Titanium Group LTD - FORM 10-Q

Attached files

file	filename
EX-31.1 - EXH 31-1 CERTIFICATION - Titanium Group LTD	exh31-1_certification.htm
EX-32.1 - EXH 32-1 CERTIFICATION - Titanium Group LTD	exh32-1_certification.htm
EX-31.2 - EXH 31-2 CERTIFICATION - Titanium Group LTD	exh31-2_certification.htm
EX-32.2 - EXH 32-2 CERTIFICATION - Titanium Group LTD	exh32-2_certification.htm

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 March 31, 2011

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-52415

TITANIUM GROUP LIMITED

(Exact name of registrant as specified in its charter)

British Virgin Islands

(State or other jurisdiction of

incorporation or organization)

Not Applicable

(IRS Employer

Identification No.)

Suite 2101, 21/F, Chinachem Century Tower, 178 Gloucester Road, Wanchai, Hong Kong

(Address of principal executive offices)(Zip Code)

(852) 3679 3110

(Registrant’s telephone number, including area code)

Room 801, Austin Tower, 22-26 Austin Avenue, T.S.T, Kowloon, Hong Kong

(Former name, former address and former fiscal year, if changed since last report)

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.

[X]Yes [ ]No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).[ ]Yes[ ]No (Not required)

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

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).

[X]Yes [ ] No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 51,644,399 shares of Common Stock, $0.01 par value, as of May 13, 2011

TITANIUM GROUP LIMITED AND SUBSIDIARIES

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

		Page

Condensed Consolidated Balance Sheets as of March 31, 2011 (Unaudited) and December 31, 2010		3

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months ended March 31, 2011 and 2010 (Unaudited)		4

Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2011 and 2010 (Unaudited)		5

Notes to Condensed Consolidated Financial Statements (Unaudited)		6 - 10

TITANIUM GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2011 AND DECEMBER 31, 2010

(Currency expressed in Hong Kong Dollars (“HK$”), except for number of shares)

(Unaudited)

	March 31, 2011						December 31, 2010
	US$			HK$			HK$
ASSETS
Current assets:
Cash and cash equivalents		77,550			604,891			469,064
Restricted cash		155,142			1,210,110			1,421,975
Deposits and other receivables		22,303			173,966			173,884

TOTAL ASSETS		254,995			1,988,967			2,064,923

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued liabilities		745,076			5,811,594			4,863,317
Amount due to a director		147,716			1,152,182			1,165,498
Amount due to a stockholder		-			-			847,033
Amount due to a former director		-			-			209,569
Notes payable		267,479			2,086,338			-
Convertible note		387,000			3,018,600			3,018,600
Convertible debenture		1,400,000			10,920,000			10,920,000

Total liabilities		2,947,271			22,988,714			21,024,017

Commitments and contingencies

Stockholders’ deficit:
Common stock, US$0.01 (HK$0.078) par value, 100,000,000 shares authorized, 51,644,399 shares issued and outstanding, respectively		516,444			4,028,263			4,028,263
Additional paid-in capital		876,355			6,835,562			6,835,562
Accumulated other comprehensive loss		(4,098	)		(31,949	)		(23,263	)
Accumulated deficit		(4,080,977	)		(31,831,623	)		(29,799,656	)

Total deficit		(2,692,276	)		(20,999,747	)		(18,959,094	)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT		254,995			1,988,967			2,064,923

See accompanying notes to condensed consolidated financial statements.

TITANIUM GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(Currency expressed in Hong Kong Dollars (“HK$”), except for number of shares)

(Unaudited)

	Three months ended March 31,
	2011				2011			2010
		US$			HK$			HK$

REVENUE, NET			-			-			4,804

COST OF REVENUE			-			-			-

GROSS PROFIT			-			-			4,804

Operating expense:
Selling, general and administrative			183,999			1,435,192			80,192

Total operating expenses			183,999			1,435,192			80,192

LOSS FROM OPERATIONS			(183,999	)		(1,435,192	)		(75,388	)

