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TITAN ENERGY WORLDWIDE, INC. - 10-Q - Management's Discussion and Analysis or Plan of Operation.
[June 20, 2014]

TITAN ENERGY WORLDWIDE, INC. - 10-Q - Management's Discussion and Analysis or Plan of Operation.

(Edgar Glimpses Via Acquire Media NewsEdge) Statements included in this Management's Discussion and Analysis of Financial Condition and Results of Operations, and in future filings by us with the Securities and Exchange Commission (the "SEC"), in our press releases and in oral statements made with the approval of an authorized executive officer which are not historical or current facts are "forward-looking statements" and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The following important factors, among others, in some cases have affected and in the future could affect our actual results and could cause our actual financial performance to differ materially from that expressed in any forward-looking statement: (i) the extremely competitive conditions that currently exist in the market for companies similar to us, and (ii) the lack of resources to maintain our good standing status and requisite filings with the SEC. The foregoing list should not be construed as exhaustive and we disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

OUR BUSINESS We specialize in the sales and management of onsite power generation for industrial and commercial customers. By utilizing advanced communication technologies, automated data collection, reporting systems and remote monitoring capabilities, we believe we are creating a new standard for power asset management and are leading the way for critical energy programs such as demand response and distributed generation.

In 2006, we acquired Stellar Energy, a Minneapolis-based provider of power generation equipment and service. Stellar Energy is now called Titan Energy Systems ('TES") and has expanded its number of sales and service offices to include Nebraska, Iowa, North and South Dakota, New York, New Jersey and Connecticut. TES provides our company and its satellite offices with accounting and administrative support.

In 2009, we acquired the Industrial and Service Division of RB Grove, a 52-year old power generation provider located in Miami, Florida. This company is now called Grove Power Inc. ("GPI") and it is responsible for our long term goal to expansion throughout the Southeastern United States.

In 2009, we acquired a power generation business in New Jersey that provide us with purchase orders, backlog and extensive customer and marketing relationships in New York, Connecticut and New Jersey. This business has been merged into TES.

In 2010, we acquired Sustainable Solutions, Inc. ("SSI"), which is engaged in providing energy audits, energy consulting and energy management services in the Midwest region. This company is inactive as we completed the six year contract related to this business.

In 2010, Titan Energy Development, Inc. ("TEDI") purchased certain assets and assumed certain liabilities of Stanza Systems, which provide us with a software development company experienced in smart grid and utility operations. The company operates this business as Stanza Technologies ("Stanza")' Stanza has developed network communications software that we plan to utilize in our generator service business.

23 -------------------------------------------------------------------------------- RESULTS OF OPERATIONS Three Months Ended March 31, 2014 Compared to the Three Months Ended March 31, 2013 Sales Sales for the three months ended March 31, 2014 were $4,749,389 compared to $4,654,082 for the three months ended March 31, 2013. The following table summarizes our sale by their segments: Power Energy Distribution Services 2014 $ 2,972,514 $ 1,776,875 2013 2,811,296 1,842,786 Increase (Decrease) $ 161,218 $ (65,911 ) Percent Increase 6 % -4 % The increase in sales in Power Distribution segment was attributable to the Company's decision to increased sales from our New Jersey/New York division.

The slight decrease in sales in the Energy Services segment is mainly attributable to the decreased service activity during the period of severe cold weather in the Midwest in January and February 2014 and to decreased activities in our national accounts division due to Target, our major national account customer, asking for new bids on this contract. Titan's contract with Target ended March 31, 2014 and we were required to bid out these services in a competitive manner. Titan won the bid for 1500 of the approximately 1800 stores but new work was not allocated during this bidding period, resulting in lower than expected service revenues. The new contract for Target includes nearly $800,000 in preventive maintenance work that we did not have last year, and so we expect this new component to make up for the territories that were lost to other bidders.

Cost of Sales Cost of sales was $3,687,319 for the three months ended March 31, 2014 compared to $3,317,954 for the three months ended March 31, 2013.

Power Energy Distribution Services 2014 $ 2,601,256 $ 1,086,063 2013 $ 2,321,403 $ 996,551 Increase $ 279,853 89,512 Percent of Sales 2014 88 % 61 % 2013 83 % 54 % The increase in the cost of sales in the Power Distribution lower sales volume was due to increased competitive pricing in our market territories that required us to bid at lower margins than usual. The percentage of cost of sales for 2014 is higher than the accepted range of 82 to 86 percent of sales.

