Titanium Group LTD - FORM 10-K

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EX-32.1 - EXH 32-2 CERTIFICATION - Titanium Group LTD	exh32-2_certification.htm
EX-31.2 - EXH 31-2 CERTIFICATION - Titanium Group LTD	exh31-2_certification.htm
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

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

[ ]	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	Not applicable
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

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

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (852) 2723 9628

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ]Yes [X]No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [ ]Yes [X]No

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the 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 Act).

[ ]Yes [X]No

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $276,188 as of June 30, 2009

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 51,644,399 as of May 15, 2010

Documents incorporated by reference: None

PART I

ITEM 1. BUSINESS

Business Development

We were incorporated on May 17, 2004 as an international business company pursuant to the International Business Companies Act of the British Virgin Islands (“BVI”). On June 22, 2005, we acquired all of the entire issued share capital of Titanium Technology Limited, a company incorporated in Hong Kong on February 14, 2001 with limited liability (“Titanium Technology”). On September 20, 2002, Titanium Technology and EAE Productions (HK) Limited, a company incorporated in Hong Kong on October 8, 1997, established Titanium Technology (Shenzhen) Co., Ltd., a wholly foreign owned enterprise in China, to conduct research and development operations. Beginning in the third quarter of 2004, it began to conduct business operations in China. EAE Productions (HK) Limited owns 8% of Titanium Technology (Shenzhen) Co., Ltd. and is owned by persons who indirectly are shareholders.

We established a BVI company to hold Titanium Technology, as we believed that it would be easier to attract investment capital into a BVI company rather than a Hong Kong company. Most of our investors in our completed private placement in 2005 are United States citizens. We believe that a BVI company having a corporate jurisdiction located in closer proximity to the United States made the investors feel more at ease than one located in Asia. BVI was selected as a compromise, as its laws, which are under the British system, are similar to those of Hong Kong. While the BVI entity is the parent company, our accounting history is that of Titanium Technology and therefore our operations go back to 2001 when Titanium Technology began operations.

Titanium Technology is 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, and a sales representative office in the United States, Titanium Technology has built a network of IT practitioners and researchers, enabling us to provide proprietary biometrics products and professional services. We have 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. Our AFRS products enable customers to capture human face images electronically, encode facial image into searchable files (faceprint), and precisely compare a set of faces to a database containing potentially thousands of faces in seconds.

Although different biometrics, e.g. finger scan, may be widely employed in similar applications, we believe that face recognition has several advantages over the existing alternatives. First, there is no direct contact between the device and users, and hence the problems of cleanliness and wear on the equipment are greatly reduced. Second, the core component is a digital (Charge Coupled Device (CCD)/Complementary Metal-Oxide-Semiconductor (CMOS) camera, which is relatively low in production cost. Last but not least, we believe that users have less concern on privacy issues with regard to facial pictures and the market acceptance is much higher, since photographs of facial images for identification are commonly used, such as in passports, driver’s licenses, and other forms of identification cards.

For over nine years, we have researched, developed, and marketed face biometrics technologies that incorporate advanced concepts in neural networks, artificial intelligence, image processing, pattern recognition, data mining, and massively parallel computing. Our researchers have taken recognition algorithms and, using advanced methods of software engineering, turned core mathematical modules into practical applications. Titanium Technology supports the latest standards in face biometrics and we are

focused on enabling our customers to expand the capabilities of their systems as their biometric needs evolve.

In the beginning of 2002, we developed our core component for face recognition, called “Ti-Face”. To date, Ti-Face Software Development Kit (“SDK”) has been adopted to develop custom-made applications for governments, universities, and institutions in the greater-China region. Examples include the Hong Kong government, Hong Kong Polytechnic University, Institution of Vocation Education (Hong Kong), Chinese Academy of Science (PRC), and Tsing Hua University (PRC).

In 2003, we successfully registered a patent about “Apparatus and Method for Recognizing Images” in Hong Kong Special Administrative Region (“HKSAR”). Also in 2003, our face recognition product, ProAccess FaceOK™, computer logical access control software, was launched.

In 2004, we launched our intelligent surveillance product, ProFacer, and promoted it into casino and financial institution markets. We also set up distribution networks in mainland China, Australia, United States, Turkey and Japan. Titanium Technology has delivered biometrics security products, consulting services, and systems integration services to various government offices, financial institutions, universities, telecommunication companies, and international corporations.

In September 2007, we set up a Hong Kong joint venture, Titanium RFID Limited, in which we hold a 51% interest. This joint venture develops and markets radio frequency identification (RFID) solutions to complement our core biometric technology. In December 2008, we set up a Hong Kong joint venture, Titanium Biometrics Limited, in which we hold a 51% interest. This joint venture will engage in the promotion and marketing of biometrics face recognition access control and time attendance systems in Mainland China.

Ti-Face

Ti-Face is the core face recognition engine that we have developed and implemented. A proprietary algorithm, named Dynamic Local Feature Analysis (DLFA), was invented to utilize the specific features for identification instead of the entire representation of the face. This technology is capable of selecting specific areas of the face, such as the eyes or mouth, which in turn are used as distinguishable features for recognition. Embedded with the Ti-Face module, a system can select sets of blocks, or features, in each face that differ from other faces in a data repository with an outstanding processing speed.

Based on this innovative face recognition technology, our research and development group modularized and realized this concept into the Ti-Face Software Development Kit (SDK) in 2002. This SDK is not only our core technology but serves as the blueprint for further extending our security access control applications for various situations.

Ti-Face SDK 3.0 for Windows. Features included in Ti-Face SDK 3.0 are face detection, high speed face tracking, matching and authentication, detecting motion or changes in a scene, extracting imagery from a video or live-stream, comparing and matching non-facial images, and performing both “one-to-one” verification and “one-to-many” identification. Independent developers can use Ti-Face SDK as a tool to build custom applications based on our proprietary face detection and recognition technology. Examples of applications include physical access control solutions that can integrate with reporting modules and alarm systems, logical access control solutions that can integrate with existing authentication systems and replace the use of passwords, and ticketing systems that can insure that a single ticket is not being shared by multiple customers. Furthermore, by integrating our face recognition engine into third-party solutions and applications, end users can obtain a solution that is customized to

fulfill their specific requirements. We intend to develop additional modules on face recognition. By combining several modules, greater security and more accurate identification methods can be obtained. Furthermore, a multimodal biometric system can be easily integrated into an application to greatly enhance security, privacy and user convenience.

Products

Powered by our innovative face recognition technology, our core products can be grouped into two categories: ProAccess and ProFacer. The ProAccess series fulfills the fundamental security and trust needs of the information world by logical and physical access control. The ProFacer series provides an ultimate solution for intelligent surveillance.

ProAccess. Applying our Ti-Face technology, the first series of products, called ProAccess, were launched in the middle of 2003. The ProAccess suite is a high-performance, secure, user-friendly solution to enhance the authentication method of physical doors, personal computers, and mobile phones by advanced face recognition technology.

ProAccess FaceOK (Professional & Enterprise). ProAccess FaceOK was designed to fulfill the fundamental security and trust needs of the information world. Users can sign-on to their computers through face recognition, which ensures a high degree of security against unauthorized access, especially when compared to authentication methods such as unsecured simple text input and unreliable memories. In addition, ProAccess FaceOK offers features such as audit trail, face learning, active user monitoring, and web-based single sign-on services integrated with directory services.

Audit Trail is enabled to capture all unauthorized login attempts (with images of trespassers and hackers) and store that information in a log file. The Face Learning function allows the user to learn the latest face whenever a login occurs. Natural facial progression does not compromise system accuracy. Active Monitoring monitors the environment actively to ensure continuous access control. The system proactively locks itself out when the authorized user is not detected. Hidden Encryption encrypts a file and masks it with an image file type so that only authorized users can retrieve its true content, while it appears as a normal file to others. Furthermore, users can logon to different Directory Services with the use of FaceOK. Those directories can be Novell eDirectory, Microsoft Active Directory, NT Domain, NDS, iPlanet and other LDAP compliant directories. We also have a module that focuses on web Single-sign on technology, which is integrated in FaceOK.

Considering our variety of clients, our FaceOK is released into two editions, Professional edition and Enterprise edition. Enterprise edition is suited for the corporate buyers (such as MTRC, Mass Transit Railway Corp) and government agencies (Department of Health and Immigration Department of the Hong Kong Government), whereas Professional edition is designed for the small office and home office or small to medium-sized enterprises. The product is currently available in four language versions: English, traditional Chinese, simplified Chinese, and Japanese.

ProAccess FaceGuard. Conventional access control systems relying on cards, keys or codes are vulnerable to those wishing to gain unauthorized entry to a facility. The card, key or code may be lost, stolen or illegally copied. Once an intruder has gained access to a building using a stolen entry device, there is often little evidence to help in apprehending or prosecuting the culprit. Personal property, office equipment and intellectual property are all at risk. “FaceGuard” has been designed to not only provide secure access to buildings, but to also detect and identify anyone attempting to gain access without authorization.

ProAccess FaceGuard is a biometric physical access control system, which identifies an individual’s identity from their facial characteristics by comparison with recorded data, and enables keyless entry based not on what the entrant has or knows, but based on the identity of the entrant. In contrast to conventional automatic systems, which only check for possession of a valid card, pass or PIN number, this digital image analysis system recognizes individual people and turns away those who try to enter using borrowed or stolen IDs. The proprietary algorithm utilized in the software is designed in such a way that the software is not fooled by life-size photos, and will only admit living, breathing humans with faces it “recognizes”. Therefore, the technology allows access that we believe is convenient, personal, private, and extremely secure.

ProAccess FaceGuard is empowered by Ti-Face. It can be operated in both online and offline mode. The templates of the authorized user list can be stored in a server or in the internal memory of the device. Although ProAccess FaceGuard may be networked in an enterprise environment, it is a stand-alone device that can be operated independently. The installation is simple and, except for the electric lock, there is no hidden cost in the installation.

ProAccess FaceGuard is primarily being used by commercial customers for physical access controls to areas such as office premises, data centers, and server rooms.

ProAccess FaceAttend. ProAccess FaceAttend is a stand-alone, face recognition- based time attendance recorder. It is suitable for medium and large offices, branches, factories, or other sites. ProAccess FaceAttend provides an accurate data collection solution by ensuring that employees must be present in order to record their attendance. It brings the flexibility of a full-function time and attendance terminal together with the sophistication of identification technology. Using face biometric technology, FaceAttend terminals scan employees’ faces to identify them from a huge database each time they punch or clock-in. No fingerprints or palm prints are utilized.

ProAccess FaceAttend can be installed at convenient locations throughout a facility to make it easy for employees to clock in. Punching or clocking in is performed using biometric face scans, and the resulting transactions are periodically uploaded to a host PC running the automated timekeeping system. It eliminates “buddy-punching,” the practice of employees punching in or out for other employees who are not present at work.

We believe that use of ProAccess FaceAttend eases concerns and boosts security by ensuring that the people on-site actually belong there. Attendance of each employee is printed on the attendance report. The attendance report is particularly useful for payroll purposes. Wages and salaries can be paid according to the employee’s worked hours, overtime etc. Given the continual growth of China as a worldwide manufacturing base, and specifically the fact that the Southern part of China houses the largest network of factories in Asia, based on gross domestic product statistics, we believe that we have a significant marketing opportunity in this region and perhaps a distinct advantage of physical and cultural proximity. To date, purchasers have installed this product primarily in factories for time attendance purposes.

ProFacer. ProFacer is a biometrically integrated surveillance system. Titanium Technology employs a full range of technology to enhance and automate existing surveillance techniques. Digital video recording technology, coupled with our biometrics systems, enable automated real time face recognition.

Characteristic processes enabling ProFacer to function effectively are detection, alignment, normalization, representation and matching:

·	Detection - When the system is attached to a video surveillance system, ProFacer recognition software searches the field of view of a video camera for human faces. If there is a face in the view, it is detected within a second.

·	Alignment - Once a face is detected, the system determines the head’s position, size and pose. A face needs to be turned to an appropriate angle toward the camera for the system to register it.

·	Normalization - The image of the head is scaled and rotated so that it can be registered and mapped into an appropriate size and pose. Normalization is performed regardless of the head’s location and distance from the camera. Light does not impact the normalization process.

·	Representation - The system translates the facial data into a binary string – “Faceprint”. This coding process allows for easier comparison of the newly acquired facial data to stored facial data.

Matching - The newly acquired facial data is compared to the stored data and linked to at least one stored facial representation. As comparisons are made, the system assigns a value to the comparison. If a score is above a predetermined threshold, a match is declared. The operator then views the two photos that have been declared a match to be certain that the computer is accurate.

ProFacer iDVR. Currently, Digital Video Recorders (DVRs) are popular in public areas, offices and homes, with the belief that the cameras deter criminal activity. However, with the public need for security rising, the sheer numbers of DVRs pose problems. On top of traditional DVR systems, Titanium Technology offers a proprietary real-time algorithm of face image detection and capture, named ProFacer iDVR. It does not require special cameras or a specific environment. Multiple faces in a stream of people may be detected, captured, recorded and delivered with further analysis, reporting and notification capabilities. The Face Capture is an application software for video surveillance, monitoring, law enforcement and other applications.

Individual facial patterns are recorded and stored in a digital photo database that can be viewed and used for different applications on-site or remotely. Titanium Technology developed several algorithms, supporting the real time processing of video data and image localization, determination of position of head and motion tracing for subsequent recognition.

ProFacer iDVR can be used at airports, banks, casinos, public buildings, subways, factories, schools or in any other location where it makes sense to record the faces of visitors, with facilities for integration into existing DVR systems. The ProFacer iDVR GUI is very simple such that any operator can use all of its functions with just a minimal amount of training. The system is highly flexible, allowing images to be digitalized and recorded in either color or monochrome with a storage capacity typically exceeding 36 months of facial data recording. The ProFacer iDVR screen simultaneously shows the live camera shot and the latest sequence of captured images. The ProFacer iDVR product was installed in the Nanning branch of GuangXi Peoples’ Bank of China in March 2005 and in September 2005, we installed the product in three other branches of GuangXi People’s Bank of China in the cities of BaiSe, DaiXing, and PinGuo. While this installation began as a pilot project in order to test and further refine the product, the bank paid for the product and did not simply allow the product to be installed and tested as an accommodation.

