f10k-titanium.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 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	Not applicable
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

15/F, Kennedy Town Commercial Tower, 23 Belcher’s Street, Kennedy Town, Hong Kong

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (852) 3427 3177

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

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

Common Stock, $0.01 par value

(Title of class)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X]Yes [ ]No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

[ ]Yes [X]No

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $523,496 as of June 30, 2008

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 51,644,399 as of March 17, 2009

Documents incorporated by reference: None

PART I

ITEM 1. BUSINESS

Business Development

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

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

Titanium Technology is engaged in developing products utilizing biometrics technologies, licensing of technologies, professional services, and project contracting. Based in Hong Kong with a research and development center in Shenzhen, China, and a sales representative office in the United States, Titanium Technology has built a network of IT practitioners and researchers, enabling us to provide proprietary biometrics products and professional services. We have developed and sold Automatic Face Recognition Systems, or AFRS, and other biometric and security solutions to governments, law enforcement agencies, gaming companies, and other organizations in China and other parts of Asia. Our AFRS products enable customers to capture human face images electronically, encode facial image into searchable files (faceprint), and precisely compare a set of faces to a database containing potentially thousands of faces in seconds.

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

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

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

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

In 2003, we successfully registered a patent about “Apparatus and Method for Recognizing Images” in Hong Kong Special Administrative Region (“HKSAR”). Also in 2003, our face recognition product, ProAccess FaceOK™, computer logical access control software, was launched. This product was then awarded the “Best of Comdex Finalist 2003” in Las Vegas in November of the same year. Comdex, an acronym for Computer Dealer’s Exhibition, was a computer and information technology exposition held in Las Vegas, Nevada, each year from 1979 to 2003. It was one of the largest computer trade shows in the world. ProAccess FaceOK was also awarded several local (the IT Excellence Award in Hong Kong) and regional (the Asia Pacific ICT Award) recognitions. The IT Excellence Awards is a professional initiative of the Hong Kong Computer Society. Established in 1998, the award scheme is an annual event that recognizes excellent IT applications and innovative IT technologies. The Asia Pacific ICT Awards (APICTA) is an international awards program initiated by the Multimedia Development Corporation of Malaysia to increase ICT (Information and Communication Technology) awareness in the community and assist in bridging the Digital Divide. Participants of the Awards Program comprise members of the APICTA Network, which include Australia, Brunei, Hong Kong, India, Indonesia, Korea, Macau, Malaysia, Myanmar, Philippines, Singapore, Sri Lanka, Thailand, Vietnam and China. Nominees to the different awards are presented to APICTA by the respective economy coordinator and assessed by a panel of judges representing every member-economy. Titanium was presented the Merit Award in Security category with the ProAccess FaceOK product in 2004.

In 2004, we launched our intelligent surveillance product, ProFacer, and promoted it into casino and financial institution markets. We also set up distribution networks in mainland China, Australia, United States, Turkey and Japan. Titanium Technology has delivered biometrics security products, consulting services, and systems integration services to various government offices, financial institutions, universities, telecommunication companies, and international corporations. In 2006, we were named to the Deloitte “Technology Fast 50 in China,” placing 28th out of 50 and the Deloitte “Technology Fast 500 in Asia Pacific,” placing 182nd out of 500 with growth of 234% over a three-year period. This annual award honors the fastest growing technology companies in the region, based on percentage of revenue growth over a three-year period. This annual competition is a Deloitte initiative at a regional and global level, which aims to draw attention to fast-growing companies and bring attention to companies that are just establishing themselves. Moreover, we have also been named as one of six finalists out of a record 224 Asian entries in the Global Entrepolis Award presented by The Wall Street Journal Asia in association with the Economic Development Board of Singapore.

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. In December 2008, we set up a Hong Kong joint venture, Titanium Biometrics Limited, in which we hold a 51% interest. This joint venture will engage in the promotion and marketing of biometrics face recognition access control and time attendance systems in Mainland China.

Ti-Face

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

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

Ti-Face SDK 3.0 for Windows. Features included in Ti-Face SDK 3.0 are face detection, high speed face tracking, matching and authentication, detecting motion or changes in a scene, extracting imagery from a video or live-stream, comparing and matching non-facial images, and performing both “one-to-one” verification and “one-to-many” identification. Independent developers can use Ti-Face SDK as a tool to build custom applications based on our proprietary face detection and recognition technology. Examples of applications include physical access control solutions that can integrate with reporting modules and alarm systems, logical access control solutions that can integrate with existing authentication systems and replace the use of passwords, and ticketing systems that can insure that a single ticket is not being shared by multiple customers. Furthermore, by integrating our face recognition engine into third-party solutions and applications, end users can obtain a solution that is customized to fulfill their specific requirements. We intend to develop additional modules on face recognition. By combining several modules, greater security and more accurate identification methods can be obtained. Furthermore, a multimodal biometric system can be easily integrated into an application to greatly enhance security, privacy and user convenience.

Products

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

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

Product	Application	Status
ProAccess FaceOK	Access to computers	Launched in third quarter of 2003; over 30,000 licenses sold to customers.
ProAccess FaceGuard	Facility entry	First versions completed in third quarter of 2005 and being marketed; over 400 systems installed.

Product	Application	Status
ProAccess FaceAttend	Time attendance recorder	First versions completed third quarter of 2005 and being marketed; over 500 systems installed.

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

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

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

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

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

ProAccess FaceGuard is empowered by Ti-Face. It can be operated in both online and offline mode. The templates of the authorized user list can be stored in a server or in the internal memory of the

device. Although ProAccess FaceGuard may be networked in an enterprise environment, it is a stand-alone device that can be operated independently. The installation is simple and, except for the electric lock, there is no hidden cost in the installation.

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

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

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

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

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

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

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

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

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

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

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

Product	Application	Status
ProFacer iDVR	DVR system with face capture	Deployed in eight branches of the People’s Bank of China
ProFacer iWatchGuard	Automatic full-time face recognition	Deployed in four branches of the People’s Bank of China, a casino in Macau, and NTT Group in Japan
ProFacer iMugShot	Image to image matching	Deployed in an agency of the Hong Kong government.
ProFacer iDControl	Live person to image matching	Deployed in two government locations.

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

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

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

ProFacer iWatchGuard. ProFacer iWatchGuard adds automatic full time face recognition, matching and active warning alerts to any new or existing surveillance system. It allows each camera to

serve as a diligent observation point even when the video is not observed. Face recognition surveillance incorporates computer intelligence to monitor faces and match those faces against a “watch list” face database. As a modern new tool to identify potential threats to public safety, ProFacer iWatchGuard can scan facial images of individuals and match them with a database of images containing known suspects. In seconds, a scanned face can be searched against thousands, or even millions of database images to determine if the scanned image matches a previously stored suspect image.

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

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

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

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

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

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

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

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

Consulting

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

Security services. As a digital security services provider, we offer strategic solutions for technology-enabled enterprises. As a security advisor, we help clients to meet their requirements for continuous IT innovation and development while controlling the risks inherent in today’s complex networked environments. Our security specialists help customers identify system/network security weaknesses and provide professional advice on how to best protect vital information and assets both virtually on the Internet and physically without compromising productivity or endangering the bottom line. Our services include security consulting, risk assessment and penetration testing. Security training is also provided for the staffs to increase the security awareness and knowledge. Our clients include the Labour Department of Hong Kong SAR, Tokyo Bank of Mitsubishi, Citic Ka Wah Bank, Hong Kong Productivity Council, Mandatory Provident Fund Schemes Authority, and Mass Transit Railway Corp (MTRC). In addition, we agreed to partner with IBM China/Hong Kong Limited to provide professional services for the Hong Kong government, as part of our role as a service supplier to IBM China/Hong Kong Limited under a Technical Service Agreement dated October 5, 2004. That agreement outlines a general working relationship, with specific deliverables, services, and pricing to be outlined from time to time in statement of work documents.

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

Distribution and Markets

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

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

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

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

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

Our markets include the following:

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

·	China, mainly the government and financial institutions;

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

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

In March 2006, Titanium Technology was again selected by the HKSAR government as a supplier of PC/LAN software in Category B and C to all departments in HKSAR government for three years under a bulk tender. The bulk tender is an initiative from the HKSAR government with the purpose of streamlining and insuring the process and quality of the procurement of all information technology products by the government. The government selected companies that it believed to be qualified for

specific categories of products. Category B is computer hardware equipment and Category C is software applications. This means that the government departments have to purchase from the selected companies and that Titanium Technology is one of the few vendors from whom the Hong Kong government purchases computer hardware and software.

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

Customers

Titanium Technology’s major customers include:

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

· In China: People’s Bank of China and Penghua Funds Management Co.

For the year ended December 31, 2008, three customers accounted for 49.2% of our revenue: Dong Guan Jia Wang Computer Components Ltd (18.5%), ELM Computer Technologies Ltd. (15.7%), and ARCA Associates Ltd (15%). For the year ended December 31, 2007, seven customers accounted for over 51.0% of our revenue: ELM Computer Technologies Ltd. (14.6%), Kin Shing Air-conditioning Engineering Co (12.6%), Hemei Industrial (Hong Kong) Ltd (6.1%), MTRC (6%), Guangzhou TeXin Electronics Co Ltd (4.3%), Xintec Enterprise (HK) Ltd. (3.8%), and Talent Link Ltd (3.6%).

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

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

At December 31, 2008, our backlog of orders believed to be firm was approximately US$1,200,000 (HK$9,360,000), as compared to approximately US$1,923,000 (HK$14,999,400) at December 31, 2007. We expect that approximately US$600,000 (HK$4,680,000) will not be filled within the current fiscal year.

Intellectual Property

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

In 2007, we were issued two patents in China, namely “Apparatus for automatic positioning face recognition, China Patent No.: ZL200620056518.8” and “Apparatus for biometric media processing,

China Patent No.: ZL200620017342.5”. They will expire on June 26, 2017 and July 24, 2017. respectively.

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

· United States – Serial No. 78/414377

· Hong Kong – Trade Mark No. 300053478

· China – Serial No. ZC3732931SL

Competition

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

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

We intend to compete by utilizing the following strategies:

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

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

· seek potential partnerships and strategic alliances; and

· organize more exhibitions of our products.