24 -------------------------------------------------------------------------------- The higher costs for our Energy Services Segment were attributable to the impact of the severe weather in the Midwest. During the periods of extreme cold, when temperatures were regularly below zero and sometimes -20 degrees F or even colder with wind chill, we cannot allow technicians to travel or work alone as they usually do for safety reasons. Therefore on many days, we utilized two technicians instead of one on each job, thereby increasing the cost of labor. During these very cold temperatures, we also required the technicians to work for limited periods of times in the cold for safety reasons. This increases the number of hours to complete a job and thereby increases our cost of sales. The weather experienced during the quarter ending March 31, 2104 was for the most part unprecedented; however, the Company has undertaken new policies, procedures and scheduling methods in order to minimize the impact of future weather on revenues and margins.

Sales and Service Expenses Sales and services expenses include all of sales and service personnel, benefits related to these personnel and other costs in support of these functions. The Sales and Service expenses were $806,411 for the three months ended March 31, 2014, compared to $719,138 for the three months ended March 31, 2013. The following table summarizes the areas of costs in this category: Power Energy 2014 Distribution Services Payroll related costs $ 239,331 $ 417,638 Shared based compensation 1,842 16,774 Other 20,455 110,371 Total $ 261,628 $ 544,783 2013 Payroll related cost $ 213,745 $ 365,566 Shared based compensation 6,128 31,516 Other 12,676 89,507 Total 232,549 $ 315,439 Increase $ 29,079 229,344 Percent of Sales 2014 9 % 31 % 2013 8 % 17 % The slight increase in the Power Distribution costs is attributable to an increase in sales from 2013 to 2104.

The increase in costs in the Energy Service segment is primarily attributable to the impact of the extreme cold and winter weather we experienced in the Midwest as discussed above.

25 -------------------------------------------------------------------------------- General and Administrative Expenses The general and administrative expense category reflects the cost of each subsidiary's management, accounting, facility and office functions which we can allocate to our segments. General and administrative expenses were $430,493 for the three months ended March 31, 2014, compared to $384,519 for the three months ended March 31, 2013. The following table breaks out general and administrative expenses by segment for the three months ended March 31, 2014 and 2013: Power Energy 2014 Distribution Services Payroll related costs $ 48,936 $ 94,566 Shared based compensation 303 303 Facilities 44,295 78,839 Travel 15,039 28,298 Other 65,172 133,572 Total $ 173,745 $ 335,577 2013 Payroll related cost $ 32,510 $ 84,914 Shared based compensation 1,915 1,915 Facilities 29,727 109,141 Travel 21,112 44,587 Other 60,824 93,205 Total $ 146,088 $ 333,762 Increase $ 27,657 $ 1,815 The increase in payroll related costs in the Power Distribution and the Energy Service is attributable to additional administrative staff hired for service and national accounts. The increase in the Power Distribution and Energy Service facilities costs is attributable to new office spaces in Minneapolis, MN and in Des Moines, IA which were obtained due to the need for more space. These increases were partially offset by decreases in travel and Other costs.

Research and Development We entered into a contract in September 2010 with a third party to design and develop a remote monitoring system dedicated to onsite power generation equipment. We believe that there are few alternatives available in the market place that support the management of onsite power generators in the manner that is required by peak shaving, demand response and energy efficiency programs, and so to better serve these marketplaces, Titan needed to develop its own monitoring program. The Company has completed this software package and has begun to market it to customers. In the three months ended March 31, 2014, we did not incur any expenses related to research and development.

26 -------------------------------------------------------------------------------- Corporate Overhead Included in corporate overhead expenses are the salaries and travel expenses of our officers, legal fees, audit fees, investor relations and other costs associated with being a SEC registrant. Corporate overhead for the three months ended March 31, 2104 was $89,879 as compared to $117,799 for the three months ended March 31, 2014. The following table show expenses related to corporate activities: 2014 2013 Payroll related activates $ 56,232 $ 82,553 Shared based compensation 632 632 Professional fees 9,264 12,094 Travel 7,285 1,803 Other 3,856 12,455 Total $ 77,269 $ 109,536 The reduction in payroll is primarily attributable to the retirement of our CFO, who is now working part time as a consultant for the Company. The reduction in professional fees is due to a decrease in legal-related activity. The increase in travel was due to the Company working with firms to raise additional capital.

Depreciation and Amortization The amounts in this category include depreciation on our fixed assets and amortization of our intangibles, represented by our customer lists. The expense for the three months ended March 31, 2104 was $83,879 compared to $86,660 in the three months ended March 31, 2013. The reduction of expense is attributable to the full amortization of our customer list and certain fixed assets which have been fully depreciated.