ProFacer iWatchGuard. ProFacer iWatchGuard adds automatic full time face recognition, matching and active warning alerts to any new or existing surveillance system. It allows each camera to serve as a diligent observation point even when the video is not observed. Face recognition surveillance

incorporates computer intelligence to monitor faces and match those faces against a “watch list” face database. As a modern new tool to identify potential threats to public safety, ProFacer iWatchGuard can scan facial images of individuals and match them with a database of images containing known suspects. In seconds, a scanned face can be searched against thousands, or even millions of database images to determine if the scanned image matches a previously stored suspect image.

This product has been applied to protect high security areas such as casinos, banks, computer centers, research institutes and prisons and jails, for fully automatic operation 24 hours a day. For example, a casino group in Macau has started a pilot project using ProFacer iWatchGuard to identify unwanted guests and VIPs. Using a list of unwanted guests stored in the database, casino staff can focus on trailing specific individuals from thousands of guests everyday. With the installation of ProFacer iWatchGuard, closed circuit televisions are connected and in real time send the scenes to a detection manager. Inside the detection engine, a number of clear and distinct faces will be identified. Each face will attempt to match the existing black-listed faces. As soon as a face known to the database appears in the scene, the system triggers a configurable alarm. Security guards can locate the unwanted person easily and take him/her away. As a result, staffs are no longer burdened by monotonous work, but can be employed more flexibly and effectively while still increasing security.

ProFacer iMugshot. ProFacer iMugshot is another product derived from ProFacer surveillance solution. In law enforcement units such as police and immigration departments, this system can greatly help in reducing fraud and crime. Through identifying duplicate images in large databases, such as licensed drivers, missing children and immigration, suspicious targets can be provided as a list. As a result, the scope in finding the target subjects can be greatly narrowed which, in turn, provides a cost effective, reliable and time saving surveillance application.

As existing clients, like the Government Laboratory of HKSAR, have placed repeat purchase orders, we believe that our customers are satisfied with this highly accurate, prompt response, cost effective surveillance system. It is believed that police forces would be a likely target market for this advanced application.

ProFacer iDControl. ProFacer iDControl utilizes face recognition technology in the airline industry for national security. Every traveler, who is ready to make boarding registration, can be captured as an image. Our ProFacer iDControl can start scanning if the given facial image has a high similarity scale with the suspects contained in a database storing images of terrorists’ faces provided by government agencies. Once a list of suspects is generated, airline staff can refine the verification process by one-to-one scanning. For further enhancement, facial images can be saved in the travel document during the check-in process. When travelers are ready to board the airline, our system can achieve a high degree of security by further matching live face with the face ID marked in the travel document. We believe these two levels of security measures are practical, helpful, safe and convenient in the airport.

ProFacer iDControl can be used for banking application. Facial identity can be embedded in the credit card, every time holders withdraw money from ATM machines. For greater security, faces can be verified in addition to inputting passwords, to confirm ownership of credit or debit cards. Using these two levels of security control, personal property is strongly protected.

Biometric RFID Solutions for retail market. RFID (Radio Frequency Identification) is a technology that incorporates the use of electromagnetic or electrostatic coupling in the radio frequency portion of the electromagnetic spectrum to uniquely identify an object, animal, or person. Combined with our biometric technology, we developed a new product tailor-made for the high growth retail sector in Hong Kong and China. This new product’s purpose is to provide the retail industry a total solution for efficient and secure tracking of high-valued inventories, from the warehouse to the storefront. The

solution applies RFID technology to identify the proper location of each of the items and facial recognition technology to ensure the proper identities of the personnel involved in the administration of the supply chain. Traditional stock control systems, such as barcode and tag label systems are outdated and inadequate for today’s market uses. RFID solutions represent a step forward providing accurate and efficient ways to keep track of the inventories. Nevertheless, most other RFID solutions do not take any measures to safeguard the identity of the operators, allowing the system to be vulnerable to theft. Titanium’s new solution pinpoints this issue and provides a complete solution for the customers.

Biometric Intelligent Visitors Management System (“e-Guard” or “IVMS”) for Government and Corporate markets. The product has been successfully launched in July 2008. IVMS is a kiosk-based solution with its core engine powered by Titanium latest inventions in facial recognition technology. Through advanced machine vision technology, IVMS collects unique facial geometry (skull curvature, skin texture, movement detection etc.) for comparisons and analysis. The specialized terminal of IVMS consists of an identity card validating machine, and a pair of specialized cameras which record pattern distortion from different light spectrums. The system not only can validate the visitor carrying a effective ID card with his/her true identity by real-time facial recognition, but also transfer the facial image of the visitor to police stations and perform a background check against the “wanted” database in the region. This system can provide mutual benefits to the user organizations as well as the society at large in terms of citizen protection.

Consulting

Our consulting team works with the client from the earliest stages of the project and takes accountability for the success of the project. We provide services in the areas of security service and system integration/development projects.

Security services. As a digital security services provider, we offer strategic solutions for technology-enabled enterprises. As a security advisor, we help clients to meet their requirements for continuous IT innovation and development while controlling the risks inherent in today’s complex networked environments. Our security specialists help customers identify system/network security weaknesses and provide professional advice on how to best protect vital information and assets both virtually on the Internet and physically without compromising productivity or endangering the bottom line. Our services include security consulting, risk assessment and penetration testing. Security training is also provided for the staffs to increase the security awareness and knowledge.

System Development/Integration. Our solution team utilizes its technical expertise to implement complex business systems, thereby reducing time and risk for our customers’ mission critical projects. We work with business systems critical to running large commercial and public sector organizations, as well as large-scale technical systems designed to operate to the highest levels of reliability in demanding conditions. To keep pace with the competitive IT world, our staff has been trained in new and advanced technologies, such as Microsoft .net and J2EE, on system implementation work.

Distribution and Markets

We select distributors based on the potential impact of the distribution relationship. We seek to cooperate with business partners that will bring synergies, making it quicker to penetrate the target market and localization. Distributors in the United States include B.E.S.T. Lab, inc., Elite Technology Solutions, and Barr Security Inc. Distributors in Europe include Vizyotek Teknoloji (Turkey). Distributors in Asia include Smart Wireless (Japan), Elixir Group (Macau), Xintec Enterprise Ltd. (China), Komsa Technology Ltd. (China), ELM Computer Technologies Limited (Hong Kong), and PCCW Solutions (Hong Kong and People’s Republic of China). However, for major accounts that are readily accessible,

we tend to handle such accounts ourselves since these corporate clients expect expert knowledge and demand flexibility.

Our distributors purchase products from us at prices specified on our Distributor Price List in effect from time to time. The distributors sell to resellers or end-users with a mark-up in price and the profit generated from the mark-up is the compensation for the distributors. The sales prices to distributors are approximately 30% to 40% off the recommended retail prices. Once the products are shipped and the distributor has accepted the products, we bill the distributor and the distributor is obligated to settle the bill accordingly within the credit period granted. There is no right of return or other incentives given to the distributors.

Our distributor agreement and reseller agreement dictate the terms and conditions of the relationship with us, such as pricing, warranties, exclusivity or non-exclusivity, and term.

We organize exhibitions and seminars periodically to create awareness of the importance of biometrics applications. We participated in three exhibitions and one seminar in Japan in 2005 and 2006. The main purpose of these exhibitions and seminars is to introduce our products to the Japanese market, especially in the retail sector.

We also prepare marketing materials such as brochures, product white papers and pricing references for the distributors and provide complete sales support and technical consulting services to them.

Our markets include the following:

·	Hong Kong, including the Hong Kong government and commercial sectors;

·	China, mainly the government and financial institutions;

·	For Japan, Europe and the US markets, we form a distribution partnership with the local agents to sell our products.

Titanium Technology not only focuses on two core activities, biometrics-based technology development and professional services, but also operates a distribution business and distributes a number of commercially available software, such as software from Microsoft, Novell, Symantec and IBM. At times, our customers may require software that is not within Titanium’s product range, but is available from these large software manufacturers and vendors. Most of the software consists of security-related products. We buy software from these vendors to resell to our customers. In most cases, we perform a certain amount of customization and system integration services with respect to the purchased software.

In March 2006, Titanium Technology was again selected by the HKSAR government as a supplier of PC/LAN software in Category B and C to all departments in HKSAR government for three years under a bulk tender. The bulk tender is an initiative from the HKSAR government with the purpose of streamlining and insuring the process and quality of the procurement of all information technology products by the government. The government selected companies that it believed to be qualified for specific categories of products. Category B is computer hardware equipment and Category C is software applications. This means that the government departments have to purchase from the selected companies and that Titanium Technology is one of the few vendors from whom the Hong Kong government purchases computer hardware and software.

To strengthen our distributor network, we are authorized resellers for software marketed by Microsoft, Novell, SiS International Ltd, JOS, and others. We sell to end users and we can also purchase their products at discounted prices from the suggested retail prices.

Customers

Titanium Technology’s major customers include:

·	In Hong Kong: the Hong Kong government including the Immigration Department and Housing Department

·	In China: Penghua Funds Management Co.

For the year ended December 31, 2009, one customer accounted for 32.5% of our revenue: Hong Kong Housing Authority. For the year ended December 31, 2008, three customers accounted for 49% of our revenue: Dong Guan Jia Wang Computer Components Ltd (18.5%), ELM Computer Technologies Ltd. (15.7%), and ARCA Associates Ltd (15%).

Since a small number of customers account for a substantial portion of our revenues, the loss of any of our significant customers would cause revenue to decline and could have a material adverse effect on our business. While the customers who each accounted for over 10% of our revenue for a particular fiscal year are generally not the same as the significant customers for other fiscal years, this indicates that we need to expand our client base so that we will no longer be subject to this risk.

There is no law in Hong Kong or any provisions in our contracts with the Hong Kong government that specifies or triggers a termination at the election of the government.

Intellectual Property

Patents. Titanium Technology was issued patent number HK1053239 for “Apparatus and Method for Recognizing Images” in September 2002. The patent expires September 10, 2010. Even though we have been issued a patent from Hong Kong and even if we were to obtain copyright protection on the software, we would still have to enforce our rights against those who might attempt to infringe on our intellectual property as patent protection does not necessarily deter infringement. Such enforcement efforts are likely to be expensive and time-consuming and we may lack the ability to engage in any significant enforcement efforts. Instead, we have chosen to use our resources on product development and the expansion of market share.

In 2007, we were issued two patents in China, namely “Apparatus for automatic positioning face recognition, China Patent No.: ZL200620056518.8” and “Apparatus for biometric media processing, China Patent No.: ZL200620017342.5”. They will expire on June 26, 2017 and July 24, 2017. respectively.

Trademark and Trade Name. Titanium Technology has the following registered trademarks for “ProAccess FaceOK”:

·	United States – Serial No. 78/414377

·	Hong Kong – Trade Mark No. 300053478

·	China – Serial No. ZC3732931SL

Competition

The biometrics industry is fragmented and undeveloped, with a plethora of methods for gathering biometric information, processing the data, and interconnecting with applications. All the major prevailing biometrics systems have limitations.

The biometric industry is global in scope, with many competitors and customers located in US and Europe. While Asia has some companies in the biometrics arena, many of the biggest projects have been in nations installing national identification systems. Strategic focus is quite diverse, as well, with some firms specializing in the proprietary technology associated with capturing biometric information, others in providing enterprise-level integration services, and still others in offering managed or hosted services for outsourced systems. Large players in intermediate or end-use markets for biometrics (e.g. banking/financial services, security, PCs/peripherals, software/enterprise systems, and wireless equipment and services) have been active in investing in or sponsoring biometric technologies.

We intend to compete by utilizing the following strategies:

·	put more funding into research and development to strengthen the quality of our products;

·	gain more share in the Asian market before the big competitors step in;

·	seek potential partnerships and strategic alliances; and

·	organize more exhibitions of our products.

We believe that we have a major competitor, L-1 Identity Solutions, Inc., from the United States. L-1 Identity Solutions is the product of a merger of Identix Incorporated and Viisage Technology, Inc.

Employees

As of May 17, 2010, we employed a total of 5 persons, of which 5 were full-time. None of our employees is covered by a collective bargaining agreement.

ITEM 1A. RISK FACTORS

Not required for smaller reporting companies.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not required for smaller reporting companies.

ITEM 2. PROPERTIES

Our principal offices are located at Room 801, Austin Tower, 22-26 Austin Avenue, T.S.T, Kowloon, Hong Kong.

ITEM 3. LEGAL PROCEEDINGS

We are not a party to any pending legal proceedings.

ITEM 4. (Removed and Reserved)

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on OTCBB and has been quoted on OTCBB under the symbol “TTNUF” since July 10, 2006. The following table sets forth, for the periods indicated, the range of quarterly high and low bid prices for our common stock as reported on OTCBB:

2008	High Bid		Low Bid
First Quarter		$0.09		$0.021
Second Quarter		$0.08		$0.02
Third Quarter		$0.045		$0.03
Fourth Quarter		$0.07		$0.012
2009
First Quarter		$0.05		$0.02
Second Quarter		$0.05		$0.012
Third Quarter		$0.02		$0.015
Fourth Quarter		$0.015		$0.001

As of December, 2009, there were 19 holders of record of our common stock and as of that date, the last reported sales price of our common stock was $0.015.

We have never paid cash dividends on our common stock. We currently intend to retain earnings, if any, for use in our business and do not anticipate paying any cash dividends in the foreseeable future. Any future declaration and payment of dividends will be subject to the discretion of our Board of Directors, will be subject to applicable law and will depend upon our results of operations, earnings, financial condition, contractual limitations, cash requirements, future prospects and other factors deemed relevant by our Board of Directors.

Sales of Unregistered Securities

None.

