10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

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

EXCHANGE ACT OF 1934

For the transition period from  ______________________  to  ________________________

Commission file number 0-52415

TITANIUM GROUP LIMITED

(Exact name of registrant as specified in its charter)

British Virgin Islands (State or other jurisdiction of incorporation or organization) Not Applicable  (IRS Employer Identification No.)

4/F, BOCG Insurance Tower

134-136 Des Voeux Road Central, Hong Kong

(Address of principal executive offices)(Zip Code)

(852) 3427 3177

(Registrant’s telephone number, including area code)

Not applicable

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934

during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing

requirements for the past 90 days.  [X]  Yes  [  ]  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and

large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer [  ]                                                                           Accelerated filer [  ]                                                                Non-accelerated filer [X]

Indicate by check mark whether the registrant is a shell company

(as defined in Rule 12b-2 of the Exchange Act).  [  ]Yes   [X] No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

50,000,000 shares of Common Stock, $0.01 par value, as of June 30, 2007

TITANIUM GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2007 AND DECEMBER 31, 2006

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

	June 30,						December 31,
	2007			2007			2006
	US$			HK$			HK$
ASSETS	(unaudited)			(unaudited)			(audited)
Current assets:
Cash and cash equivalents	$	454,386		$	3,544,213		$	1,164,528
Accounts receivable, trade		702,552			5,479,907			4,728,648
Inventories		17,823			139,021			71,156
Deposits and other receivables		283,496			2,211,265			342,347
Deferred tax assets		44,311			345,628			300,401
Income tax recoverable		15,185			118,442			118,442
Total current assets		1,517,753			11,838,476			6,725,522
Plant and equipment
Cost		506,474			3,950,494			3,941,297
Less: accumulated depreciation		(183,478	)		(1,431,123	)		(996,233	)
		322,996			2,519,371			2,945,064
Intangible assets, net		367,089			2,863,297			2,642,055
TOTAL ASSETS	$	2,207,838		$	17,221,144		$	12,312,641
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Bank overdraft	$	112,476		$	877,313		$	1,712,024
Accounts payable		167,227			1,304,372			3,302,651
Short-term bank loan		23,668			184,610			-
Deferred revenue		11,087			86,476			291,084
Total current liabilities		314,458			2,452,771			5,305,759
Long-term liabilities
Convertible debenture		1,276,309			9,955,210			-
Total liabilities		1,590,767			12,407,981			5,305,759
Minority interest in net loss of consolidated subsidiaries		(15,186	)		(118,448	)		(67,159	)
Stockholders’ equity:
Common stock, US$0.01 (HK$0.078) par value, 100,000,000 shares authorized, 50,000,000 shares issued and outstanding		500,000			3,900,000			3,900,000
Additional paid-in capital		710,949			5,545,400			4,675,206
Accumulated deficit		(578,400	)		(4,511,520	)		(1,506,811	)
Accumulated other comprehensive (loss) income		(292	)		(2,269	)		5,646
Total stockholders’ equity		632,257			4,931,611			7,074,041
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,207,838		$	17,221,144		$	12,312,641

See accompanying notes to condensed consolidated financial statements.

2

TITANIUM GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE (LOSS) INCOME

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006

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

(Unaudited)

	Three Months Ended June 30,									Six Months Ended June 30,
	2007			2007			2006			2007			2007			2006
	US$			HK$			HK$			US$			HK$			HK$
REVENUE
Projects
Products	$	259,839		$	2,026,748		$	5,882,319		$	444,312		$	3,465,636		$	7,865,382
Services		107,115			835,500			2,298,744			244,817			1,909,570			3,318,983
		366,954			2,862,248			8,181,063			689,129			5,375,206			11,184,365
Maintenance
Services		10,616			82,805			390,000			26,232			204,609			465,140
Total revenue		377,570			2,945,053			8,571,063			715,361			5,579,815			11,649,505
COST OF REVENUE
Projects
Cost of products sold		116,984			912,474			3,823,912			238,551			1,860,697			4,905,593
Cost of services		27,502			214,519			1,384,554			109,785			856,324			2,004,091
		144,486			1,126,993			5,208,466			348,336			2,717,021			6,909,684
Maintenance
Cost of services		1,282			10,000			46,700			3,205			25,000			55,800
Total cost of sales		145,768			1,136,993			5,255,166			351,541			2,742,021			6,965,484
GROSS PROFIT		231,802			1,808,060			3,315,897			363,820			2,837,794			4,684,021
OPERATING EXPENSES
Selling, general and administrative		324,547			2,531,465			2,725,262			597,442			4,660,046			3,899,345
Research and development		-			-			362,557			-			-			457,051
Stock-based compensation		41,946			327,181			-			111,563			870,194			-
Total operating expenses		366,493			2,858,646			3,087,819			709,005			5,530,240			4,356,396
(LOSS) INCOME FROM OPERATIONS		(134,691	)		(1,050,586	)		228,078			(345,185	)		(2,692,446	)		327,625
OTHER (EXPENSE) INCOME:
Government grant income		-			-			-			3,085			24,066			(23,733
Interest income		4,468			34,848			2,708			4,517			35,236			21,630
Interest expense		(55,121	)		(429,943	)		(11,031	)		(60,010	)		(468,081	)		(28,156	)
Total other (expense) income		(50,653	)		(395,095	)		(8,323	)		(52,408	)		(408,779	)		17,207

