UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _____________________
Commission file number 0-52415
TITANIUM GROUP LIMITED
(Exact name of registrant as specified in its charter)
British Virgin Islands
(State or other jurisdiction of
incorporation or organization)
|
Not Applicable
(IRS Employer
Identification No.)
|
Suite 2101, 21/F, Chinachem Century Tower, 178 Gloucester Road, Wanchai, Hong Kong
(Address of principal executive offices)(Zip Code)
(852) 3679 3110
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No (Not required)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a small reporting company. See definitions of “large accelerated filer,” accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
|
Accelerated filer o
|
Non-accelerated filer o
|
Smaller reporting company x
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes x No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 100,000,000 shares of Common Stock, $0.01 par value, as of November 15, 2011
TITANIUM GROUP LIMITED
INDEX
PART I. FINANCIAL INFORMATION
|
|
|
3 |
|
|
|
|
|
|
Item 1. Financial Statements
|
|
|
3 |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
|
|
19 |
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
|
|
|
28 |
|
Item 4. Controls and Procedures.
|
|
|
28 |
|
|
|
|
|
|
PART II. OTHER INFORMATION
|
|
|
29 |
|
|
|
|
|
|
Item 1. Legal Proceedings.
|
|
|
29 |
|
Item 1A. Risk Factors.
|
|
|
29 |
|
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
|
|
|
29 |
|
Item 3. Defaults Upon Senior Securities.
|
|
|
29 |
|
Item 4. Reserved.
|
|
|
29 |
|
Item 5. Other Information.
|
|
|
29 |
|
Item 6. Exhibits.
|
|
|
|
|
FORWARD-LOOKING STATEMENTS
This report includes “forward-looking statements.” All statements other than statements of historical facts included or incorporated by reference in this report, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “expect,” “intend,” “project,” “estimate,” “anticipate,” “believe,” or “continue” or the negative thereof or variations thereon or similar terminology. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurance that such expectations will prove to have been correct.
TITANIUM GROUP LIMITED AND SUBSIDIARIES
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
Page
|
|
|
|
Unaudited Condensed Consolidated Balance Sheets
|
|
6
|
|
|
|
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss
|
|
7
|
|
|
|
Unaudited Condensed Consolidated Statements of Cash Flows
|
|
8
|
|
|
|
Notes to Unaudited Condensed Consolidated Financial Statements
|
|
9
|
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TITANIUM GROUP LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
|
|
US$
|
|
|
HK$
|
|
|
HK$
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
787,661 |
|
|
$ |
6,143,756 |
|
|
$ |
716,305 |
|
Restricted cash
|
|
|
- |
|
|
|
- |
|
|
|
1,421,975 |
|
Accounts receivable
|
|
|
3,642,204 |
|
|
|
28,409,191 |
|
|
|
2,230,262 |
|
Amount due from a related party
|
|
|
- |
|
|
|
- |
|
|
|
825,794 |
|
Inventories (note 6)
|
|
|
1,278,015 |
|
|
|
9,968,517 |
|
|
|
3,760,708 |
|
Deposits and other receivables
|
|
|
431,143 |
|
|
|
3,362,915 |
|
|
|
179,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
6,139,023 |
|
|
|
47,884,379 |
|
|
|
9,134,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant and equipment, net
|
|
|
194,022 |
|
|
|
1,340,360 |
|
|
|
1,340,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$ |
6,333,045 |
|
|
$ |
49,224,739 |
|
|
$ |
10,474,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, trade
|
|
$ |
1,252,867 |
|
|
$ |
9,772,363 |
|
|
$ |
4,139,881 |
|
Amounts due to related parties (note 7)
|
|
|
175,127 |
|
|
|
1,365,991 |
|
|
|
2,505,383 |
|
Loans from third parties (note 8)
|
|
|
4,369,691 |
|
|
|
34,083,590 |
|
|
|
- |
|
Income tax payable
|
|
|
- |
|
|
|
- |
|
|
|
56,667 |
|
Convertible note
|
|
|
- |
|
|
|
- |
|
|
|
3,018,600 |
|
Convertible debenture (note 9)
|
|
|
- |
|
|
|
- |
|
|
|
10,920,000 |
|
Accrued liabilities and other payables
|
|
|
150,211 |
|
|
|
1,171,646 |
|
|
|
7,187,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
5,947,896 |
|
|
|
46,393,590 |
|
|
|
27,828,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ funds / (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, US$0.01 (HK$0.078) par value, 100,000,000 shares authorized, 100,000,000 and 52,635,560 shares issued and outstanding, as of September 30, 2011 and December 31, 2010
(Note 10)
|
|
$ |
1,000,000 |
|
|
$ |
7,800,000 |
|
|
$ |
4,105,574 |
|
Additional paid-in capital
|
|
|
1,695,086 |
|
|
|
13,221,671 |
|
|
|
(663,221 |
) |
Accumulated other comprehensive income
|
|
|
250,129 |
|
|
|
1,777,994 |
|
|
|
54,935 |
|
Accumulated deficit
|
|
|
(2,560,066 |
) |
|
|
(19,968,516 |
) |
|
|
(20,850,921 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total funds / (deficit)
|
|
|
385,149 |
|
|
|
2,831,149 |
|
|
|
(17,353,633 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
$ |
6,333,045 |
|
|
$ |
49,224,739 |
|
|
$ |
10,474,745 |
|
See accompanying notes to condensed consolidated financial statements.