ITEM 6. SELECTED FINANCIAL DATA

As stated in United States dollars:

INCOME STATEMENT DATA:
	Year Ended December 31,
	2009 (US$)			2008 (US$)			2007 (US$)			2006 (US$)			2005 (US$)
Revenues	$	385,143		$	2,004,040		$	2,143,059		$	2,521,279		$	1,710,528
Net income (loss)	$	(2,041,835	)	$	(372,593	)	$	(809,345	)	$	(426,795	)	$	101,924
Net income (loss) per common share	$	(0.04	)	$	(0.01	)	$	(0.016	)	$	(0.009	)	$	0.002

BALANCE SHEET DATA:
	December 31,
	2009 (US$)			2008 (US$)		2007 (US$)		2006 (US$)		2005 (US$)
Working capital (deficit)	$	(634,365	)	$	349,711	$	651,022	$	182,022	$	777,119
Total assets	$	93,940		$	1,580,765	$	3,201,640	$	1,578,544	$	1,351,479
Long-term debt	$	1,388,739		$	1,334,782	$	1,497,300	$	-	$	-
Stockholders’ equity (deficit)	$	(2,023,104	)	$	14,179	$	314,799	$	906,929	$	1,051,859

As stated in Hong Kong dollars:

INCOME STATEMENT DATA:
	Year Ended December 31,
	2009 (HK$)			2008 (HK$)			2007 (HK$)			2006 (HK$)			2005 (HK$)
Revenues	$	3,004,111		$	15,631,510		$	16,715,863		$	19,665,971		$	13,342,121
Net income (loss)	$	(15,926,319	)	$	(2,906,223	)	$	(6,312,880	)	$	(3,328,994	)	$	795,004
Net income (loss) per common share	$	(0.31	)	$	(0.06	)	$	(0.126	)	$	(0.067	)	$	0.016

BALANCE SHEET DATA:
	December 31,
	2009 (HK$)			2008 (HK$)			2007 (HK$)			2006 (HK$)			2005 (HK$)
Working capital (deficit)	$	(4,948,051	)	$	2,727,739		$	5,077,980		$	1,419,763		$	6,061,528
Total assets	$	732,732		$	12,329,970		$	24,972,778		$	12,312,641		$	10,541,537
Long-term debt	$	10,832,163		$	10,411,303		$	11,678,940		$	-		$	-
Stockholders’ equity (deficit)	$	(15,780,214	)	$	110,595		$	2,455,421		$	7,074,041		$	8,204,496

Historical Exchange Rates

Since October 17, 1983, the Hong Kong dollar has been pegged to the U.S. dollar at HK$7.80 to US$1.00.

ITEM 7.

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

Overview

As Titanium Technology is a software development company, it earns revenues primarily through license sales of its products, which utilize the proprietary technology it develops. Development of the technology requires a significant outlay of cash before a viable product is developed that utilizes the technology. After development of a product, even more cash is required to market the product before any revenues are realized. Accordingly, the challenge that faces many software development companies is being able to obtain enough cash to fund research and development and marketing expenses and sustain the company until revenues are generated. Such funds are needed fairly quickly after products are developed, as the environment in which the products are used is constantly changing. Companies face the risk of discovering that their products do not meet the needs of the potential customers or are

technologically outdated after a marketing campaign is launched. If that happens, the research and development costs are never recouped.

While we have been able to develop proprietary products mainly based on proceeds from sales revenues and from subsidy income received from the Hong Kong government, we believe that external funding from investors can stimulate and accelerate product development and marketing for a number of reasons.

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 have been used to provide the funds necessary to implement the next step in our business plan, which was becoming 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 believe that by becoming a publicly-held company, we will 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 have been 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 the past two years. 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. Currently, we are in the process of developing a new business plan that may include acquiring a business that will complement our existing products and services. We are also in the process of negotiating with the holders of our convertible debentures that matured in April 2010.

Critical Accounting Policies

Intangible assets. Intangible assets include (1) patent and license right registration fees and (2) product development costs.

PATENT AND LICENSE RIGHT REGISTRATION FEES. Patent and license right registration fees represents the software licenses and patent costs paid to third parties and is amortized using the straight-line method over their estimated useful lives of 20 years.

PRODUCT DEVELOPMENT COSTS. We account for developments costs related to software products to be sold, leased or otherwise marketed in accordance with Accounting Standards Codification (“ASC”) Topic 730-20, “Research and Development Arrangement” (“ASC 730-20”). Software development costs are expensed as incurred until technological feasibility has been established, at which time such costs are capitalized until the product is available for general release to customers. Costs that are capitalized include direct labor and related overhead. These capitalized costs are subject to an ongoing assessment of recoverability based on anticipated future revenues and changes in hardware and software technologies. For the years ended December 31, 2009 and 2008, we capitalized product development costs of US$0 (HK$0) and US$459,719 (HK $3,585,811), respectively.

Amortization of capitalized software development costs begins when the product is available for general release to customers. Amortization is computed by the straight-line method over the estimated economic life of the products, ranging from 4 to 5 years.

In prior years, we developed our products, namely ProAccess and ProFacer, under the subsidy assistance program from the Government of the Hong Kong Special Administrative Region (“HKSAR”) in developing the innovative products. Pursuant to such program, HKSAR was required to provide funding to us for our product development, which was available up to the aggregate amount of US$256,410 (HK$2,000,000) in accordance with the milestones of the product development plan. We received such grant of an aggregate of US$244,864 (HK$1,909,938) and were not subject to any repayment. However, we were required to contribute approximately 50% of the overall project cost in accordance with the grant agreement. When the project was completed, we tendered to the Government its pro rata share of the residual funds remaining in the project account. In addition we were obligated to pay the Government a royalty fee of 5% on the gross revenue earned from any activities in connection with the project, up to an aggregate amount equal to the amount subsidized to us.

Upon the completion, the ownership of the intellectual property resulting from the project was vested in us. The royalty fee paid by us for the years ended December 31, 2009 and 2008 amounted to US$3 (HK$20) and US$3,105 (HK$24,220), respectively. As of December 31, 2009, we have an unpaid royalty fee against the subsidy grant totaling US$3,618 (HK$28,223).

Valuation of long-lived assets. Long-lived assets include property, plant and equipment and intangible assets. In accordance with the ASC Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets,” we periodically review long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives are no longer appropriate. Each impairment test is based on a comparison of the undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimate fair value based on a discounted cash flow analysis. Determining the fair value of long-lived assets includes significant judgment by management, and different judgments could yield different results.

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

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

We also apply 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 apply 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 consider 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 are 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 result in the amount and timing of our revenue for any period if actual results differ from management’s judgment or estimates.

PRODUCTS REVENUE. The timing of product revenue recognition is dependent on the nature of the product sold. Product arrangements comprising multiple deliverables including software, hardware, professional services, and maintenance are generally categorized into one of the following:

Facial-based biometric identification and security projects that do not require significant modification or customization of our software: Revenue associated with these arrangements, exclusive of amounts allocated to maintenance, for which we have vendor-specific objective evidence of fair value (“VSOE”), is recognized upon installation and receipt of written acceptance of the project by the customer when required by the provisions of the contract, provided that all other criteria for revenue recognition have been met. Revenue resulting from arrangements for which VSOE of the maintenance element does not exist is recognized ratably over the maintenance period. To date, we have not made an allocation of contract revenue to separate accounting units since all of the products have been delivered simultaneously and no deferral of revenue would result.

Facial-based biometric identification and security projects that require significant modification or customization of our software: Revenue associated with these arrangements is recognized using the percentage of completion method as described by SOP 81-1. The percentage of completion method reflects the portion of the anticipated contract revenue, excluding maintenance that has VSOE, which has been earned, equal to the ratio of labor effort expended to date to the anticipated final labor effort, based on current estimates of total labor effort necessary to complete the project. Revenue resulting from arrangements for which VSOE of the maintenance element does not exist is recognized ratably over the contractual maintenance period.

·	Self-developed software products sales and re-sale of purchased third parties products: Revenue associated with the sale of these products, excluding maintenance when applicable, is recognized upon shipment to the customer. The amount of these revenues has historically not been significant.

Sales to authorized distributors: We also use authorized distributors to sell certain of our products and only the authorized distributors are allowed to resell those products. We require the authorized distributors to purchase the products and then sell through the authorized distributors’ own distribution channels to the end customers. From our perspective, the authorized distributors are the ordinary customers and the only preferential treatment to them is that the sales prices to distributors have been predetermined in accordance with the distribution agreements, and are approximately 30% to 40% off the recommended retail prices. Once the products are delivered and the distributor has accepted the products, we bill the distributor and the distributor is obligated to settle the bill accordingly within the credit period granted. There is no right of return or other incentives given to the distributors. We are not required to provide training to authorized distributors.

SERVICES REVENUE. Services revenue is primarily derived from computer engineering services, system design, consulting and integration and maintenance services that are not an element of an arrangement for the sale of products. These services are generally billed on a time and materials basis. The majority of our professional services are performed under time-and-materials arrangements. Revenue from such services is recognized as the services are provided.

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

INTEREST INCOME. Interest income is recognized on a time apportionment basis, taking into account the principal amounts outstanding and the interest rates applicable.

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$1, the approximate free rate of exchange at December 31, 2009 and 2008. Such translations should not be construed as representations that the HK$ 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

Fiscal Year Ended December 31, 2009 Compared to Fiscal Year Ended December 31, 2008. Operating revenues consist of project revenues and maintenance revenues. Operating revenues for the year ended December 31, 2009 were US$385,143 (HK$3,004,111), a decrease of 80.8% from US$2,004,040 (HK$15,631,510) for the year ended December 31, 2008. Project revenues decreased by US$1,629,150 (HK$12,707,375) (83%) over the same period in 2008, mainly due to a decreased volume of business, as opposed to a decrease in prices. The decrease in volume can be attributed to our weakened cash position, which hampered our ability to fulfill contracts, plus a delay in projects awarded from potential clients.

The gross margin as a percentage of project revenues showed a decrease in 2009 to 15.5% from 31.8% in 2008. Gross margin on project revenues in terms of dollars decreased to US$51,442 (HK$401,247) in 2009 from US$624,174 (HK$4,868,566) in 2008 due to the decrease in sales revenues.

As a percentage of all revenues, maintenance revenue was 13.7% in 2009 and 2.1% in 2008. As part of the product purchase, we provide both product warranty and post-contract customer support to our customers for a period of twelve months, free of charge and then at the discretion of the customers, enter into definite maintenance contracts.

We recorded an expense of US$161,228 (HK$1,257,581) for amortization of intangible assets, which represents the amortization of capitalized product development costs incurred in eGuard.

We reviewed our annual impairment test on all intangible assets and concluded that the decline in expected future benefits from our software products was sufficient to write down our intangible assets to zero, resulting in an impairment loss of US$444,800 (HK$3,469,442).

We recorded an expense of US$199,890 (HK$1,559,143) on the loss on disposal of plant and equipment, resulting from terminated the old principal executive office at Kennedy Town, Hong Kong.

Selling, general and administrative expenses increased from US$929,768 (HK$7,252,194) in 2008 to US$1,082,446 (HK$8,443,076) in 2009. Significant increase mainly due to write off of accounts receivable of US$154,184 (HK$1,202,636). As a percentage of revenues, these selling, general and administrative expenses increased to 281.1% in 2009 from 46.4% in 2008.

We incurred an operating loss of US$1,784,058 (HK$13,915,657) in 2009, as compared to an operating loss of US$496,323 (HK$3,871,322) in 2008, as we incurred increased operating expenses and generated significantly decreased gross profit.

We recorded other expense of US$172,441 (HK$1,345,043), primarily as a result of interest expense and the discount of convertible debenture. In contrast, we had other income of US$114,718 (HK$894,805) in 2008, primarily as a result of a gain from change in fair value of warrant liability of US$178,721 (HK$1,394,024) and refund income of US$104,102 (HK$812,000), resulting from the refund of promotion expenses paid in 2007. These items more than offset US$114,843 (HK$895,779) of interest expense and US$66,203 (HK$516,386) of discount of convertible debenture.

After reversal of deferred tax assets of US$87,633 (HK$683,534) and income for minority interest of US$678 (HK$5,289), our net loss for 2009 was US$2,041,835 (HK$15,926,319). Our net loss for 2008 was US$372,593 (HK$2,906,223) after income for minority interest of US$9,012 (HK$70,294).

Going Concern

As a result of the losses incurred during the last two fiscal years and the accumulated deficit of US$3,416,952 (HK$26,652,233) at December 31, 2009, the report of our independent registered public accounting firm on the financial statements for the year ended December 31, 2009 includes an explanatory paragraph indicating substantial doubt as to our ability to continue as a going concern. Management has taken certain actions and continues to implement changes designed to improve the Company’s financial results and operating cash flows. The actions involve certain cost-saving initiatives, continuous development of new products and growing strategies, including rapid promotion and marketing the new products in the People’s Republic of China. Management believes that these actions will enable the Company to move towards profitability and improve cash flow in its continuing operations through December 31, 2010.

Liquidity and Capital Resources

At December 31, 2009, we had a working capital deficit of US$634,365 (HK$4,948,051) as compared to working capital of US$349,711 (HK$2,727,739) at December 31, 2008. Working capital decreased by US$984,076 (HK$7,675,790) due primarily to a reduction in accounts receivable of US$154,992 (HK$1,208,939) and an increase in accounts payable and accrued liabilities of US$369,394 (HK$2,881,270).

During the year ended December 31, 2009, operating activities used cash of US$268,460 (HK$2,093,982), primarily due to the loss of US$2,041,835 (HK$15,926,319). The more significant adjustments were US$444,800 (HK$3,469,442) for the impairment loss on intangible assets and

US$276,401 (HK$2,155,930) for depreciation and amortization. In comparison, operating activities provided cash of US$647,796 (HK$5,052,807) in 2008. The more significant adjustments were US$302,671 (HK$2,360,837) for depreciation and amortization, US$146,939 (HK$1,146,127) for the impairment charge and US$178,721 (HK$1,394,024) for the gain from the change in fair value of warrant liability.

In 2009, we used US$8,797 (HK$68,619) for investing activities, which were for payments on patent and license right registration fees and for the purchase of plant and equipment. In 2008, we used US$482,532 (HK$3,763,754) for investing activities, which were primarily for payments relating to software development costs and their patent and license registration fee of US$460,213 (HK$3,589,663) and the purchase of plant and equipment of US$22,319 (HK$174,091).

Financing activities, consisting of advances from one of our directors, provided cash of US$131,868 (HK$1,028,572). In 2008, we used cash of US$158,327 (HK$1,234,953), as we decreased our bank overdraft by US$154,949 (HK$1,208,606) and repaid US$3,378 (HK$26,347) on a short-term bank loan.

To address our need for additional working capital, we completed a financing for gross proceeds of US$1,450,000 (HK$11,310,000) in early April 2007. We sold convertible debentures that accrue interest at 8% per annum. The interest is payable quarterly on January 1, April 1, July 1 and October 1 beginning July 1, 2007 in cash or in shares at our option, with the shares to be registered pursuant to an effective registration statement and priced at the lesser of (a) $0.30 or (b) 90% of the volume-weighted average price for the 10 consecutive trading days immediately prior to payment. The debentures have a maturity date of 36 months and are convertible at any time by the holders into shares of our common stock at a price equal to $0.30. The debentures are convertible at our option as long as there is an effective registration statement covering the shares underlying the debentures and the closing bid price of our common stock is at least $0.75 per share. The debentures are redeemable at our option at 120% of face value, as long as there is an effective registration statement covering the shares underlying the debentures. The debentures contain anti-dilution protections to allow adjustments to the conversion price of the debentures in the event we sell or issue shares at a price less than the conversion price of the debentures.