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

Employees

As of February 27, 2009, we employed a total of 40 persons, of which 31 were full-time. None of our employees is covered by a collective bargaining agreement.

ITEM 1A. RISK FACTORS

Not required for smaller reporting companies.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not required for smaller reporting companies.

ITEM 2. PROPERTIES

Our principal offices are located at 15/F, Kennedy Town Commercial Tower, 23 Belcher’s Street, Kennedy Town, Hong Kong SAR, China. We have entered into a lease contract with this new property that runs from May 2008 to May 2011, The lease requires monthly rent of HK$25,333 (approximately US$3,248) and a monthly management fee and air conditioning charge of HK$8,061 (approximately US$1,033).

Our research and development center is located at 6/F, Wen Jin Plaza 23, Tian Bei Road 1, Luo Hu Qu, Shenzhen City, GuangDong Province, China, while the sales representative office in the United States is located at 6130 Old Jonestown Road, Suite C, Harrisburg, Pennsylvania, USA. We have another research and development center at 3/F, Building No.1 , ZhongShan Software Zone, No.3 HengWei Street, Eastern District, ZhongShan City, GuangDong Province, China

ITEM 3. LEGAL PROCEEDINGS

We are not a party to any pending legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Non e

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

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

2007	High Bid			Low Bid
First Quarter		$	0.49		$0.34
Second Quarter		$	0.38		$0.12
Third Quarter		$	0.20		$0.075
Fourth Quarter		$	0.16		$0.07
2008
First Quarter		$	0.09		$0.021
Second Quarter		$	0.08		$0.02
Third Quarter		$	0.045		$0.03
Fourth Quarter		$	0.07		$0.012

As of February 27, 2009, there were 37 holders of record of our common stock and as of that date, the last reported sales price of our common stock was $0.04.

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

Sales of Unregistered Securities

None.

ITEM 6. SELECTED FINANCIAL DATA

As stated in United States dollars:

INCOME STATEMENT DATA:
	Year Ended December 31,
	2008 (US$)			2007 (US$)			2006 (US$)			2005 (US$)		2004 (US$) (Restated)
Revenues	$	2,004,040		$	2,143,059		$	2,521,279		$	1,710,528	$	814,006
Net income (loss)	$	(372,593	)	$	(809,345	)	$	(426,795	)	$	101,924	$	162,844
Net income (loss) per common share	$	(0.01	)	$	(0.016	)	$	(0.009	)	$	0.002	$	0.003

BALANCE SHEET DATA:
	December 31,
	2008 (US$)			2007 (US$)			2006 (US$)			2005 (US$)		2004 (US$) (Restated)
Working capital	$	349,711		$	651,022		$	182,022		$	777,119	$	236,560
Total assets	$	1,580,765		$	3,201,640		$	1,578,544		$	1,351,479	$	535,896
Long-term debt	$	1,334,782		$	1,497,300		$	-		$	-	$	182,051
Stockholders’ equity	$	14,179		$	314,799		$	906,929		$	1,051,859	$	181,263

As stated in Hong Kong dollars:

INCOME STATEMENT DATA:
	Year Ended December 31,
	2008 (HK$)			2007 (HK$)			2006 (HK$)			2005 (HK$)		2004 (HK$) (Restated)
Revenues	$	15,631,510		$	16,715,863		$	19,665,971		$	13,342,121	$	6,349,252
Net income (loss)	$	(2,906,223	)	$	(6,312,880	)	$	(3,328,994	)	$	795,004	$	1,270,181
Net income (loss) per common share	$	(0.06	)	$	(0.126	)	$	(0.067	)	$	0.016	$	0.027

BALANCE SHEET DATA:
	December 31,
	2008 (HK$)			2007 (HK$)			2006 (HK$)			2005 (HK$)		2004 (HK$) (Restated)
Working capital	$	2,727,739		$	5,077,980		$	1,419,763		$	6,061,528	$	1,845,168
Total assets	$	12,329,970		$	24,972,778		$	12,312,641		$	10,541,537	$	4,179,992
Long-term debt	$	10,411,303		$	11,678,940		$	-		$	-	$	1,420,000
Stockholders’ equity	$	110,595		$	2,455,421		$	7,074,041		$	8,204,496	$	1,413,851

Historical Exchange Rates

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

ITEM 7.

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

Overview

As Titanium Technology is a software development company, it earns revenues primarily through license sales of its products, which utilize the proprietary technology it develops. Development of the technology requires a significant outlay of cash before a viable product is developed that utilizes the technology. After development of a product, even more cash is required to market the product before any revenues are realized. Accordingly, the challenge that faces many software development companies is being able to obtain enough cash to fund research and development and marketing expenses and sustain the company until revenues are generated. Such funds are needed fairly quickly after products are developed, as the environment in which the products are used is constantly changing. Companies face the risk of discovering that their products do not meet the needs of the potential customers or are technologically outdated after a marketing campaign is launched. If that happens, the research and development costs are never recouped.

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.

venture will engage in the promotion and marketing of biometrics face recognition access control and time attendance systems in Mainland China.

Critical Accounting Policies

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

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

PRODUCT DEVELOPMENT COSTS. We account for developments costs related to software products to be sold, leased or otherwise marketed in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 86 “Accounting for the Costs of computer Software to be Sold, Leased, or Otherwise Marketed” (“SFAS No. 86”), Software development costs are expensed as incurred until technological feasibility has been established, at which time such costs are capitalized until the product is available for general release to customers. Costs that are capitalized include direct labor and related overhead. These capitalized costs are subject to an ongoing assessment of recoverability based on anticipated future revenues and changes in hardware and software technologies. For the years ended December 31, 2008 and December 31, 2007, we capitalized product development costs of US$459,719 (HK $3,585,811) and US$265,533 (HK$2,071,160), respectively.

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

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

Upon the completion, the ownership of the intellectual property resulting from the project was vested in us. The royalty fee paid by us for the years ended December 31, 2008 and 2007 amounted to US$3,105 (HK$24,220) and US$7,638 (HK$59,573), respectively. As of December 31, 2008, we have an unpaid royalty fee against the subsidy grant totaling US$216,386 (HK$1,687,815).

Impairment of long-lived assets. In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” all long-lived assets such as plant and equipment and intangible assets held and used by us are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment in the carrying value of an asset group is recognized whenever anticipated future undiscounted cash flows from an asset group are estimated to be less than its carrying value. The amount of impairment recognized is the difference between the carrying value of the asset group and its fair value.

During the fourth quarter of fiscal year 2008, we recorded an impairment charge of US$146,939 (HK$1,146,127) to write down the carrying amount of certain capitalized product development costs to zero, due to the decline in the expected future benefits from certain software products.

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

In accordance with the SEC’s Staff Accounting Bulletin No. 104, “Revenue Recognition,” we recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured.

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

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

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

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

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

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

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

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

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

Foreign currency translation. The consolidated financial statements are expressed in Hong Kong dollars (“HK$”). The translations of HK$ amounts into the United States dollar (“US”) are for the convenience of readers in the United States of America only and have been made at the rate of HK$7.8 to US$1, the approximate free rate of exchange at December 31, 2008 and 2007. Such translations should not be construed as representations that the HK$ amounts could be converted into US$ at that rate or any other rate.

Results of Operations

Fiscal Year Ended December 31, 2008 Compared to Fiscal Year Ended December 31, 2007. Operating revenues consist of project revenues and maintenance revenues. Operating revenues for the year ended December 31, 2008 were US$2,004,040 (HK$15,631,510), a decrease of 6.5% from US$2,143,059 (HK$16,715,863) for the year ended December 31, 2007. Project revenues decreased by US$116,382 (HK$907,778) (5.6%) over the same period in 2007, mainly due to a decreased volume of business, as opposed to a decrease in prices. The decrease in volume can be attributed to our weakened cash position, which hampered our ability to fulfill contracts, plus a delay in projects awarded from potential clients.

The gross margin as a percentage of project revenues showed a decrease in 2008 to 31.8% from 35.0% in 2007. Gross margin on project revenues in terms of dollars decreased to US$624,174 (HK$4,868,566) in 2008 from US$728,195 (HK$5,679,922) in 2007 due to the decrease in sales revenues.

As a percentage of all revenues, maintenance revenue was 2.1% in 2008 and 3.0% in 2007. As part of the product purchase, we provide both product warranty and post-contract customer support to our customers for a period of twelve months, free of charge and then at the discretion of the customers, enter into definite maintenance contracts. Management believes that the small decrease in percentage is due to fewer customers opting to obtain a definite maintenance contract at the end of the twelve-month period.

We recorded an expense of US$79,991 (HK$623,939) for amortization of intangible assets, which represents the amortization of capitalized product development costs incurred in the new product, eGuard. This product was available for general release to customers in July 2008. The future cash inflow will be anticipated in the first quarter of 2009.

We reviewed our annual impairment test on all intangible assets and concluded that the decline in expected future benefits from certain software products of ProFacer items was sufficient to result in an impairment loss of US$146,939 (HK$1,146,127), considering the change in the economic environment in the second half of 2008.

We did not incur any stock-based compensation expense in 2008. In 2007, we incurred stock-based compensation expenses of US$118,939 (HK$927,724) as a result of stock issued to consultants for services.

Selling, general and administrative expenses decreased from US$1,391,926 (HK$10,857,021) in 2007 to US$929,768 (HK$7,252,194) in 2008. Some of the more significant decreased expenses were a decrease of US$348,990 (HK$2,722,124) in secretarial and professional fees in and a decrease to allowance for doubtful accounts of US$84,654 (HK$660,300). As a percentage of revenues, these selling, general and administrative expenses decreased to 46.4% in 2008 from 65.0% in 2007.

We incurred an operating loss of US$496,323 (HK$3,871,322) in 2008, as compared to an operating loss of US$724,473 (HK$5,650,886) in 2007, as our decreased operating expenses more than offset our decreased gross profit, despite the impairment charge of US$146,939 (HK$1,146,127).

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

discount of convertible debenture. We incurred other expense in 2007 of US$128,965 (HK$1,005,918), due primarily to interest expense and the discount of convertible debenture.