TITANIUM GROUP LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE LOSS
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
2011
|
|
2011
|
|
2010
|
|
2011
|
|
2011
|
|
2010
|
|
US$
|
|
HK$
|
|
HK$
|
|
US$
|
|
HK$
|
|
HK$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE, NET
|
$
|
2,021,438
|
|
$
|
15,767,216
|
|
$
|
4,805
|
|
$
|
4,197,062
|
|
$
|
32,737,084
|
|
$
|
14,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF REVENUE
|
|
(2,048,672)
|
|
(15,979,642)
|
|
|
-
|
|
(4,187,901)
|
|
(32,665,628)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
(27,234)
|
|
|
(212,426)
|
|
|
4,805
|
|
|
9,161
|
|
|
71,456
|
|
|
14,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
167,164
|
|
|
1,303,879
|
|
|
260,376
|
|
|
451,052
|
|
|
3,518,206
|
|
|
2,355,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
167,164
|
|
|
1,303,879
|
|
|
260,376
|
|
|
451,052
|
|
|
3,518,206
|
|
|
2,355,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
(194,398)
|
|
|
(1,516,305)
|
|
|
(255,571)
|
|
|
(441,891)
|
|
|
(3,446,750)
|
|
|
(2,341,334)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
-
|
|
|
-
|
|
|
2,403
|
|
|
67
|
|
|
523
|
|
|
2,403
|
Sundry income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,700
|
Interest expense
|
|
10,922
|
|
|
85,192
|
|
|
(549,079)
|
|
|
(450)
|
|
|
(3,511)
|
|
|
(1,382,924)
|
Discount of convertible debenture
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(121,822)
|
Gain from disposal of a subsidiary
|
|
555,403
|
|
|
4,332,143
|
|
|
-
|
|
|
555,403
|
|
|
4,332,143
|
|
|
-
|
Gain from change in fair value of
warrant liability
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
33,985
|
Total other income / (expense)
|
|
566,325
|
|
|
4,417,335
|
|
|
(546,676)
|
|
|
555,020
|
|
|
4,329,155
|
|
|
(1,466,658)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAX
|
|
371,927
|
|
|
2,901,030
|
|
|
(802,247)
|
|
|
113,129
|
|
|
882,405
|
|
|
(3,807,992)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax credit/(expense)
(note 5)
|
|
8,116
|
|
|
63,305
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET PROFIT / (LOSS)
|
$
|
380,043
|
|
$
|
2,964,335
|
|
$
|
(802,247)
|
|
$
|
113,129
|
|
$
|
882,405
|
|
$
|
(3,807,992)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Foreign currency translation gain
(loss)
|
|
222,810
|
|
|
1,737,918
|
|
|
6,514
|
|
|
223,891
|
|
|
1,746,350
|
|
|
(17,879)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME / (LOSS)
|
$
|
602,853
|
|
$
|
4,702,253
|
|
$
|
(795,733)
|
|
$
|
337,020
|
|
$
|
2,628,755
|
|
$
|
(3,825,871)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive gain (loss) attributable to noncontrolling interest
|
|
-
|
|
|
-
|
|
|
521
|
|
|
-
|
|
|
-
|
|
|
(1,430)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income / (loss) attributable to Titanium Group Limited
|
|
602,853
|
|
|
4,702,254
|
|
|
(796,254)
|
|
|
337,020
|
|
|
2,628,755
|
|
|
(3,824,441)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share – basic and
diluted
|
$
|
0.00
|
|
$
|
0.03
|
|
$
|
(0.02)
|
|
$
|
0.00
|
|
$
|
0.01
|
|
$
|
(0.07)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding – basic and diluted
|
100,000,000
|
|
100,000,000
|
|
51,644,399
|
|
73,879,904
|
|
73,879,904
|
|
|
51,644,399
|
See accompanying notes to condensed consolidated financial statements.