See accompanying notes to condensed consolidated financial statements.

3

TITANIUM GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (CONTINUED)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006

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

(Unaudited)

	Three Months Ended June 30,									Six Months Ended June 30,
	2007			2007			2006			2007			2007			2006
	US$			HK$			HK$			US$			HK$			HK$
(LOSS) INCOME BEFORE INCOME TAXES AND MINORITY INTEREST		(185,344	)		(1,445,681	)		219,755			(397,593	)		(3,101,225	)		344,832
Income tax benefit (expense)		2,456			19,156			(37,821	)		5,798			45,227			(58,621	)
(LOSS) INCOME BEFORE MINORITY INTEREST		(182,888	)		(1,426,525	)		181,934			(391,795	)		(3,055,998	)		286,211
Minority interest		2,521			19,665			18,591			6,576			51,289			(27,437	)
NET (LOSS) INCOME	$	(180,367	)	$	(1,406,860	)	$	200,525		$	(385,219	)	$	(3,004,709	)	$	258,774
Net (loss) income per share
Basic and diluted		(0.004	)		(0.028	)		0.004			(0.008	)		(0.060	)		0.005
Weighted average number of shares outstanding
Basic and diluted		50,000,000			50,000,000			50,000,000			50,000,000			50,000,000			50,000,000
NET (LOSS) INCOME		(180,367	)		(1,406,860	)		200,525			(385,219	)		(3,004,709	)		258,774
Other comprehensive (loss) income:
Foreign currency translation (loss) gain		(485	)		(3,784	)		871			(1,015	)		(7,915	)		6,275
COMPREHENSIVE (LOSS) INCOME		(180,852	)		(1,410,644	)		201,396			(386,234	)		(3,012,624	)		265,049

See accompanying notes to condensed consolidated financial statements.

4

TITANIUM GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006

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

(Unaudited)

	Six Months Ended June 30,
	2007			2007			2006
	US$			HK$			HK$
Cash flow from operating activities:
Net (loss) income	$	(385,219	)	$	(3,004,709	)	$	258,774
Adjustments to reconcile net (loss) income to net cash used for operating activities:								-
Depreciation and amortization		109,358			853,002			479,523
Amortization of discount and interest on convertible debenture		51,309			400,210			-
Allowances for doubtful accounts		93,062			725,882			-
Minority interest		(6,576	)		(51,289	)		27,437
Stock-based compensation		111,563			870,194			-
Changes in assets and liabilities:
Accounts receivable		(189,377	)		(1,477,141	)		(1,343,675	)
Inventories		(8,701	)		(67,865	)		10,591
Deposits and other receivables		(239,604	)		(1,868,918	)		(360,247	)
Deferred tax assets		(5,798	)		(45,227	)		-
Accounts payable		(256,190	)		(1,998,279	)		2,844,505
Deferred revenue		(26,231	)		(204,608	)		-
Income taxes payable		-			-			52,021
Net cash (used in) provided by operating activities		(752,404	)		(5,868,748	)		1,968,929
Cash flows from investing activities:
Purchase of plant and equipment		(923	)		(7,198	)		(2,883,892	)
Capitalization of software development costs		(82,224	)		(641,353	)		(377,112	)
Net cash used in investing activities		(83,147	)		(648,551	)		(3,261,004	)
Cash flows from financing activities:
Proceeds from short-term bank loan		40,385			315,000			-
Repayments of short-term bank loan		(16,717	)		(130,390	)		-
Proceeds from convertible debenture, net of expenses		1,225,000			9,555,000			-
Net decrease in bank overdraft		(107,014	)		(834,711	)		(132,615	)
Net cash provided by (used in) financing activities		1,141,654			8,904,899			(132,615	)
Foreign currency translation adjustment		(1,015	)		(7,915	)		6,275
NET CHANGE IN CASH AND CASH EQUIVALENTS		305,088			2,379,685			(1,418,415	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		149,298			1,164,528			2,472,677
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	454,386		$	3,544,213		$	1,054,262
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid	$	4,889		$	38,138		$	28,156
Income taxes paid	$	3,342		$	26,071		$	17,500