Other income (expense):
Interest income			2			18			-
Interest expense			(76,512	)		(596,793	)		(243,662	)
Discount of convertible debenture			-			-			(121,822	)
Gain from change in fair value of warrant liability			-			-			33,946
Total other expense			(76,510	)		(596,775	)		(331,538	)

LOSS BEFORE INCOME TAX			(260,509	)		(2,031,967	)		(406,926	)

Income tax expense			-			-			-

NET LOSS			(260,509	)		(2,031,967	)		(406,926	)

Other comprehensive (loss) income:
- Foreign currency translation (loss) gain			(1,112	)		(8,686	)		327

COMPREHENSIVE LOSS			(261,621	)		(2,040,653	)		(406,599	)

Net loss per share – Basic and diluted			(0.00	)		(0.04	)		(0.01	)

Weighted average common shares outstanding – Basic and diluted			51,644,399			51,644,399			51,644,399

See accompanying notes to condensed consolidated financial statements.

TITANIUM GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(Currency expressed in Hong Kong Dollars (“HK$”))

(Unaudited)

	Three months ended March 31,
	2011			2011			2010
	US$			HK$			HK$
Cash flow from operating activities:
Net loss		(260,509	)		(2,031,967	)		(406,926	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization cost on discount of convertible debenture		-			-			121,822
Gain from change in fair value of warrant liability		-			-			(33,946	)
Receivable written-off due from a former director		108,848			849,011			-
Changes in operating assets and liabilities:
Accounts receivable		-			-			72,145
Deposits and other receivables		(10	)		(82	)		-
Restricted cash		27,162			211,865			-
Accounts payable and accrued liabilities		121,574			948,277			65,972
Deferred revenue		-			-			(4,804	)
Net cash used in operating activities		(2,935	)		(22,896	)		(185,737	)

Cash flows from financing activities:
Advances from a third party		12,709			99,127			-
Advances from a former director		-			-			22,500
Advances from a stockholder		-			-			162,762
Net cash provided by financing activities		12,709			99,127			185,262

Effect of exchange rate changes on cash and cash equivalent		7,640			59,596			337

NET CHANGE IN CASH AND CASH EQUIVALENTS		17,414			135,827			(138	)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		60,136			469,064			92,368

CASH AND CASH EQUIVALENTS, END OF PERIOD		77,550			604,891			92,230

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes	$	-		$	-		$	-
Cash paid for interest	$	-		$	-		$	-

NON-CASH FINANCING TRANSACTIONS:
Restructuring of debts	$	254,771		$	1,987,211		$	-

See accompanying notes to condensed consolidated financial statement.

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(Currency expressed in Hong Kong Dollars (“HK$”))

(Unaudited)

NOTE 1 - GENERAL

Titanium Group Limited (the “Company” or “TTNUF”) was incorporated as an International Business Company with limited liability in the British Virgin Islands (“BVI”) under the International Business Companies Act (“IBC Act”) of the British Virgin Islands on May 17, 2004 and subsequently registered under the BVI Business Companies Act (“BVIBC Act”) on January 1, 2007 when the IBC Act was repealed and replaced with the BVIBC Act. The Company, through its subsidiary companies, Titanium Technology Limited and Titanium Technology (Shenzhen) Co., Ltd., mainly focus in the development of advanced biometric technology and installation and implement of advanced facial based biometric identification and security projects for law enforcement, mass transportation, and other government and private sector customers.

The accompanying financial statements present the financial position and results of operations of the Company and its subsidiary companies, Titanium Technology Limited and Titanium Technology (Shenzhen) Co., Ltd. (collectively known as the “Group”). The Group’s functional currency is Hong Kong Dollars.

NOTE 2 – BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared by management in accordance with both accounting principles generally accepted in the United States of America (“GAAP”) and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and note disclosures normally included in audited financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.

In the opinion of management, the consolidated balance sheet as of December 31, 2010 which has been derived from audited financial statements and these unaudited condensed financial statements reflect all normal and recurring adjustments considered necessary to state fairly the results for the periods presented. The results for the three months ended March 31, 2011 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2011 or for any future period.

These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Management’s Discussion and the audited financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2010.