TITANIUM GROUP LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Nine months ended September 30,
|
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
|
US$
|
|
|
HK$
|
|
|
HK$
|
|
Cash flow from operating activities:
|
|
|
|
|
|
|
|
|
|
Net profit / (loss)
|
|
$ |
113,129 |
|
|
$ |
882,405 |
|
|
|
(3,807,992 |
) |
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange loss
|
|
|
1,114 |
|
|
|
8,688 |
|
|
|
- |
|
Amortization cost on discount of convertible debenture
|
|
|
|
|
|
|
- |
|
|
|
121,822 |
|
Gain from change in fair value of warrant liability
|
|
|
|
|
|
|
- |
|
|
|
(33,985 |
) |
Gain from disposal of a subsidiary
|
|
|
(555,403 |
) |
|
|
(4,332,143 |
) |
|
|
- |
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
182,304 |
|
|
|
1,421,975 |
|
|
|
400,000 |
|
Accounts receivable
|
|
|
(3,356,273 |
) |
|
|
(26,178,929 |
) |
|
|
72,145 |
|
Inventories
|
|
|
(795,873 |
) |
|
|
(6,207,809 |
) |
|
|
- |
|
Deposits and other receivables
|
|
|
(408,151 |
) |
|
|
(3,183,574 |
) |
|
|
42,420 |
|
Accounts payable
|
|
|
722,113 |
|
|
|
5,632,482 |
|
|
|
- |
|
Deferred revenue
|
|
|
- |
|
|
|
- |
|
|
|
(14,412 |
) |
Income tax payable
|
|
|
7,265 |
|
|
|
56,667 |
|
|
|
- |
|
Accrued liabilities and other payable
|
|
|
771,308 |
|
|
|
6,016,201 |
|
|
|
924,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(3,318,467 |
) |
|
|
(25,884,037 |
) |
|
|
(2,295,171 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of plant and equipment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net cash used in investing activities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
New Loan from third party
|
|
|
4,369,691 |
|
|
|
34,083,590 |
|
|
|
- |
|
Advances from a director
|
|
|
- |
|
|
|
- |
|
|
|
67,500 |
|
Advances from a stockholder
|
|
|
- |
|
|
|
- |
|
|
|
9,091 |
|
Advances from related parties
|
|
|
(40,205 |
) |
|
|
(313,598 |
) |
|
|
2,616,250 |
|
Net cash provided by financing activities
|
|
|
4,329,486 |
|
|
|
33,769,992 |
|
|
|
2,692,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalent
|
|
|
(315,192 |
) |
|
|
(2,458,504 |
) |
|
|
(17,879 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
695,827 |
|
|
|
5,427,451 |
|
|
|
379,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
91,834 |
|
|
|
716,305 |
|
|
|
92,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
|
$ |
787,661 |
|
|
$ |
6,143,756 |
|
|
|
472,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cash paid for interest
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
See accompanying notes to condensed consolidated financial statement.
NOTE 1 – ORGANIZATION AND BACKGROUND
Titanium Group Limited (the “Company” or “TTNUF”) was incorporated as an International Business Company with limited liability in the British Virgin Islands (“BVI”) under the International Business Companies Act (“IBC Act”) of the British Virgin Islands on May 17, 2004 and subsequently registered under the BVI Business Companies Act (“BVIBC Act”) on January 1, 2007 when the IBC Act was repealed and replaced with the BVIBC Act. The Company, through its subsidiaries, mainly engages in the manufacture and sales of electric wire products in the PRC, with its principal place of business in Shenzhen City, the PRC.
On May 31, 2011, the Company closed on the transactions described in a Memorandum of Understanding dated September 1, 2010 and amended on November 18, 2010 and March 18, 2011 (the “MOU”). Under the terms of the MOU:
1.
|
The Company agreed to effect a 1-for-10 consolidation of its issued and outstanding shares of common stock.
|
2.
|
The holders of the Company’s outstanding convertible debentures in the aggregate principal amount of US$1,400,000 (HK$10,920,000) agreed to accept a total of 3,500,000 post-consolidation common shares as full and complete payment of the debentures and all accrued and unpaid interest thereon.
|
3.
|
Zili Industrial Co., Limited, an entity owned and/or controlled by Mr. XU Zhigang, agreed to purchase 38,700,000 post-consolidation common shares and deposit the purchase price of US$387,000 into escrow.
|
4.
|
Huabao Asia Limited, an entity owned and controlled by Mr. CHEN Tianju, agreed that it would transfer ownership of Shenzhen Kanglv Technology Company Limited (“Shenzhen Kanglv”) to the Company, in exchange for 52,635,560 post-consolidation common shares.
|
The stock exchange transaction has been accounted for as a reverse acquisition and recapitalization of the Company whereby Shenzhen Kanglv is deemed to be the accounting acquirer (legal acquiree) and the Company to be the accounting acquiree (legal acquirer). The accompanying condensed consolidated financial statements are in substance those of Shenzhen Kanglv, with the assets and liabilities, and revenues and expenses, of the Company being included effective from the date of stock exchange transaction. The Company is deemed to be a continuation of the business of Shenzhen Kanglv.
Accordingly, the accompanying condensed consolidated financial statements include the following:
(1) the balance sheet consists of the net assets of the accounting acquirer at historical cost and the net assets of the accounting acquiree at historical cost; and
(2) the financial position, results of operations, and cash flows of the accounting acquirer for all periods presented as if the recapitalization had occurred at the beginning of the earliest period presented and the operations of the accounting acquiree from the date of stock exchange transaction.
The accompanying condensed consolidated financial statements present the financial position and results of operations of the Company and its subsidiary companies, Kanglv Cable Technology (Hong Kong) Limited, Kanglv Technology (Hong Kong) Limited and Shenzhen KangLv Technology Company Limited (collectively known as the “Group”). The Group’s functional currency is Hong Kong Dollars (“HK$”), except otherwise indicated.