After income for minority interest of US$9,012 (HK$70,294), our net loss for 2008 was US$372,593 (HK$2,906,223). After an income tax credit of US$47,501 (HK$370,507) and expense for minority interest of US$3,408 (HK$26,583), our net loss for 2007 was US$809,344 (HK$6,312,880).

Going Concern

As a result of the losses incurred during the last two fiscal years and the accumulated deficit of US$1,375,117 (HK$10,725,914) at December 31, 2008, the report of our independent registered public accounting firm on the financial statements for the year ended December 31, 2008 includes an explanatory paragraph indicating substantial doubt as to our ability to continue as a going concern. Management has taken certain actions and continues to implement changes designed to improve the Company’s financial results and operating cash flows. The actions involve certain cost-saving initiatives, continuous development of new products and growing strategies, including rapid promotion and marketing the new products in the People’s Republic of China. Management believes that these actions will enable the Company to move towards profitability and improve cash flow in its continuing operations through December 31, 2009.

Liquidity and Capital Resources

At December 31, 2008, we had working capital of US$349,711 (HK$2,727,739) as compared to US$651,022(HK$5,077,980) at December 31, 2007. Working capital decreased by US$213,680 (HK$1,666,707) due to primarily to a reduction in accounts receivable of US$1,166,424 (HK$9,098,104) that more than offset a reduction in accounts payable of US$987,933 (HK$7,705,881).

During the year ended December 31, 2008, operating activities provided cash of US$647,796 (HK$5,052,807). The more significant adjustments were US$302,671 (HK$2,360,837) for depreciation and amortization, US$146,939(HK$1,146,127) for the impairment charge and US$178,721 (HK$1,394,024) for the gain from the change in fair value of warrant liability. In comparison, we used cash of US$650,908 (HK$5,077,083) for operating activities in 2007.

During 2008, we used US$482,532 (HK$3,763,754) for investing activities, which were primarily for payments relating to software development costs and their patent and license registration fee of US$460,213 (HK$3,589,663) and the purchase of plant and equipment of US$22,319 (HK$174,091). In 2007, we used US$736,549 (HK$5,745,083) for investing activities, which were primarily for additions to plant and equipment and capitalized software development costs. We invested US$365,128 (HK$2,848,000) into the moulds of embedded face recognition systems, which include the moulds of electronic boards, vision capture filters, hardware casings and accessories. We also invested US$104,965 (HK$818,726) for computer hardware and software. US$265,533 (HK$2,071,160) was used for capitalized software development costs.

Financing activities used cash of US$158,327 (HK$1,234,953) in 2008, as we decreased our bank overdraft by US$154,949 (HK$1,208,606) and repaid US$3,378 (HK$26,347) on a short-term bank loan. In comparison, financing activities in 2007 provided cash of US$1,388,837 (HK$10,832,929), through the offering of convertible debentures and short-term bank borrowing.

To address our need for additional working capital, we completed a financing for gross proceeds of US$1,450,000 (HK$11,310,000) in early April 2007. We sold convertible debentures that accrue interest at 8% per annum. The interest is payable quarterly on January 1, April 1, July 1 and October 1

beginning July 1, 2007 in cash or in shares at our option, with the shares to be registered pursuant to an effective registration statement and priced at the lesser of (a) $0.30 or (b) 90% of the volume-weighted average price for the 10 consecutive trading days immediately prior to payment. The debentures have a maturity date of 36 months and are convertible at any time by the holders into shares of our common stock at a price equal to $0.30. The debentures are convertible at our option as long as there is an effective registration statement covering the shares underlying the debentures and the closing bid price of our common stock is at least $0.75 per share. The debentures are redeemable at our option at 120% of face value, as long as there is an effective registration statement covering the shares underlying the debentures. The debentures contain anti-dilution protections to allow adjustments to the conversion price of the debentures in the event we sell or issue shares at a price less than the conversion price of the debentures.

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

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

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

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

We have an overdraft facility with the Bank of China Limited Hong Kong, with the available balance of US$192,308 (HK$1,500,000). The facility bears interest at a rate of 1.5% per annum over Hong Kong prime or 2% per annum over the overnight HIBOR (Hong Kong Interbank Offered Rate), whichever is higher. The weighted average interest rate approximated 7.29% per annum for 2008 and 9.33% per annum for 2007, payable monthly. The overdraft facility is reviewed on a monthly basis and is subject to cancellation at the discretion of the bank. We are required to place all receipts from our accounts receivable in the bank to pledge against the overdraft facility to be drawn. Essentially this is a receivables revolving line of credit, as the borrowing base is based on a percentage of our eligible accounts receivable. The overdraft facility is also secured by all of our assets and is personally guaranteed by our directors. There is an annual facility fee of US$962 (HK$7,500). Borrowings under this facility were nil and US$154,949 (HK$1,208,606) as of December 31, 2008 and 2007, respectively. In December 2008, this overdraft facility was cancelled at the option of the bank.

Our current fixed overhead is approximately US$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 December 31, 2008, our backlog of orders believed to be firm was approximately US$1,200,000 (HK$9,360,000), as compared to approximately US$1,923,000 (HK$14,999,400) at December 31, 2007. We expect that approximately US$600,000 (HK$4,680,000) will not be filled within the current fiscal year.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measures required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB deferred SFAS No. 157’s effective date for all non-financial assets and liabilities, except those items recognized or disclosed at fair value on an annual or more frequently recurring basis, until years beginning after November 15, 2008. We believe that SFAS No. 157 should not have a material impact on the consolidated financial position or results of operations..

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure, on an item-by-item basis, specified financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected are required to be reported in earnings at each reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, the provisions of which are required to be applied prospectively. We believe that SFAS No. 159 should not have a material impact on the consolidated financial position or results of 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 we engage in will be recorded and disclosed following existing GAAP until January 1, 2009. We expect SFAS No. 141R will have an impact on accounting for business combinations once adopted but the effect is dependent upon acquisitions at that time. We are still assessing the impact of this pronouncement.

In April 2008, the FASB issued FASB Staff Position (“FSP”) No. 142-3, “Determination of the Useful Life of Intangible Assets” (FSP No.142-3) that amends the factors considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142. FSP No. 142-3 requires a consistent approach between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of an asset under SFAS No. 141(R). FSP No. 142-3 also requires enhanced disclosures when an intangible asset’s expected future cash flows are affected by an entity’s intent and/or ability to renew or extend the arrangement. FSP No. 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and is applied prospectively. We do not expect the adoption of FSP No.142-3 to have a material impact on our consolidated results of operations or financial condition.

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, we are required to adopt these provisions at the beginning of the fiscal year ended December 31, 2009. We are currently evaluating the impact of SFAS No. 163 on our financial

statements but do not expect it to have an effect on our financial position, results of operations or cash flows.

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. We are assessing the potential impact of this EITF 07-5 on the financial condition and results of operations.

In September 2008, the FASB issued FSP 133-1 and FASB Interpretation Number (“FIN”) 45-4, “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161” (“FSP FAS 133-1” and “FIN 45-4”). FSP FAS 133-1 and FIN 45-4 amend disclosure requirements for sellers of credit derivatives and financial guarantees. It also clarifies the disclosure requirements of SFAS No. 161 and is effective for quarterly periods beginning after November 15, 2008, and fiscal years that include those periods. The adoption of FSP FAS 133-1 and FIN 45-4 did not have a material impact on our current financial position, results of operation or cash flows.

In October 2008, the FASB issued FSP FAS No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active” (“FSP FAS 157-3.”) FSP FAS 157-3 clarifies the application of SFAS No. 157 in an inactive market. It illustrated how the fair value of a financial asset is determined when the market for that financial asset is inactive. FSP FAS 157-3 was effective upon issuance, including prior periods for which financial statements had not been issued. The adoption of FSP FAS 157-3 did not have a material impact on our current financial position, results of operations or cash flows.

Off-Balance Sheet Arrangements

At December 31, 2008, we did not have any off-balance sheet arrangements.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for smaller reporting companies.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the pages beginning with page F-1.

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A(T). CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in applicable securities laws.

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

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

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

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

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

of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

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

Because of its inherent limitations, internal control over financial reporting, no matter how well designed, may not prevent or detect misstatements. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, the effectiveness of internal control over financial reporting was made as of a specific date. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008, based on criteria for effective internal control over financial reporting described in “ Internal Control—Integrated Framework “ issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included an evaluation of the design of the Company’s internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting.

Based on this assessment, management determined that, as of December 31, 2008, the Company maintained effective internal control over financial reporting, although we did recognize a significant deficiency. A significant deficiency is a deficiency, or a combination of deficiencies, that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the registrant’s financial reporting.

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

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

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Our executive officers, directors, and key employees are:

Name	Age	Position

Dr. Kit Chong “Johnny” Ng	34	Chairman of the Board of Directors

Wai Hung “Billy” Tang	36	Chief Executive Officer, Acting Chief Technology Officer and Director

Jia Long Wen	40	Chief Operations Officer and Director

Siu Shan “Eric” Wong	54	Director

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

Dr. Kit Chong “Johnny” Ng, Chairman. Dr. Ng is the Chairman of the Board of Directors of the Company. Currently, Dr. Ng’s duties include his functioning as our principal financial and accounting officer. He received his post-doctor in computer sciences and technologies in 2006 from Tsinghua University in Beijing, China. Dr. Ng received his bachelor’s degree in manufacturing engineering in 1996 and doctorate degree in industrial and systems engineering in 2002 from The Hong Kong Polytechnic University, and has been an Adjunct Associate Professor there, specializing in biometrics technology. Dr. Ng first organized his own technology start-up, 303 Company Limited, in 1998. This company, which was sold to a listed company in 2001, was a solution provider of fingerprint authentication technology. He served as the Chief Executive Officer of that company from August 1999 to August 2001. Shortly after this transaction, he started Titanium Technology in September 2001 with research and development as its primary activity, and gradually expanded his business venture beyond Hong Kong.

Dr. Ng has received a great deal of recognition for his achievements, which include the following:

·	one of the “Ten Outstanding Young Digi Persons 2000” by the Hong Kong Productivity Council and Hong Kong Junior Chamber (Dr. Ng is the youngest recipient in this event.);

·	“Innovative Entrepreneur of the Year” for 2003 by the Hong Kong Junior Chamber; and

·	one of the “Top 100 Cosmopolitan Chinese Confucian Businessman in 2004” by the Chinese Confucian Foundation and China Economic Daily.