The purchasers of the debentures also received five-year warrants that allow the holders to purchase 4,833,333 shares of our common stock at $0.50 per share.

We paid a placement fee of $145,000 and issued placement agent warrants entitling the holders to purchase an aggregate of 483,333 shares at $0.315 per share for a period of seven years.

We have filed a registration statement to register the resale of the shares underlying the debentures issued to the investors.

In November 2007, we entered into an Amendment and Waiver Agreement (the “Agreement’) with the holders of our convertible debentures. The Agreement granted a one-time waiver of all then existing events of default, reduced the conversion price from $0.30 to $0.20, granted a one-time waiver of any anti-dilution adjustment to the warrant which would have been triggered by the reduction to the conversion price, and provided for the issuance of 477,366 shares of our common stock as payment of interest due July 1, 2007 and October 1, 2007 and any late fees thereon. We also issued 377,973 shares in January 2008 as payment of interest due January 1, 2008 and any late fees thereon.

The debentures were due April 3, 2010. We have been in negotiations with the holders, but have not yet reached an agreement as to repayment of the debentures.

Our current fixed overhead is approximately US$39,000 (HK$300,000) per month, without giving any effect to any revenues that we generate. Fixed overhead comprises salaries, office rent and maintenance, utilities, telephone, travel, office supplies, employee benefits, insurance and licenses, and professional fees. We believe we will be able to fund the expenditures described above with our existing cash flow, based upon the signed contracts for orders that we have.

Recent Accounting Pronouncements

We have reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of any such pronouncements may be expected to cause a material impact on our financial condition or the results of our operations.

In September 2009, Accounting Standards Codification (“ASC”) became the source of authoritative U.S. GAAP recognized by the Financial Accounting Standards Board (“FASB”) for nongovernmental entities, except for certain FASB Statements not yet incorporated into ASC. Rules and interpretive releases of the SEC under federal securities laws are also sources of authoritative U.S. GAAP for registrants. The discussion below includes the applicable ASC reference.

We adopted ASC Topic 810-10, “Consolidation” (formerly SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements – an amendment of ARB No. 51”) effective January 2, 2009. ASC Topic 810-10 changes the manner of presentation and related disclosures for the non-controlling interest in a subsidiary (formerly referred to as a minority interest) and for the deconsolidation of a subsidiary.

ASC Topic 815-10, “Derivatives and Hedging” (formerly SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities”) was adopted by us effective January 2, 2009. The guidance under ASC Topic 815-10 changes the manner of presentation and related disclosures of the fair values of derivative instruments and their gains and losses.

In April 2009, the FASB issued an update to ASC Topic 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”) (formerly FASB Staff Position No. SFAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”). The standard provides additional guidance on estimating fair value in accordance with ASC 820-10 when the volume and level of transaction activity for an asset or liability have significantly decreased in relation to normal market activity for the asset or liability have significantly decreased and includes guidance on identifying circumstances that indicate if a transaction is not orderly. We adopted this pronouncement effective April 1, 2009 with no impact on our financial statements.

In April 2009, the FASB issued FSP SFAS No. 107-1, “Disclosures about Fair Value of Financial Instruments” (“ASC 825-10”). ASC 825-10 requires fair value of financial instruments disclosure for interim reporting periods of publicly traded companies as well as in annual financial statements. ASC 825-10 is effective for interim periods ending after June 15, 2009 and was adopted by us in the second quarter of 2009. There was no material impact to our financial statements as a result of the adoption of ASC 825-10.

In June 2009, the FASB finalized SFAS No. 167, “Amending FASB interpretation No. 46(R)”, which was included in ASC Topic 810-10-05, “Variable Interest Entities”. The provisions of ASC Topic 810-10-05 amend the definition of the primary beneficiary of a variable interest entity and will require us to make an assessment each reporting period of our variable interests. The provisions of this

pronouncement are effective January 1, 2010. We are evaluating the impact of the statement on our financial statements.

In July 2009, the FASB issued SFAS No. 168, “The Hierarchy of Generally Accepted Accounting Principles”. SFAS 168 codified all previously issued accounting pronouncements, eliminating the prior hierarchy of accounting literature, in a single source for authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. SFAS 168, now ASC Topic 105-10, “Generally Accepted Accounting Principles,” is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of this pronouncement did not have an effect on our financial statements.

In August 2009, the FASB issued an update of ASC Topic 820, “Measuring Liabilities at Fair Value”. The new guidance provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using prescribed techniques. We adopted the new guidance in the third quarter of 2009 and it did not materially affect our financial position and results of operations.

In October 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements (a consensus of the FASB Emerging Issues Task Force)” which amends ASC 605-25, “Revenue Recognition: Multiple-Element Arrangements.” ASU No. 2009-13 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how to allocate consideration to each unit of accounting in the arrangement. This ASU replaces all references to fair value as the measurement criteria with the term selling price and establishes a hierarchy for determining the selling price of a deliverable. ASU No. 2009-13 also eliminates the use of the residual value method for determining the allocation of arrangement consideration. Additionally, ASU No. 2009-13 requires expanded disclosures. This ASU will become effective for us for revenue arrangements entered into or materially modified on or after April 1, 2011. Earlier application is permitted with required transition disclosures based on the period of adoption. We are currently evaluating the application date and the impact of this standard on our financial statements.

In September 2009, the FASB issued certain amendments as codified in ASC 605-25, “Revenue Recognition; Multiple-Element Arrangements.” These amendments provide clarification on whether multiple deliverables exist, how the arrangement should be separated, and the consideration allocated. An entity is required to allocate revenue in an arrangement using estimated selling prices of deliverables in the absence of vendor-specific objective evidence or third-party evidence of selling price. These amendments also eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method. The amendments significantly expand the disclosure requirements for multiple-deliverable revenue arrangements. These provisions are to be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier application permitted. We are currently evaluating the impact of these amendments to our consolidated financial statements.

In November 2009, the FASB issued ASU 2009-16, “Transfers and Servicing (Topic 860) – Accounting for Transfers of Financial Assets,” which formally codifies FASB Statement No. 166, “Accounting for Transfers of Financial Assets.” ASU 2009-16 is a revision to SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” and requires more information about transfers of financial assets, including securitization transactions, and where entities have continuing exposure to the risks related to transfer of financial assets. It eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures. The provisions are effective January 1, 2010, for a calendar

year-end entity, with early application not being permitted. Adoption of these provisions is not expected to have a material impact on our consolidated financial statements.

In January 2010, the FASB issued an amendment to the fair value measurement and disclosure standard improving disclosures about fair value measurements. This amended guidance requires separate disclosure of significant transfers in and out of Levels 1 and 2 and the reasons for the transfers. The amended guidance also requires that in the Level 3 reconciliation, the information about purchases, sales, issuances and settlements be disclosed separately on a gross basis rather than as one net number. The guidance for the Level 1 and 2 disclosures was adopted on January 1, 2010, and did not have an impact on the consolidated financial position, results of operations or cash flows. The guidance for the activity in Level 3 disclosures is effective January 1, 2011, and will not have an impact on the consolidated financial position, results of operations or cash flows as the amended guidance provides only disclosure requirements.

In February 2010, the FASB issued amended guidance on subsequent events. Under this amended guidance, SEC filers are no longer required to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. This guidance was effective immediately and the adoption of these sections did not have a material impact on our financial statements.

Off-Balance Sheet Arrangements

At December 31, 2009, we did not have any off-balance sheet arrangements.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for smaller reporting companies.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the pages beginning with page F-1.

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A(T). CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and our Principal Financial

Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in applicable securities laws.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with participation of our Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to provide reasonable assurance that material information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms.

Management is aware that there is a lack of segregation of duties due to the small number of employees dealing with general administrative and financial matters. However, at this time, management has decided that considering the employees involved, the control procedures in place, and the outsourcing of certain financial functions, the risks associated with such lack of segregation are low and the potential benefits of adding additional employees to clearly segregate duties do not justify the expenses associated with such increases. Management will periodically reevaluate this situation. If the volume of the business increases and sufficient capital is secured, it is our intention to increase staffing to mitigate the current lack of segregation of duties within the general administrative and financial functions.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Such limitations include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures, such as simple errors or mistakes or intentional circumvention of the established process.

Management’s Report on Internal Control Over Financial Reporting; Changes in Internal Controls Over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U. S. generally accepted accounting principles (“US GAAP”). The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U. S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and, (iii) provide reasonable assurance regarding prevention of timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Internal control over financial reporting includes the controls themselves, monitoring and internal auditing practices and actions taken to correct deficiencies as identified.

Because of its inherent limitations, internal control over financial reporting, no matter how well designed, may not prevent or detect misstatements. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation.

Also, the effectiveness of internal control over financial reporting was made as of a specific date. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2009, based on criteria for effective internal control over financial reporting described in “ Internal Control—Integrated Framework “ issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included an evaluation of the design of the Company’s internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting.

Based on this assessment, management determined that, as of December 31, 2009, the Company maintained effective internal control over financial reporting, although we did recognize a significant deficiency. A significant deficiency is a deficiency, or a combination of deficiencies, that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the registrant’s financial reporting.

Although currently we do not identify any material weaknesses in the process of self assessment, we have recognized a significant deficiency in our internal controls. Currently we do not have sufficient in-house expertise in US GAAP reporting. Instead, we rely very much on the expertise and knowledge of external financial advisors in US GAAP conversion. External financial advisors have helped prepare and review the consolidated financial statements. Although we have not identified any material errors with our financial reporting or any material weaknesses with our internal controls, no assurances can be given that there are no such material errors or weaknesses existing. In addition, we do not believe we have sufficient documentation with our existing financial processes, risk assessment and internal controls. We plan to work closely with external financial advisors to document the existing financial processes, risk assessment and internal controls systematically.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Our executive officers, directors, and key employees are:

Name	Age	Position
LAI Huamin	28	Executive Chairman of the Board of Directors
TANG Wai Hung “Billy”	37	Chief Executive Officer, Acting Chief Technology Officer and Director
LAN Mingzheng	47	Chief Executive Officer, Principal Financial Officer and Director
WEN Jialong	41	Chief Operations Officer and Director
TANG Wai Hung “Billy”	37	Acting Chief Technology Officer

Our shareholders elect our directors annually and our board of directors appoints our officers annually. Vacancies in our board are filled by the board itself. Set forth below are brief descriptions of the recent employment and business experience of our executive officers and directors.

LAI Huamin was appointed to serve as a director and the Chairman of the Board of Directors in June 2009. Mr. LAI received a bachelor’s degree in science in 2005 from the Northwest Telecommunications Engineering College. His experience is in the areas of electronic information, electronic product development, finance and project planning. We have concluded that Mr. Lai should serve as a director because of his background in electronic product development and finance.

TANG Wai Hung “Billy” is the Chief Executive Officer and acting Chief Technology Officer. He previous served as the Chief Operations Officer of Titanium Technology from July 2001 to December 2008. He holds Bachelor’s degree in Mathematics from the Hong Kong University of Science and Technology. Prior to co-founding Titanium Technology, he was also a co-founder of 303 Company Limited and served as Chairman of that company from April 1998 to January 2001. Mr. Tang previously was an instrumental member of the research team in the department of Industrial and Systems Engineering of the Hong Kong Polytechnic University from November 1996 to March 1997, where he focused on the research of virtual reality technology. He was a system engineer for Internet Access Hong Kong Limited, one of the largest Internet Service Providers in Hong Kong, from June 1997 to April 1998. We have concluded that Mr. TANG should serve as a director because of his position as a co-founder and his technology background.

LAN Mingzheng was appointed to serve as a director and the Principal Financial Officer in June 2009. After graduation from Northwest Telecommunications Engineering College with a bachelor’s degree in 1984, Mr. Lan has accumulated over 25 years of experience in the areas of production of electronic products, operations management, project planning, investments, program planning, and operation of capital markets in Shenzhen, mainland China. For the last few years, he had been primarily engaged in investment and property alleviation projects at all levels of government in mainland China. He had presided over the national comprehensive agricultural development projects in Guangdong province, Heyuan region. Mr. Lan also received a master’s degree in business management from Shanghai Jiao Tong University in 1992. We have concluded that Mr. Lan should serve as a director

because of his background in electronic product production, operations management and the operation of capital markets.

WEN Jialong Wen was appointed to serve as a director and Chief Operations Officer of the Company in December 2008. Mr. Wen has over 20 years of experience in the areas of product development, sales and marketing in Mainland China. For the past few years, he has been involved primarily as the managing director of Zhiweilong Technology Co. Ltd., a company incorporated in Shenzhen, China, that manufactures and provides smart card readers, power cables, and digital television top boxes in China and the global market. In 1999, Mr. Wen graduated from the Zhongshan University with a bachelor’s degree in Business Administration. He is currently a member of the National People’s Congress of the China Guangdong Province Maoming Region. We have concluded that Mr. Wen should serve as a director because of his background in product development, sales and marketing.

Conflicts of Interest

Members of our management are associated with other firms involved in a range of business activities. Consequently, there are potential inherent conflicts of interest in their acting as officers and directors of our company. While the officers and directors are engaged in other business activities, we anticipate that such activities will not interfere in any significant fashion with the affairs of our business. Due to the ownership of stock in our company by management, we believe that they are sufficiently motivated to focus primarily on the business of the company. Additionally the employment agreements with members of management state that any and all industrial property rights, including patents, to which they are or may be entitled or which are created as a result of their services under their employment agreements belong to and are the exclusive property of Titanium Technology. The employment agreements also contain a non-compete provision that prohibits them from engaging or being interested in any capacity in any business whose activities are substantially similar to or compete with any of the business activities of Titanium Technology or any of its subsidiaries, being involved in any projects or products handled or produced by Titanium Technology or its subsidiaries, or dealing with any existing customers of Titanium Technology or its subsidiaries.

Our officers and directors are now and may in the future become shareholders, officers or directors of other companies, which may be formed for the purpose of engaging in business activities similar to us. Accordingly, additional direct conflicts of interest may arise in the future with respect to such individuals acting on behalf of us or other entities. Moreover, additional conflicts of interest may arise with respect to opportunities which come to the attention of such individuals in the performance of their duties or otherwise. Currently, we do not have a right of first refusal pertaining to opportunities that come to their attention and may relate to our business operations.

