phase to commercialization.

Current Status: The company is currently developing TAX3 (the third version of theTickAnalyst) with the intent of adding additional market analysis, indicators, financialmodels and execution items to the existing version. TAX3 is scheduled for testing andproduction in early 2010. The company expects to spend approximately $0.25 million on thedevelopment, and about $0.35 million - $0.45 million on the administration and testing ofTAX3.

The company's target customer base ranges from small proprietary trading desks to largehedge funds and financial institutions. As Titan's software is scalable, the company believesit can significantly expand its product capabilities with relatively low capital investment.

The company plans to generate revenues from two sources:

1. License its products to institutions, trading firms and/or high net-worth individualsto utilize its software for trading - Titan can generate revenues from sharing the profitswith their clients, and/or through fixed annual licensing fees. The recently signed licensingagreement with G2 Trading is an example of this model.

2. In-house proprietary trading and asset management - Titan expects to conduct tradingoperations on its own behalf and/or jointly with third parties. The $5 million placed byCompo Investment Partners is an example of this model.

Directors & Officers collectively own approximately 35% of the issued and outstandingshares of Titan Trading Analytics Inc. Brief biographies of the management team, asprovided by the company, follow.




Dr. Kenneth Powell, DDS - Founder, Chairman, CEO/CFO.During his tenure as the CEO of Titan Trading, Dr. Kenneth Powell has overseen thecompany's positive transformation from early stage development to market ready innovation.Under his guidance, Titan is forging strategic business partnerships with several tradinggroups, who are interested in the earning potential of Titan's trading systems. During the lasttwenty years, Dr. Powell has been involved in venture capital projects and publicly tradedcompanies, both as an investor and director, complimenting those interests with commercialreal estate development and thoroughbred race horses.

Philip Carrozza, Reg. Broker, Attny - Founder and PresidentPhilip Carrozza is the Director of US Trading Operations and has 16 years of experience as atrader. He is the originator behind Titan's recently licensed trading and automatic orderexecution platforms. Mr. Carrozza is responsible for managing accounts and conductingTitan's US stock and futures trading operations. With his extensive contacts in the New Yorkand Florida trading community, he is able to provide Titan with new business opportunitiesand strategic partnerships. Mr. Carrozza acquired his professional broker's license in 1987,and has worked with several major trading firms in New York and the Bahamas. He is alsoan attorney and a member of the Massachusetts Bar.

Michael Gossland, MSc, P.Eng - Founder, Director, Secretary and CTO.Michael Gossland is the Director of Software Development and one of the original foundersof the company. He has over 17 years of experience in computer technology, spending thelast 12 years focusing on financial data analysis, software trading tools, and real-time tradingsystems. He is an expert in a variety of computer languages and programming techniques,and is a registered EasyLanguage Specialist with TradeStation Securities. Mr. Gosslandgraduated from the University of Saskatchewan with a Master of Science degree in Physicsin 1978 and is a registered Professional Engineer in the Province of British Columbia.

David Terk, BSc, CPA - Director and Head of Global Systematic Trading.David Terk holds a Certified Public Accountants license in the State of New York, and aBachelor of Science in Accounting from The University of Maryland. After three years inthe field of public accounting, Mr. Terk decided to enter the equity trading industry. In 1997Mr. Terk formed the private equity trading firm Valkyrie Management Corporation, wherehe actively traded equities until 2002. In 1998 Mr. Terk was a part of Livetrade.com / AlexMoore Inc. Livetrade.com became one of the first companies to bring direct access Level 2trading to the Internet. It was there Mr. Terk earned his series 27 license and served as thecompanies Financial Operations Principal until 2002. In January 2006 Mr. Terk was hired byTitan Trading USA to serve as CFO, and as Director of the currency and commodity tradingdivision. Mr. Terk brings eleven years of trading experience, and fourteen years ofaccounting & financial operations experience to Titan.

Robert Roddick, QC - Director and Head of Audit CommitteeRobert Roddick is a partner of the firm Roddick Scott and Johnson. Mr Roddick is head ofthe Titan Audit Committee.