NOTE 2 – BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared by management in accordance with both accounting principles generally accepted in the United States of America (“GAAP”) and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and note disclosures normally included in audited financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.
In the opinion of management, the consolidated balance sheet as of December 31, 2010 which has been derived from audited financial statements and these unaudited condensed financial statements reflect all normal and recurring adjustments considered necessary to state fairly the results for the periods presented. The results for the nine months ended September 30, 2011 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2011 or for any future period.
These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements of Shenzhen KangLv for the year ended December 31, 2010.
NOTE 3 – GOING CONCERN UNCERTAINTIES
These condensed consolidated financial statements have been prepared assuming that the Group will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.
For the nine months ended September 30, 2011, the Group incurred an accumulated deficit of HK$19,968,516 at that date. The continuation of the Group as a going concern through September 30, 2012 is dependent upon the continuing financial support from its stockholders. Management believes, the existing stockholders will provide the additional cash to meet with the Company’s obligations as they become due.
These factors raise substantial doubt about the Group’s ability to continue as a going concern. These condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets and liabilities that may result in the Group not being able to continue as a going concern.
NOTE 4 – RECENT ACCOUNTING PRONOUNCEMENTS
The Group has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
In May 2011, the Financial Accounting Standard Board (“FASB”) issued ASU 2011-04, which is an update to Topic 820, “Fair Value Measurement”. This update establishes common requirements for measuring fair value and related disclosures in accordance with accounting principles generally accepted in the United Sates and international financial reporting standards. This amendment did not require additional fair value measurements. ASU 2011-04 is effective for all interim and annual reporting periods beginning after December 15, 2011. The Company does not expect the adoption of this guidance to have a material impact on its financial position or results of operations.
In June 2011, the FASB issued ASU 2011-05, which is an update to Topic 220, “Comprehensive Income”. This update eliminates the option of presenting the components of other comprehensive income as part of the statement of changes in stockholders’ equity, requires consecutive presentation of the statement of net income and other comprehensive income and requires reclassification adjustments from other comprehensive income to net income to be shown on the financial statements. ASU 2011-05 is effective for all interim and annual reporting periods beginning after December 15, 2011. The Company does not expect the adoption of this guidance to have a material impact on its financial position or results of operations.
NOTE 5 – INCOME TAXES
The provision for income taxes is determined in accordance with the provisions of ASC Topic 740, “Income Taxes” (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
For the nine months ended September 30, 2011 and 2010, the local (BVI) and foreign components of (loss) income before income taxes were comprised of the following:
|
|
Nine months ended September 30,
|
|
|
|
2011
|
|
|
2010
|
|
Tax jurisdictions from:
|
|
|
|
|
|
|
– BVI (local)
|
|
$ |
3,699,000 |
|
|
$ |
(1,426,008 |
) |
– Hong Kong
|
|
|
(1,941,215 |
) |
|
|
(680,376 |
) |
– The PRC
|
|
|
(875,380 |
) |
|
|
(1,701,608 |
) |
|
|
|
|
|
|
|
|
|
Income / (loss) before income taxes
|
|
$ |
882,405 |
|
|
$ |
(3,807,992 |
) |
Pursuant to the rules and regulations of the BVI, Titanium Group Limited which is incorporated in the BVI is not subject to taxation in the BVI under the current BVI law. The profit for the year was mainly generated from the gain on disposal of liquidated subsidiaries.
As of September 30, 2011, the operations in Hong Kong and the PRC incurred HK$2,816,595 of the aggregate net operating losses carry forward that may be used to offset future taxable income. The Group has provided for a valuation allowance in full amount of deferred tax assets as there is no assurance of further taxable income.
NOTE 6 – INVENTORIES
Inventories consist of the following:
|
|
September 30,
2011
|
|
|
December 31,
2010
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$ |
1,149,939 |
|
|
$ |
2,716,132 |
|
Work-in-process
|
|
|
5,872,843 |
|
|
|
293,873 |
|
Finished goods
|
|
|
2,945,735 |
|
|
|
750,703 |
|
|
|
|
|
|
|
|
|
|
Inventories, net
|
|
$ |
9,968,517 |
|
|
$ |
3,760,708 |
|
For the three and nine months ended September 30, 2011 and 2010, the Company recorded no allowance for slow-moving and obsolete inventories.
NOTE 7 – AMOUNTS DUE TO RELATED PARTIES
|
|
September 30, 2011
|
|
|
December 31,
2010
|
|
|
|
|
|
|
|
|
Amount due to a director, Mr. Lai Huamin
|
|
$ |
- |
|
|
$ |
1,165,498 |
|
Amount due to a former director, Mr. Wen Jialong
|
|
|
- |
|
|
|
492,852 |
|
Amount due to a stockholder, Cancare International Group (HK) Ltd
|
|
|
1,387,600 |
|
|
|
847,033 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,387,600 |
|
|
$ |
2,505,383 |
|
As of September 30, 2011, the amounts due to related parties represented temporary advances made to the Group, which were unsecured, interest-free and repayable within the next twelve months.
NOTE 8 – LOANS FROM THIRD PARTIES
As of September 30, 2011, there were loans from third parties of HK$ 34,083,590 which were unsecured, interest-free and repayable within the next twelve months.