Our officers and directors are, so long as they are our officers or directors, subject to the restriction that all opportunities contemplated by our plan of operation which come to their attention, either in the performance of their duties or in any other manner, will be considered opportunities of, and be made available to us and the companies that they are affiliated with on an equal basis. A breach of this requirement will be a breach of the fiduciary duties of the officer or director. If we or the companies with which the officers and directors are affiliated both desire to take advantage of an opportunity, then said officers and directors would abstain from negotiating and voting upon the opportunity. However, all directors may still individually take advantage of opportunities if we should decline to do so. Except as set forth above, we have not adopted any other conflict of interest policy with respect to such transactions.

Committees of the Board of Directors

We have not yet established any committees of our board of directors.

Director Nomination Process

Neither our Memorandum of Association nor Articles of Association set forth a director nomination process.

Code of Ethics

We have not yet adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer, and persons performing similar functions.

Section 16(a) Beneficial Ownership Reporting Compliance.

Section 16(a) of the Securities Exchange Act of 1934 requires our officers, directors, and persons who beneficially own more than 10% of our common stock to file reports of securities ownership and changes in such ownership with the Securities and Exchange Commission (“SEC”). Officers, directors and greater than 10% beneficial owners are also required by rules promulgated by the SEC to furnish us with copies of all Section 16(a) forms they file.

Based solely upon a review of the copies of such forms furnished to us, or written representations that no Form 5 filings were required, we believe that during the fiscal year ended December 31, 2009, there was compliance with all Section 16(a) filing requirements applicable to our officers, directors and greater than 10% beneficial owners except as follows:

Reporting Person	Date Report Due	Date Report Filed
Cancare International Group (HK) Ltd.	01/06/2009	01/07/2009
WEN Jialong	01/06/2009	01/07/2009
Golden Mass Technologies Ltd.	01/06/2009	01/07/2009
NG Kit Chong “Johnny”	01/06/2009	01/07/2009
NG Kit Chong “Johnny”	06/15/2009	06/17/2009

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth information about the remuneration of our principal executive officers for services rendered during the years ended December 31, 2009 and 2008. None of our other executive officers had total compensation of $100,000 or more. Certain columns as required by the regulations of the Securities and Exchange Commission have been omitted as no information was required to be disclosed under those columns.

SUMMARY COMPENSATION TABLE

(IN UNITED STATES DOLLARS)

Name and principal position	Year	Salary ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
TANG Wai Hung “Billy”	2009 2008	46,816 29,487	-0- -0-	-0- -0-	46,816 29,487

SUMMARY COMPENSATION TABLE

(IN HONG KONG DOLLARS)

Name and principal position	Year	Salary ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
TANG Wai Hung “Billy”	2009 2008	545,167 230,000	-0- -0-	-0- -0-	545,167 230,000

We did not grant any stock options during the year ended December 31, 2009.

The following table sets forth information with respect to options that remained unexercised at December 31, 2009 for the executive officers named above. No options were exercised during the year ended December 31, 2009.

Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Option Exercise Price ($)	Option Expiration Date
TANG Wai Hung “Billy”	150,000	-0-	0.20	July 1, 2011

We do not have any pension plan or any plan that provides for the deferral of compensation on a basis that is not tax-qualified. Our subsidiary, Titanium Technology, participates in a defined contribution pension scheme under the Mandatory Provident Fund Schemes Ordinance (“MPF Scheme”) for all of its eligible employees in Hong Kong. The MPF Scheme is available to all employees aged 18 to 64 with at least 60 days of service in the employment in Hong Kong. Contributions are made by Titanium Technology at 5% of the participants’ relevant income with a ceiling of US$2,564 (HK$20,000). The participants are entitled to 100% of Titanium Technology’s contributions together with accrued returns irrespective of their length of service with us, but the benefits are required by law to be preserved until the retirement age of 65. The total contributions made for MPF Scheme were US$13,328 (HK$103,955) and US$15,539 (HK$121,202) for the years ended December 31, 2009 and 2008, respectively.

Compensation of Directors

Each of our directors is an officer, employee or consultant of our company. We do not compensate them separately for service as a director.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTAND RELATED STOCKHOLDER MATTERS

The following table provides certain information as to the officers and directors individually and as a group, and the holders of more than 5% of our common stock, as of May 17, 2010:

Name and Address of Beneficial Owner (1)	Number of Shares Owned	Percent of Class (2)

LAI Huamin No. 93 Shang Pai Lu, Dong Yang Bei Jie Shui Dong Zhen, Dian Bai Xian Guangdong Sheng, China	25,835,221 (3)	50.3%

Golden Mass Technologies Ltd. No. 93 Shang Pai Lu, Dong Yang Bei Jie Shui Dong Zhen, Dian Bai Xian Guangdong Sheng, China	25,835,221 (3)	50.0%

Name and Address of Beneficial Owner (1)	Number of Shares Owned	Percent of Class (2)

Gordon Yen 6/F, Block A 29-39 Kwai Cheong Road Kwai Chung, N.T. Hong Kong	6,999,475 (4)	13.6%

WEN Jialong No. 666 Da Lang Nan Road Long Hua Da Lang Jie Dao Bao An District Shenzhen, China	5,000,304 (5)	9.7%

TANG Wai Hung “Billy”	150,000 (6)	0.3%

LAN Mingzheng	0	—

All Directors and Executive Officers As a Group (4 persons)	30,985,525 (7)	59.8%

_______________________

(1)	To our knowledge, except as set forth in the footnotes to this table and subject to applicable community property laws, each person named in the table has sole voting and investment power with respect to the shares set forth opposite such person’s name.

(2)

This table is based on 51,644,399 shares of common stock outstanding as of May 17, 2010. If a person listed on this table has the right to obtain additional shares of common stock within 60 days from May 17, 2010, the additional shares are deemed to be outstanding for the purpose of computing the percentage of class owned by such person, but are not deemed to be outstanding for the purpose of computing the percentage of any other person.

(3)	Golden Mass Technologies Ltd., a British Virgin Islands company, owns 25,835,221 shares. Golden Mass Technologies Ltd. is controlled by Crown Prince International Ltd., a British Virgin Islands company owned by LAI Huamin.

(4)	These shares are owned of record by Oakland Capital Limited.

(5)	These shares are owned of record by Cancare International Group (HK) Ltd.

(6)	Includes 150,000 shares issuable upon exercise of vested stock options.

(7)	Includes 300,000 shares issuable upon exercise of vested stock options.

Changes in Control

There are no agreements known to management that may result in a change of control of our company.

Equity Compensation Plans

At December 31, 2009, our equity compensation plans were as follows:

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance
Equity compensation plans approved by security holders	4,625,000	$0.20	375,000
Equity compensation plans not approved by security holders	-0-	-0-	-0-
Total	4,625,000	$0.20	375,000

Stock Option Plan

On November 22, 2005, our board of directors approved a stock option plan under which options to purchase up to 5,000,000 shares of common stock may be granted. The plan provides for the granting of incentive stock options to our employees and non-statutory options to our employees, advisors and consultants.

The board of directors or the compensation committee of the board determines the exercise price for each option at the time the option is granted. The exercise price for shares under an incentive stock option will not be less than 100% of the fair market value of the common stock on the date such option is granted. The fair market value price is the closing price per share on the date the option is granted. The committee or board also determines when options become exercisable. The term of an option will be no more than ten (10) years from the date of grant. No option can be exercised after the expiration of its term.

Unless otherwise expressly provided in any option agreement, the unexercised portion of any option granted to an optionee automatically terminates one year after the date on which the optionee’s employment or service is terminated for any reason, other than by reason of cause, voluntary termination of employment or service by the optionee, or the optionee’s death. Options terminate immediately upon the termination of an optionee’s employment for cause or 30 days after the voluntary termination of employment or service by the optionee. If an optionee’s employment or consulting relationship terminates as a result of his or her death, then all options he or she could have exercised at the date of death, or would have been able to exercise within the following year if the employment or consulting relationship had continued, will be exercisable within the one year period following the optionee’s death by his or her estate or by the person who acquired the exercise right by bequest or inheritance.

Options granted under the plan are not transferable other than by will or the laws of descent and distribution and may be exercised during the optionee’s lifetime only by the optionee, except that a non-statutory stock option is transferable to a family member or trust for the benefit of a family member if the committee’s prior written consent is obtained.

We have the right to redeem any shares issued to any optionee upon exercise of the option granted under the plan immediately upon the termination of optionee’s employment or service arising from disability, the death of the optionee, the voluntary termination of employment or services of the

optionee, or the termination of employment or services of the optionee for cause. The redemption price is the fair market value of the shares on the date of the event of redemption.

In the event that our stock changes by reason of any stock split, dividend, combination, reclassification or other similar change in our capital structure effected without the receipt of consideration, appropriate adjustments shall be made in the number and class of shares of stock subject to the plan, the number and class of shares of stock subject to any option outstanding under the plan, and the exercise price for shares subject to any such outstanding option.

In the event of a merger in which our shareholders immediately before the merger own 50% or more of the issued and outstanding shares of stock of the resulting entity after the merger, then existing options shall automatically convert into options to receive stock of the resulting entity. Unless otherwise expressly provided in any option, the committee in its sole discretion may cancel, effective upon the date of the consummation of any change of control, any option that remains unexercised on such date.

The plan authorizes the board to amend, alter, suspend, or terminate the plan, or any part thereof, at any time and for any reason. However, the plan requires shareholder approval for any amendment to the plan to the extent necessary and desirable to comply with applicable laws. No such action by the board or shareholders can alter or impair any option previously granted under the plan without the written consent of the optionee. The plan remains in effect until terminated by action of the board or operation of law.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Other than as disclosed below, none of our present directors, officers or principal shareholders, nor any family member of the foregoing, nor any of our former directors, senior officers or principal shareholders, nor any family member of such former directors, officers or principal shareholders, has or had any material interest, direct or indirect, in any transaction, or in any proposed transaction which has materially affected or will materially affect us.

As of December 31, 2009, we owed WEN Jialong US$131,868 (HK$1,028,572) for temporary advances from him. Amounts owed to Mr. Wen are unsecured, accrue interest at 9% per annum and are due July 8, 2010. For the year ended December 31, 2009, US$6,433 (HK$50,178) of interest expense was incurred.

We believe that the terms of this transaction were no less favorable than what could have been obtained from non-affiliates.

Director Independence

Our common stock trades in the OTC Bulletin Board. As such, we are not currently subject to corporate governance standards of listed companies, which require, among other things, that the majority of the board of directors be independent.

Since we are not currently subject to corporate governance standards relating to the independence of our directors, we choose to define an “independent” director in accordance with the NASDAQ Capital Market’s requirements for independent directors (NASDAQ Marketplace Rule 5605(a)(2)). The NASDAQ independence definition includes a series of objective tests, such as that the director is not an employee of the company and has not engaged in various types of business dealings with the company.

We do not have any independent directors under the above definition. We do not list that definition on our Internet website.

We presently do not have an audit committee, compensation committee, nominating committee, executive committee of our Board of Directors, stock plan committee or any other committees.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Audit Fees

For the fiscal year ended December 31, 2009, ZYCPA Company Limited (“ZYCPA”) is expected to bill approximately US$50,000 (HK$390,000) for the audit of our annual financial statements, the review of our Form 10-Q filings and for the review of our registration statements.

For the fiscal year ended December 31, 2008, ZYCPA billed US$50,000 (HK$390,000) for the audit of our annual financial statements, the review of our Form 10-Q filings and for the review of our registration statements.

Audit-Related Fees

There were no fees billed for services reasonably related to the performance of the audit or review of our financial statements outside of those fees disclosed above under “Audit Fees” for fiscal years 2009 and 2008.

Tax Fees

For the fiscal years ended December 31, 2009 and 2008, ZYCPA billed $nil and $nil, respectively, for tax compliance, tax advice, and tax planning services.

All Other Fees

There were no fees billed by ZYCPA, other than for the services described above, for fiscal years 2009 and 2008.

Pre-Approval Policies and Procedures

Prior to engaging our accountants to perform a particular service, our audit committee obtains an estimate for the service to be performed. The audit committee in accordance with procedures for the company approved all of the services described above.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following documents are either filed herewith or incorporated herein by reference:

Financial Statements

The audited consolidated financial statements of Titanium Group Limited and subsidiaries as of December 31, 2009 and 2008 and for each of the two years in the period ended December 31, 2009, and the Report of Independent Registered Public Accounting Firm thereon, are included herein as shown in the “Index to the Consolidated Financial Statements”.

Financial Statement Schedules

No Financial Statement Schedules are included herein because either the amounts are not sufficient to require submission of the schedules or because the information is included in the Financial Statements or notes thereto.

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)
21	Subsidiaries of the registrant (1)
31.1	Rule 13a-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a) Certification of Principal 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 Principal 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.