The “Innovative Entrepreneur of the Year” award recognizes successful and creative entrepreneurs in greater China. According to the selection criteria, this award recognized Titanium as one of the best companies in terms of products and services, originality of ideas, uniqueness in the market, management and marketing strategies, revenues of the company, the future prospect and potential of the company. He is a highly sought after speaker at high level industry conferences and a frequent commentator in the media. He was one of the speakers, representing Hong Kong, at one of the Asia-Pacific Economic Cooperation (“APEC”) business conferences held in Korea in 2005.

Mr. Wai Hung “Billy” Tang, Chief Executive Officer, Acting Chief Technology Officer and Director. Mr. Tang has been the Chief Operation Officer of Titanium Technology since July 2001 and

Chief Executive Officer of the Company since December 2007. He holds Bachelor’s degree in Mathematics from the Hong Kong University of Science and Technology. Under his leadership, Titanium Technology has experienced tremendous growth and has increased its employee base to over 30 employees worldwide in just over a year. Prior to co-founding Titanium Technology, he was also a co-founder of 303 Company Limited with Dr. Johnny Ng and Mr. Humphrey Cheung. He served as Chairman of that company from April 1998 to January 2001. Mr. Tang previously was an instrumental member of the research team in the department of Industrial and Systems Engineering of the Hong Kong Polytechnic University from November 1996 to March 1997, where he focused on the research of virtual reality technology. He was a system engineer for Internet Access Hong Kong Limited, one of the largest Internet Service Providers in Hong Kong, from June 1997 to April 1998.

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

Siu Shan “Eric” Wong, Director. Mr. Wong has over 25 years of experience in the areas of production development, sales and marketing in Southeast Asia and Europe. Accordingly, we use Mr. Wong as a consultant. For the past five years, he has been involved primarily as the chairman of BTC Consultant Co., Ltd., a company incorporated in Hong Kong that provides professional consultancy and business services with regard to foreign investment in China. It focuses on assisting multinational companies in obtaining commercial opportunities offered by China’s consumer market.

Conflicts of Interest

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

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

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

Committees of the Board of Directors

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

Director Nomination Process

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

Code of Ethics

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

Section 16(a) Beneficial Ownership Reporting Compliance.

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

Based solely upon a review of the copies of such forms furnished to us, or written representations that no Form 5 filings were required, we believe that during the fiscal year ended December 31, 2008, there was compliance with all Section 16(a) filing requirements applicable to our officers, directors and greater than 10% beneficial owners.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth information about the remuneration of our principal executive officer and principal financial officer for services rendered during the years ended December 31, 2008 and 2007. None of our other executive officers had total compensation of $100,000 or more. Certain columns as required by the regulations of the Securities and Exchange Commission have been omitted as no information was required to be disclosed under those columns.

SUMMARY COMPENSATION TABLE

(IN UNITED STATES DOLLARS)

Name and principal position	Year	Salary ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
Johnny Ng (Chairman of the Board of Directors) (1)	2008 2007	28,205 29,103	-0- -0-	-0- -0-	28,205 29,103
Billy Tang (Chief Executive Officer) (2)	2008 2007	29,487 29,103	-0- -0-	-0- -0-	29,487 29,103

SUMMARY COMPENSATION TABLE

(IN HONG KONG DOLLARS)

Name and principal position	Year	Salary ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
Johnny Ng (Chairman of the Board of Directors) (1)	2008 2007	220,000 227,000	-0- -0-	-0- -0-	220,000 227,000
Billy Tang (Chief Executive Officer) (2)	2008 2007	230,000 227,000	-0- -0-	-0- -0-	230,000 227,000

____________________

(1)	Dr. Ng has been functioning as our chief financial officer for the last three fiscal years.

(2)	Mr. Tang assumed the role of chief executive officer as of December 28, 2007.

We did not grant any stock options during the year ended December 31, 2008.

The following table sets forth information with respect to options that remained unexercised at December 31, 2008 for the executive officers named above. No options were exercised during the year ended December 31, 2008.

Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Option Exercise Price ($)	Option Expiration Date
Johnny Ng	150,000	-0-	0.20	July 1, 2011
Billy Tang	150,000	-0-	0.20	July 1, 2011

We do not have any pension plan or any plan that provides for the deferral of compensation on a basis that is not tax-qualified. Our subsidiary, Titanium Technology, participates in a defined contribution pension scheme under the Mandatory Provident Fund Schemes Ordinance (“MPF Scheme”) for all of its eligible employees in Hong Kong. The MPF Scheme is available to all employees aged 18 to 64 with at least 60 days of service in the employment in Hong Kong. Contributions are made by Titanium Technology at 5% of the participants’ relevant income with a ceiling of US$2,564 (HK$20,000). The participants are entitled to 100% of Titanium Technology’s contributions together with accrued returns irrespective of their length of service with us, but the benefits are required by law to be preserved until the retirement age of 65. The total contributions made for MPF Scheme were US$15,539 (HK$121,202) and US$17,127 (HK$133,587) for the years ended December 31, 2008 and 2007, respectively.

Employment Contracts

We entered into agreements with our executive officers, Johnny Ng and Billy Tang as of January 1, 2005. While each of the agreements provides for permanent employment, each agreement may be terminated by either party at any time without cause upon two weeks’ notice or on payment of two weeks’ salary. In the event of termination, the employee is subject to a 12-month non-competition provision during which he cannot engage in any business that competes with us or deal with any of our existing

customers. The agreements provided for monthly salaries of US$2,564 (HK$20,000) for Dr. Ng and US$2,564 (HK$20,000) for Mr. Tang, with annual salary reviews on January 1 of each year.

Compensation of Directors

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

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table provides certain information as to the officers and directors individually and as a group, and the holders of more than 5% of our common stock, as of February 27, 2009:

Name and Address of Beneficial Owner (1)	Number of Shares Owned	Percent of Class (2)
Johnny Ng 15/F., Kennedy Town Comm’l Tower, 23 Belcher’s St, Kennedy Town, Hong Kong	25,985,221 (3)	50.3%
Golden Mass Technologies Ltd. 15/F., Kennedy Town Comm’l Tower, 23 Belcher’s St, Kennedy Town, Hong Kong	25,835,221 (3)	50.0%
Gordon Yen 6/F, Block A 29-39 Kwai Cheong Road Kwai Chung, N.T. Hong Kong	6,999,475 (4)	13.6%
Jia Long Wen 15/F., Kennedy Town Comm’l Tower, 23 Belcher’s St, Kennedy Town, Hong Kong	5,000,304 (5)	9.7%
Eric Wong 15/F., Kennedy Town Comm’l Tower, 23 Belcher’s St, Kennedy Town, Hong Kong	1,222,000 (6)	2.4%
Billy Tang 15/F., Kennedy Town Comm’l Tower, 23 Belcher’s St, Kennedy Town, Hong Kong	150,000 (3)	0.3%
All Directors and Executive Officers As a Group (4 persons)	32,357,525 (7)	62.3%

_____________________

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

(2)

This table is based on 51,644,399 shares of common stock outstanding as of February 27, 2009. If a person listed on this table has the right to obtain additional shares of common stock within 60 days from February 27, 2009, the additional shares are deemed to be outstanding for the purpose of computing the percentage

	of class owned by such person, but are not deemed to be outstanding for the purpose of computing the percentage of any other person.

(3)	Includes 25,835,221 shares owned by Golden Mass Technologies Ltd., a British Virgin Islands company, as to which Johnny Ng has sole voting and dispositive power through an indirect 62.6% ownership in Golden Mass. Billy Tang owns 16.6% of Golden Mass but does not have voting or dispositive power over these shares. Also includes 150,000 shares issuable upon exercise of vested stock options.

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

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

(6)	These shares are owned of record by Hong Tai Holdings Company Limited.

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

Changes in Control

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

Equity Compensation Plans

At December 31, 2008, our equity compensation plans were as follows:

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

Stock Option Plan

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

The board of directors or the compensation committee of the board determines the exercise price for each option at the time the option is granted. The exercise price for shares under an incentive stock option will not be less than 100% of the fair market value of the common stock on the date such option is granted. The fair market value price is the closing price per share on the date the option is granted. The committee or board also determines when options become exercisable. The term of an option will be no

more than ten (10) years from the date of grant. No option can be exercised after the expiration of its term.

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

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

We have the right to redeem any shares issued to any optionee upon exercise of the option granted under the plan immediately upon the termination of optionee’s employment or service arising from disability, the death of the optionee, the voluntary termination of employment or services of the optionee, or the termination of employment or services of the optionee for cause. The redemption price is the fair market value of the shares on the date of the event of redemption.

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

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

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

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

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

Personal Guarantees

Our directors personally guaranteed our banking facilities arrangement with the bank where we maintain our checking account. The arrangement allows us to overdraft our account up to US$192,308 (HK$1,500,000). The balance of bank overdraft was $-0- at December 31, 2008 and the bank overdraft has been cancelled.

On January 22, 2007, Messrs. Tang, Ng and Cheung personally guaranteed a short-term loan from a bank in the amount of US$40,385 (HK$315,000). Interest was charged at an effective rate of 6.75% per annum and payable monthly. The loan was due and repaid on January 22, 2008.

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

Director Independence

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

Since we are not currently subject to corporate governance standards relating to the independence of our directors, we choose to define an “independent” director in accordance with the NASDAQ Global Market’s requirements for independent directors (NASDAQ Marketplace Rule 4200). The NASDAQ independence definition includes a series of objective tests, such as that the director is not an employee of the company and has not engaged in various types of business dealings with the company.

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

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

ITEM 14 PRINCIPAL ACCOUNTING FEES AND SERVICES

Audit Fees

For the fiscal year ended December 31, 2008, ZYCPA Company Limited (formerly Zhong Yi (Hong Kong) C.P.A. Company Limited) (“ZYCPA”) is expected to bill approximately US$50,000 (HK$390,000) for the audit of our annual financial statements, the review of our Form 10-Q filings and for the review of our registration statements.