FinancialAnalysis

Dr. Harold Elke, DDS - Director and member of the Audit CommitteeDr. Harold Elke has been an independent businessman for over twenty-five years and hasextensive business experience in both Europe and Asia, and in commercial real estate inCanada. He is a non-executive Director and member of the Audit Committee.

Joseph Francese - Director and member of the Audit CommitteeMr. Francese is Chief Investment Officer (CIO) of PROFORMA Capital Inc. and along withhis partners, manages two proprietary high income funds for Institutional and High NetWorth investors. As CIO, Joe chairs the investment committee and is responsible foranalyzing and monitoring existing and prospective investments, as well as developinginvestment strategies. Prior to his role as CIO, Joe came with 15 years of experience workingwith high net worth investors consulting on over $100 million of investor assets during hisadvisory career. Mr. Francese serves and advises several local charitable groups and is aChartered Financial Analyst (CFA) Charterholder.

Titan has been in the research and development phase since 2002, and has yet to startgenerating revenues. From October 2001 (inception of development stage), to July 2009, thecompany recorded a total loss of $12.63 million. Net cash spent on operating and investingactivities were $9.78 million, and $1.04 million, respectively. All these expenses werefunded through external financing (primarily equity financings). Cash flows from financingactivities during the period were $10.99 million.

The following table shows the company's cash and liquidity position at the end of Q3-2009(end of July 2009).

in C$ 2008 2009 (9 mo)Cash, Cash Equiv. and ST Inv. 424,954 138,097Working Capital (199,946) (469,928)Assets 1,528,919 761,670LT Debt to Capital - -Monthly Burn Rate (incl. investing) (284,369) (206,940)Cash flows from financing activities 3,751,118 1,220,343

At the end of July 2009, the company had cash, cash equivalents and short-term investmentsof $0.14 million. Working capital deficit was $0.47 million. Subsequently, the companyraised $0.75 million from a private placement. As part of a $1.39 million financing (of which$0.64 million was raised prior to the end of July 31, 2009), the company issued 5.56 millionunits at a unit price of $0.25. Each unit consisted of one common share and one half of oneshare purchase warrant (exercise price - $0.375 in the first year, and $0.50 per share in thesecond year).

We estimate the burn rate (cash spent on operating and investing activities) was $0.21million per month in the first nine months of FY2009, versus $0.28 million per month inFY2008 (12 month period).

Stock options and warrants: At the end of July 2009, the company had 9.18 million stockoptions outstanding with a weighted average exercise price of $0.34 per share. We estimate




Valuation

the company currently has about 9.91 million warrants outstanding with a weighted averageexercise price of $0.44. All warrants are currently out-of-the-money.

According to management, the company currently has two months of cash on hand.The company would need to raise about $1.5 million this year should there be no cashflow from operations.

Although the company has made significant progress, and was able to attract an institutionalclient in the past 12 months, the company is still in its early stages, and is yet to demonstratethe effectiveness of its proprietary models in the public domain. Therefore, we believe, it istoo early at this time to estimate the company's fair value based on a discounted cash flow(DCF) model. However, we estimated a range of possible valuations based on a comparablesanalysis.

The following tables show a list of comparables along with their valuation metrics. Three ofthe four companies in the list were acquired in the past two years.

Comparables Orc Software NeonetGreenlineFinancial

Technologies

GL TRADES.A.

Year Founded 1987 1996 2000 1987Year Acquired 2010 2008 2008

(in US$, mm) FY2009 FY2009 FY2008 FY2008Implied EV $289.10 $186.95 $42.00 $566.22Revenues $98.69 $63.07 $5.85 $293.2210-year annual revenue growth (CAGR) 23.73% 18.05% N/A 20.30%EBITDA $33.87 $2.34 $1.86 $65.84EBITDA Margins % 34.32% 3.71% 31.79% 22.45%EBIT $30.80 ($3.36) $1.64 $51.06EBIT Margins % 31.21% -5.33% 28.03% 17.41%Net Income $21.06 ($2.48) $1.03 $32.40Net Margins % 21.34% -3.93% 17.61% 11.05%

AverageApplication

SoftwareIndustry Average

Implied EV/Revenues 2.93 2.96 7.18 1.93 3.75 2.70Implied EV/EBITDA 8.54 N/A 22.58 8.60 13.24 13.70Implied EV/EBIT 9.39 N/A 25.61 11.09 15.36 19.50Implied EV/NI 13.73 N/A 40.78 17.48 23.99 46.55Source: Capital IQ and FRC

The average ratios of enterprise value (EV) to revenues, and EV/net income, of thecomparables are 3.75x, and 23.99x, respectively. The application software industry averageratios are 2.70x, and 46.55x, respectively.