NOTE 3 – GOING CONCERN UNCERTAINTIES

These condensed consolidated financial statements have been prepared assuming that the Group will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.

For the three months ended March 31, 2011, the Group incurred a net loss of HK$2,031,967 and generated substantive losses over the past several years resulting in an accumulated deficit of HK$31,831,623 with a working capital deficit of HK$20,999,747 at March 31, 2011. Also, outstanding convertible debentures were in default and are immediately payable. The continuation of the Group as a going concern through March 31, 2012 is dependent upon the continued financial support from its stockholders or negotiation of repayment terms with the holders of the convertible debentures. Management believes that its existing stockholders will provide the additional cash to meet the Group’s obligations as they become due.

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(Currency expressed in Hong Kong Dollars (“HK$”))

(Unaudited)

These factors raise substantial doubt about the Group’s ability to continue as a going concern. These condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets and liabilities that may result in the Group not being able to continue as a going concern.

NOTE 4 – RECENT ACCOUNTING PRONOUNCEMENTS

The Group has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.

In April 2011, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance for purposes of measuring the impairment of receivables and evaluating whether a troubled debt restructuring has occurred. An entity should disclose the total amount of receivables and the allowance for credit losses as of the end of the period of adoption related to those receivables that are newly considered impaired under Section 310-10-35 for which impairment was previously measured under ASC Topic 450-20, “Contingencies – Loss Contingencies.” Currently, this guidance is anticipated to be effective for interim and annual periods ending after June 15, 2011. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial position, results of operations, cash flows, or disclosures.

In December 2010, the FASB issued ASU 2010-28, “Intangibles – Goodwill and Other (ASC Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.” The ASU does not prescribe a specific method of calculating the carrying value of a reporting unit in the performance of step 1 of the goodwill impairment test (i.e. equity-value-based method or enterprise-value-based method). However, it requires entities with a zero or negative carrying value to assess, considering qualitative factors such as those used to determine whether a triggering event would require an interim goodwill impairment test (listed in ASC Topic 350-20-35-30, “Intangibles – Goodwill and Other – Subsequent Measurement”), whether it is more likely than not that a goodwill impairment exists and perform step 2 of the goodwill impairment test if so concluded. ASU 2010-28 is effective for the Company beginning January 1, 2011 and early adoption is not permitted. The Company does not expect the adoption of ASU 2010-28 to have a material impact on its consolidated financial position or results of operations.

NOTE 5 – PER SHARE INFORMATION

Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Group.

During the three months ended March 31, 2011, the Group did not grant any stock options to employees, directors and consultants.

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(Currency expressed in Hong Kong Dollars (“HK$”))

(Unaudited)

NOTE 6 – INCOME TAXES

Income taxes are determined in accordance with the provisions of ASC Topic 740, “Income Taxes” (“ASC 740”). Under this method, 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 and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any 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.

ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.

For the three months ended March 31, 2011, the Group incurred net operating losses of approximately HK$2,031,967 for income tax purposes and no provision for income taxes is required.

As of March 31, 2011, the operations in Hong Kong and the PRC incurred HK$17,291,912 of the aggregate net operating losses carryforward that may be used to offset future taxable income. The Group has provided for a valuation allowance of HK$3,121,779 against the significant portion of deferred tax assets as the management believes it is more likely than not that these assets will not be realized in the future.

NOTE 7 – AMOUNT DUE TO A DIRECTOR

As of March 31, 2011, the amount represented temporary advances made to the Group by a director, Mr. Lai Huamin, which was unsecured, interest-free and repayable within the next twelve months.

NOTE 8 – NOTES PAYABLE

For the three months ended March 31, 2011, the Group restructured its debts due to a stockholder, Cancare International Group (HK) Limited and a former director, Mr. Jialong Wen, and transferred to a third party, Dashing Career Holdings Limited (“DCHL”) for an aggregate amount of HK$1,987,211, which was unsecured and repayable within the next twelve months, which carried interest at 9% per annum.

Also, the Group obtained a loan of HK$99,127 from DCHL, which was unsecured, interest-free and repayable within the next twelve months.

