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 September 30, 2008

[  ]          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.)

15/F, Kennedy Town Commercial Tower, 23 Belcher’s Street, Kennedy Town, 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, a non-accelerated filer or a small reporting company.  See definitions of “large accelerated filer,” accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer[  ]	Accelerated filer[  ]
Non-accelerated filer[  ]	Smaller reporting company[X]

Indicate by check mark whether the registrant is a shell company

(as defined in Rule 12b-2 of the Exchange Act).  [  ]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:

51,644,399 shares of Common Stock, $0.01 par value, as of September 30, 2008

TITANIUM GROUP LIMITED AND SUBSIDIARIES

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

	Page
Condensed Consolidated Balance Sheet as   of September 30, 2008 (Unaudited and December 31, 2007	3
Condensed Consolidated Statements of Operations and Comprehensive Loss  for the three and nine months ended September 30, 2008 and 2007 (Unaudited)	4 - 5
Condensed Consolidated Statements of Cash Flows  for the nine months ended September 30, 2008 and 2007 (Unaudited)	6
Notes to Condensed Consolidated Financial Statements (Unaudited)	7 – 13

2

TITANIUM GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2008 AND DECEMBER 31, 2007

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

	September 30,							December 31,
	2008				2008			2007
ASSETS	US$ (Unaudited)				HK$ (Unaudited)			HK$ (Audited)
Current assets:
Cash and cash equivalents		$	68,985		$	538,084		$	1,168,331
Restricted cash			51,282			400,000			400,000
Accounts receivable, net			354,644			2,766,222			11,711,828
Inventories			95,781			747,094			1,484,962
Deposits and other receivables			40,160			313,249			392,159
Deferred tax assets			87,633			683,534			683,534
Total current assets			698,485			5,448,183			15,840,814
Plant and equipment
Cost			610,537			4,762,192			7,617,219
Less: accumulated depreciation			(269,391	)		(2,101,250	)		(2,203,449	)
			341,146			2,660,942			5,413,770
Intangible assets, net			698,092			5,445,114			3,718,194
TOTAL ASSETS		$	1,737,723		$	13,554,239		$	24,972,778
Current liabilities:
Bank overdrafts		$	-		$	-		$	1,208,606
Short-term bank loan			-			-			26,347
Accounts payable and accrued liabilities			283,233			2,209,215			9,438,388
Deferred revenue			-			-			76,867
Income tax payable			1,619			12,626			12,626
Total current liabilities			284,852			2,221,841			10,762,834
Long-term liabilities:
Debenture payable			1,435,611			11,197,766			10,193,679
Warrants liability			28,675			223,665			1,485,261
Total long-term liabilities			1,464,286			11,421,431			11,678,940
Total liabilities			1,749,138			13,643,272			22,441,774
Minority interest in net loss of consolidated subsidiaries			2,735			21,336			75,583
Stockholders’ (deficit) equity:
Common stock, US$0.01 (HK$0.078) par value, 100,000,000 shares authorized, 51,644,399 and 50,912,677 shares issued and outstanding			516,444			4,028,263			3,971,189
Additional paid-in capital			831,247			6,483,726			6,305,237
Accumulated deficit			(1,359,574	)		(10,604,669	)		(7,819,691	)
Accumulated other comprehensive loss			(2,267	)		(17,689	)		(1,314	)
Total stockholders’ (deficit) equity			(14,150	)		(110,369	)		2,455,421
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY		$	1,737,723		$	13,554,239		$	24,972,778

See accompanying notes to consolidated financial statements.

3

TITANIUM GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF

OPERATIONS AND COMPREHENSIVE LOSS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

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

(Unaudited)