For the fiscal year ended December 31, 2007, ZYCPA billed US$60,000 (HK$468,000) for the audit of our annual financial statements, the review of our Form 10-Q filings and for the review of our registration statements.

Audit-Related Fees

There were no fees billed for services reasonably related to the performance of the audit or review of our financial statements outside of those fees disclosed above under “Audit Fees” for fiscal years 2008 and 2007.

Tax Fees

For the fiscal years ended December 31, 2008 and 2007, ZYCPA billed $nil and $nil, respectively, for tax compliance, tax advice, and tax planning services.

All Other Fees

There were no fees billed by ZYCPA, other than for the services described above, for fiscal years 2008 and 2007.

Pre-Approval Policies and Procedures

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

There have been no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced in the preceding paragraph.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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

Financial Statements

The audited consolidated financial statements of Titanium Group Limited and subsidiaries as of December 31, 2008 and 2007 and for each of the two years in the period ended December 31, 2008, and the Report of Independent Registered Public Accounting Firm thereon, are included herein as shown in the “Index to the Consolidated Financial Statements”.

Financial Statement Schedules

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

Exhibits

Regulation S-K Number	Exhibit
3.1	Memorandum of Association, as amended (1)
3.2	Articles of Association, as amended (1)
4.1	Form of Warrant (2)
4.2	Form of Subscription Agreement (2)
10.1	Employment agreement with Jason Ma dated January 1, 2005 (1)
10.2	Employment agreement with Billy Tang dated January 1, 2005 (1)
10.3	Office lease dated June 22, 2005 (1)
10.4	2005 Stock Plan (2)
10.5	Technical Service Agreement with IBM China/Hong Kong Limited dated October 5, 2004 and Amendment to Supplier Agreement dated December 3, 2004 (2)
10.6	Technology Partnership and Research & Development Contract with China Scientific Automation Research Center dated June 15, 2005 (2)
10.7	Technology Research and Development Contract with Tsing Hua University dated November 4, 2005 (2)
10.8	Form of Distributor Agreement (3)
10.9	Form of Reseller Agreement (3)
10.10	Distributor Agreement with Elixir Group Limited dated January 1, 2004 (4)
10.11	Distributor Agreement with Smart Wireless Corporation dated February 1, 2005 (4)
10.12	Securities Purchase Agreement dated April 3, 2007 (5)
10.13	Form of Debenture (5)
10.14	Registration Rights Agreement dated April 3, 2007 (5)
10.15	Form of Warrant (5)
10.16	November 2007 Amendment and Waiver Agreement (6)
21	Subsidiaries of the registrant (1)
31.1	Rule 13a-14(a) Certification of Chief Executive Officer

Regulation S-K Number	Exhibit
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 19, 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.

SIGNATURES

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

	TITANIUM GROUP LIMITED

Date: March 23, 2009	By:	/s/ Dr. Kit Chong "Johnny" Ng
		Dr. Kit Chong "Johnny" Ng
		Chairman of the Board of Directors

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

Signature	Title	Date

/s/ Dr. Kit Chong "Johnny" Ng	Chairman of the Board of Directors (Principal Financial Officer and Principal Accounting Officer)	March 23, 2009
Dr. Kit Chong "Johnny" Ng

/s/ Wai Hung "Billy" Tang	Chief Executive Officer and Director (Principal Executive Officer)	March 23, 2009
Wai Hung "Billy" Tang

/s/ Jia Long Wen	Chief Operations Officer and Director	March 23, 2009
Jia Long Wen

/s/ Siu Shan "Eric" Wong	Director	March 23, 2009
Siu Shan "Eric" Wong

TITANIUM GROUP LIMITED AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page

Report of Independent Registered Public Accounting Firm		F-2

Consolidated Balance Sheets		F-3

Consolidated Statements of Operations And Comprehensive Income		F-4 - F-5

Consolidated Statements of Cash Flows		F-6

Consolidated Statements of Stockholders’ Equity		F-7

Notes to Consolidated Financial Statements		F-8 - F-29

F-1

[LETTERHEAD OF ZYCPA COMPANY LIMITED]

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of

Titanium Group Limited

We have audited the accompanying consolidated balance sheets of Titanium Group Limited and its subsidiaries (“the Company”) as of December 31, 2008 and 2007 and the related consolidated statements of operations and comprehensive income, cash flows and stockholders’ equity for the years then ended. The financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2008 and 2007 and the results of operations and cash flows for the years then ended and in conformity with accounting principles generally accepted in the United States of America.

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

/s/ ZYCPA Company Limited

ZYCPA Company Limited

(Formerly Zhong Yi (Hong Kong) C.P.A. Company Limited)

Certified Public Accountants

Hong Kong, China

March 23, 2009

F-2

TITANIUM GROUP LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2008 AND 2007

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

	As of December 31,
	2008			2008			2007
	US$			HK$			HK$
ASSETS
Current assets:
Cash and cash equivalents	$	152,676		$	1,190,869		$	1,168,331
Restricted cash		51,282			400,000			400,000
Accounts receivable, net		335,093			2,613,724			11,711,828
Inventories		4,872			38,001			1,484,962
Deposits and other receivables		36,914			287,928			392,159
		-			-			683,534
Total current assets		580,837			4,530,522			15,840,814

Non-current assets:
Plant and equipment
Cost		612,086			4,774,277			7,617,219
Less: accumulated depreciation		(300,489	)		(2,343,817	)		(2,203,449	)
		311,597			2,430,460			5,413,770
Intangible assets, net		600,698			4,685,454			3,718,194
Deferred tax assets		87,633			683,534			-

TOTAL ASSETS		1,580,765		$	12,329,970		$	24,972,778

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Bank overdrafts		-		$	-		$	1,208,606
Short-term bank loan		-			-			26,347
Accounts payable and accrued liabilities		222,116			1,732,507			9,438,388
Deferred revenue		7,391			57,650			76,867
Income tax payable		1,619			12,626			12,626
Total current liabilities		231,126			1,802,783			10,762,834

Long-term liabilities:
Debenture payable		1,323,085			10,320,066			10,193,679
Warrants liability		11,697			91,237			1,485,261
Total long-term liabilities		1,334,782			10,411,303			11,678,940

Total liabilities		1,565,908			12,214,086			22,441,774

Minority interest in net loss of consolidated subsidiaries		678			5,289			75,583

Commitments and contingencies

Stockholders’ 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 as of December 31, 2008 and 2007		516,444			4,028,263			3,971,189
Additional paid-in capital		876,354			6,835,562			6,305,237
Accumulated other comprehensive loss		(3,502	)		(27,316	)		(1,314	)
Accumulated deficit		(1,375,117	)		(10,725,914	)		(7,819,691	)
Total stockholders’ equity		14,179			110,595			2,455,421

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		1,580,765		$	12,329,970		$	24,972,778

See accompanying notes to consolidated financial statements.

F-3

TITANIUM GROUP LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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

	As of December 31,
	2008			2008			2007
	US$			HK$			HK$
REVENUE, NET
Projects
Products	$	1,262,122		$	9,844,551		$	11,260,136
Services		699,307			5,454,597			4,946,790
Total projects revenue		1,961,429			15,299,148			16,206,926

Maintenance services		42,611			332,362			508,937

Total revenue, net		2,004,040			15,631,510			16,715,863

COST OF REVENUE (inclusive of amortization)
Projects
Cost of products sold		841,655			6,564,900			6,947,894
Cost of services		495,600			3,865,682			3,579,110
		1,337,255			10,430,582			10,527,004
Maintenance
Cost of services		6,410			50,000			55,000

Total cost of revenue		1,343,665			10,480,582			10,582,004
GROSS PROFIT		660,375			5,150,928			6,133,859

OPERATING EXPENSES
Amortization of intangible assets		79,991			623,929			-
Impairment loss on intangible assets		146,939			1,146,127			-
Stock-based compensation		-			-			927,724
Selling, general and administrative		929,768			7,252,194			10,857,021

Total operating expenses		1,156,698			9,022,250			11,784,745

LOSS FROM OPERATIONS		(496,323	)		(3,871,322	)		(5,650,886	)

OTHER INCOME (EXPENSE):
Government grant income		12,854			100,267			24,066
Interest income		87			679			56,179
Interest expense		(114,843	)		(895,779	)		(717,223	)
Discount of convertible debenture		(66,203	)		(516,386	)		(368,940	)
Gain from change in fair value of warrant liability		178,721			1,394,024			-
Refund income		104,102			812,000			-
Total other income (expense)		114,718			894,805			(1,005,918	)

LOSS BEFORE INCOME TAX		(381,605	)		(2,976,517	)		(6,656,804	)

Income tax benefit		-			-			370,507

LOSS BEFORE MINORITY INTEREST		(381,605	)		(2,976,517	)		(6,286,297	)

Minority interest		9,012			70,294			(26,583	)

NET LOSS	$	(372,593	)	$	(2,906,223	)	$	(6,312,880	)

See accompanying notes to consolidated financial statements.

F-4

TITANIUM GROUP LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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

	As of December 31,
	2008			2008			2007
	US$			HK$			HK$

Other comprehensive loss:
Foreign currency translation loss		(3,334	)		(26,002	)		(6,960	)

COMPREHENSIVE LOSS	$	(375,927	)	$	(2,932,225	)	$	(6,319,840	)

Net loss per share – basic and diluted	$	(0.01	)	$	(0.06	)	$	(0.13	)

Weighted average number of shares outstanding – basic and diluted		51,549,654			51,549,654			50,053,652

See accompanying notes to consolidated financial statements.