NOTE 9 – CONVERTIBLE DEBENTURES

On April 3, 2007, the Company entered into a Securities Purchase Agreement (the “Agreement”) with several accredited investors (the “Investors”). In accordance with the Agreement, the Investors agreed to purchase in the aggregate, HK$11,310,000 (US$1,450,000) principal amount of Series A 8% Senior Convertible Debentures (the “Debenture”).

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(Currency expressed in Hong Kong Dollars (“HK$”))

(Unaudited)

The Debentures have the following material terms:

•	Interest at 8% per annum, payable quarterly on January 1, April 1, July 1 and October 1 beginning July 1, 2007 in cash or in shares at the option of the Company, with the shares to be registered pursuant to an effective registration statement and priced at the lesser of (a) US$0.30 or (b) 90% of the volume-weighted average price for the 10 consecutive trading days immediately prior to payment;
•	Maturity date of 36 months;
•	Convertible at any time by the holders into shares of the Company’s common stock at a price equal to US$0.30;
•	Convertible at the option of the Company as long as there is an effective registration statement covering the shares underlying the debentures and the closing bid price of the Company’s common stock is at least US$0.75 per share;
•	Redeemable at the option of the Company at 120% of face value, as long as there is an effective registration statement covering the shares underlying the debentures;
•	Anti-dilution protections to allow adjustments to the conversion price of the debentures in the event the Company sells or issues shares at a price less than the conversion price of the debentures;
•	All overdue accrued and unpaid interest to accrue a late fee at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law which shall accrue daily from the date such interest is due through and including the date of payment in full; and
•	A default interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law.

The holders of the Debentures and Warrants have registration rights that require the Company to file a registration statement with the Securities and Exchange Commission to register the resale of the common stock issuable upon conversion of the Debentures or the exercise of the Warrants.

In connection with the sale of the Debentures, on the same date, the Company issued warrants to the Investors that are exercisable for up to 4,833,333 shares of common stock of the Company with an exercise price of US$0.50 per share. The warrants are exercisable for a five-year period commencing on April 3, 2007. The Company also paid a placement fee of HK$1,131,000 (US$145,000) and issued warrants to the placement agents entitling the holders to purchase an aggregate of 483,333 shares of common stock of the Company at an exercise price of US$0.315 per share in a warrant life of seven years. The Company received HK$9,555,000 (US$1,225,000), net of expenses in relation to issuance of the Debentures of HK$1,755,000 (US$225,000) after all the closing conditions were satisfied.

Proceeds of the financing were used for working capital and for the further development of the Company’s proprietary technology.

On November 23, 2007, the Company entered into an Amendment and Waiver Agreement (the “Waiver Agreement”) with the Investors. The Waiver Agreement granted a one-time waiver of all then existing events of default, reduced the conversion price from US$0.30 to US$0.20, granted a one-time waiver of any anti-dilution adjustment to the warrant which would have been triggered by a reduction to the conversion price, and provided for the issuance of 855,339 shares of common stock as payment of interest due July 1, 2007, October 1, 2007, January 1, 2008 and any late fees thereon.

The Debentures were discounted for the fair value of warrants and the intrinsic value of the beneficial conversion feature, pursuant to ASC Topic 470-20, “Debt with Conversions and Other Options”. As of March 31, 2011, the debt discount has been fully amortized over the life of the Debentures. Interest expense of HK$552,692 (US$70,858) and HK$218,400 (US$28,000), including penalty interest was recognized for the three months ended March 31, 2011 and 2010.

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(Currency expressed in Hong Kong Dollars (“HK$”))

(Unaudited)

As of March 31, 2011, the Debentures were due and the Company has been in negotiations with the Investors, but has not yet reached an agreement as to repayment of the Debentures. Also, the Company has HK$1,210,110 of cash, which is held in escrow by the Company’s attorney, which is restricted as to withdrawal or use, under an agreement with several parties, including the Investors.