See accompanying notes to condensed consolidated financial statements

5

TITANIUM GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Originally currency expressed in Hong Kong Dollars (“HK$”))

For The Six Months Ended June 30, 2007

(Unaudited)

    

NOTE 1 - GENERAL

Titanium Group Limited (the “Company” or “TTNUF”) was incorporated as an International Business Company with limited liability in the British Virgin Islands (“BVI”) under the International Business Companies Act, Cap 291 of the British Virgin Islands on May 17, 2004.  The Company, through its subsidiary companies, Titanium Technology Limited and Titanium Technology (Shenzhen) Co., Ltd., mainly focus in the development of advanced biometric technology and installation and implement of advanced facial based biometric identification and security projects for law enforcement, mass transportation, and other government and private sector customers.

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

NOTE 2 – BASIS OF PRESENTATION OF SECOND QUARTER PERIOD

The accompanying unaudited interim condensed consolidated financial statements as of June 30, 2007 and for the three and six months ended June 30, 2007 and 2006 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and the requirements of Regulation S-X.  They do not include all of the information and footnotes for complete consolidated financial statements as required by GAAP.  In management's opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included.  The results of operations for the periods ended June 30, 2007 and 2006 presented are not necessarily indicative of the results to be expected for the year.  These financial statements should be read in conjunction with the annual financial statements presented in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2006.

NOTE 3 – GOING CONCERN UNCERTAINTIES

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

For the six months ended June 30, 2007, the Group had incurred a net loss of HK$3,004,709 and as of June 30, 2007, had an accumulated deficit of HK$4,511,520.  Additionally, the Group has incurred losses over the past several quarters. Management has taken certain action and continues to implement changes designed to improve the Group’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 PRC.  Management believes that these actions will enable the Group to improve future profitability and cash flow in its continuing operations through June 30, 2008.  As a result, the financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of the Group’s ability to continue as a going concern.

6

TITANIUM GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Originally currency expressed in Hong Kong Dollars (“HK$”))

For The Six Months Ended June 30, 2007

(Unaudited)

NOTE 4 – RECENT PRONOUNCEMENTS

The Company has 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 its financial condition or the results of its operations.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in the Company’s financial statements in accordance with SFAS No. 109. FIN 48 prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company adopted FIN48 on January 1, 2007. The adoption of FIN 48 did not have an effect on the results of operations or financial condition. The Company did not have any unrecognized tax benefits as of June 30, 2007.

On February 15, 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (“SFAS 159”). This standard permits an entity to measure financial instruments and certain other items at estimated fair value. Most of the provisions of SFAS No. 159 are elective; however, the amendment to FASB No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” applies to all entities that own trading and available-for-sale securities. The fair value option created by SFAS 159 permits an entity to measure eligible items at fair value as of specified election dates. The fair value option (a) may generally be applied instrument by instrument, (b) is irrevocable unless a new election date occurs, and (c) must be applied to the entire instrument and not to only a portion of the instrument. SFAS 159 is effective as of the beginning of the first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity (i) makes that choice in the first 120 days of that year, (ii) has not yet issued financial statements for any interim period of such year, and (iii) elects to apply the provisions of FASB 157. Management is currently evaluating the impact of SFAS 159, if any, on the Company’s financial statements.

NOTE 5 – PER SHARE INFORMATION

Basic net (loss) income per share is computed by dividing net (loss) income by the weighted average number of shares of common stock outstanding for the period.  Diluted net (loss) income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.  For the period ended June 30, 2007, outstanding warrants to purchase 3,000,000 shares of common stock of the Company which were issued in connection with the prior sale of common stock were not considered to have a dilutive effect since the exercise price of the warrants exceeded the average market price of the common stock for that period.

During the six months ended June 30, 2007, the Company did not grant and stock options to employees, directors and consultants.  The effect of outstanding stock options which could result in the issuance of 4,625,000 shares of common stock as of June 30, 2007 is anti-dilutive.  As a result, diluted loss per share data does not include the assumed exercise of outstanding stock options and has been presented jointly with basic loss per share.

7

TITANIUM GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Originally currency expressed in Hong Kong Dollars (“HK$”))

For The Six Months Ended June 30, 2007

(Unaudited)

NOTE 6 – INCOME TAXES

The Group accounts for income taxes in interim periods as required by Accounting Principles Board Opinion No. 28, “Interim Financial Reporting” and as interpreted by FASB Interpretation No. 18, “Accounting for Income Taxes in Interim Periods”.  The Group has determined an estimated annual effective tax rate.  The rate will be revised, if necessary, as of the end of each successive interim period during the Group’s fiscal year to the Group’s best current estimate.

The estimated annual effective tax rate is applied to the year-to-date ordinary income (or loss) at the end of the interim period.