Other Expenses The following table below is summarizing the items in this category: 2013 2013 Interest expense, net $ 189,892 $ 174,017 Amortization of deferred financing costs - 8,106 Change in fair value of embedded conversion feature - 11,129 Change in fair value of warrants 16,594 24,978 Total $ 206,486 $ 218,230 27-------------------------------------------------------------------------------- Liquidity and Capital Resources The Company recorded a net loss for the three months ended March 31, 2014 of $624,111. As of March 31, 2014 we have an accumulated deficit $35,532,687. On March 31, 2014 we were in default on approximately $250,000 of convertible notes. At June 30, 2013, certain note holders elected to extend their convertible notes until July 1, 2014 in order to help the Company restructure their balance sheet and raise additional capital. The total notes extended were $2,490,000. Under the extension the note holders received a reduced conversion price from $0.12 to $0.05. With the improving financial results and settling some lawsuits, the Company believes it will be able to raise additional capital. While there is no guarantee that these efforts will result in any new capital for the Company, these potential funds would have a significant impact on the Company's financial position and its cash flow.

The Company has had periodic difficulties keeping current with various suppliers during the past few years. Most of our major vendors require us to pay in 30 days, however collection of payment from our customers takes an average of 60 days and therefore we have used our factoring obligation to pay our suppliers in a timely manner. The cost of the factoring fees and interest paid to factor our receivable for the three months ended March 31, 2104 was $104,063. These extra costs have had an adverse impact on our liquidity position. .

The Company bottom line was severely impacted by factors directly related to the severe weather the Midwest and other parts of the United States experienced in the quarter ending March 31, 2014. While overall revenues increased slightly over the same quarter in 2013, the Company was forced by the weather to resort to staffing and labor procedures that adversely impacted the sales margins. Also, the Company's largest national account customer, Target Corporation, required Titan to enter into a competitive bidding process for the next two years. While Titan won 80% of the new bid, the lack of new service sales during the three month bidding process in the quarter ending March 31, 2014 adversely impacted the Company's margins and bottom line. Management believes that these adverse factors are now behind the Company and expects to see revenues and margins return to normal over the next two quarters.

28 -------------------------------------------------------------------------------- Additional Information Non-GAAP Financial Measures To supplement our consolidated financial statements presented on a GAAP basis, we believe disclosing certain non-GAAP measures are useful information to our investors. These non-GAAP measures are not in accordance with, or alternative for, generally accepted accounting principles in the United States. For example, Management uses adjusted EBITDA as measure of operating performance and for internal planning and forecasting. Management believes that such measures help to indicate underlying trends in our business, are important in comparing our current results with prior period results and our useful to investors and financial analysts in assessing our operating performance.

The GAAP measure most comparable to adjusted EBITDA is GAAP net income (loss): reconciliation for adjusted EBITDA to GAAP net income (loss). The following is an explanation of non-GAAP, adjusted EBITDA that we utilize, including the adjustments that management excludes as part of the adjusted EBITDA measures for the three and nine months ended March 31, 2014 and 2013, respectively, as well as reasons for excluding individual items.

? Management defines adjusted EBITDA as net income (loss), excluding depreciation, amortization, stock based compensation, interest, factoring fees, income taxes (benefit) and other income and expenses.

Adjusted EBITDA also eliminates items that do not require cash outlays, such as warrants and beneficial conversion features from issuing convertible securities which are treated as debt discounts and amortized to expenses; fair value adjustment for warrants and embedded conversion features, which is dependent on current stock price, volatility, term and interest rate which are factors that are not easily controlled; and amortization expense related to acquisition-related assets, which us based on our estimate of the useful life of tangible and intangible assets. These estimates could vary from the actual performance of the asset, are based on the value determined on acquisition date and may not be indicative of current or future capital expenditures. Management has also eliminated the effect of contingent consideration that was established in the purchase of Stanza which based on current assumptions this liability will not be realized. We also will eliminate from our net loss the present value of the lease obligation as this is not part of our continuing operations.

? Adjusted EBITDA may have limitations as an analytical tool. The adjusted EBITDA financial information presented here should be considered in conjunction with, and not as a substitute for or superior to, financial information presented in accordance with GAAP and should not be considered as a measure of our liquidity. Further, adjusted EBITDA as a measure may differ from other companies and therefore should not be used to compare our performance to that of other companies.

29-------------------------------------------------------------------------------- The reconciliation of adjusted EBITDA to net loss is set forth below: Three Months Ended March 31, 2014 2013 Net loss $ (624,111 ) $ (279,559 ) Add back: Depreciation and amortization 86,694 82,282 Stock based compensation 19,853 40,253 Stock payment for services - 18,441 Interest and factoring fees 189,892 174,017 Amortization of debt discount - 8,106 Fair value adjustment of conversion feature - 11,129 Fair value adjustment on warrants 16,594 24,978 Adjusted EBITDA $ (311,078 ) $ 79,647 Off-Balance Sheet Arrangements None.

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