NOTE 9 – CONVERTIBLE DEBENTURE
On April 3, 2007, the Company entered into a Securities Purchase Agreement (the “Agreement”) with several accredited investors (“the Investors”). In accordance with the Agreement, the Investors agreed to purchase in the aggregate, HK$11,310,000 (US$1,450,000) principal amount of Series A 8% Senior Convertible Debentures (“the Debenture”).
The Debenture has the following material terms:
•
|
Interest at 8% per annum, payable quarterly on January 1, April 1, July 1 and October 1 beginning July 1, 2007 in cash or in shares at the option of the Company, with the shares to be registered pursuant to an effective registration statement and priced at the lesser of (a) US$0.30 or (b) 90% of the volume-weighted average price for the 10 consecutive trading days immediately prior to payment;
|
•
|
Maturity date of 36 months;
|
•
|
Convertible at any time by the holders into shares of the Company’s common stock at a price equal to US$0.30;
|
•
|
Convertible at the option of the Company as long as there is an effective registration statement covering the shares underlying the debentures and the closing bid price of the Company’s common stock is at least US$0.75 per share;
|
•
|
Redeemable at the option of the Company at 120% of face value, as long as there is an effective registration statement covering the shares underlying the debentures; and
|
•
|
Anti-dilution protections to allow adjustments to the conversion price of the debentures in the event the Company sells or issues shares at a price less than the conversion price of the debentures.
|
•
|
The holders of the Debenture and Warrants have registration rights that require the Company to file a registration statement with the Securities and Exchange Commission to register the resale of the common stock issuable upon conversion of the Debenture or the exercise of the Warrants.
|
•
|
All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law which shall accrue daily from the date such interest is due hereunder through and including the date of payment in full.
|
•
|
In Event of Default that results in the eventual acceleration of this Debenture, the interest rate on this Debenture shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law.
|
|
|
In connection with the Debenture, 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. 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. Proceeds of the financing are used for working capital and for the further development of the Company’s proprietary technology.
On November 23, 2007, the Company entered into an Amendment and Waiver Agreement (the “Waiver Agreement”) with the 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.
On May 31, 2011, the Company reached a final settlement with the Investors to repay the convertible debentures, together with all accrued and paid interest with an issuance of a total of 3,500,000 (post reverse split) shares of its common stock to satisfy with the following terms:
(a)
|
as full and complete payment of the outstanding balances of convertible debenture and related interest
|
(b)
|
consideration for a release of any and all claims against the Company, and
|
(c)
|
relinquishment of outstanding warrants and any other rights to acquire securities of the Company.
|
NOTE 10 – STOCKHOLDERS’ EQUITY
On May 31, 2011, the Company closed on the below transactions under a Memorandum of Understanding dated September 1, 2010 and amended on November 18, 2010 and March 18, 2011 (the “ MOU ”).
1.
|
The Company agreed to effect a 1-for-10 consolidation of its issued and outstanding shares of common stock, with the par value and authorized shares unchanged. All common stock and per share data for all periods presented in these condensed consolidated financial statements have been restated to give effect to the reverse stock split. As a result of the Reverse Split, the Company’s issued and outstanding shares reduced from 51,644,439 to 5,164,440.
|
2.
|
The Company issued 3,500,000 (post reverse split) shares of its common stock as full and complete payment to satisfy with the outstanding debentures and all accrued and unpaid interest.
|
3.
|
The Company issued 38,700,000 (post reverse split) shares of its common stock to Zili Industrial Co., in exchange for a note payable of US$387,000.
|
4.
|
The Company issued 52,635,560 (post reverse split) shares of its common stock to Huabao Asia Limited, in exchange for 100% capital stock in Shenzhen Kanglv.
|
As of September 30, 2011, the number of authorized and outstanding shares of the Company’s common stock was 100,000,000 shares and 52,635,560 shares, respectively.
NOTE 11 – CONCENTRATIONS OF RISK
The Company is exposed to the following concentrations of risk:
(a) Major customers
For the three months ended September 30, 2011, there was a single customer who accounted for 100% of the Company’s revenue amounting to HK$15,767,216 with accounts receivable balance of HK$25,799,562 at period-end date:
For the nine months ended September 30, 2011, there was a single customer who accounted for 100% of the Company’s revenue amounting to HK$32,737,084 with accounts receivable balance of HK$25,799,562 at period-end date:
For the three and nine months ended September 30, 2010, there was no single customer who accounted for 10% or more of the Company’s revenues.