Based on the above figures, we estimated a range of possible valuations for Titan, assumingthe company will be able to attain a percentage of Orc Software's (one of the establishedplayers in the space) current revenues (of $103.62 million) in the next five years.




Rating

Risks

Our analysis showed that Titan's valuation could range between $0.24, and $0.33 per share,and between $0.48, and $0.67 per share, if it manages to attain 5%, and 10%, respectively, ofOrc's revenues in the next five years, as the table below shows.

EV/S - 2.70x EV/S - 3.75x

1% $1,036,200 $0.05 $0.075% $5,181,000 $0.24 $0.33

10% $10,362,000 $0.48 $0.6725% $25,905,000 $1.20 $1.6750% $51,810,000 $2.40 $3.33

100% $103,620,000 $4.80 $6.66

Value per shareRevenues (in thenext five years)

Assumption(% of Orc'sRevenues)

Due to the early stage nature of its products, we are initiating coverage on TTA with noRating or Fair Value. We intend to assign a value and rating as soon as we havesufficient information to assess the effectiveness of its products. Titan expects to startreceiving licensing fees from G-2 Trading in March 2010. As the licensing fee in thiscase is calculated as a percentage of trading revenues, we believe, it will be a goodindicator of the effectiveness of Titan's TickAnalyst software platform, from which wecan make forecasts which we would have more comfort in.

The following risks, though not exhaustive, may cause our estimates to differ from actualresults:

The Automated Trading System (ATS) market is highly competitive.The company has yet to start generating revenues.The company will be adversely affected if it is not able to cope with changes in

technology.It is likely the company will have to pursue equity financings going forward until it turns

cash flow positive.

We have rated the shares risk 5 (Highly Speculative).




Fundamental Research Corp. Equity Rating Scale:Buy–Annual expected rate of return exceeds 12% or the expected return is commensurate with riskHold–Annual expected rate of return is between 5% and 12%Sell–Annual expected rate of return is below 5% or the expected return is not commensurate with riskSuspended or Rating N/A— Coverage and ratings suspended until more information can be obtained from the company regarding recent events.

Fundamental Research Corp. Risk Rating Scale:1 (Low Risk) - The company operates in an industry where it has a strong position (for example a monopoly, high market share etc.) or operates in a regulatedindustry. The future outlook is stable or positive for the industry. The company generates positive free cash flow and has a history of profitability. The capitalstructure is conservative with little or no debt.

2 (Below Average Risk) - The company operates in an industry where the fundamentals and outlook are positive. The industry and company are relatively lesssensitive to systematic risk than companies with a Risk Rating of 3. The company has a history of profitability and has demonstrated its ability to generate positive freecash flows (though current free cash flow may be negative due to capital investment). The company’s capital structure is conservative with little to modest use of debt.

3 (Average Risk) - The company operates in an industry that has average sensitivity to systematic risk. The industry may be cyclical. Profits and cash flow aresensitive to economic factors although the company has demonstrated its ability to generate positive earnings and cash flow. Debt use is in line with industry averages,and coverage ratios are sufficient.

4 (Speculative) - The company has little or no history of generating earnings or cash flow. Debt use is higher. These companies may be in start-up mode or in aturnaround situation. These companies should be considered speculative.

5 (Highly Speculative) - The company has no history of generating earnings or cash flow. They may operate in a new industry with new, and unproven products.Products may be at the development stage, testing, or seeking regulatory approval. These companies may run into liquidity issues, and may rely on external funding.These stocks are considered highly speculative.