As of June 30, 2007, the Group and its subsidiaries incurred net operating losses of approximately HK$3,004,709 for income tax purposes and no provision for income taxes is necessary.

The Group recognized a deferred tax asset of approximately HK$265,620 as of June 30, 2007, primarily relating to net operating loss carry forwards of approximately HK$4.51 million. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Group considers projected future taxable income and tax planning strategies in making this assessment. At present, the Group does not have a history of income to conclude that it is more likely than not that the Group will be able to realize all of its tax benefits therefore, a valuation allowance of HK$265,620 was established for the full value of the deferred tax asset. A valuation allowance will be maintained until sufficient positive evidence exists to support the reversal of any portion or all of the valuation allowance net of appropriate reserves. Should the Group continue to be profitable in future periods with supportable trends, the valuation allowance will be reversed accordingly.

NOTE 7 – STOCK BASED COMPENSATION

On November 22, 2005, the Company approved a Stock Option Plan (the “Plan”) under which directors, officers, employees and consultants of the Company are eligible to receive grants of options for the Company’s common stock.  The plan has a life of ten (10) years and expires on November 22, 2015.  A maximum of 5,000,000 common shares have been reserved under the Plan. Each stock option entitles its holder to purchase one common share of the Company.  Options would be granted for a term not exceeding ten (10) years from the date of grant.  The board of directors will determine the exercise price for each option at the time the options is granted. The exercise price for shares will be no less than 100% of the fair value of the common stock at the date such options is granted. The board will also determine when options become exercisable.

On July 1, 2006, the Board of Directors authorized to grant 1,435,000 options to the employees and 3,200,000 options to directors, officers and consultants of the Company, respectively with an exercise price of US$0.20 (HK$1.56) per share, being the market price at the time of the grant.  These options vest at different periods from 6 moths to 12 months from the date of grant depending upon the optionee and all of these options have a life of five (5) years from the grant date.

8

TITANIUM GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Originally currency expressed in Hong Kong Dollars (“HK$”))

For The Six Months Ended June 30, 2007

(Unaudited)

	No. of options	Weighted average exercise price
Options outstanding as of December 31, 2006	4,625,000	US$       0.20
Granted	-	-
Forfeited	-	-
Options outstanding as of June 30, 2007	4,625,000	US$       0.20
Options exercisable as of June 30, 2007	2,625,000	US$       0.20

Range of exercise prices	No. of option outstanding	Weighted average remaining contractual life	Weighted average exercise price	Number of option exercisable	Weighted average exercise price
US$ 0.20 – 0.50	4,625,000	3.98	0.20	4,625,000	0.20

As of June 30, 2007, there was US$8,303 (HK$64,763) of total unrecognized compensation cost related to nonvested stock options.  That cost is expected to be recognized over a weighted-average period of 0.04 years.  The grant date fair value of stock options vested during the six months ended June 30, 2007 is US$0.20 (HK$1.56) per share.  No stock option awards vested during the six months ended June 30, 2007.

The Company adopted SFAS No. 123, “Accounting for Stock-Based Compensation” using the Black-Scholes Option Pricing Model to estimate the fair value of options.  The weighted average fair value of options granted during the six months ended June 30, 2007 was US$0.10 (HK$0.78) per share.  Weighted average assumptions used in the valuation for the six months ended June 30, 2007 are summarized below:

Risk free interest rate (%)	5.04
Dividend yield (%)	0
Expected life of option grants (years)	2.13
Expected volatility of option grants (%)	88.8

The Company charged HK$327,181 (US$41,946) and HK$870,194 (US$111,563) of stock-based compensation to operations for the three and six months ended June 30, 2007 by applying the fair value method in accordance with SFAS No. 123.

NOTE 8 – SHORT-TERM BANK LOAN

The short-term bank loan is unsecured, payable to financial institutions, which is guaranteed by the directors, with effective interest rate at 7% per annum payable monthly, with principle due January 22, 2008.

9

TITANIUM GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Originally currency expressed in Hong Kong Dollars (“HK$”))

For The Six Months Ended June 30, 2007

(Unaudited)

NOTE 9 – CONVERTIBLE DEBENTURE

Details of the convertible debenture outstanding are as follows:

	As of
	June 30, 2007
	HK$
Outstanding principal	$	11,310,000
Less: deferred financing costs		(1,755,000	)
Less: discounts		(5,375,300	)
Convertible debenture, net of discounts		4,179,700
Warrant liability		5,775,510
Net carrying value of convertible debenture	$	9,955,210

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”).  In addition, the Investors received five-year warrants that allow the Investors to purchase 4,833,333 shares of common stock at US$0.50 per share.