	Three months ended September 30,									Nine months ended September 30,
	2008			2008			2007			2008			2008			2007
	US$			HK$			HK$			US$			HK$			HK$
REVENUE, NET
Projects
Products	$	289,832		$	2,260,694		$	2,391,577		$	797,865		$	6,223,350		$	5,857,213
Services		59,516			464,223			957,672			386,900			3,017,818			2,867,242
		349,348			2,724,917			3,349,249			1,184,765			9,241,168			8,724,455
Maintenance
Services		9,966			77,735			4,804			29,898			233,203			209,413
Total revenue		359,314			2,802,652			3,354,053			1,214,663			9,474,371			8,933,868
COST OF REVENUE
Projects
Cost of products sold		121,917			950,951			1,682,525			717,341			5,595,262			3,543,222
Cost of services		47,376			369,534			239,989			284,776			2,221,255			1,096,313
		169,293			1,320,485			1,922,514			1,002,117			7,816,517			4,639,535
Maintenance
Cost of services		1,282			10,000			700			5,128			40,000			25,700
Total cost of revenue		170,575			1,330,485			1,923,214			1,007,245			7,856,517			4,665,235
GROSS PROFIT		188,739			1,472,167			1,430,839			207,418			1,617,854			4,268,633
OPERATING EXPENSES
Selling, general and  administrative		145,887			1,137,912			2,757,538			661,904			5,162,828			7,417,584
Stock-based compensation		-			-			57,530			-			-			927,724
Total operating expenses		145,887			1,137,912			2,815,068			661,904			5,162,828			8,345,308
INCOME (LOSS) FROM  OPERATIONS		42,852			334,255			(1,384,229	)		(454,486	)		(3,544,974	)		(4,076,675	)
OTHER INCOME  (EXPENSE):
Sundry income		-			-			-			138,181			1,077,813			-
Government grant income		-			-			-			5,419			42,267			24,066
Interest income		2			17			17,281			87			679			52,517
Interest expense		(28,498	)		(222,288	)		(482,161	)		(86,220	)		(672,519	)		(550,032	)
Amortization cost on discount of convertible debenture		(2,390	)		(18,642	)		(451,442	)		(7,170	)		(55,926	)		(851,652	)
Gain from change in warrant liability		-			-			-			40,184			313,435			-
Total other income (expense)		(30,886	)		(240,913	)		(916,322	)		90,481			705,749			(1,325,101	)

See accompanying notes to consolidated financial statements.

4

TITANIUM GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF

OPERATIONS AND COMPREHENSIVE LOSS (CONTINUE)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

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

(Unaudited)

	Three months ended September 30,							Nine months ended September 30,
	2008		2008		2007			2008			2008			2007
	US$		HK$		HK$			US$			HK$			HK$
INCOME (LOSS) BEFORE  INCOME TAX		11,966		93,342		(2,300,551	)		(364,005	)		(2,839,225	)		(5,401,776	)
Income tax benefit		-		-		24,636			-			-			69,863
INCOME (LOSS) BEFORE  MINORITY INTEREST		11,966		93,342		(2,275,915	)		(364,005	)		(2,839,225	)		(5,331,913	)
Minority interest		2,466		19,233		-			6,955			54,247			-
NET INCOME (LOSS)		14,432		112,575		(2,275,915	)		(357,050	)		(2,784,978	)		(5,331,913	)
Other comprehensive loss:
Foreign currency translation  loss		-		-		-			(2,099	)		(16,375	)		(7,915	)
COMPREHENSIVE  INCOME (LOSS)		14,432		112,575		(2,275,915	)		(359,149	)		(2,801,353	)		(5,339,828	)
Net income loss per share –  basic and diluted		-		0.002		(0.046	)		(0.007	)		(0.054	)		(0.107	)
Weighted average number of  shares outstanding – basic  and diluted		51,644,399		51,644,399		50,000,000			51,519,950			51,519,950			50,000,000

See accompanying notes to condensed consolidated financial statements.

5

TITANIUM GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

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

(Unaudited)