NOTE 10 – SUBSEQUENT EVENTS

In accordance with ASC Topic 855, “Subsequent Events,” which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events or transactions that occurred after March 31, 2011 up through the date the Company issued the condensed consolidated financial statements. During the period, the Company did not have any material recognizable subsequent events.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Titanium Technology engaged in developing products utilizing biometrics technologies, licensing of technologies, professional services, and project contracting. Based in Hong Kong with a research and development center in Shenzhen, China, Titanium Technology developed and sold Automatic Face Recognition Systems, or AFRS, and other biometric and security solutions to governments, law enforcement agencies, gaming companies, and other organizations in China and other parts of Asia.

We raised net proceeds of US$517,425 (HK$4,035,915) through a private placement of securities during the third quarter of 2005. These proceeds were used to provide the funds necessary to become a publicly-held company in the United States. Our common stock commenced trading on the OTC Bulletin Board in July 2006 under the symbol “TTNUF.” Funds were used for legal, accounting, and corporate consulting services and working capital. We believed that by becoming a publicly-held company, we would be able to enhance the visibility of our products and services and our ability to obtain additional financing in the future.

We obtained financing resulting in net proceeds of US$1,225,000 (HK$9,555,000) in April 2007. These proceeds were used for working capital and for the further development of our proprietary technology. We found that the amount of financing received in 2007 was not sufficient to allow us to pursue larger, more profitable contracts. This forced us to bid for smaller, less profitable projects during 2007, 2008 and 2009. When coupled with the worldwide economic downturn that began in 2008 and continued into 2009, our operations were severely affected. In late 2009, we decided to completely reassess our method of operations and the way in which we market our products. Accordingly, we laid off most of our staff and moved to smaller office space. We did not generate any revenues in 2010.

In 2010, we decided to seek another business and negotiated with the holders of our convertible debentures that matured in April 2010, resulting in a Memorandum of Understanding (“MOU”) dated September 1, 2010 and amended on November 18, 2010 and March 18, 2011. Under the terms of the MOU, we have agreed to effect a 1-for-10 consolidation of our issued and outstanding shares of common stock. The holders of our convertible debentures in the aggregate principal amount of US$1,400,000 (HK$10,920,000) have agreed to accept a total of 3,500,000 post-consolidation common shares and full and complete payment of the debentures and all accrued and unpaid interest thereon. Zili Industrial Co., Limited, an entity owned and/or controlled by Mr. Xu Zhigang, has agreed to purchase 38,700,000 post-consolidation common shares and deposit the purchase price of US$387,000 into escrow. Huabao Asia Limited, an entity owned and controlled by Mr. Chen Tianju, has agreed that it would transfer ownership of Shenzhen Kanglv Technology Ltd. (“Shenzhen Kanglv”) to us, in exchange for 52,635,560 post-consolidation common shares. Closing of the MOU is to occur upon completion of all of the items described above.

In September 2010, we formed Kanglv Technology (Hong Kong) Limited (“Kanglv”) as our wholly-owned subsidiary to hold the capital stock of Shenzhen Kanglv. Shenzhen Kanglv was a domestic limited liability company registered in Shenzhen City, PRC. Shenzhen Kanglv would have to be acquired by changing Shenzhen Kanglv from a domestic entity into a Wholly-Owned Foreign Enterprise (“WOFE”) by the Shenzhen local government. In January 2011, approval was granted by the PRC local government and Shenzhen Kanglv became a WOFE wholly-owned by Kanglv. Accordingly, to date, Zili Industrial Ltd. has deposited the purchase price of US$387,000 into escrow and Huabao Asia Ltd. has transferred ownership of Shenzhen Kanglv to us. A current report on Form 8-K will be filed, should closing occur, that will include the audited financial statements of Shenzhen Kanglv.

Critical Accounting Policies

Revenue recognition. We generated revenues principally from contracts for facial-based biometric identification and security projects, which typically included outside purchased workstations and live-scan devices, bundled with our proprietary software. In all cases, the customers were granted a license to use the software in perpetuity so long as the software was installed on the hardware for which it was originally intended. The contract price of our facial-based biometric identification and security projects generally included twelve months of free post-contract customer support. We also generated revenues from services performed under fixed-price and time-and-material agreements. To a lesser extent, we also generated revenues from sales of our proprietary biometrics products and re-sales of products sourced from outside third parties. We classified the revenues generated by these activities as either project products revenue, project services revenue, or maintenance services revenue. Maintenance services were what the customer purchased if support and software upgrades were desired after the free twelve-month period.