(b) Major vendors
For the three and nine months ended September 30, 2011, the vendor who accounted for 10% or more of the Company’s purchases and its outstanding balance at period-end date, are presented as follows:
|
|
|
Three months ended September 30, 2011
|
|
September 30, 2011
|
|
|
|
|
Purchases
|
|
Percentage
of purchases
|
|
Accounts payable, trade
|
|
|
|
|
|
|
|
|
|
|
|
|
Vendor A
|
|
|
$
|
1,520,844
|
|
10 %
|
|
$
|
1,480,177
|
|
Vendor B
|
|
|
|
5,862,823
|
|
37 %
|
|
|
-
|
|
Vendor C
|
|
|
|
3,422,305
|
|
21 %
|
|
|
3,330,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$
|
10,805,972
|
|
68 %
|
|
$
|
4,810,878
|
|
|
|
|
Nine months ended September 30, 2011
|
|
September 30, 2011
|
|
|
|
|
Purchases
|
|
Percentage
of purchases
|
|
Accounts payable, trade
|
|
Vendor A
|
|
|
$
|
3,762,673
|
|
12 %
|
|
$
|
1,480,177
|
|
Vendor B
|
|
|
|
14,524,552
|
|
44 %
|
|
|
-
|
|
Vendor C
|
|
|
|
6,750,175
|
|
21 %
|
|
|
3,330,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$
|
25,037,400
|
|
77 %
|
|
$
|
4,810,878
|
|
For the three and nine months ended September 30, 2010, there was no single vendor who accounted for 10% or more of the Company’s purchases.
NOTE 11 – CONCENTRATIONS OF RISK (Continued)
(a) Credit risk
Financial instruments that are potentially subject to credit risk consist principally of accounts receivable. The Company believes the concentration of credit risk in its accounts receivable is substantially mitigated by its ongoing credit evaluation process and relatively short collection terms. The Company does not generally require collateral from customers. The Company evaluates the need for an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.
(b) Exchange rate risk
The reporting currency of the Company is HK$, to date the majority of the revenues and costs are denominated in RMB and a significant portion of the assets and liabilities are denominated in RMB. As a result, the Company is exposed to foreign exchange risk as its revenues and results of operations may be affected by fluctuations in the exchange rate between HK$ and RMB. If RMB depreciates against HK$, the value of RMB revenues and assets as expressed in HK$ financial statements will decline. The Company does not hold any derivative or other financial instruments that expose to substantial market risk.
(c) Economic and political risks
The Company's operations are conducted in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC and by the general state of the PRC economy.
The Company's operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company's results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation.
NOTE 12 – SUBSEQUENT EVENTS
In accordance with ASC Topic 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events or transactions that occurred after September 30, 2011 through the date of the condensed consolidated financial statements were issued and filed with this Form 10-Q. During the period, the Company did not have any material recognizable subsequent events.
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Overview
Titanium Technology formerly engaged in developing products utilizing biometrics technologies, licensing of technologies, professional services, and project contracting. Based in Hong Kong with a research and development center in Shenzhen, China, Titanium Technology developed and sold Automatic Face Recognition Systems, or AFRS, and other biometric and security solutions to governments, law enforcement agencies, gaming companies, and other organizations in China and other parts of Asia.
We raised net proceeds of US$517,425 (HK$4,035,915) through a private placement of securities during the third quarter of 2005 and net proceeds of US$1,225,000 (HK$9,555,000) in April 2007 through the sale of convertible debentures. We found that the amount of financing received in 2007 was not sufficient to allow us to pursue larger, more profitable contracts. This forced us to bid for smaller, less profitable projects during 2007, 2008 and 2009. When coupled with the worldwide economic downturn that began in 2008 and continued into 2009, our operations were severely affected. In late 2009, we decided to completely reassess our method of operations and the way in which we market our products. Accordingly, we laid off most of our staff and moved to smaller office space. We did not generate any revenues in 2010.
In 2010, we decided to seek another business and negotiated with the holders of our convertible debentures that matured in April 2010, resulting in a Memorandum of Understanding (“MOU”) dated September 1, 2010 and amended on November 18, 2010 and March 18, 2011. Under the terms of the MOU, we agreed to effect a 1-for-10 consolidation of our issued and outstanding shares of common stock. The holders of our convertible debentures in the aggregate principal amount of US$1,400,000 (HK$10,920,000) agreed to accept a total of 3,500,000 post-consolidation common shares and full and complete payment of the debentures and all accrued and unpaid interest thereon. Zili Industrial Co., Limited, an entity owned and/or controlled by Mr. Xu Zhigang, agreed to purchase 38,700,000 post-consolidation common shares and deposit the purchase price of US$387,000 into escrow. Huabao Asia Limited, an entity owned and controlled by Mr. Chen Tianju, agreed that it would transfer ownership of Shenzhen Kanglv Technology Ltd. (“Shenzhen Kanglv”) to us, in exchange for 52,635,560 post-consolidation common shares. Closing of the MOU occurred on May 31, 2011.
The acquisition of Shenzhen Kanglv was accounted for as a recapitalization effected by a share exchange, wherein Shenzhen Kanglv is considered the acquirer for accounting and financial reporting purposes. As a result of the transaction, Shenzhen Kanglv became a wholly-owned subsidiary of the Company. The assets and liabilities of the acquired entity have been brought forward at their book value and no goodwill has been recognized.
Shenzhen Kanglv is engaged in the manufacture and sales of electronic cable products in the PRC, with its principal place of business in Shenzhen City, the PRC. Its principal products are various types of computer cables, such as HDMI, DVI, VGA and USB cables, as well as electric power cables.