	Nine months ended September 30,
	2008			2008			2007
	US$			HK$			HK$
Cash flow from operating activities:
Net loss		(357,050	)		(2,784,978	)		(5,331,913	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		271,312			2,116,230			1,348,996
Allowances for doubtful accounts		(60,339	)		(470,645	)		1,299,708
Minority interest in earnings of subsidiaries		(6,955	)		(54,247	)		-
Stock-based compensation		-			-			927,724
Gain from disposal of plant and equipment		(34,079	)		(265,813	)		-
Amortization cost on discount of convertible debenture		(33,014	)		(257,509	)		851,652
Stock issued for service rendered, non-cash		10,389			81,037			-
Changes in assets and liabilities:
Accounts receivable		1,207,212			9,416,251			(3,648,296	)
Inventories		94,598			737,868			(97,232	)
Deposits and other receivable		10,117			78,910			(457,314	)
Deferred tax assets		-			-			(69,863	)
Accounts payable and accrued liabilities		(614,902	)		(4,796,247	)		2,113,730
Other tax payable		-			-			(291,084	)
Income tax payable		-			-			(5,139	)
Deferred revenue		(9,855	)		(76,867	)		-
Net cash provided by (used in) operating activities		477,434			3,723,990			(3,359,031	)
Cash flows from investing activities:
Purchase of plant and equipment		(22,319	)		(174,091	)		(2,861,923	)
Capitalization of software development costs		(375,416	)		(2,928,244	)		(919,670	)
Net cash used in investing activities		(397,735	)		(3,102,335	)		(3,781,593	)
Cash flows from financing activities:
Proceeds from short-term bank loan		-			-			315,000
Repayments of short-term bank loan		(3,378	)		(26,347	)		(210,409	)
Proceeds from convertible debenture,  net of expenses		-			-			9,555,000
Net decrease in bank overdraft		(154,949	)		(1,208,606	)		(1,079,795	)
Net cash (used in) provided by financing activities		(158,327	)		(1,234,953	)		8,579,796
Effect of exchange rate changes on cash and  cash equivalents		(2,173	)		(16,949	)		(7,915	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		(80,801	)		(630,247	)		1,431,257
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		149,786			1,168,331			1,164,528
CASH AND CASH EQUIVALENTS, END OF PERIOD		68,985			538,084			2,595,785
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid		59,599			464,875			81,948
Income tax paid		-			-			-

See accompanying notes to condensed consolidated financial statements

6

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

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

(Unaudited)

NOTE 1 - GENERAL

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

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

NOTE 2 – BASIS OF PRESENTATION

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

In the opinion of management, the consolidated balance sheet as of December 31, 2007 which has been derived from audited financial statements and these unaudited condensed consolidated financial statements reflect all normal and recurring adjustments considered necessary to state fairly the results for the periods presented. The results for the period ended September 30, 2008 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2008 or for any future period.

These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Management’s Discussion and the audited financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2007.

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.

7

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

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

(Unaudited)

As of September 30, 2008, the Group had incurred a net loss of HK$2,784,978 and an accumulated deficit of HK$10,604,669. Additionally, the Group has incurred substantive losses over the past several years and has a capital deficit of HK$110,369. 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 People’s Republic of China (the “PRC”). Management believes that these actions will enable the Group to improve future profitability and cash flow in its continuing operations through September 30, 2009. 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.

NOTE 4 – RECENT ACCOUNTING PRONOUNCEMENTS

The Group 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 December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS No. 141R”). SFAS No. 141R will change the accounting for business combinations. Under SFAS No. 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS No. 141R will change the accounting treatment and disclosure for certain specific items in a business combination. SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Accordingly, any business combinations the Group engages in will be recorded and disclosed following existing GAAP until January 1, 2009. The Group expects SFAS No. 141R will have an impact on accounting for business combinations once adopted but the effect is dependent upon acquisitions at that time. The Group is still assessing the impact of this pronouncement.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements--An Amendment of ARB No. 51, or SFAS No. 160” (“SFAS No. 160”). SFAS No. 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. The Group believes that SFAS 160 should not have a material impact on the consolidated financial position or results of operations.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”). SFAS 161 requires companies with derivative instruments to disclose information that should enable financial-statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB Statement No. 133 “Accounting for Derivative Instruments and Hedging Activities” and how derivative instruments and related hedged items affect a company’s financial position, financial performance and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The adoption of this statement is not expected to have a material effect on the Group’s future financial position or results of operations.

8

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

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

(Unaudited)

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). This statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements in conformity with generally accepted accounting principles (GAAP) in the United States. This statement is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. The Group does not expect the adoption of SFAS No. 162 to have a material effect on the financial condition or results of operations of the Group.