The Company paid a placement fee of HK$1,131,000 (US$145,000) and issued placement agent warrants entitling the holders to purchase an aggregate of 483,333 shares at US$0.315 per share for a period of seven years.

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

The Company has agreed to file a registration statement with the Securities and Exchange Commission in order to register the resale of the shares issuable upon conversion of the Debenture and the shares issuable upon exercise of the warrants that were issued to the Investors and the placement agent.

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;

10

TITANIUM GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Originally currency expressed in Hong Kong Dollars (“HK$”))

For The Six Months Ended June 30, 2007

(Unaudited)

• Redeemable at the option of Titanium at 120% of face value, as long as there is an effective 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 Titanium sells or issues shares at a price les than the conversion price of the debentures.

On April 3, 2007, the Company received HK$9,555,000 (US$1,225,000), net of expenses of HK$1,755,000 (US$225,000) after all the closing conditions were satisfied.  In lieu of interest, the debenture provided for an original issue discount equals to HK$5,775,510 (US$740,450) that is to be amortized to non-cash interest expense using the effective interest rate method over the three year life of the debenture.  For the six months ended June 30, 2007, the Company recognized approximately HK$400,210 (US$51,309) as interest expense from the amortization of the original issue discount.

NOTE 10 – SEGMENT INFORMATION

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

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

l   The PRC, mainly the government sector.

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

	As of
	June 30, 2007		December 31, 2006
	HK$		HK$
Long-lived assets:
- Hong Kong	$	5,329,758	$	5,534,209
- The PRC		52,910		52,910
	$	5,382,668	$	5,587,119

	Six Months Ended June 30,
	2007		2006
	HK$		HK$
Revenue:
- Hong Kong	$	5,544,887	$	5,346,137
- The PRC		34,928		6,303,368
	$	5,579,815	$	11,649,505

NOTE 11 – COMMITMENTS AND CONTINGENCIES

The Group leased two office premises in Hong Kong and the People’s Republic of China under non-cancelable operating lease agreements for a period of two to three years, due June 30, 2008 and April 11, 2008, respectively.  The annual aggregate lease payment is HK$304,540.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

Titanium Technology has been able to generate revenues rather early in the company’s development, which have funded research and development expenses, as well as selling, general and administrative expenses.

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.  First, the company has now achieved a certain amount of recognition in the biometrics industry, especially in Hong Kong and the surrounding region.  It has also established several important marketing channels, most notably a sole distributor in Japan who brought along opportunities and major customers such as the NTT Group.  Second, there is increased awareness in the personal security area in which biometric technologies are some of the most commonly used applications.  We expect the global market size to grow due to concerns about identity theft and security.  Third, we have developed a technology within the past year that we believe can be utilized in a one-to-many application.  Based on this developed technology, management believes that the company should try to market its products and services in areas outside of Asia and compete in a larger market.

We raised net proceeds of US$517,425 (HK$4,035,915) through a private placement of securities during the third quarter of 2005.  These proceeds were used to provide the funds necessary to 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.

Critical Accounting Policies

           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

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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.

We 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.

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.

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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.

REVENUE RECOGNITION CRITERIA.  We recognize revenue when persuasive evidence of an arrangement exists, the element has been delivered, the fee is fixed or determinable, collection of the resulting receivable is probable and VSOE of the fair value of any undelivered element exists.  A discussion about these revenue recognition criteria and their applicability to our transactions follows:

·     Persuasive evidence of an arrangement: We use either contracts signed by both the customer and us or written purchase orders issued by the customer that legally bind us and the customer as evidence of an arrangement.

·     Product delivery: We deem delivery to have occurred when the products are installed and, when required under the terms of the arrangement, when accepted by the customer.  Delivery of other re-sale products are recognized as revenue when products are shipped and title and risk of ownership has passed to the buyer.

·     Fixed or determinable fee: We consider the fee to be fixed or determinable if the fee is not subject to refund or adjustment and the payment terms are within our normal established practices.  If the fee is not fixed or determinable, we recognize the revenue as amounts become due and payable.

·     Collection is deemed probable: We conduct a credit review for all significant transactions at the time of the arrangement to determine the credit-worthiness of the customer.  Collection is deemed probable if we expect that the customer will pay amounts under the arrangement as payments become due.

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.

Research and development costs.  Research costs are expensed as incurred.  The major components of these research and development costs are the labor cost.

Intangible assets/Software development costs.  Intangible assets consist primarily of capitalized software development costs.  We review software development costs incurred in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) 86 “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed,” which requires that certain costs

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incurred in the development of computer software to be sold or leased be capitalized once technological feasibility is reached.  The purchased software license costs, patent costs, and the capitalized software development costs are amortized over an estimated economic life of five years, which is consistent with the expected life of these assets.