SIGNATURES

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

	TITANIUM GROUP LIMITED

Date: May 17, 2010	By:	/s/ LAI Huamin
		LAI Huamin
		Executive Chairman of the Board of Directors

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ LAI Huamin LAI Huamin	Executive Chairman of the Board of Directors	May 17, 2010
/s/ TANG Wai Hung "Billy" TANG Wai Hung “Billy”	Chief Executive Officer and Director (Principal Executive Officer)	May 17, 2010
/s/ LAN Mingzheng LAN Mingzheng	Principal Financial Officer and Director (Principal Financial Officer)	May 17, 2010
WEN Jialong	Chief Operations Officer and Director

TITANIUM GROUP LIMITED AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page

Report of Independent Registered Public Accounting Firm		F-2

Consolidated Balance Sheets		F-3

Consolidated Statements of Operations and Comprehensive Loss		F-4 – F-5

Consolidated Statements of Cash Flows		F-6 – F-7

Consolidated Statements of Stockholders’ (Deficit) Equity		F -8

Notes to Consolidated Financial Statements		F-9 – F-29

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of

Titanium Group Limited

We have audited the accompanying consolidated balance sheets of Titanium Group Limited and its subsidiaries (“the Company”) as of December 31, 2009 and 2008 and the related consolidated statements of operations and comprehensive loss, cash flows and stockholders’ (deficit) equity for the years then ended. The financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2009 and 2008 and the results of operations and cash flows for the years then ended and in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has incurred substantial losses, all of which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ ZYCPA Company Limited

ZYCPA Company Limited

Certified Public Accountants

Hong Kong, China

May 17, 2010

F-2

TITANIUM GROUP LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2009 AND 2008

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

	As of December 31,
	2009				2009			2008
	US$				HK$			HK$

ASSETS
Current assets:
Cash and cash equivalents		$	11,842		$	92,368		$	1,190,869
Restricted cash			51,282			400,000			400,000
Accounts receivable, net			15,298			119,327			2,613,724
Inventories, net			-			-			38,001
Deposits and other receivables			15,518			121,037			287,928
Total current assets			93,940			732,732			4,530,522

Non-current assets:
Plant and equipment
Cost			-			-			4,774,277
Less: accumulated depreciation and impairment			-			-			(2,343,817	)
			-			-			2,430,460

Intangible assets, net			-			-			4,685,454
Deferred tax assets			-			-			683,534

TOTAL ASSETS		$	93,940		$	732,732		$	12,329,970

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable and accrued liabilities		$	591,510		$	4,613,777		$	1,732,507
Deferred revenue			4,927			38,434			57,650
Income tax payable			-			-			12,626
Amount due to a director			131,868			1,028,572			-
Total current liabilities			728,305			5,680,783			1,802,783

Long-term liabilities:
Convertible debenture			1,384,382			10,798,178			10,320,066
Warrants liability			4,357			33,985			91,237
Total long-term liabilities			1,388,739			10,832,163			10,411,303

Total liabilities			2,117,044			16,512,946			12,214,086

Stockholders’ (deficit) equity:
Titanium Group Limited stockholders’ (deficit) equity:
Common stock, US$0.01 (HK$0.078) par value, 100,000,000 shares authorized, 51,644,399 shares issued and outstanding		$	516,444		$	4,028,263		$	4,028,263
Additional paid-in capital			876,355			6,835,562			6,835,562
Accumulated other comprehensive income (loss)			1,049			8,194			(27,316	)
Accumulated deficit			(3,416,952	)		(26,652,233	)		(10,725,914	)
Total Titanium Group Limited stockholders’ (deficit) equity			(2,023,104	)		(15,780,214	)		110,595

Noncontrolling interests			-			-			5,289

Total (deficit) equity			(2,023,104	)		(15,780,214	)		115,884

TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY		$	93,940		$	732,732		$	12,329,970

See accompanying notes to consolidated financial statements.

F-3

TITANIUM GROUP LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

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

	Years ended December 31,
	2009			2009			2008
	US$			HK$			HK$
REVENUE, NET
Projects
Products	$	287,268		$	2,240,687		$	9,844,551
Services		45,011			351,086			5,454,597

		332,279			2,591,773			15,299,148
Maintenance
Services		52,864			412,338			332,362

Total revenue		385,143			3,004,111			15,631,510

COST OF REVENUE
Projects
Cost of products sold		129,601			1,010,885			6,564,900
Cost of services		151,236			1,179,641			3,865,682

		280,837			2,190,526			10,430,582

Maintenance
Cost of services		-			-			50,000

Total cost of revenue		280,837			2,190,526			10,480,582
GROSS PROFIT	$	104,306		$	813,585		$	5,150,928

OPERATING EXPENSES
Amortization of intangible assets		161,228			1,257,581			623,929
Impairment loss on intangible assets		444,800			3,469,442			1,146,127
Loss on disposal of plant and equipment		199,890			1,559,143			-
Selling, general and administrative		1,082,446			8,443,076			7,252,194

Total operating expenses		1,888,364			14,729,242			9,022,250

LOSS FROM OPERATIONS	$	(1,784,058	)	$	(13,915,657	)	$	(3,871,322	)

See accompanying notes to consolidated financial statements.

F-4

TITANIUM GROUP LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

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

	Years ended December 31,
	2009			2009			2008
	US$			HK$			HK$
Other income (expense):
Government grant income		-			-			100,267
Interest income		6			43			679
Interest expense		(118,491	)		(924,226	)		(895,779	)
Discount of convertible debenture		(61,296	)		(478,112	)		(516,386	)
Gain from change in fair value of warrant liability		7,340			57,252			1,394,024
Refund income		-			-			812,000
Total other (expense) income	$	(172,441	)	$	(1,345,043	)	$	894,805

LOSS BEFORE INCOME TAXES		(1,956,499	)		(15,260,700	)		(2,976,517	)

Income tax expense		(86,014	)		(670,908	)		-

NET LOSS	$	(2,042,513	)	$	(15,931,608	)	$	(2,976,517	)

Less: net loss attributable to the noncontrolling interests		678			5,289			70,294

NET LOSS ATTRIBUTABLE TO TITANIUM GROUP LIMITED	$	(2,041,835	)	$	(15,926,319	)	$	(2,906,223	)

NET LOSS		(2,042,513	)	$	(15,931,608	)	$	(2,976,517	)

Other comprehensive income (loss):
- Foreign currency translation gain (loss)		4,553			35,510			(26,002	)

COMPREHENSIVE LOSS	$	(2,037,960	)	$	(15,896,098	)	$	(3,002,519	)

Comprehensive loss attributable to the noncontrolling interests	$	(314	)	$	(2,448	)	$	(72,374	)

Comprehensive loss attributable to Titanium Group Limited	$	(2,037,646	)	$	(15,893,650	)	$	(2,930,145	)

Net loss per common share attributable to Titanium Group Limited – basic and diluted		(0.04	)		(0.31	)		(0.06	)

Weighted average shares outstanding – basic and diluted		51,549,654			51,549,654			51,549,654

See accompanying notes to consolidated financial statements.

F-5

TITANIUM GROUP LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

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

	Years ended December 31,
	2009			2009			2008
	US$			HK$			HK$

Cash flow from operating activities:
Net loss attributable to Titanium Group Limited	$	(2,041,835	)	$	(15,926,319	)	$	(2,906,223	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Noncontrolling interests		(678	)		(5,289	)		(70,294	)
Depreciation and amortization		276,401			2,155,930			2,360,837
Impairment loss on intangible assets		444,800			3,469,442			1,146,127
Impairment loss on inventory		13,229			103,187			-
Written off of accounts receivable		154,184			1,202,636			-
Reversal of allowance for doubtful accounts		10,618			82,822			(294,739	)
Stock issued for service rendered, non-cash		-			-			36,026
Stock issued for interest on convertible debenture		-			-			6,847
Amortization cost on discount of convertible debenture		61,296			478,112			516,387
Loss on disposal of plant and equipment		199,890			1,559,143			-
Gain from change in fair value of warrant liability		(7,340	)		(57,252	)		(1,394,024	)
Deferred tax expense		87,633			683,534			-
Changes in assets and liabilities:
Accounts receivable		154,992			1,208,939			9,392,843
Inventories		(8,357	)		(65,186	)		1,446,961
Deposits and other receivables		21,396			166,891			104,231
Accounts payable and accrued liabilities		369,394			2,881,270			(5,272,955	)
Deferred revenue		(2,464	)		(19,216	)		(19,217	)
Income tax payable		(1,619	)		(12,626	)		-
Net cash (used in) provided by operating activities		(268,460	)		(2,093,982	)		5,052,807

See accompanying notes to consolidated financial statement.

F-6

TITANIUM GROUP LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

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

	Years ended December 31,
	2009			2009			2008
	US$			HK$			HK$

Cash flows from investing activities:
Purchase of plant and equipment		(3,468	)		(27,050	)		(174,091	)
Payments relating to software development costs		-			-			(3,585,810	)
Payments on patent and license right registration fee		(5,329	)		(41,569	)		(3,853	)
Net cash used in investing activities		(8,797	)		(68,619	)		(3,763,754	)

Cash flows from financing activities:
Repayments on short-term bank loan		-			-			(26,347	)
Net decrease in bank overdraft		-			-			(1,208,606	)
Advances from a director		131,868			1,028,572			-
Net cash provided by (used in) financing activities		131,868			1,028,572			(1,234,953	)

Effect of exchange rate changes on cash and cash equivalent cash equivalents		4,555			35,528			(31,562	)

NET CHANGE IN CASH AND CASH EQUIVALENTS		(140,834	)		(1,098,501	)		22,538

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		152,676			1,190,869			1,168,331

CASH AND CASH EQUIVALENTS, END OF YEAR	$	11,842		$	92,368		$	1,190,869

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes	$	-		$	-		$	-
Cash paid for interest	$	-		$	-		$	895,779

NON-CASH INVESTING AND FINANCIAL ACTIVITES:
Exercise of convertible debenture	$	-		$	-		$	390,000

See accompanying notes to consolidated financial statement.

F-7

TITANIUM GROUP LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

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

	Titanium Group Limited stockholders’ (deficit)equity
	Common stock				Additional paid-in capital		Accumulated other comprehensive income (loss)			Accumulated deficit			Noncontrolling interests			Total (deficit) equity
	No. of shares		Amount		Additional paid-in capital		Accumulated other comprehensive income (loss)			Accumulated deficit			Noncontrolling interests			Total (deficit) equity

Balance as of January 1, 2008		50,912,677	$	3,971,189	$	6,305,237	$	(1,314	)	$	(7,819,691	)	$	75,583		$	2,531,004

Issue of common stock for 2007 interest charge on convertible debenture, non-cash		377,973		29,482		125,044		-			-			-			154,526
Issue of common stock for 2008 interest charge on convertible debenture, non-cash		24,797		1,934		4,913		-			-			-			6,847
Issue of common stock for services rendered, non-cash		78,952		6,158		29,868		-			-			-			36,026
Exercise of convertible debenture		250,000		19,500		370,500		-			-			-			390,000
Net loss for the year		-		-		-		-			(2,906,223	)		(70,294	)		(2,976,517	)
Foreign currency translation adjustments		-		-		-		(26,002	)		-			-			(26,002	)
Balance as of December 31, 2008		51,644,399	$	4,028,263	$	6,835,562	$	(27,316	)	$	(10,725,914	)	$	5,289		$	115,884

Net loss for the year		-		-		-		-			(15,926,319	)		(5,289	)		(15,931,608	)
Foreign currency translation adjustments		-		-		-		35,510			-			-			35,510
Balance as of December 31, 2009		51,644,399	$	4,028,263	$	6,835,562	$	8,194		$	(26,652,233	)	$	-		$	(15,780,214	)

See accompanying notes to consolidated financial statements.

F-8

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

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

1.	ORGANIZATION AND BUSINESS BACKGROUND

Titanium Group Limited (the “Company” or “TTNUF”) was registered as a limited liability company in the British Virgin Islands (“BVI”) on May 17, 2004. The Company, through its subsidiaries, is primarily engaged 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.

Facial based biometric identification and security projects are made up of two elements, the biometric products and professional services. The biometric products consist of 4 major proprietary software products 1) Ti-Face, the face recognition engine, 2) ProAccess, a facial based biometric authentication system, 3) ProFacer, a facial based biometric integrated surveillance system and 4) eGuards, a kiosk-based biometric intelligent visitors management system. These software products are always bundled with other outside purchased identification and security hardware products, including workstations and live-scan devices, to sell to customers.

The professional services include the design, development and integration services of biometric identification and security solutions to customers using the products, as well as technical support services to its customers, including information security consulting, remote monitoring system consulting and security audit consulting services.

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

Details of the Company’s subsidiaries as of December 31, 2009 are described below:

Name	Place of incorporation and kind of legal entity	Principal activities and place of operation	Particulars of issued/ registered share capital	Effective interest Held

Titanium Technology Limited (“TTLHK”)	Hong Kong, company with limited liability	Sales and marketing of biometric identification and security products and services	30,000 ordinary shares of HK$1 each HK$30,000 (US$3,846)	100%

Titanium Technology (Shenzhen) Co., Limited (“TTLSZ”)	The People’s Republic of China (the “PRC”), company with limited liability	Development of biometric technology and new products development	Registered capital HK$1,000,000 (US$128,205)	92%

Titanium RFID Limited (“TRFID”)	Hong Kong company with limited liability	Dormant	100,000 ordinary shares of HK$1 each	51%

F-9

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

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

Name	Place of incorporation and kind of legal entity	Principal activities and place of operation	Particulars of issued/ registered share capital	Effective interest Held
			HK$100,000 (US$12,821)

Titanium Biometrics Limited (“TBL”)	Hong Kong company with limited liability	Dormant	19,065,000 ordinary shares of HK$0.1 each HK$1,906,500 (US$244,423)	51%

2.	GOING CONCERN UNCERTAINTIES

These 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.

As of December 31, 2009, the Company incurred a net loss of HK$15,926,319 and an accumulated deficit of HK$26,652,233. Additionally, the Company generated substantive losses over the past several years with a working capital deficit of HK$4,948,051. Management has taken certain action and continues to implement changes designed to improve the Company’s financial results and operating cash flows. The actions involve certain cost-saving initiatives and growing strategies, including rapid promotion and marketing the new products in the People’s Republic of China (the “PRC”). Management believes that these actions will enable the Company to improve future profitability and cash flow in its continuing operations through December 31, 2010.

These factors raise substantial doubt about the Company’s ability to continue as a going concern. These 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 Company not being able to continue as a going concern.

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

·	Basis of presentation

These accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America.

·	Use of estimates

In preparing these consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the years reported. Actual results may differ from these estimates.

F-10

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

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

·	Basis of consolidation

The consolidated financial statements include the financial statements of TTNUF and its subsidiaries. All significant inter-company balances and transactions within the Group have been eliminated on consolidation.

·	Cash and cash equivalents

Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.

·	Restricted cash

The Company maintains pledged fixed deposits of HK$400,000 as a guarantee with interest rate at 1.5% per annum to serve as the security to the government projects held and operated in Hong Kong.

·	Accounts receivable and allowance for doubtful accounts

Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Group’s best estimate of the amount of probable credit losses in the Group’s existing accounts receivable. The Company determines the allowance based on specific identification The Group reviews its allowance for doubtful accounts at least quarterly. Past due balances over 90 days are individually provided for 30% allowance while a specified amount due more than 1 year is fully provided for. All other balances are reviewed on a pooled basis by industry. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Group does not have any off-balance-sheet credit exposure related to its customers.

As of December 31, 2009 and 2008, the allowance for doubtful accounts was HK$527,349 and HK$746,191, respectively.

·	Inventories

Inventories are stated at the lower of cost or market value. Cost is determined using the first-in, first-out (“FIFO”) method for all inventories. Inventories consist of computer accessories and consumable supplies purchased from various suppliers. For the year ended December 31, 2009, the Company evaluated net realizable value of its inventories and provided an inventory allowance of HK$103,187.