In May 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts--an interpretation of FASB Statement No. 60” (“SFAS No. 163”). SFAS No. 163 interprets Statement 60 and amends existing accounting pronouncements to clarify their application to the financial guarantee insurance contracts included within the scope of that Statement. SFAS No. 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years. As such, the Group is required to adopt these provisions at the beginning of the fiscal year ended December 31, 2009. The Group is currently evaluating the impact of SFAS No. 163 on its financial statements but does not expect it to have an effect on the Group’s financial position, results of operations or cash flows.

Also in May 2008, the FASB issued FSP APB 14-1, “Accounting for Convertible Debt Instruments that may be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1 applies to convertible debt securities that, upon conversion, may be settled by the issuer fully or partially in cash. FSP APB 14-1 specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 is effective for financial statements issued for fiscal years after December 15, 2008, and must be applied on a retrospective basis. Early adoption is not permitted. The Group does not expect it to have an effect on the Group’s financial position, results of operations or cash flows.

In June 2008, the FASB issued FASB Staff Position (“FSP”) EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1”). FSP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and therefore need to be included in the earnings allocation in computing earnings per share under the two-class method as described in SFAS No. 128, Earnings per Share. Under the guidance of FSP EITF 03-6-1, unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings-per-share pursuant to the two-class method. FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and all prior-period earnings per share data presented shall be adjusted retrospectively. Early application is not permitted. The Group does not expect it to have an effect on the Group’s financial position, results of operations or cash flows.

9

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

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

(Unaudited)

Also in June 2008, the FASB ratified EITF No. 07-5, “Determining Whether an Instrument (or an Embedded Feature) is Indexed to an Entity’s Own Stock” (“EITF 07-5”). EITF 07-5 provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. EITF 07-5 is effective for financial statements issued for fiscal years beginning after December 15, 2008. Early application is not permitted. The Group is assessing the potential impact of this EITF 07-5 on the financial condition and results of operations and does not expect it to have an effect on the Group’s financial position, results of operations or cash flows.

NOTE 5 – PER SHARE INFORMATION

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Group. For the period ended September 30, 2008, outstanding warrants to purchase 3,000,000 shares of common stock of the Group which were issued in connection with the prior sale of common stock expired on June 30, 2008 and, hence, do not have any dilutive effect.

During the nine months ended September 30, 2008, the Group did not grant any 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 September 30, 2008 is anti-dilutive. As a result, diluted income (loss) per share data does not include the assumed exercise of outstanding stock options and has been presented jointly with basic income (loss) per share.

NOTE 6 – INCOME TAXES

The Group accounts for income tax using SFAS No. 109 “Accounting for Income Taxes”, which requires the asset and liability approach for financial accounting and reporting for income taxes. Under this approach, deferred income taxes are provided for the estimated future tax effects attributable to temporary differences between financial statement carrying amounts of assets and liabilities and their respective tax bases, and for the expected future tax benefits from loss carry-forwards and provisions, if any. Deferred tax assets and liabilities are measured using the enacted tax rates expected in the years of recovery or reversal and the effect from a change in tax rates is recognized in the statements of operations in the period of enactment. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of the deferred tax assets will not be realized.

The Group also adopts the provisions of the Financial Accounting Standards Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures and transitions. The adoption of FIN 48 did not have a significant impact on the Group’s consolidated financial statements.

10

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

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

(Unaudited)

For the nine months ended September 30, 2008, the Group and its subsidiaries incurred net operating losses of approximately HK$2,839,225 for income tax purposes and no provision for income taxes is necessary.

As of September 30, 2008, the Group recognized a deferred tax asset of approximately HK$683,534, primarily relating to the aggregate cumulative tax losses of HK$12,124,151 are available to be carried forward indefinitely to offset future taxable income, if unutilized. The deferred tax assets consists mainly of tax losses from differing tax regimes and for which a valuation allowance of HK$1,562,692 has been provided, as the management believes it is more likely than not that these assets will not be realized in the future.

NOTE 7 – 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 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.

11

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

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

(Unaudited)

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, pursuant to APB 14 “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants”. The debentures were further discounted for the intrinsic value of the beneficial conversion feature, pursuant to EITF 98-5 “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”. The discount is being amortized over the life of the debentures. For the three and nine months ended September 30, 2008, the Company recorded nil and HK$313,435 (US$40,184) as gain from change in warrant liability in the statement of operation.