In accordance with the ASC Topic 605, “Revenue Recognition,” we recognized revenue when persuasive evidence of an arrangement existed, delivery had occurred, the sales price was fixed or determinable, and collectability was reasonably assured.

We also applied the provisions of Statement of Position (“SOP”) 97-2, “Software Revenue Recognition,” as amended by SOP 98-9, “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions.” For arrangements that require significant production, modification, or customization of software, we applied the provisions of Accounting Research Bulletin (“ARB”) No. 45, “Long-Term Construction-Type Contracts,” and SOP 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” We also considered the guidance of the Emerging Issues Task Force (“EITF”) Topic 00-21, “Revenue Arrangements with Multiple Deliverables” with respect to the recognition of revenue from the sale of hardware components (separate accounting units) of a multiple deliverable arrangement. While these statements govern the basis for revenue recognition, significant judgment and the use of estimates were required in connection with the determination of the amount of product, maintenance and service revenue as well as the amount of deferred revenue to be recognized in each accounting period. Material differences may have resulted in the amount and timing of our revenue for any period if actual results differed from management’s judgment or estimates.

Maintenance revenue consisted of fees for providing technical support and software updates, primarily to customers purchasing the primary products. We recognized all maintenance revenue ratably over the applicable maintenance period. We determined the amount of maintenance revenue to be deferred through reference to substantive maintenance renewal provisions contained in the arrangement.

Foreign currencies translation. The consolidated financial statements are expressed in Hong Kong dollars (“HK$”). The translations of HK$ amounts into the United States dollars (“US$”) are for the convenience of readers in the United States of America only and have been made at the rate of HK$7.8 to US$1, the approximate free rate of exchange at December 31, 2010 and 2009. Such translations should not be construed as representations that the HK$ amounts could be converted into US$ at that rate or any other rate.

We conduct major business in Hong Kong and the PRC and are subject to tax in these jurisdictions. As a result of our business activities, we file tax returns that are subject to examination by the foreign tax authority.

Results of Operations

Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010. We did not have any revenues in 2011. We generated a small amount of maintenance revenues in 2010 of US$616 (HK$4,804).

Selling, general and administrative expenses increased from US$10,281 (HK$80,192) in 2010 to US$183,999 (HK$1,435,192) in 2011, due to the hiring of personnel and consultants for the Titanium Technology business operations. We hope to revitalize the operations of this subsidiary in the near term.

We incurred an operating loss of US$183,999 (HK$1,435,192) in 2011, as compared to an operating loss of US$9,665 (HK$75,388) in 2010, as we incurred increased operating expenses.

We recorded other expense of US$76,510 (HK$596,775) in 2011, primarily as a result of interest expense. In contrast, we had other expense of US$42,505 (HK$331,538) in 2010, which were primarily the result of interest expense and the amortization of debt discount on the convertible debentures.

Our net loss for the three months ended March 31, 2011 was US$260,509 (HK$2,031,967), as compared to a loss of US$52,128 (HK$406,599) in 2010.

Going Concern

As a result of the losses incurred over the past several years and the accumulated deficit of US$3,820,468 (HK$29,799,656) and working capital deficit of US$2,430,655 (HK$18,959,094) at December 31, 2010, the report of our independent registered public accounting firm on the financial statements for the year ended December 31, 2010 includes an explanatory paragraph indicating substantial doubt as to our ability to continue as a going concern. We incurred a net loss of US$260,509 (HK$2,031,967) for the three months ended March 31, 2011 and had an accumulated deficit of US$4,080,977 (HK$31,831,623) at March 31, 2011. Our continued existence is dependent upon the continuing financial support from our stockholders and/or negotiation of repayment terms with the holders of the convertible debentures. Management believes that our stockholders will continue to provide the additional cash to meet our obligations as they become due.