·	Plant and equipment

Plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on a straight-line basis over the following expected useful lives from the date on which they become fully operational and after taking into account their estimated residual values:

	Depreciation life	Residual value
Computer hardware and software	5 years	0%
Furniture, fixtures and office equipment	5 years	5%
Moulds	5 years	0%
Leasehold improvements	The shorter of their useful lives or over the lease terms	0%

F-11

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

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

Expenditure for repairs and maintenance is expensed as incurred. When assets have retired or sold, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the results of operations.

·	Intangible assets

Intangible assets include (1) patent and license right registration fee and (2) product development costs.

Patent and license right registration fee

Patent and license right registration fee represents the software licenses and patent costs paid to third parties and is amortized using the straight-line method over their estimated useful lives of 20 years.

Product development costs

The Group accounts for development costs related to software products to be sold, leased or otherwise marketed in accordance with the Accounting Standards Codification (“ASC”) Topic 730-20, “Research and Development Arrangement” (“ASC 730-20”). Software development costs are expensed as incurred until technological feasibility has been established, at which time such costs are capitalized until the product is available for general release to customers. Costs that are capitalized include direct labor and related overhead. These capitalized costs are subject to an ongoing assessment of recoverability based on anticipated future revenues and changes in hardware and software technologies. For the years ended December 31, 2009 and 2008, the Company capitalized product development costs of HK$0 and HK$3,585,811, respectively.

In prior years, the Group developed its products namely ProAccess and ProFacer under the subsidy assistance program from the Government of the Hong Kong Special Administrative Region (“HKSAR”) in developing the innovative products. Pursuant to such program, HKSAR was required to provide funding to the Group for its product development, which was available up to the aggregate amount of HK$2,000,000 in accordance with the milestones of the product development plan. The Group received such grant of an aggregate of HK$1,909,938 and was not subject to any repayment. However, the Group was required to contribute approximately 50% of the overall project cost in accordance with the grant agreement. When the project was completed, the Group tendered to the Government its pro rata share of the residual funds remaining in the project account. In addition the Group was obligated to pay the Government a royalty fee of 5% on the gross revenue earned from any activities in connection with the project, up to an aggregate amount equal to the amount subsidized to the Group.

Upon the completion, the ownership of the intellectual property resulting from the project was vested on the Group. The royalty fee paid by the Group for the years ended December 31, 2009 and 2008 amounted to HK$20 and HK$24,220, respectively. As of December 31, 2009, the Group has the unpaid royalty fee against the subsidy grant totaling HK$28,223.

F-12

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

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

·	Valuation of long-lived assets

Long-lived assets primarily include property, plant and equipment and intangible asset. In accordance with the ASC Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets”, the Company periodically reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives are no longer appropriate. Each impairment test is based on a comparison of the undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value based on a discounted cash flow analysis. Determining the fair value of long-lived assets includes significant judgment by management, and different judgments could yield different results.

·	Revenue recognition

The Group generates revenues principally from contracts for facial based biometric identification and security projects, which typically include outside purchased workstations and live-scans devices, bundled with the Group’s proprietary software. In all cases, the customers are granted a license to use the software in perpetuity so long as the software is installed on the hardware for which it was originally intended. The contract price of the Group’s facial based biometric identification and security projects generally includes 12-months’ free post-contract customer support. The Group also generates revenues from services performed under fixed-price and time-and-material agreements. To a lesser extent, the Group also generates revenues from sales of its proprietary biometrics products and re-sales of products sourced from outside third parties. The Group classifies the revenues generated by these activities as either project products revenue, project services revenue or maintenance services revenue. Maintenance services are what the customer purchases if support and software upgrades are desired after the free twelve months period.

In accordance with the ASC Topic 605, “Revenue Recognition”, the Group recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectibility is reasonably assured.

The Group also applies 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, the Group applies 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.” The Group also considers 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 are 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 result in the amount and timing of the Group’s revenue for any period if actual results differ from management’s judgments or estimates.

F-13

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

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

(1)	Products revenue

The timing of product revenue recognition is dependent on the nature of the product sold. Product arrangements comprising multiple deliverables including software, hardware, professional services, and maintenance are generally categorized into one of the following:

Facial based biometric identification and security projects that do not require significant modification or customization of the Group’s software:

Revenue associated with these arrangements, exclusive of amounts allocated to maintenance, for which the Group has vendor-specific objective evidence of fair value (“VSOE”), is recognized upon installation and receipt of written acceptance of the project by the customer when required by the provisions of the contract, provided that all other criteria for revenue recognition have been met. Revenue resulting from arrangements for which VSOE of the maintenance element does not exist is recognized ratably over the maintenance period.

To date the Group has not made an allocation of contract revenue to separate accounting units since all of the products are delivered simultaneously and no deferral of revenue would result.

Facial based biometric identification and security projects that require significant modification or customization of the Group’s software:

Revenue associated with these arrangements is recognized using the percentage of completion method as described by SOP 81-1. The percentage of completion method reflects the portion of the anticipated contract revenue, excluding maintenance that has VSOE, which has been earned, equal to the ratio of labor effort expended to date to the anticipated final labor effort, based on current estimates of total labor effort necessary to complete the project. Revenue resulting from arrangements for which VSOE of the maintenance element does not exist is recognized ratably over the contractual maintenance period.

Self-developed software products sales and re-sale of purchased third parties products:

Revenue associated with the sale of these products, excluding maintenance when applicable, is recognized upon shipment to the customer. The amount of these revenues has historically not been significant.

Sales to authorized distributors

The Group also uses authorized distributors to sell certain of its products and only the authorized distributors are allowed to resell those products. The Group requires the authorized distributors to purchase the products and then sell through the authorized distributors’ own distribution channel to the end customers. From the Group’s perspective, the authorized distributors are the ordinary customers and the only preferential treatment to them is that the sales prices to distributors have been predetermined in accordance with the distribution agreements, and are approximately 30% to 40% off the recommended retail prices. Once the products are delivered and the distributor has accepted the products, the Group bills the distributor and the distributor is obligated to settle the bill accordingly within the credit period granted. There is no right of return or other incentives given to the distributors. The Group is not required to provide training to authorized distributors.

F-14

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

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

(2)	Services revenue

Services revenue is primarily derived from computer engineering services, system design, consulting and integration and maintenance services that are not an element of an arrangement for the sale of products. These services are generally billed on a time and materials basis. The majority of the Group’s professional services are performed under time-and-materials arrangements. Revenue from such services is recognized as the services are provided.

(3)	Maintenance services revenue

Maintenance services revenue consists of fees for providing technical support and software updates, primarily to customers purchasing the primary products. The Group recognizes all maintenance revenue ratably over the applicable maintenance period. The Group determines the amount of maintenance revenue to be deferred through reference to substantive maintenance renewal provisions contained in the arrangement.

(4)	Interest income

Interest income is recognized on a time apportionment basis, taking into account the principal amounts outstanding and the interest rates applicable.

·	Government grant income

Government grant income represents government subsidy from the HKSAR government to compensate the Group in assisting and supporting the youth employment in Hong Kong for its community purpose. For the years ended December 31, 2009 and 2008, the Company received HK$0 and HK$100,267 from the government and accounted for as grant income in the statements of operations, respectively.

·	Product warranty and post service support

The Company generally offers product warranty and post-contract customer support (“PCS”) to its customers for a period of 12 months, free of charge. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

·	Advertising expenses

Advertising costs are expensed as incurred under ASC Topic 720-35, “Advertising Costs”. The Company incurred HK$300 and HK$0 of advertising costs for the years ended December 31, 2009 and 2008, respectively.

·	Comprehensive income or loss

ASC Topic 220, “Comprehensive Income”, establishes standards for reporting and display of comprehensive income or loss, its components and accumulated balances. Comprehensive income or loss as defined includes all changes in equity during the year from non-owner sources. Accumulated comprehensive income or loss, as presented in the accompanying consolidated statement of stockholders’ equity consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income or loss is not included in the computation of income tax expense or benefit.

F-15

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

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

·	Income taxes

The Group adopts the ASC Topic 740, “Income Taxes” regarding accounting for uncertainty in income taxes which prescribes the recognition threshold and measurement attributes for financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return. In addition, the guidance requires the determination of whether the benefits of tax positions will be more likely than not sustained upon audit based upon the technical merits of the tax position. For tax positions that are determined to be more likely than not sustained upon audit, a company recognizes the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement in the financial statements. For tax positions that are not determined to be more likely than not sustained upon audit, a company does not recognize any portion of the benefit in the financial statements. The guidance provides for de-recognition, classification, penalties and interest, accounting in interim periods and disclosure.

For the years ended December 31, 2009 and 2008, the Group did not have any interest and penalties associated with tax positions. As of December 31, 2009 and 2008, the Group did not have any significant unrecognized uncertain tax positions.

The Group conducts major businesses in Hong Kong and the PRC and is subject to tax in this jurisdiction. As a result of its business activities, the Group files tax returns that are subject to examination by the foreign tax authorities.

·	Net loss per share

The Company calculates net loss per share in accordance with ASC Topic 260, “Earnings per Share.” Basic net loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per share reflects the potential dilution of securities by including common stock equivalents, such as stock options, stock warrants and convertible preferred stock, in the weighted average number of common shares outstanding for a period, if dilutive.

·	Foreign currencies translation

The consolidated financial statements are expressed, in Hong Kong Dollars ("HK$"). The translations of HK$ amounts into 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$1, the approximate free rate of exchange at December 31, 2009 and 2008. Such translations should not be construed as representations that the HK$ amounts could be converted into US$ at that rate or any other rate.

The Company conducts major businesses in Hong Kong and the PRC and is subject to tax in this jurisdiction. As a result of its business activities, the Company files tax returns that are subject to examination by the foreign tax authority.

·	Stock-based compensation

The Group adopts ASC Topic 718, "Stock Compensation" ("ASC 718") using the fair value method. Under ASC 718, the stock-based compensation is measured using the Black-Scholes Option-Pricing model on the date of grant.

F-16

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

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

For non-employee stock-based compensation, the Company adopts ASC Topic 505-50, “Equity-Based Payments to Non-Employees”, stock-based compensation related to non-employees is accounted for based on the fair value of the related stock or options or the fair value of the services on the grant date, whichever is more readily determinable in accordance with ASC 718.

·	Retirement plan costs

Contributions to retirement schemes (which are defined contribution plans) are charged to general and administrative expenses in the accompanying consolidated statements of operations as the related employee service is provided.

·	Segment reporting

ASC Topic 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in financial statements. The Company operates in one principal business segment.

·	Related parties

Parties, which can be a corporation or individual, are considered to be related if the Group has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.

·	Fair value measurement

ASC Topic 820, “Fair Value Measurements and Disclosures” ("ASC 820"), establishes a new framework for measuring fair value and expands related disclosures. Broadly, ASC 820 framework requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. ASC 820 establishes a three-level valuation hierarchy based upon observable and non-observable inputs. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

For financial assets and liabilities, fair value is the price the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. In the absence of active markets for the identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date.

F-17

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

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

·	Fair value of financial instruments

The carrying value of the Company’s financial instruments include cash and cash equivalents, accounts receivable, deposits and other receivables, accounts payable and accrued liabilities, deferred revenue, income tax payable and amount due to a director. Fair values were assumed to approximate carrying values for these financial instruments because they are short term in nature and their carrying amounts approximate fair values.

·	Recent accounting pronouncements

The Company 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.

The Company adopted ASC Topic 810-10, “Consolidation” (formerly SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements – an amendment of ARB No. 51”) effective January 2, 2009. ASC Topic 810-10 changes the manner of presentation and related disclosures for the non-controlling interest in a subsidiary (formerly referred to as a minority interest) and for the deconsolidation of a subsidiary.

ASC Topic 815-10, “Derivatives and Hedging” (formerly SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities”) was adopted by the Company effective January 2, 2009. The guidance under ASC Topic 815-10 changes the manner of presentation and related disclosures of the fair values of derivative instruments and their gains and losses.

In April 2009, the FASB issued an update to ASC Topic 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”) (formerly FASB Staff Position No. SFAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”). The standard provides additional guidance on estimating fair value in accordance with ASC 820-10 when the volume and level of transaction activity for an asset or liability have significantly decreased in relation to normal market activity for the asset or liability have significantly decreased and includes guidance on identifying circumstances that indicate if a transaction is not orderly. The Company adopted this pronouncement effective April 1, 2009 with no impact on its financial statements.

In April 2009, the FASB issued FSP SFAS No. 107-1, “Disclosures about Fair Value of Financial Instruments” (“ASC 825-10”). ASC 825-10 requires fair value of financial instruments disclosure for interim reporting periods of publicly traded companies as well as in annual financial statements. ASC 825-10 is effective for interim periods ending after June 15, 2009 and was adopted by the Company in the second quarter of 2009. There was no material impact to the Company’s financial statements as a result of the adoption of ASC 825-10.

F-18

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

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

In June 2009, the FASB finalized SFAS No. 167, “Amending FASB interpretation No. 46(R)”, which was included in ASC Topic 810-10-05, “Variable Interest Entities”. The provisions of ASC Topic 810-10-05 amend the definition of the primary beneficiary of a variable interest entity and will require the Company to make an assessment each reporting period of its variable interests. The provisions of this pronouncement are effective January 1, 2010. The Company is evaluating the impact of the statement on its financial statements.

In July 2009, the FASB issued SFAS No. 168, “The Hierarchy of Generally Accepted Accounting Principles”. SFAS 168 codified all previously issued accounting pronouncements, eliminating the prior hierarchy of accounting literature, in a single source for authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. SFAS 168, now ASC Topic 105-10 “Generally Accepted Accounting Principles”, is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of this pronouncement did not have an effect on the Company’s financial statements.

In August 2009, the FASB issued an update of ASC Topic 820, “Measuring Liabilities at Fair Value”. The new guidance provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using prescribed techniques. The Company adopted the new guidance in the third quarter of 2009 and it did not materially affect the Company’s financial position and results of operations.

In October 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements (a consensus of the FASB Emerging Issues Task Force)” which amends ASC 605-25, “Revenue Recognition: Multiple-Element Arrangements.” ASU No. 2009-13 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how to allocate consideration to each unit of accounting in the arrangement. This ASU replaces all references to fair value as the measurement criteria with the term selling price and establishes a hierarchy for determining the selling price of a deliverable. ASU No. 2009-13 also eliminates the use of the residual value method for determining the allocation of arrangement consideration. Additionally, ASU No. 2009-13 requires expanded disclosures. This ASU will become effective for us for revenue arrangements entered into or materially modified on or after April 1, 2011. Earlier application is permitted with required transition disclosures based on the period of adoption. The Company is currently evaluating the application date and the impact of this standard on its financial statements.