As of September 30, 2008, the fair value of the warrants of HK$223,665 (US$28,675) 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)	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. 477,366 shares of common stock were issued on November 27, 2007 and 377,973 shares of common stock were subsequently issued on January 15, 2008.

NOTE 8 – 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.

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TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

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

(Unaudited)

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

	As of
	September 30, 2008			December 31, 2007
	HK$			HK$
Long-lived assets:
- Hong Kong		$	8,069,300		$	9,086,440
- The PRC			36,756			45,524
		$	8,106,056		$	9,131,964

	Nine months ended September 30,
	2008			2007
	HK$			HK$
Revenue:
- Hong Kong		$	8,907,879		$	8,897,900
- The PRC			566,492			35,968
		$	9,474,371		$	8,933,868

NOTE 9 – COMMITMENTS AND CONTINGENCIES

The Company rented office space under non-cancelable operating lease agreements which run for a term of 9 months to 3 years, due January 31, 2009, June 20, 2009 and May 25, 2011. Costs incurred under these operating leases are recorded as rental expense and totaled approximately $381,898 and $454,778 for the period ended September 30, 2008 and 2007. As of September 30, 2008, future minimum annual operating lease payments are as follows:

Period ending September 30,
2009	$	333,734
2010		303,996
2010		202,664
Total	$	840,394

NOTE 10 – COMPARATIVE FIGURES

Certain amounts in the prior periods presented have been reclassified to conform to the current period financial statement presentation.

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ITEM 2. 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.

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 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.

In September 2007, we set up a Hong Kong joint venture, Titanium RFID Limited, in which we hold a 51% interest.  This joint venture will engage in the development and marketing of radio frequency identification (RFID) solutions to complement our core biometric technology.

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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 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

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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.  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 is 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

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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 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.

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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 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 September 30, 2008 Compared to Three Months Ended September 30, 2007.  For the three months ended September 30, 2008, projects revenues decreased by US$80,043 (HK$624,332) (18.6%) over the same period in 2007, The decrease of projects revenues was attributed to the reduction of provision of services rendered as the Company’s new strategy is to focus on sales of its own proprietary products.

Our cost of projects as a percentage of projects revenues was 48.5% for 2008 as compared to 57.4% for 2007.  The decrease was attributed to the increased portion of sales from the Company’s proprietary products in the three months ended September 30, 2008, which carried lower costs when compared to products from other third party vendors.

Selling, general, and administrative expenses decreased by US$207,644 (HK$1,619,626) (58.7%) in 2008 as compared to 2007 due mainly to a reduction in: (i) promotion expenses of US$22,145 (HK$172,733), (ii) allowance for provision of doubtful debts of US$122,299 (HK$953,930) and (iii) salaries of US$49,555 (HK$386,529).

As a result of the increased gross profit and reduction in selling, general and administrative expenses, we generated income from operations in 2008 of US$42,852 (HK$334,255) as compared to an operating loss in 2007 of US$177,465 (HK$1,384,229).

We had other expense in 2008 of US$30,886 (HK$240,913), due primarily to interest expense of US$28,498 (HK$222,288).  In contrast, we had other expense of US$117,477 (HK$916,322) in 2007, due primarily to interest expense of US$61,815 (HK$482,161).  We paid down our bank overdrafts of US$172,708 (HK$1,347,121) during the third quarter, thereby reducing our interest expense.  Other expense decreased also because of a reduction of amortization of discount of US$57,877 (HK$451,442).

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In summary, while we experienced decreased revenues in the quarter ended September 30, 2008, we generated net income of US$14,432 (HK$112,575), due to the increase in gross profit and reduction in operating expenses and interest expense.

Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007.  For the nine months ended September 30, 2008, projects revenues increased by US$66,245 (HK$516,713) (5.9%) over the same period in 2007, mainly due to increased volume of business in the first quarter of 2008 compared to the first quarter of 2007.

Our cost of projects as a percentage of projects revenues was 84.6%, as compared to 53.2% for the nine months ended September 30, 2007. The increase was mainly attributed to the second quarter of 2008 when we purchased materials for a Housing Authority Project of approximately US$256,400 (HK$2,000,000) that could not be billed to the client.