Shenzhen Kanglv is a subcontractor for Cancare Electric Wire (Shenzhen) Co., Ltd., (“Cancare Electric”), and manufactures the products for Cancare Electric to its specifications and customization requirements. Cancare Electric provides the core components and materials to Shenzhen Kanglv. Cancare Electric sells the products to companies in the PRC, such as Great Wall Tech, Chi Yuan Technology Limited, and Ya lid a company limited.
Significant Accounting Policies
Inventories. Inventories consist primarily of raw materials, work-in-process and finished goods of electric wire products and are stated at the lower of cost or net realizable value, with cost being determined on a weighted average basis. Costs include material, direct labor and manufacturing overhead costs. Allowance for slow-moving and obsolescence is an estimated amount based on an analysis of current business and economic risks, the duration of the inventories held and other specific identifiable risks that may indicate a potential loss. The allowance is reviewed regularly to ensure that it adequately provides for all reasonable expected losses. For the three and six months ended June 30, 2011 and 2010, Shenzhen Kanglv did not record an allowance for obsolete inventories, nor have there been any write-offs.
Revenue Recognition. In accordance with ASC Topic 605, “Revenue Recognition,” Shenzhen Kanglv recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectability is reasonably assured.
(a) Sales of products – Revenue from the sales of electric wire products is recognized when the products are delivered to and received by the customers, collectability is reasonably assured and the prices are fixed and determinable.
Revenue represents the invoiced value of goods, net of value-added tax (“VAT”). Shenzhen Kanglv’s products that are locally sold in the PRC are subject to VAT, which is levied at the rate of 17% on the invoiced value of sales. Output VAT is borne by customers in addition to the invoiced value of sales and input VAT is borne by Shenzhen Kanglv in addition to the invoiced value of purchases to the extent not refunded for export sales.
(b) Interest income – Interest income is recognized on a time apportionment basis, taking into account the principal amounts outstanding and the interest rates applicable.
Cost of revenue. Cost of revenue includes cost of raw materials, direct labor, packing cost and production overhead directly attributable to the manufacture of electric wire products. Shipping and handling cost are recorded in cost of revenue and are recognized when the related product is delivered to the customer.
Comprehensive income or loss. ASC Topic 220, “Comprehensive Income,” establishes standards for reporting and display of comprehensive income or loss, its components and accumulated balances. Comprehensive income or loss as defined includes all changes in equity during a period from non-owner sources. Accumulated comprehensive income, as presented in the statements of owners’ equity consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income or loss is not included in the computation of income tax expense or benefit.
Income taxes. Income taxes are determined with the provisions of ASC Topic 740, “Income Taxes” (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
For the nine months ended September 30, 2011 and 2010, Shenzhen Kanglv did not have any interest and penalties associated with tax positions. As of September 30, 2011 and December 31, 2010, Shenzhen Kanglv did not have any significant unrecognized uncertain tax positions.
Shenzhen Kanglv conducts its major businesses in the PRC and is subject to tax in this jurisdiction. As a result of its business activities Shenzhen Kanglv files tax returns that are subject to examination by the local tax authority. For the year ended December 31, 2010, Shenzhen Kanglv filed and cleared a 2009 tax return with the tax authority in the PRC.
Foreign currencies translation. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statements of operations.
The reporting currency of Shenzhen Kanglv is the United States Dollar (“US$”) and the financial statements of Shenzhen Kanglv have been expressed in US$. Shenzhen Kanglv maintains its books and records in its local currency, Renminbi Yuan (“RMB”), which is a functional currency as being the primary currency of the economic environment in which its operations are conducted. In accordance with ASC Topic 830-30, “Translation of Financial Statement,” assets and liabilities of a company whose functional currency is not US$ are translated into US$, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements are recorded as a separate component of accumulated other comprehensive income within the statements of owners’ equity.
Related Parties. Parties, which can be a corporation or individual, are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.
Results of Operations
Comparison of three months ended September 30, 2011 and September 30, 2010. Revenues for the three months ended September 30, 2011 were derived from product sales of US$2,021,438(HK$15,767,216). Gross loss was 1.3% or US$27,234 (HK$212,426). For the three months ended September 30, 2010, we generated revenues of US$615 (HK$4,805), as manufacturing operations did not fully commence until August 2010.
After operating expenses of US$167,164 (HK$1,303,879), we incurred an operating loss of US$194,398 (HK$1,516,305) for the three months ended September 30, 2011. After other income of US$566,325 (HK$4,417,335), our net profit was US$380,043 (HK$2,964,335) for the three months ended September 30, 2011. For the three months ended September 30, 2010, our operating expenses were US$33,382 (HK$260,376) mainly incurred by our operation in Hong Kong, resulting in an operating loss of US$32,766 (HK$255,571). After other expenses of US$70,087(HK$546,676), our net loss was US$102,852 (HK$802,247) for the three months ended September 30, 2010.
Comparison of nine months ended September 30, 2011 and September 30, 2010. Revenues for the nine months ended September 30, 2011 were derived 100% from product sales of US$4,197,062 (HK$32,737,084). Gross profit was 0.22% or US$9,161 (HK$71,456). For the nine months ended September 30, 2010, we generated revenues of US$1,848 (HK$14,413), as manufacturing operations did not fully commence until August 2010.