Liquidity and Capital Resources

As of March 31, 2011, we had a working capital deficit of US$2,692,275 (HK$20,999,747), as compared to a deficit of US$2,430,655 (HK$18,959,094) at December 31, 2010, due to the loss for the three-month period.

During the three months ended March 31, 2011, our operating activities used cash of US$2,935 (HK$22,896), as compared to cash used of US$23,812 (HK$185,737) in 2010. The only significant adjustment to reconcile net loss to net cash for the 2011 period was US$108,848 (HK$849,011) for a receivable due from a former director that was written off. For the 2010 period, the most significant adjustment was for amortization cost on discount of convertible debentures of US$15,618 (HK$121,822).

In 2011, US$12,709 (HK$99,127) was provided by advances from a third party. There was US$23,752 (HK$185,262) provided by advances from a director and a stockholder in 2010.

Forward-Looking Statements

This report includes “forward-looking statements.” All statements other than statements of historical facts included or incorporated by reference in this report, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “expect,” “intend,” “project,” “estimate,” “anticipate,” “believe,” or “continue” or the negative thereof or variations thereon or similar terminology. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurance that such expectations will prove to have been correct.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

As required by SEC rules, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures at the end of the period covered by this report. This evaluation was carried out under the supervision and with the participation of our management, including our chief executive officer and chief financial officer. Based on this evaluation, management has concluded that the design and operation of our disclosure controls and procedures are effective. There were no changes in our internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Disclosure controls and procedures are our controls and other procedures that are designed to ensure that information required to be disclosed by us 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 SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

In July 2010, Hong Kong Communications Company Limited initiated proceedings in High Court of the Hong Kong SAR to wind up Titanium Technology. ELM Computer Technologies Limited, a creditor of Titanium Technology, has made a claim for a sum of US$292,393 (HK$2,280,666) and has applied to substitute as the petitioner in this action. Its application was to be heard on April 8, 2011, but has been extended to September 9, 2011.

In August 2010, ELM Computer Technologies Limited initiated proceedings in High Court of the Hong Kong SAR against Titanium Technology for wrongful repudiation of a subcontractor agreement and default in a maintenance service agreement, claiming damages of US$407,983 (HK$3,182,266). Titanium Technology has applied for a stay of all further proceedings in this action. The application was due to be heard on May 11, 2011, but has been extended to September 9, 2011.

Item 1A. Risk Factors

Not required for smaller reporting companies.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. (Removed and Reserved)

None

Item 5. Other Information

None.

Item 6. Exhibits

Regulation S-K Number	Exhibit
3.1	Memorandum of Association, as amended (1)
3.2	Articles of Association, as amended (1)
4.1	Form of Warrant (2)
4.2	Form of Subscription Agreement (2)
10.1	2005 Stock Plan (2)
10.2	Form of Distributor Agreement (3)
10.3	Form of Reseller Agreement (3)
10.4	Memorandum of Understanding and amendments thereto (4)

Regulation

S-K

Number

Exhibit

31.1	Rule 13a-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a) Certification of Chief Financial Officer
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of 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 of Chief Financial Officer

____________________

(1)	Incorporated by reference to the exhibits to the initial filing of the registration statement on Form S-1 (File No. 333-128302) on September 14, 2005.

(2)	Incorporated by reference to the exhibits to Amendment No. 1 to the registration statement on Form S-1 (File No. 333-128302) on December 9, 2005.

(3)	Incorporated by reference to the exhibits to Amendment No. 2 to the registration statement on Form S-1 (File No. 333-128302) on January 26, 2006.

(4)	Incorporated by reference to the exhibits to the annual report on Form 10-K for the fiscal year ended December 31, 2010 (File No. 0-52415), filed March 31, 2011.

SIGNATURES

Pursuant to the requirements 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.

	TITANIUM GROUP LIMITED

May 13, 2011	By:	/s/ LAN Mingzheng
		LAN Mingzheng
		Chief Financial Officer

Attached files

Titanium Group LTD Reports

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