We received government funding which was offset to software-development costs incurred prior to the beginning of the capitalization period.  According to paragraph 73 of SOP 97-2, if capitalization of the software-development costs commences pursuant to SFAS No. 86, any income from the funding party under a funded software-development arrangement should be credited first to the development costs prior to capitalization.

Grant and subsidy income represents subsidy from the Government of the Hong Kong Special Administrative Region (“HKSAR”) for assisting us in the development of products of innovative nature.  The products developed under this subsidy plan include ProAccess and ProFacer.  Pursuant to the agreements made between us and HKSAR, HKSAR is required to provide funding to us for product development.  The funding is made available to us in accordance with the milestones as established by us and is subject to a ceiling of US$256,410 (HK$2,000,000).  We are not required to repay the Government grant, but we are required to contribute approximately 50% of the overall project cost in accordance with the grant agreement.  Also, upon completion of the project, we have to tender to the Government its pro rata share of the residual funds remaining in the project account.  In addition we are 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.  We may have to pay the Government 10% of the gross proceeds of our 2005 private placement as part of the royalty payment obligation.  We are entitled to retain ownership of the intellectual property resulting from the project.

Equity-based compensation.  We adopted SFAS No. 123, “Accounting for Stock-Based Compensation” beginning at its inception.  Effective from January 1, 2006, we adopted SFAS 123(R), which requires all share-based payments to employees and directors, including grants of employee stock options and restricted stock units, to be recognized in the financial statements based on their grant date fair values.  The valuation provisions of SFAS 123(R) apply to new awards, to awards granted to employees and directors before the adoption of SFAS 123(R) whose related requisite services had not been provided, and to awards which were subsequently modified or cancelled.

Under SFAS 123(R), we applied the Black-Scholes valuation model in determining the fair value of options granted to employees and directors.  Options are measured based on the fair market value of the underlying awards at the date of grant.  We recognize the relevant share-based compensation expenses on a straight-line basis over the vesting period.

Under SFAS 123(R), the number of share-based awards for which the service is not expected to be rendered for the requisite period should be estimated, and the related compensation cost not recorded for that number of awards.

Foreign currency translation methodology.  Our functional currency is the Hong Kong dollar because the majority of our revenues, capital expenditures, and operating and borrowing costs are either denominated in Hong Kong dollars or linked to the Hong Kong dollar exchange rate.  Accordingly, transactions and balances not already measured in Hong Kong dollars, which are primarily transactions involving the United States dollar and the PRC Yuan, have been re-measured into Hong Kong dollars in accordance with the relevant provisions of Statement of Financial Accounting Standards No. 52, “Foreign Currency Translation.”  The object of this re-measurement process is to produce largely the same results that would have been reported if the accounting records had been kept in Hong Kong dollars.  The

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exchange rate adopted throughout the consolidated financial statements where United States dollars are presented was US$1 for HK$7.8.

Cash, receivables, payable, and loans are considered monetary assets and liabilities and have been translated using the exchange rate as of the balance sheet dates.  Non-monetary assets and liabilities, including non-current assets and shareholders’ equity, are stated at their actual dollars cost or are restated from their historic cost, by applying the historical exchange rate as monthly average exchange rates to underlying transactions.

Results of Operations

Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006.  For the three months ended June 30, 2007, project revenues decreased by US$681,899 (HK$5,318,815) (65.0%) over the same period in 2006, mainly due to a decreased volume of business, as opposed to a decrease in prices.  The decreased volume of business can be attributed to a delay in projects awarded from potential clients, which management will seek to speed up towards the later part of the year.

The gross margin on projects as a percentage of project revenues was 60.6% for the 2007 quarter, as compared to 36.3% for the 2006 quarter.  The increase in gross profit percentage can be attributed to the decrease in cost of fulfilling the projects.  Gross profit on projects decreased in terms of dollars in 2007 by US$158,634 (HK$1,237,342) because of the decrease in sales.

Selling, general, and administrative expenses decreased by US$24,846 (HK$193,797) (7.1%) in 2007 as compared to 2006 due to the decrease in rental expense US$13,098 (HK$102,164) because of the relocation of our Shenzhen office.

Primarily as a result of the decrease in gross profit and the increased stock-based compensation costs of US$41,946 (HK$327,181) in 2007, we incurred an operating loss in 2007 of US$134,691 (HK$1,050,586) as compared to operating income in 2006 of US$29,241 (HK$228,078).

We had other expense in 2007 of US$50,653 (HK$395,095), which consisted primarily of interest expense, in contrast to other expense of US$1,067 (HK$8,323) in 2006.  We had an income tax credit of US$2,456 (HK$19,156) for 2007, as compared to an expense of US$4,849 (HK$37,821) for 2006.  Minority interest in 2007 was income of US$2,521 (HK$19,665), as compared to income of US$2,383 (HK$18,591) in 2006.  The addition to minority interest represents loss that belongs to the minority owner of our 92%-owned subsidiary, Titanium Technology (Shenzhen) Co., Ltd.