F-5

TITANIUM GROUP LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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

	Years ended December 31,
	2008			2008			2007
	US$			HK$			HK$
Cash flow from operating activities:
Net loss	$	(372,593	)	$	(2,906,223	)	$	(6,312,880	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		302,671			2,360,837			2,200,238
Impairment loss on intangible assets		146,939			1,146,127			-
(Reversal of) allowance for doubtful accounts		(37,787	)		(294,739	)		1,000,831
Minority interest in earning of subsidiaries		(9,012	)		(70,294	)		26,583
Stock-based compensation		-			-			927,724
Stock issued for service rendered, non-cash		4,619			36,026			313,906
Stock issued for interest on convertible debenture		878			6,847			459,590
Amortization cost on discount of convertible debenture		66,203			516,387			368,940
Gain from change in fair value of warrant liability		(178,721	)		(1,394,024	)		-
Changes in assets and liabilities:
Restricted cash		-			-			(400,000	)
Accounts receivable		1,204,211			9,392,843			(7,984,011	)
Inventories		185,508			1,446,961			(1,413,806	)
Deposits and other receivables		13,363			104,231			66,347
Deferred tax assets		-			-			(383,133	)
Accounts payable and accrued liabilities		(676,019	)		(5,272,955	)		6,135,737
Deferred revenue		(2,464	)		(19,217	)		(214,217	)
Income tax payable		-			-			131,068
Net cash provided by (used in) operating activities		647,796			5,052,807			(5,077,083	)

Cash flows from investing activities:
Purchase of plant and equipment		(22,319	)		(174,091	)		(3,673,923	)
Payments relating to software development costs		(459,719	)		(3,585,810	)		(2,071,160	)
Payments on patent and license right registration fee		(494	)		(3,853	)		-
Net cash used in investing activities		(482,532	)		(3,763,754	)		(5,745,083	)

Cash flows from financing activities:
Proceeds from short-term bank loan		-			-			315,000
Payments on short-term bank loan		(3,378	)		(26,347	)		(288,653	)
Proceeds from convertible debenture, net of expense		-			-			11,310,000
Net decrease in bank overdrafts		(154,949	)		(1,208,606	)		(503,418	)
Net cash (used in) provided by financing activities		(158,327	)		(1,234,953	)		10,832,929

Effect of exchange rate changes on cash and cash equivalents		(4,047	)		(31,562	)		(6,960	)

NET CHANGE IN CASH AND CASH EQUIVALENTS		2,890			22,538			3,803

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		149,786			1,168,331			1,164,528

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

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid	$	114,843		$	895,779		$	92,128
Income tax refund	$	-		$	-		$	118,442

NON-CASH INVESTING AND FINANCIAL ACTIVITIES:
Exercise of convertible debenture	$	50,000		$	390,000		$	-
Expenses in relation to issuance of convertible debenture	$	-		$	-		$	1,755,000

See accompanying notes to consolidated financial statements.

F-6

TITANIUM GROUP LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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

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

Balance as of January 1, 2007		50,000,000	$	3,900,000	$	4,675,206	$	5,646		$	(1,506,811	)	$	7,074,041

Issue of common stock for services rendered, non-cash		435,311		33,954		279,952		-			-			313,906
Issue of common stock for interest on convertible debenture, non-cash		477,366		37,235		422,355		-			-			459,590
Fair value of employee stock options		-		-		927,724		-			-			927,724
Net loss for the year		-		-		-		-			(6,312,880	)		(6,312,880	)
Foreign currency translation adjustments		-		-		-		(6,960	)		-			(6,960	)

Balance as of December 31, 2007		50,912,677		3,971,189		6,305,237		(1,314	)		(7,819,691	)		2,455,421

Issue of common stock for 2007 interest charge on convertible debenture, non-cash		377,973		29,482		125,044		-			-			154,526
Issue of common stock for 2008 interest charge on convertible debenture, non-cash		24,797		1,934		4,913		-			-			6,847
Issue of common stock for services rendered, non-cash		78,952		6,158		29,868		-			-			36,026
Exercise of convertible debenture		250,000		19,500		370,500		-			-			390,000
Net loss for the year		-		-		-		-			(2,906,223	)		(2,906,223	)
Foreign currency translation adjustments		-		-		-		(26,002	)		-			(26,002	)
Balance as of December 31, 2008		51,644,399	$	4,028,263	$	6,835,562	$	(27,316	)	$	(10,725,914	)	$	110,595

See accompanying notes to consolidated financial statements.

F-7

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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

1.	ORGANIZATION AND BUSINESS BACKGROUND

Titanium Group Limited (the “Company” or “TTNUF”) was registered as a limited liability company in the British Virgin Islands (“BVI”) on May 17, 2004. The Company, through its subsidiaries, is primarily engaged in the development of advanced biometric technology and installation and implement of advanced facial based biometric identification and security projects for law enforcement, mass transportation, and other government and private sector customers.

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

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

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

Details of the Company’s subsidiaries as of December 31, 2008 are described below:

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

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

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

F-8

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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

Name

Place of incorporation

and kind of legal entity

Principal activities

and place of operation

Particulars of issued/

registered share

capital

Effective interest

Held


Titanium RFID Limited (“TRFID”)	Hong Kong company with limited liability	Development, sales and marketing of radio frequency identification (RFID) solutions	100,000 ordinary shares of HK$1 each HK$100,000 (US$12,821)	51%

Titanium Biometrics Limited	Hong Kong company with limited liability	Sales and marketing of biometrics face recognition access control and time attendance systems in Mainland China	19,065,000 ordinary shares of HK$0.1 each	51%

2.	GOING CONCERN UNCERTAINTIES

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

As of December 31, 2008, the Group had incurred a net loss of HK$2,906,223 and the accumulated deficit of HK$10,725,914. Additionally, the Group has incurred losses over the past several years. 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, continuous development of new products 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 December 31, 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.

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

•	Basis of presentation

These accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).

F-9

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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

•	Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries.

All significant inter-company balances and transactions within the Group have been eliminated on consolidation.

•	Use of estimates

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

•	Cash and cash equivalents

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

•	Restricted cash

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

•	Accounts receivable and allowance for doubtful accounts

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

As of December 31, 2008 and 2007, the Group recorded the allowance for doubtful accounts of HK$746,191 and HK$1,447,773, respectively.

•	Inventories

Inventories are stated at lower of cost or market value. Cost is determined using the first-in-first-out method for all inventories. Inventories consist of computer accessories and consumable supplies purchased from various suppliers.

F-10

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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

•	Plant and equipment, net

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

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

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

•	Intangible assets

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

Patent and license right registration fee

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

Product development costs

The Group accounts for development costs related to software products to be sold, leased or otherwise marketed in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 86 “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed” (“SFAS No. 86”). Software development costs are expensed as incurred until technological feasibility has been established, at which time such costs are capitalized until the product is available for general release to customers. Costs that are capitalized include direct labor and related overhead. These capitalized costs are subject to an ongoing assessment of recoverability based on anticipated future revenues and changes in hardware and software technologies. For the years ended December 31, 2008, and December 31, 2007, the Company capitalized product development costs of HK$3,585,811 and HK$2,071,160, respectively.

In prior years, the Group developed its products namely ProAccess and ProFacer under the subsidy assistance program from the Government of the Hong Kong Special Administrative Region (“HKSAR”) in developing the innovative products. Pursuant to such program, HKSAR was required to provide funding to the Group for its product development, which was available up to the aggregate amount of HK$2,000,000 in accordance with the milestones of the product development plan. The Group received such grant of an aggregate of HK$1,909,938 and was not subject to any repayment. However, the Group was required to contribute approximately 50% of the overall project cost in accordance with the grant

F-11

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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

agreement. When the project was completed, the Group tendered to the Government its pro rata share of the residual funds remaining in the project account. In addition the Group was obligated to pay the Government a royalty fee of 5% on the gross revenue earned from any activities in connection with the project, up to an aggregate amount equal to the amount subsidized to the Group.

Upon the completion, the ownership of the intellectual property resulting from the project was vested on the Group. The royalty fee paid by the Group for the years ended December 31, 2008 and 2007 amounted to HK$24,220 and HK$59,573, respectively. As of December 31, 2008, the Group has the unpaid royalty fee against the subsidy grant totaling HK$1,687,815.

•	Impairment of long-lived assets

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as plant and equipment and intangible assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment in the carrying value of an asset group is recognized whenever anticipated future undiscounted cash flows from an asset group are estimated to be less than its carrying value. The amount of impairment recognized is the difference between the carrying value of the asset group and its fair value.

During the fourth quarter of fiscal year 2008, the Group recorded an impairment charge of HK$1,146,127 to write down the carrying amount of certain capitalized product development costs to zero, due to the decline in expected future benefits from certain software products.

•	Deferred revenue

Deferred revenue consists primarily of payments received in advance of revenue recognition from maintenance. Revenues from maintenance fees are recognized ratably over the term of the maintenance period.

•	Revenue recognition

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

In accordance with the SEC’s Staff Accounting Bulletin No. 104, “Revenue Recognition”, the Group recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectibility is reasonably assured.

F-12

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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

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

(1)	Products revenue

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

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

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

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

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

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

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

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

F-13

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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

Sales to authorized distributors

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

(2)	Services revenue

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

(3)	Maintenance services revenue

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

(4)	Interest income

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

•	Government grant income

Government grant income represents government subsidy from the HKSAR government to compensate the Group in assisting and supporting the youth employment in Hong Kong for its community purpose. For the years ended December 31, 2008 and 2007, the Company received HK$100,267 and HK$24,066 from the government and accounted for as grant income in the statements of operations, respectively.

•	Advertising costs

The Group expenses advertising costs are accounted for in accordance with SOP 93-7, “Reporting for Advertising Costs”. Advertising expenses of HK$0 and HK$1,207 were incurred for the years ended December 31, 2008 and 2007, respectively.

F-14

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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

•	Product warranty and post service support

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

•	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 statement of operations and comprehensive (loss) income 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.

Starting from January 1, 2007, the Group also adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures. The Group did not have any adjustment to the opening balance of retained earnings as of January 1, 2007 as a result of the implementation of FIN 48. In accordance with FIN48, the Group adopted also the policy of recognizing interest and penalties, if any, related to unrecognized tax positions as income tax expense. For the years ended December 31, 2008 and 2007, the Group did not have any interest and penalties associated with tax positions. As of December 31, 2008 and 2007, the Group did not have any significant unrecognized uncertain tax positions.

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

•	Segment reporting

SFAS No. 131 “Disclosures about Segments of an Enterprise and Related Information” establishes standards for reporting information about operating segments on a basis consistent with the Group’s internal organization structure as well as information about geographical areas, business segments and major customers in these financial statements. The Group operates in one principal business segment.

•	Comprehensive income

Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated comprehensive income, as presented in the accompanying consolidated statements of stockholders’ equity consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.