In September 2009, the FASB issued certain amendments as codified in ASC 605-25, “Revenue Recognition; Multiple-Element Arrangements.” These amendments provide clarification on whether multiple deliverables exist, how the arrangement should be separated, and the consideration allocated. An entity is required to allocate revenue in an arrangement using estimated selling prices of deliverables in the absence of vendor-specific objective evidence or third-party evidence of selling price. These amendments also eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method. The amendments significantly expand the disclosure requirements for multiple-deliverable revenue arrangements. These provisions are to be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier application permitted. The Company is currently evaluating the impact of these amendments to its consolidated financial statements.

F-19

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

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

4.	ACCOUNTS RECEIVABLE, NET

	As of December 31,
	2009			2008
	HK$			HK$
Accounts receivable, trade		646,676			3,359,915
Less: allowance for doubtful accounts		(527,349	)		(746,191	)
Accounts receivable, net		119,327			2,613,724

The Company provided the allowance for doubtful accounts of HK$82,822 for the year ended December 31, 2009, while the Company reversed the allowance for doubtful accounts of HK$294,739 for the year ended December 31, 2008.

For the years ended December 31, 2009, the Company wrote off HK$1,202,636 accounts receivable, which were considered as irrecoverable.

F-20

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

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

5.	DEPOSITS AND OTHER RECEIVABLES

Deposits and other receivables consisted of the following:

	As of December 31,
	2009		2008
	HK$		HK$
Amount due from minority shareholders		109,826		109,826
Rental and utility deposits		-		126,756
Prepaid expenses		-		46,800
Other receivables		11,211		4,546
Deposits and other receivables		121,037		287,928

6.	PLANT AND EQUIPMENT, NET

Plant and equipment consist of the following:

	As of December 31,
	2009		2008
	HK$		HK$
Computer hardware and software		-		2,194,182
Furniture, fixtures and office equipment		-		875,775
Moulds		-		1,504,600
Leasehold improvements		-		186,243
Foreign translation difference		-		13,477
		-		4,774,277
Less: accumulated depreciation		-		(2,335,901	)
Less: foreign translation difference		-		(7,916	)
Plant and equipment, net		-		2,430,460

Depreciation expense for the years ended December 31, 2009 and 2008 were HK$898,349 and HK$884,561, respectively.

7.	INTANGIBLE ASSETS, NET

Intangible assets consist of the following:

	As of December 31,
	2009			2008
	HK$			HK$
Product development costs		9,336,170			9,336,170
Patent and license right registration fee		192,943			151,374
		9,529,113			9,487,544
Less: accumulated amortization		(4,913,544	)		(3,655,963	)
Less: impairment loss		(4,615,569	)		(1,146,127	)
Intangible assets, net		-			4,685,454

F-21

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

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

Amortization expenses for the years ended December 31, 2009 and 2008 were HK$1,257,581 and HK$1,476,276, which HK$0 and HK$852,347 included in cost of revenue, respectively.

In accordance with ASC Topic 360-10-5, the Group reviewed its annual impairment test on intangible assets and concluded that the decline in expected future benefits from certain software products was sufficient to result in an impairment loss of HK$3,469,442.

8.	ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consisted of the following:

	As of December 31,
	2009		2008
	HK$		HK$
Accounts payable		893,138		1,536,753
Accrued salaries and benefits		1,409,667		68,464
Accrued operating expense		1,390,124		26,071
Accrued convertible debenture interest expense		874,048		-
Value-added tax payable		-		54,419
Other payables		46,800		46,800
		4,613,777		1,732,507

9.	AMOUNT DUE TO A DIRECTOR

As of December 31, 2009, the amount represented temporary advances from a director, Mr. Jialong Wen, of HK$1,028,572, which was unsecured, carried an interest charge of 9% per annum and due through July 8, 2010. For the year ended December 31, 2009, $50,178 of interest expense was incurred.

10.	NET LOSS PER SHARE

The following table sets forth the computation of basic and diluted net loss per share for the years indicated:

	Years ended December 31,
	2008			2008
	HK$			HK$
Basic and diluted net loss per share calculation
Numerator:
Net loss in computing basic net loss per share		(15,926,319	)		(2,906,223	)

Denominator:
Weighted average ordinary shares outstanding		51,549,654			51,549,654

Basic and diluted net loss per share		(0.31	)		(0.06	)

F-22

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

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

For the years ended December 31, 2009 and 2008 in which the Group generated the net operating loss, the effect of stock options granted to employees and non-employees would have been anti-dilutive and excluded from the computation of diluted losses per share.

11.	INCOME TAXES

For the years ended December 31, 2009 and 2008, the local (BVI) and foreign components of loss before income taxes were comprised of the following:

	Years ended December 31,
	2009			2008
	HK$			HK$
Tax jurisdictions from:
BVI (local)		(1,851,724	)		(458,482	)
Hong Kong		(12,325,514	)		(2,395,177	)
The PRC		(1,083,462	)		(122,858	)
Loss before income taxes		(15,260,700	)		(2,976,517	)

Provision for income taxes consisted of the following:

	Years ended December 31,
	2009			2008
	HK$			HK$
Current:
– Local		-			-
– Foreign		(12,626	)		-

Deferred:
– Local		-			-
– Foreign		683,534			-

Income tax expense		670,908			-

The effective tax rate in the periods presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates. The Group has subsidiaries that operate in various countries: Hong Kong and the PRC that are subject to tax in the jurisdictions in which they operate, as follows:

British Virgin Island

Under the current BVI law, the Company is not subject to tax on income.

Hong Kong

The Group’s subsidiaries, TTLHK, TRFID and TBL are subject to Hong Kong Profits Tax, which is charged at the statutory income rate of 16.5% on assessable income for years ended December 31, 2009

F-23

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

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

and 2008, respectively. The reconciliation of income tax rate to the effective income tax rate based on loss before income taxes for the years ended December 31, 2009 and 2008 are as follows:

	Years ended December 31,
	2008			2008
	HK$			HK$
Loss before income taxes		(12,325,514	)		(2,395,177	)
Statutory income tax rate		16.5	%		16.5	%
Income tax impact at Hong Kong Profits Tax rate		(2,033,710	)		(395,204	)
Non-taxable interest income		-			(112	)
Expenses not deductible for tax purposes:
- Impairment on intangible assets		778,355			-
- Loss (gain) on disposal of plant and equipment		252,818			(43,859	)
- Difference between book and tax depreciation		110,908			129,085
- Capitalized product development costs		-			(160,211	)
- Others		(33,509	)		(115,761	)
Net operating loss		1,596,046			586,062

Income tax expense		670,908			-

Income taxes payable as of December 31, 2009 and 2008 consists of Hong Kong Profits Tax of HK$0 and HK$12,626, respectively.

For the years ended December 31, 2009 and 2008, TTLHK, TRFID and TBL incurred net operating losses and, accordingly, no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recognized due to the uncertainty of the realization of any tax assets. As of December 31, 2009, TTLHK had approximately HK$14,131,755 of net operating loss carryforwards for Hong Kong tax purpose at no expiration.

The PRC

The Group’s subsidiary, TTLSZ is operating as a foreign investment enterprise and is subject to PRC Foreign Enterprise Income Tax at a preferential rate of 15% on its assessable profits, under the PRC tax legislation, interpretations and practices in respect thereof.

On March 16, 2007, the National People’s Congress approved the Corporate Income Tax Law of the PRC (the “New CIT Law”). The New CIT Law, among other things, imposes a unified income tax rate of 25% for both domestic and foreign invested enterprises with effect from January 1, 2008. Hence, TTLSZ is subject to the unified income rate of 25% on the taxable income.

As of December 31, 2009, TTLSZ incurred HK$3,447,757 of net operating losses carryforward available for income tax purposes that may be used to offset future taxable income and will begin to expire in 5 years from the year of incurrence, if unutilized. A full valuation allowance was provided against the deferred tax assets of HK$861,939 on the expected future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future.

F-24

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

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

The following table sets forth the significant components of the aggregate net deferred tax assets and liabilities of the Group as of December 31, 2009 and 2008:

	As of December 31,
	2009			2008
	HK$			HK$
Deferred tax liabilities:
Amortization of capitalized product development cost		-			(1,113,856	)
Plant and equipment		(21,115	)		-

Deferred tax assets:
Allowances for doubtful accounts		87,013			123,121
Net operating loss carryforwards:
- Hong Kong		2,331,740			1,820,247
- The PRC		861,939			849,174
Total net deferred tax assets		3,259,577			1,678,686
Less: valuation allowance		(3,259,577	)		(995,152	)

Net deferred tax assets		-			683,534

As of December 31, 2009, the operation in Hong Kong and the PRC incurred HK$17,579,512 of the aggregate net operating losses carryforward that may be used to offset future taxable income. The Company has provided for a valuation allowance of HK$3,259,577 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.

12.	CONVERTIBLE DEBENTURE

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”).

The Debenture has 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

F-25

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

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

	registration statement covering the shares underlying the debentures; and
•	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.
•	The holders of the Debenture 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 Debenture or the exercise of the Warrants.

In connection with the Financing, on the same date, the Company issued warrants to 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.

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

On April 3, 2007, the Company received HK$9,555,000 (US$1,225,000), net of expenses in relation to issuance of the Debenture of HK$1,755,000 (US$225,000) after all the closing conditions were satisfied.

The debentures were discounted for the fair value of warrants and the intrinsic value of the beneficial conversion feature, pursuant to ASC Subtopic 470-20 “Debt with Conversions and Other Options”. The discount is being amortized over the life of the debentures. For the years ended December 31, 2009 and 2008, the Company recorded HK$57,252 (US$7,340) and HK$1,394,024 (US$178,721) as gain from change in warrant liability in the statements of operations.

As of December 31, 2009, the fair value of the warrants of HK$33,985 (US$4,357) was recorded as warrants liability in the balance sheet, as determined by the Company using the Black-Scholes option pricing model under the following assumptions:

Risk-free interest rate (%)	4.46
Expected dividend yield (%)	0
Expected term in years (years)	2.5
Expected volatility (%)	100.4

On November 23, 2007, the Company entered into an Amendment and Waiver Agreement (the “Waiver Agreement”) with the holders of the Debentures. 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 the 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.

Interest expense of HK$874,048 (US$112,057) and HK$863,012 (US$110,642) was recognized for the years ended December 31, 2009 and 2008.

F-26

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

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

13.	SEGMENT INFORMATION

The Company considers its business activities to constitute one single segment. The Company’s chief operating decision makers use consolidated results to make operating and strategic decisions. The geographic distribution of the Company’s customers is:

·	Hong Kong, including the government and commercial sectors; and

·	The PRC, mainly the government agencies, financial institutions and commercial sectors.

An analysis of the Company’s long-lived assets and revenues by region are as follows:

	As of December 31,
	2009			2008
	HK$			HK$
Long-lived assets:
- Hong Kong		$	-		$	7,078,634
- The PRC			-			37,280

		$	-		$	7,115,914

	Year ended December 31,
	2009			2008
	HK$			HK$
Revenue:
- Hong Kong		$	2,943,083		$	14,461,774
- The PRC			61,028			1,169,736

		$	3,004,111		$	15,631,510

14.	CONCENTRATIONS OF RISK

The Company is exposed to the following concentrations of risk:

(a)	Major customers

For the year ended December 31, 2009, one customer represented more than 10% of the Company’s revenue. This customer accounts for 33% of the Company’s revenue amounting to HK$982,800, with HK$0 of accounts receivable.

For the year ended December 31, 2008, the customer who accounts for 10% or more of and revenue of the Company is presented as follows:

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TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

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

	Year ended December 31, 2008					December 31, 2008
	Revenue		Percentage of revenue			Accounts receivable
	HK$					HK$
Customer A		3,120,825		20	%		308,253
Customer B		2,283,833		15	%		627,526
Customer C		2,195,100		14	%		514,100
Total:		7,599,758		49	%		1,449,879

(b) Major vendors

For the years ended December 31, 2009 and 2008, the vendor who accounts for 10% or more of the purchases of the Company is presented as follows:

	Year ended December 31, 2009					December 31, 2009
	Purchases		Percentage of purchases			Accounts payable
	HK$					HK$
Vendor A		453,892		21	%		384,076
Vendor B		333,807		15	%		-
Vendor C		266,667		12	%		266,667
Vendor D		256,489		12	%		-
Total:		1,310,855		60	%		650,743

	Year ended December 31, 2008					December 31, 2008
	Purchases		Percentage of purchases			Accounts payable
	HK$					HK$
Vendor A		1,050,000		11	%		-
Vendor B		937,430		10	%		-
Total:		1,987,430		21	%		-

Financial instruments that potentially subject the Group to significant concentrations of credit risk consist principally of cash and trade accounts receivable. The Group performs ongoing credit evaluations of its customers’ financial condition, but does not require collateral to support such receivables.

(d) Exchange rate risk

The Group cannot guarantee that the current exchange rate will remain steady; therefore there is a possibility that the Group could post the same amount of profit for two comparable periods and because of the fluctuating exchange rate actually post higher or lower profit depending on exchange rate of HK$

F-28

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

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

converted to US$ on that date. The exchange rate could fluctuate depending on changes in political and economic environments without notice.

15.	COMMITMENTS AND CONTINGENCIES

(a) Operating lease commitments

The Company rented office space under non-cancelable operating lease agreements which run for a term of 1 to 3 years, with fixed monthly rentals, expiring in various years through May 2011. The landlord forfeited the Company’s rental deposit as liquidated damages for early termination of the lease in August 2009 and the Company recorded such expense of HK$103,140 (US$13,223) in the statements of operations.

The Company currently does not have any formal rent agreements. The Company recorded and paid rent expense at the current market fair value on a monthly basis under the lease agreement signed by a related party, which was controlled by the major shareholder of the Company.

Costs incurred under these operating leases are recorded as rental expense and totaled approximately HK$246,616 and HK$504,136 for the years ended December 31, 2009 and 2008, respectively.

(b) Capital commitments

In December 2008, the Company established a joint venture company, Titanium Biometrics Limited with 51% of equity interest in Hong Kong. This joint venture company will engage in the promotion and marketing of biometrics face recognition access control and time attendance systems in Mainland China. Total estimated investment costs are approximately HK$1,906,500. In September 2009, the Company filed the de-registration applications on Titanium RFID Limited and the applications are still in process. Titanium Biometrics Limited was subsequently de-registered on April 16, 2010.

F-29

Attached files

Titanium Group LTD Reports

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