In summary, we generated 65.6% less revenues in the quarter ended June 30, 2007, while our operating expenses decreased by 7.4%, resulting in a net loss of US$180,367 (HK$1,406,860) as compared to net income of US$25,708 (HK$200,525) for the comparable 2006 quarter.

Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006.  For the six months ended June 30, 2007, project revenues decreased by US$744,764 (HK$5,809,159) (51.9%) over the same period in 2006, 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 the above-mentioned delay of projects awarded from potential clients.

The gross margin on projects as a percentage of project revenues was 49.5% for the 2007 period, as compared to 38.2% for the 2006 period.  The increase in gross profit percentage can be attributed to the decrease in cost of fulfilling the projects.  Gross profit on projects decreased in terms of dollars in 2007 by US$207,243 (HK$1,616,496) because of the decrease in sales.

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Selling, general, and administrative expenses increased by US$97,526 (HK$760,701) (19.5%) in 2007 as compared to 2006 due mainly to an increase to allowance for doubtful accounts of US$93,062 (HK$725,882), as some of our trade receivables exceeded 90 days.  Depreciation and amortization increased by US$50,785 (HK$396,123) because of the leasehold improvements made in 2005 to our office facilities and the additions to capitalized software development costs in 2005.

Primarily as a result of the decrease in gross profit, the increased selling, general and administrative expenses and the increase in stock based compensation costs of US$111,563 (HK$870,194) in 2007, we incurred an operating loss in 2007 of US$345,185 (HK$2,692,446) as compared to operating income in 2006 of US$42,003 (HK$327,625).

We had other expense in 2007 of US$52,408 (HK$408,779), which consisted primarily of interest expense, in contrast to other income of US$2,206 (HK$17,207) in 2006.  We had an income tax credit of US$5,798 (HK$45,227) for 2007, as compared to an expense of US$7,516 (HK$58,621) for 2006.  Minority interest in 2007 was income of US$6,576 (HK$51,289), as compared to a loss of US$3,518 (HK$27,437) in 2006.  The addition to minority interest represents loss that belongs to the minority owner of our 92%-owned subsidiary, Titanium Technology (Shenzhen) Co., Ltd.

In summary, we generated 52.1% less revenues for the six months ended June 30, 2007, while our operating expenses increased by 26.9%, resulting in a net loss of US$385,219 (HK$3,004,709) as compared to net income of US$33,176 (HK$258,774) for the comparable 2006 period.

Liquidity and Capital Resources

As of June 30, 2007.  At June 30, 2007, we had working capital of US$1,203,295 (HK$9,385,705), as compared to US$182,021 (HK$1,419,763) at December 31, 2006.  The increase was due primarily to the completion of a private placement of convertible notes resulting in net proceeds of US$1,255,000 (HK$9,555,000).  At June 30, 2007, we showed an increase in deposits and other receivables of US$239,605 (HK$1,868,918), a decrease in bank overdraft of US$107,014 (HK$834,711), and a decrease in accounts payable of US$256,190 (HK$1,998,279).

During the six months ended June 30, 2007, our operating activities used cash of US$752,404 (HK$5,868,748), as compared to US$252,427 (HK$1,968,929) provided in 2006.  We also used US$83,147 (HK$648,551) for investing activities in 2007, which were primarily for capitalized software development costs, as compared to US$418,077 (HK$3,261,004) used in 2006, primarily for additions to plant and equipment.  Financing activities, which consisted primarily of net proceeds from our debenture offering and a short-term bank loan, provided cash of US$1,141,654 (HK$8,904,899) in 2007.  In comparison, we used cash of US$17,002 (HK$132,615) to repay our bank overdraft in 2006.

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

17

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 les 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 and the warrants issued to the investors.

At June 30, 2007, our bank overdraft was US$112,476 (HK$877,313).  We have a banking facilities arrangement with the bank where we maintain our checking account that allows us to overdraft our account up to US$256,410 (HK$2,000,000).  Our officers and directors have provided their personal guarantees up to that amount for the banking facilities arrangement.  Essentially this is a receivables revolving line of credit, as the borrowing base is based on a percentage of our eligible accounts receivable.  The bank charges interest on the overdraft at the higher of 1.5% over the Hong Kong prime rate or 2% over the overnight HIBOR (Hong Kong Interbank Offered Rate).  Generally, the overdraft situation does not exist for any significant length of time.  The consequences of not paying according to the terms of our agreement with the bank are the same as for any other secured loan.  The bank would be entitled to foreclose on the collateral and/or seek repayment from the guarantors.