F-15

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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

•	Foreign currency translation

The consolidated financial statements are expressed, in Hong Kong dollars ("HK$"). The translations of HK$ amounts into the United States dollar ("US$") are for the convenience of readers in the United States of America only and have been made at the rate of HK$7.8 to US$1, the approximate free rate of exchange at December 31, 2008 and 2007. Such translations should not be construed as representations that the HK$ amounts could be converted into US$ at that rate or any other rate.

•	Net loss per share

The Group calculates net loss per share in accordance with SFAS No. 128, “Earnings per Share.” Basic net loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per share reflects the potential dilution of securities by including common stock equivalents, such as stock options, stock warrants and convertible preferred stock, in the weighted average number of common shares outstanding for a period, if dilutive.

•	Stock based compensation

The Company adopts SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123R") using the fair value method. Under SFAS No. 123(R), stock-based compensation cost is measured at the grant date based on the fair value of the award or using the Black-Scholes pricing model and is recognized as expense over the appropriate service period.

•	Retirement plan costs

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

•	Related parties

For the purposes of these financial statements, parties are considered to be related if one party has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common control or common significant influence. Related parties may be individuals or other entities.

•	Fair value of financial instruments

The carrying value of the Group’s financial instruments, which include cash and cash equivalents, accounts receivables, deposits and other receivables, deferred revenue, other payables and accrued liabilities, approximate their fair values due to the short-term maturity of these instruments.

•	Recently issued accounting standards

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.

F-16

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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

In September 2006, the FASB issued Statement of Financial Accounting Standard (“SFAS“) No. 157, "Fair Value Measurements" ("SFAS No. 157"). SFAS No. 157 defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measures required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB deferred SFAS No. 157's effective date for all non-financial assets and liabilities, except those items recognized or disclosed at fair value on an annual or more frequently recurring basis, until years beginning after November 15, 2008. The Group believes that SFAS No. 157 should not have a material impact on the consolidated financial position or results of operations.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS No. 159"). SFAS No. 159 permits entities to choose to measure, on an item-by-item basis, specified financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected are required to be reported in earnings at each reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, the provisions of which are required to be applied prospectively. The Group believes that SFAS No. 159 should not have a material impact on the consolidated financial position or results of 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 April 2008, the FASB issued FSP No. 142-3, “Determination of the Useful Life of Intangible Assets” (FSP No.142-3) that amends the factors considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142. FSP No. 142-3 requires a consistent approach between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of an asset under SFAS No. 141(R). FSP No. 142-3 also requires enhanced disclosures when an intangible asset’s expected future cash flows are affected by an entity’s intent and/or ability to renew or extend the arrangement. FSP No. 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and is applied prospectively. The Group does not expect the adoption of FSP No.142-3 to have a material impact on its consolidated results of operations or financial condition.

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 Company is required to adopt these provisions at the beginning of the fiscal year ended December 31, 2009. The Company is currently evaluating the impact of SFAS No.

F-17

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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

163 on its financial statements but does not expect it to have an effect on the Company's financial position, results of operations or cash flows.

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.

In September 2008, the FASB issued FSP 133-1 and FIN 45-4, “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161” (“FSP FAS 133-1” and “FIN 45-4”). FSP FAS 133-1 and FIN 45-4 amends disclosure requirements for sellers of credit derivatives and financial guarantees. It also clarifies the disclosure requirements of SFAS No. 161 and is effective for quarterly periods beginning after November 15, 2008, and fiscal years that include those periods. The adoption of FSP FAS 133-1 and FIN 45-4 did not have a material impact on the Group’s current financial position, results of operation or cash flows.

In October 2008, the FASB issued Staff Position (“FSP”) No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active” (“FSP FAS 157-3.”) FSP FAS 157-3 clarifies the application of SFAS No. 157 in an inactive market. It illustrated how the fair value of a financial asset is determined when the market for that financial asset is inactive. FSP FAS 157-3 was effective upon issuance, including prior periods for which financial statements had not been issued. The adoption of FSP FAS 157-3 did not have a material impact on the Group’s current financial position, results of operations or cash flows.

4.	ACCOUNTS RECEIVABLE, NET

	As of December 31,
	2008			2007
	HK$			HK$
Accounts receivable, trade		3,359,915			13,159,601
Less: allowance for doubtful accounts		(746,191	)		(1,447,773	)
Accounts receivable, net		2,613,724			11,711,828

The Group reversed the allowance for doubtful accounts of HK$294,739 for the year ended December 31, 2008 due to subsequent settlement, while the Group provided the allowance for doubtful accounts of HK$1,000,831 for the year ended December 31, 2007.

F-18

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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

5.	DEPOSITS AND OTHER RECEIVABLES

Deposits and other receivables consisted of the following:

	As of December 31,
	2008		2007
	HK$		HK$
Amount due from minority shareholders		109,826		116,159
Rental and utility deposits		126,756		142,914
Prepaid expenses		46,800		127,689
Other receivables		4,546		5,397

Deposits and other receivables		287,928		392,159

6.	PLANT AND EQUIPMENT, NET

Plant and equipment consist of the following:

	As of December 31,
	2008			2007
	HK$			HK$
Computer hardware and software		2,194,182			2,176,544
Furniture, fixtures and office equipment		875,775			871,687
Moulds		1,504,600			3,783,000
Leasehold improvements		186,243			781,900
Foreign translation difference		13,477			4,088
		4,774,277			7,617,219
Less: accumulated depreciation		(2,335,901	)		(2,200,188	)
Less: foreign translation difference		(7,916	)		(3,261	)

Plant and equipment, net		2,430,460			5,413,770

Depreciation expense for the years ended December 31, 2008 and 2007 were HK$884,561 and HK$1,205,217, respectively.

In October 2007, the Group purchased HK$2,278,400 of software development moulds from a third party vendor for software research and development purpose. Subsequently, management determined that the software moulds were not feasible and did not specifically meet with Group’s requirements. The software moulds were returned to the vendor in a good condition at their original cost in January 2008. For the year ended December 31, 2008, a gain from the return of the moulds was charged against its depreciation expense in the statement of operation.

F-19

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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

7.	INTANGIBLE ASSETS, NET

Intangible assets consist of the following:

	As of December 31,
	2008			2007
	HK$			HK$
Product development costs		9,336,170			5,750,359
Patent and license right registration fee		151,374			147,522
		9,487,544			5,897,881
Less: accumulated amortization		(3,655,963	)		(2,179,687	)
Less: impairment loss		(1,146,127	)		-

Intangible assets, net		4,685,454			3,718,194

Amortization expenses for the years ended December 31, 2008 and 2007 were HK$1,476,276 and HK$995,021, which HK$852,347 and HK$995,021 included in cost of revenue, respectively.

In accordance with SFAS No. 144, the Group reviewed its annual impairment test on all intangible assets and concluded that the decline in expected future benefits from certain software products was sufficient to result in an impairment loss of HK$1,146,127, considering the change in economic environment in the second half of 2008.

Estimated aggregate future amortization expense for the succeeding five years and thereafter as of December 31, 2008 is as follows:

Year ending December 31,	HK$
2009		1,462,132
2010		1,255,427
2011		1,255,427
2012		631,498
2013		7,570
Thereafter		73,400

Total:		4,685,454

8.	BANK OVERDRAFT

The Group obtained an overdraft facility with the Bank of China Limited in Hong Kong, with the available balance of HK$1,500,000. The facility bears interest at a rate of 1.5% per annum over Hong Kong prime or 2% per annum over the overnight HIBOR whichever is higher. Weighted average interest rate approximated 7.29% per annum for 2008 and 9.33% per annum for 2007, payable monthly.

The overdraft facility is reviewed on a monthly basis and is subject to cancellation at the discretion of the bank. TTLHK is required to place all receipts from its accounts receivable in the bank to pledge against the overdraft facility to be drawn. The overdraft facility is also secured by all of the assets of TTLHK and is personally guaranteed by the directors of TTLHK. There is an annual facility fee of HK$7,500. In December 2008, this overdraft facility was cancelled at the option of the bank.

Borrowings under this facility were HK$0 and HK$1,208,606 as of December 31, 2008 and 2007.

F-20

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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

9.	SHORT-TERM BANK LOAN

The short-term bank loan is unsecured, payable to financial institutions, which is guaranteed by the director of TTLHK, carrying an effective interest rate at 6.75% per annum payable monthly and the balance was fully repaid on January 22, 2008.

10.	COMMON STOCK

On November 27, 2007, the Company issued 477,366 shares of common stock issued for interest expense on convertible debenture at its fair value on the grant date.

On December 14, 2007, the Company issued 185,311 shares of common stock issued to Equity Performance Group for service rendered.

On December 31, 2007, the Company issued 250,000 shares of common stock issued to MarketByte LLC for service rendered.

On January 14, 2008, January 15, 2008 and March 19, 2008, the Company issued 65,168, 312,805 and 24,797 shares of common stock issued for interest expense on convertible debenture at its fair value on the grant date.

On January 14, 2008, the Company issued 78,952 shares of common stock issued to Firstrust Group Limited for service rendered.

On March 19, 2008, the Company issued 250,000 shares of common stock issued to Whalehaven Capital Fund Limited upon exercise of its convertible debenture.

As of December 31, 2008, the number of authorized shares and issued outstanding shares of common stock was 100,000,000 and 51,644,399, respectively.

11.	NET LOSS PER SHARE

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

	Years ended December 31,
	2008			2007
	HK$			HK$
Basic and diluted net loss per share calculation
Numerator:
Net loss in computing basic net loss per share		(2,906,223	)		(6,312,880	)

Denominator:
Weighted average ordinary shares outstanding		51,549,654			50,053,652

Basic and diluted net loss per share		(0.06	)		(0.13	)

F-21

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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

For the years ended December 31, 2008 and 2007 in which the Group generated the net operating loss, the effect of stock options granted to employees and non-employees would have been anti-dilutive and excluded from the computation of diluted losses per share.