Disclaimers and DisclosureThe opinions expressed in this report are the true opinions of the analyst about this company and industry. Any “forward looking statements” are our best estimatesand opinions based upon information that is publicly available and that we believe to be correct, but we have not independently verified with respect to truth orcorrectness. There is no guarantee that our forecasts will materialize. Actual results will likely vary. The analyst and Fundamental Research Corp. “FRC” does not own any shares of the subject company, does not make a market or offer shares for sale of the subject company, and does not have any investment banking businesswith the subject company. Fees of less than $30,000 have been paid by TTA to FRC. The purpose of the fee is to subsidize the high costs of research andmonitoring. FRC takes steps to ensure independence including setting fees in advance and utilizing analysts who must abide by CFA Institute Code of Ethics andStandards of Professional Conduct. Additionally, analysts may not trade in any security under coverage. Our full editorial control of all research, timing of release ofthe reports, and release of liability for negative reports are protected contractually. To further ensure independence, TTA has agreed to a minimum coverage termincluding an initial report and three updates. Coverage can not be unilaterally terminated. Distribution procedure: our reports are distributed first to our web-basedsubscribers on the date shown on this report then made available to delayed access users through various other channels for a limited time. The performance of FRC’s research is ranked by Investars. Full rankings and are available at www.investars.com.

The distribution of FRC’s ratings are as follows: BUY (70%), HOLD (9%), SELL (4%), SUSPEND (17%).To subscribe for real-time access to research, visit http://www.researchfrc.com/subscription.htm for subscription options.

This report contains "forward looking" statements. Forward-looking statements regarding the Company and/or stock’s performance inherently involve risks anduncertainties that could cause actual results to differ from such forward-looking statements. Factors that would cause or contribute to such differences include, but arenot limited to, continued acceptance of the Company's products/services in the marketplace; acceptance in the marketplace of the Company's new productlines/services; competitive factors; new product/service introductions by others; technological changes; dependence on suppliers; systematic market risks and otherrisks discussed in the Company's periodic report filings, including interim reports, annual reports, and annual information forms filed with the various securitiesregulators. By making these forward looking statements, Fundamental Research Corp. and the analyst/author of this report undertakes no obligation to update thesestatements for revisions or changes after the date of this report. A report initiating coverage will most often be updated quarterly while a report issuing a rating mayhave no further or less frequent updates because the subject company is likely to be in earlier stages where nothing material may occur quarter to quarter.

Fundamental Research Corp DOES NOT MAKE ANY WARRANTIES, EXPRESSED OR IMPLIED, AS TO RESULTS TO BE OBTAINED FROM USING THISINFORMATION AND MAKES NO EXPRESS OR IMPLIED WARRANTIES OR FITNESS FOR A PARTICULAR USE. ANYONE USING THIS REPORTASSUMES FULL RESPONSIBILITY FOR WHATEVER RESULTS THEY OBTAIN FROM WHATEVER USE THE INFORMATION WAS PUT TO.ALWAYS TALK TO YOUR FINANCIAL ADVISOR BEFORE YOU INVEST. WHETHER A STOCK SHOULD BE INCLUDED IN A PORTFOLIO DEPENDSON ONE’S RISK TOLERANCE, OBJECTIVES, SITUATION, RETURN ON OTHER ASSETS, ETC. ONLY YOUR INVESTMENT ADVISOR WHO KNOWS YOUR UNIQUE CIRCUMSTANCES CAN MAKE A PROPER RECOMMENDATION AS TO THE MERIT OF ANY PARTICULAR SECURITY FORINCLUSION IN YOUR PORTFOLIO. This REPORT is solely for informative purposes and is not a solicitation or an offer to buy or sell any security. It is notintended as being a complete description of the company, industry, securities or developments referred to in the material. Any forecasts contained in this report wereindependently prepared unless otherwise stated, and HAVE NOT BEEN endorsed by the Management of the company which is the subject of this report. Additionalinformation is available upon request. THIS REPORT IS COPYRIGHT. YOU MAY NOT REDISTRIBUTE THIS REPORT WITHOUT OUR PERMISSION.Please give proper credit, including citing Fundamental Research Corp and/or the analyst, when quoting information from this report.

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Documents

Titan Trading Analytics Inc. (TSXV: TTA) Initiating ... · Siddharth Rajeev, B.Tech, MBA ... ATS from scratch could cost a firm US$15 - US$50 million. For example, the London Stock