Selling, general, and administrative expenses decreased by US$289,071 (HK$2,254,756) (30.4%) in 2008 as compared to 2007 due to a reduction in (i) salary of US$63,290 (HK$493,665) and (ii) allowance for doubtful debts of US$226,968 (HK$1,770,353) , offset by an increase in depreciation of US$27,924 (HK$217,808).

Primarily as a result of the decreased operating expenses, we incurred a decreased operating loss in 2008 of US$454,486 (HK$3,544,974) as compared to an operating loss in 2007 of US$522,651 (HK$4,076,675), despite the decrease in gross profit.

We had other income in 2008 of US$90,481 (HK$705,749), due to sundry income of US$138,181 (HK$1,077,813), which mainly consisted of a refund for promotion expenses of US$104,103 (HK$812,000), which was paid in 2007, and a gain on disposal of plant and equipments of US$34,079 (HK$265,813).  We also had a gain from change in warrant liability of US$40,184 (HK$313,435) to offset interest expense of US$86,220 (HK$672,519). In contrast, we had other expense in 2007 of US$169,885 (HK$1,325,101), which primarily consisted of interest expense and amortization of discount.

In summary, while we experienced a decreased gross profit for the nine months ended September 30, 2008, our net loss decreased by US$326,530 (HK$2,546,935) as compared to the comparable 2007 period, due to the reduction in operating expenses and increase in other income.

Liquidity and Capital Resources

As of September 30, 2008.  At September 30, 2008, we had working capital of US$413,633 (HK$3,226,342), as compared to US$651,023 (HK$5,077,980) at December 31, 2007.  The decrease was primarily due to the reductions in (i) accounts receivable, net of US$1,146,873 (HK$8,945,606), (ii) cash of US$80,801 (HK$630,247), (iii) inventories of US$94,598 (HK$737,868), (iv) accounts payable of US$926,817 (HK$7,229,173) and (v) bank overdraft of US$154,949 (HK$1,208,606).

During the nine months ended September 30, 2008, our operating activities provided cash of US$477,434 (HK$3,723,990), as compared to US$430,645 (HK$3,359,031) used in 2007.  We also used US$397,735 (HK$3,102,335) for investing activities in 2008, which was primarily for capitalized software development costs, as compared to US$484,820 (HK$3,781,593) used in 2007, also primarily for plant and equipment.  We used US$158,327 (HK$1,234,953) for financing activities, consisting primarily of repayment of bank overdrafts.  In contrast, financing activities provided cash of US$1,099,974 (HK$8,579,796) in 2007, primarily through the sale of convertible debentures for net proceeds of US$1,225,000 (HK$9,555,000).

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Our bank overdrafts was US$154,949 (HK$1,208,606) at December 31, 2007.  We have a banking facilities arrangement with the bank where we maintain our checking account that allows us to overdraft 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.  The bank overdraft was paid off during the quarter ended September 30, 2008.

In light of our working capital of US$413,633 (HK$3,226,342) at September 30, 2008, we believe that we have current and available capital resources sufficient to fund planned operations for the last quarter of the current fiscal year.  Our current fixed overhead is approximately $51,282 (HK$400,000) 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.  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 September 30, 2008, several backlog orders of approximately US$1,200,000 (HK$9,360,000) will be confirmed, as compared to approximately US$2,000,000 (HK$15,600,000) at September 30, 2007.  We expect that approximately US$900,000 (HK$7,020,000) will be carried forward to the next fiscal year.

Forward-Looking Statements

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

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required.

ITEM 4T.  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.

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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, 2007.

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

None.

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)
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)

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Regulation S-K Number Exhibit

10.15	Form of Debenture (5)
10.16	Registration Rights Agreement dated April 3, 2007 (5)
10.17	Form of Warrant (5)
10.18	November 2007 Amendment and Waiver Agreement (6)
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.

(6)   Incorporated by reference to the exhibits to the registrant’s current report on Form 8-K dated November 23, 2007 (File No. 0-52415), filed November 26, 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
November 11, 2008	By:	/s/ Kit Chong "Johnny" Ng
		Dr. Kit Chong "Johnny" Ng
		Principal Financial Officer
November 11, 2008	By:	/s/ Wai Hung "Billy" Tang
		Wai Hung "Billy" Tang
		Acting Chief Executive Officer

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