After operating expenses of US$451,052 (HK$3,518,206), we incurred an operating loss of US$441,891 (HK$3,446,750) for the nine months ended September 30, 2011. After other incomes of US$555,020 (HK$4,329,155), our net profit was US$113,129 (HK$882,405) for the nine months ended September 30, 2011. For the nine months ended September 30, 2010, our operating expenses were US$302,019 (HK$2,355,747) mainly incurred by our operation in Hong Kong, resulting in an operating loss of US$300,171 (HK$2,341,334). After other expenses of US$188,033 (HK$1,466,658), our net loss was US$488,204 (HK$3,807,992) for the nine months ended September 30, 2010. Other expenses for the 2010 period included interest expense resulting from the convertible debentures.
Liquidity and Capital Resources
At September 30, 2011. At September 30, 2011, we had cash of US$787,661 (HK$6,143,756), as compared to cash of US$91,834 (HK$716,305) at December 31, 2010.
We used cash of US$3,318,467 (HK$25,884,037) in our operating activities during the nine months ended September 30, 2011, largely due to the net loss of US$113,129 (HK$882,405) for the period. Financing activities, primarily advances from related parties provided cash of US$4,329,486(HK$33,769,992). Amounts owed to related parties at September 30, 2011 were US$175,127 (HK$1,365,991).
For the nine months ended September 30, 2010, we used cash of US$294,253 (HK$2,295,171) in our operating activities and advances from related parties provided cash of US$321,203 (HK$2,505,383).
Going Concern
For the nine months ended September 30, 2011, the Group incurred an accumulated deficit of HK$19,968,516 at that date. The continuation of the Group as a going concern through September 30, 2012 is dependent upon the continuing financial support from its stockholders. Management believes, the existing stockholders will provide the additional cash to meet with the Company’s obligations as they become due.
Forward-Looking Statements
This report includes “forward-looking statements.” All statements other than statements of historical facts included or incorporated by reference in this report, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “expect,” “intend,” “project,” “estimate,” “anticipate,” “believe,” or “continue” or the negative thereof or variations thereon or similar terminology. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurance that such expectations will prove to have been correct.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures.
We maintain disclosure controls and procedures as required under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), 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 Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of September 30, 2011, our management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based on this assessment, management concluded that the Company's internal control over financial reporting was not effective as of September 30, 2011.
In an effort to remediate the material weaknesses, we plan to document our process and procedures governing our internal reporting. Furthermore, we plan to implement additional changes to our internal control over financial reporting, including (1) timely review of reports prior to issuance, (2) a re-evaluation of our staffing needs, and (3) analysis of unusual transactions as they are occurring to allow adequate time for multiple levels of review.
Our internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. There is no assurance that our disclosure controls or our internal controls over financial reporting can prevent all errors. An internal control system, no matter how well designed and operated, has inherent limitations, including the possibility of human error. Because of the inherent limitations in a cost-effective control system, misstatements due to error may occur and not be detected. We monitor our disclosure controls and internal controls and make modifications as necessary. Our intent in this regard is that our disclosure controls and our internal controls will improve as systems change and conditions warrant.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In July 2010, Hong Kong Communications Company Limited initiated proceedings in High Court of the Hong Kong SAR to wind up Titanium Technology. ELM Computer Technologies Limited, a creditor of Titanium Technology, has made a claim for a sum of US$292,393 (HK$2,280,666) and has applied to substitute as the petitioner in this action. Its application was to be heard on April 8, 2011, but has been extended to September 9, 2011.
In August 2010, ELM Computer Technologies Limited initiated proceedings in High Court of the Hong Kong SAR against Titanium Technology for wrongful repudiation of a subcontractor agreement and default in a maintenance service agreement, claiming damages of US$407,983 (HK$3,182,266). Titanium Technology has applied for a stay of all further proceedings in this action. The application was due to be heard on May 11, 2011, but has been extended to September 9, 2011.
Titanium Technology received the winding-up notification from High Court of the Hong Kong SAR dated September 16, 2011.
Item 1A. Risk Factors
There has been no material change to our Risk Factors from those presented in our Form 10-K for the fiscal year ended December 31, 2010.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. (Removed and Reserved)
None
Item 5. Other Information
None.
Item 6. Exhibits
31.1
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Rule 13a-14(a) 15d-14(a) Certification of Chief Executive Officer
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31.2
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Rule 13a-14(a) 15d-14(a) Certification of Chief Financial Officer
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32.1
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Section 1350 Certification of the Chief Executive Officer
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32.2
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Section 1350 Certification of the Chief Financial Officer.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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TITANIUM GROUP LIMITED
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November 21, 2011
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By:
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/s/ LAI Huamin
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LAI Huamin
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(Chief Executive Officer)
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TITANIUM GROUP LIMITED
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November 21, 2011
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By:
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/s/ LAN Mingzheng
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LAN Mingzheng
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(Chief Financial Officer)
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