In light of our working capital of US$1,203,295 (HK$9,385,705) at June 30, 2007, we believe that we have current and available capital resources sufficient to fund planned operations for the remainder of the current fiscal year.  Our current fixed overhead is approximately $64,102 (HK$500,000) 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.  At June 30, 2007, our backlog of orders believed to be firm was approximately US$2,000,000 (HK$15,600,000), as compared to approximately US$2,000,000 (HK$15,600,000) at June 30, 2006.  We expect that approximately US$1,000,000 (HK$7,800,000) will not be filled by the second half of 2007.

Forward-Looking Statements

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

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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market rate risk for changes in interest rates relates primarily to money market funds included in our investment portfolio.  Investments in fixed rate earning instruments carry a degree of interest rate risk as their fair market value may be adversely impacted due to a rise in interest rates.  As a result, our future investment income may fall short of expectations due to changes in interest rates.  We do not use any hedging transactions or any financial instruments for trading purposes and we are not a party to any leveraged derivatives.  Due to the nature of our investment portfolio, we believe that we are not subject to any material market risk exposure.

ITEM 4.    CONTROLS AND PROCEDURES

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

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

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We are not a party to any pending legal proceedings.

Item 1A.       Risk Factors

There were no other material changes from the risk factors disclosed in our annual report on Form 10-K for the fiscal year ended December 31, 2006.

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

We reported the sale of convertible debentures and warrants in a current report on Form 8-K, filed April 4, 2007.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

None.

Item 6. Exhibits

Regulation S-K Number	Exhibit
3.1	Memorandum of Association, as amended (1)
3.2	Articles of Association, as amended (1)
4.1	Form of Warrant (2)
4.2	Form of Subscription Agreement (2)
10.1	Employment agreement with Jason Ma dated January 1, 2005 (1)
10.2	Employment agreement with Humphrey Cheung dated January 1, 2005 (1)
10.3	Employment agreement with Billy Tang dated January 1, 2005 (1)
10.4	Office lease dated June 22, 2005 (1)
10.5	2005 Stock Plan (2)
10.6	Technical Service Agreement with IBM China/Hong Kong Limited dated October 5, 2004 and Amendment to Supplier Agreement dated December 3, 2004 (2)

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Regulation S-K Number	Exhibit
10.7	Technology Partnership and Research & Development Contract with China Scientific Automation Research Center dated June 15, 2005 (2)
10.8	Technology Research and Development Contract with Tsing Hua University dated November 4, 2005 (2)
10.9	Form of Distributor Agreement (3)
10.10	Form of Reseller Agreement (3)
10.11	Distributor Agreement with Elixir Group Limited dated January 1, 2004 (4)
10.12	Distributor Agreement with Smart Wireless Corporation dated February 1, 2005 (4)
10.13	Agreement with Shanghai Commercial Bank Ltd. dated February 7, 2006 (4)
10.14	Securities Purchase Agreement dated April 3, 2007 (5)
10.15	Form of Debenture (5)
10.16	Registration Rights Agreement dated April 3, 2007 (5)
10.17	Form of Warrant (5)
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.

(4)          Incorporated by reference to the exhibits to Amendment No. 3 to the registration statement on Form S-1 (File No. 333-128302) on March 8, 2006.

(5)          Incorporated by reference to the exhibits to the registrant’s current report on Form 8-K dated April 3, 2007 (File No. 0-52415), filed April 4, 2007.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	TITANIUM GROUP LIMITED
August 14, 2007	By:	/s/   Dr. Kit Chong Ng
		Dr. Kit Chong "Johnny" Ng
		Principal Financial Officer

August 14, 2007	By:	/s/  Jason Ma
		Jason Ma
		Chief Executive Officer

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Jason Ma, certify that:

1.           I have reviewed this quarterly report on Form 10-Q of Titanium Group Limited;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 14, 2007	/s/  Jason Ma
	Jason Ma
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Dr. Kit Chong “Johnny” Ng, certify that:

1.           I have reviewed this quarterly report on Form 10-Q of Titanium Group Limited;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 14, 2007	/s/ Dr. Kit Chong Ng
	Dr. Kit Chong "Johnny" Ng
	Principal Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Titanium Group Limited (the “Company”) on Form 10-Q for the period ending June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jason Ma, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Jason Ma

_______________________________________
Jason Ma

Chief Executive Officer

August 14, 2007

_______________________________________
Date

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Titanium Group Limited (the “Company”) on Form 10-Q for the period ending June 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dr. Kit Chong “Johnny” Ng, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Dr. Kit Chong Ng

_____________________________________

Dr. Kit Chong “Johnny” Ng

Principal Financial Officer

August 14, 2007

_____________________________________
Date