12.	INCOME TAXES

For the years ended December 31, 2008 and 2007, the local (BVI) and foreign components of income before income taxes and minority interest were comprised of the following:

	Years ended December 31,
	2008			2007
	HK$			HK$
Tax jurisdictions from:
BVI (local)		(458,482	)		(4,706,533	)
Hong Kong		(2,395,177	)		(985,886	)
The PRC		(122,858	)		(964,385	)

Loss before income taxes and minority interest		(2,976,517	)		(6,656,804	)

Provision for income taxes consisted of the following:

	Years ended December 31,
	2008		2007
	HK$		HK$
Current:
– Local		-		-
– Foreign		-		12,626

Deferred:
– Local		-		-
– Foreign		-		(383,133	)

Income taxes (benefit) expense		-		(370,507	)

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

British Virgin Island

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

Hong Kong

The Group’s subsidiaries, TTLHK and TRFID are subject to Hong Kong Profits Tax, which is charged at the statutory income rate of 16.5% and 17.5% on assessable income for years ended December 31, 2008 and 2007, respectively. The reconciliation of income tax rate to the effective income tax rate based on

F-22

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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

income before income taxes from foreign operation years ended December 31, 2008 and 2007 are as follows:

	Years ended December 31,
	2008			2007
	HK$			HK$
Loss before income taxes		(2,395,177	)		(985,886	)
Statutory income tax rate		16.5	%		17.5	%
Income tax impact at Hong Kong Profits Tax rate		(395,204	)		(172,530	)
Non-taxable interest income		(112	)		(9,831	)
Expenses not deductible for tax purposes:
- Non-deductible donations		-			175
- Gain on disposal of plant and equipment		(43,859	)		-
- Difference between book and tax depreciation		129,085			92,679
- Capitalized product development costs		(160,211	)		(189,615	)
- Others		(115,761	)		(91,385	)
Net operating loss		586,062			-

Income tax benefit		-			(370,507	)

Income taxes payable as of December 31, 2008 and 2007 consists of Hong Kong Profits Tax of HK$12,626 and HK$12,626, respectively.

For the years ended December 31, 2008 and 2007, TTLHK and TRFID incurred net operating losses and, accordingly, no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recognized due to the uncertainty of the realization of any tax assets. As of December 31, 2008, TTLHK and TRFID had approximately HK$11,031,801 of net operating loss carryforwards for Hong Kong tax purpose at no expiration.

The PRC

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

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

As of December 31, 2008, TTLSZ incurred HK$3,396,696 of net operating losses carryforward available for income tax purposes that may be used to offset future taxable income and will begin to expire in [2015], if unutilized. A full valuation allowance was provided against the deferred tax assets of HK$849,174 on the expected future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future.

F-23

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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

The following table sets forth the significant components of the aggregate net deferred tax assets and liabilities of the Group as of December 31, 2008 and 2007:

	As of December 31,
	2008			2007
	HK$			HK$
Deferred tax liabilities:
Amortization of capitalized product development cost		(1,113,856	)		(878,810	)

Deferred tax assets:
Allowances for doubtful accounts		123,121			253,360
Net operating loss carryforwards:
- Hong Kong		1,820,247			1,308,984
- The PRC		849,174			818,460
Total net deferred tax assets		1,678,686			1,501,994
Less: valuation allowance		(995,152	)		(818,460	)

Net deferred tax assets		683,534			683,534

As of December 31, 2008, the operation in Hong Kong and the PRC incurred HK$14,428,497 of the aggregate net operating losses carryforward that may be used to offset future taxable income. The Company has provided for a valuation allowance of HK$995,152 against the significant portion of deferred tax assets as the management believes it is more likely than not that these assets will not be realized in the future.

13.	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

F-24

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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

•	Anti-dilution protections to allow adjustments to the conversion price of the debentures in the event the Company sells or issues shares at a price less than the conversion price of the debentures.
•	The holders of the Debenture and Warrants have registration rights that require the Company to file a registration statement with the Securities and Exchange Commission to register the resale of the common stock issuable upon conversion of the Debenture or the exercise of the Warrants.

In connection with the Financing, on the same date, the Company issued warrants to investors that are exercisable for up to 4,833,333 shares of common stock of the Company with an exercise price of US$0.50 per share. The warrants are exercisable for a five-year period commencing on April 3, 2007. The Company also paid a placement fee of HK$1,131,000 (US$145,000) and issued warrants to the placement agents entitling the holders to purchase an aggregate of 483,333 shares of common stock of the Company at an exercise price of US$0.315 per share in a warrant life of seven years.

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

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

The debentures were discounted for the fair value of warrants, 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 years ended December 31, 2008, the Company recorded HK$1,394,024 (US$178,721) as gain from change in warrant liability in the statement of operation.

As of December 31, 2008, the fair value of the warrants of HK$91,237 (US$11,697) 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)	3
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.

For the year ended December 31, 2008, the Group paid interest expense partly in lieu of 24,797 shares of common stock and partly cash of HK$856,165.

F-25

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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

14. PENSION PLANS

Hong Kong

The Group’s subsidiaries operating in Hong Kong, TTLHK and TRFID participate in a defined contribution pension scheme under the Mandatory Provident Fund Schemes Ordinance (“MPF Scheme”) for all of its eligible employees in Hong Kong.

The MPF Scheme is available to all employees aged 18 to 64 with at least 60 days of service in the employment in Hong Kong. Contributions are made by TTLHK and TRFID at 5% of the participants’ relevant income with a ceiling of HK$20,000. The participants are entitled to 100% of the contributions together with accrued returns irrespective of their length of service with the TTLHK and TRFID, but the benefits are required by law to be preserved until the retirement age of 65. The total contributions made for MPF Scheme were HK$121,202and HK$133,587 for the years ended December 31, 2008 and 2007, respectively.

The PRC

Under the PRC Company Law, the Group’s subsidiary, TTLSZ is required to make appropriations to statutory reserve, based on after-tax net earnings and determined in accordance with generally accepted accounting principles of the PRC (the “PRC GAAP”). Appropriation to the statutory reserve should be at least 10% of the after-tax net earnings until the reserve is equal to 50% of TTLSZ’s registered capital. The statutory public welfare fund is established for the purpose of providing employee facilities and other collective benefits to the employees and is non-distributable other than in liquidation.

As TTLSZ has recorded an operating loss under the PRC GAAP for the years ended December 31, 2008 and 2007, no appropriation to statutory reserve was made during these periods.

15.	SEGMENT INFORMATION

The Group 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:

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

•	The PRC, mainly the government sector.

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

	As of December 31,
	2008		2007
	HK$		HK$
Long-lived assets:
- Hong Kong		7,078,634		9,086,440
- The PRC		37,280		45,524

		7,115,914		9,131,964

F-26

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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

	Years ended December 31,
	2008		2007
	HK$		HK$
Revenue:
- Hong Kong		14,461,774		16,594,335
- The PRC		1,169,736		121,528

		15,631,510		16,715,863

16. CONCENTRATIONS OF RISK

The Company is exposed to the following concentrations of risk:

(a)	Major customers

For the years ended December 31, 2008 and 2007, the customer who accounts for 10% or more of and revenue of the Company is presented as follows:

	Year ended December 31, 2008					December 31, 2008
	Revenue		Percentage of revenue			Accounts receivable
	HK$					HK$
Customer A		3,120,825		20	%		308,253
Customer B		2,283,833		15	%		627,526
Customer C		2,195,100		14	%		514,100

Total:		7,599,758		49	%		1,449,879

	Year ended December 31, 2007					December 31, 2007
	Revenue		Percentage of revenue			Accounts Receivable
	HK$					HK$
Customer B		2,461,250		15	%		3,077,993
Customer D		2,115,990		13	%		2,115,990
Customer E		1,001,321		6	%		-
Customer F		631,800		4	%		-

Total:		6,210,361		38	%		5,193,983

(b) Major vendors

For the years ended December 31, 2008 and 2007, the vendor who accounts for 10% or more of the purchases of the Company is presented as follows:

F-27

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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

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

Total:		1,987,430		21	%		-

	Year ended December 31, 2007					December 31, 2007
	Purchases		Percentage of purchases			Accounts payable
	HK$					HK$
Vendor B		1,057,995		10	%		1,057,995
Vendor C		1,619,701		15	%		1,145,753
Vendor D		1,255,384		12	%		-

Total:		3,933,080		37	%		2,203,748

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

(d) Interest rate risk

As the Group has no significant interest-bearing assets, the Group’s income and operating cash flows are substantially independent of changes in market interest rates.

The Group’s interest-rate risk arises from bank borrowings. Borrowings issued at fixed rates expose the Group to fair value interest-rate risk. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. The Group manages interest rate risk by varying the issuance and maturity dates variable rate debt, limiting the amount of variable rate debt, and continually monitoring the effects of market changes in interest rates. As of December 31, 2008, all of borrowings were at variable rates. The interest rates and terms of repayment of bank borrowings are disclosed in Note 8 and 9.

(e) Exchange rate risk

The Group cannot guarantee that the current exchange rate will remain steady; therefore there is a possibility that the Group could post the same amount of profit for two comparable periods and because of the fluctuating exchange rate actually post higher or lower profit depending on exchange rate of HK$ converted to US$ on that date. The exchange rate could fluctuate depending on changes in political and economic environments without notice.

F-28

TITANIUM GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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

17. COMMITMENTS AND CONTINGENCIES

(a) Operating lease commitments

The Group rented office spaces under non-cancelable operating lease agreements with a term of 9 months to 3 years, with fixed monthly rentals, expiring in various years through May 2011. Costs incurred under these operating leases are recorded as rental expense and totaled approximately HK$504,136 and HK$628,634 for the years ended December 31, 2008 and 2007.

As of December 31, 2008, future minimum annual operating lease payments are as follows:

Years ending December 31,	HK$
2009		349,132
2010		303,996
2010		126,665

Total		779,793

(b)	Reserve for product warranties

The Group has not experienced any material returns where it was under obligation to honor this standard warranty provision. As such, no reserve for product warranties has been provided in the statement of operations for the years ended December 31, 2008 and 2007.

In December 2008, the Company established a joint venture company, Titanium Biometrics Limited with 51% of equity interest in Hong Kong. This joint venture company will engage in the promotion and marketing of biometrics face recognition access control and time attendance systems in Mainland China. Total estimated investment costs are approximately HK$1,906,500. As of December 31, 2008, the Group is committed to make a contingent payment of HK$972,315 to the joint venture company for the working capital purpose.

18.	COMPARATIVE FIGURES

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

F-29