U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(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, 2005
[ ] 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 000-18272
CHINA TITANIUM & CHEMICAL CORP.
(Exact name of small business issuer as specified in its charter)
NEVADA | 87-0467339 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
1530-9th Ave S.E.
Calgary, Alberta Canada
(Address of principal executive offices)
Telephone: (403) 693-8000
(Issuer’s telephone number)
(Former name, former address and former fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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.
Yes X
No
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the last practicable date:
4,793,636 shares of Class A common stock, $.001 value, as of November 10, 2005
Transitional Small Business Disclosure Format (check one):
Yes
No X
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-QSB and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature. Operating results for the nine month period ended September 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. For further information refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2004.
Page | |
Unaudited Financial Statements | |
Balance Sheet | F1 |
Statements of Operations | F2 |
Statements of Cash Flows | F3 to F4 |
Statements of Stockholders’ Deficit | F5 to F6 |
Notes to Unaudited Financial Statements | F7 to F10 |
CHINA TITANIUM & CHEMICAL CORP.
(A Development Stage Company)
Balance Sheet
Unaudited
September 30, 2005 | ||||
CURRENT ASSETS | ||||
Cash | $ | 112,082 | ||
Total Current Assets | 112,082 | |||
TOTAL ASSETS | $ | 112,082 | ||
CURRENT LIABILITIES | ||||
Accounts payable and accrued liabilities | $ | 40,965 | ||
Income taxes payable | - | |||
Note payable – Acquisition | - | |||
Note payable – related parties (Note 3) | 50,000 | |||
TOTAL CURRENT LIABILITIES | 90,965 | |||
STOCKHOLDERS’ EQUITY | ||||
Common Stock $0.001 par value, authorized 100,000,000 shares of Class A common stock Issued and outstanding 4,793,636 shares | 4,794 | |||
Additional paid-in capital | 4,117,567 | |||
Accumulated deficit | (4,101,244) | |||
TOTAL STOCKHOLDERS’ EQUITY | 21,117 | |||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 112,082 | ||
The accompanying notes are an integral part of these financial statements.
F-1
CHINA TITANIUM & CHEMICAL CORP.
(A Development Stage Company)
Statements of Operations
Unaudited
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | From Inception (March 19, 1999 to) September 30, 2005 | ||||||||
2005 | 2004 | 2005 | 2004 | |||||||
Revenues | $ | 0 | $ | 0 | $ | 0 | $ | 0 | 0 | |
Cost of Sales | 0 | 0 | 0 | 0 | 0 | |||||
GROSS PROFIT | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 |
OPERATING EXPENSES | ||||||||||
Salaries and consulting | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 |
Interest expense | 0 | 0 | 0 | 0 | 98,486 | |||||
General and administrative | 56,110 | 230,560 | 89,573 | 273,560 | 696,411 | |||||
TOTAL OPERATING EXPENSES | $ | 56,110 | $ | 230,560 | $ | 89,573 | $ | 273,560 | $ | 794,897 |
LOSS FROM OPERATIONS | $ | (56,110) | $ | (230,560) | $ | (89,573) | $ | (273,560) | $ | (794,897) |
Gain from debt extinguishment | 0 | 0 | 44,613 | 0 | 530,148 | |||||
Loss on disposal of assets | 0 | 0 | 0 | 0 | (224,136) | |||||
Discontinued operations-subsidiaries | 0 | 0 | 0 | 0 | (3,612,359) | |||||
NET INCOME (LOSS) | $ | (56,110) | $ | (230,560) | $ | (44,960) | $ | (273,560) | $ | (4,101,244) |
NET INCOME (LOSS) PER WEIGHTED AVERAGE SHARE | ||||||||||
Basic and diluted loss from operations | $ | (.01) | $ | (.01) | $ | (.01) | $ | (.01) | ||
Basic and diluted gain from debt extinguishment | $ | .00 | $ | (.00) | $ | .01 | $ | .01 | ||
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | 4,370,339 | 16,620,279 | 3,504,460 | 16,620,279 | ||||||
The accompanying notes are an integral part of these financial statements.
F-2
CHINA TITANIUM & CHEMICAL CORP.
(A Development Stage Company)
Statements of Cash Flow
Unaudited
Nine Months Ended | From inception (March 19, 1999) through September 30, 2005 | |||||
September 30, 2005 | September 30, 2004 | |||||
OPERATING ACTIVITIES | ||||||
Net income (loss) | $ | (44,960) | $ | (273,560) | $ | (4,101,244) |
Adjustment to reconcile net loss to net cash used by operating activities | ||||||
Debt Cancellation contributed | 0 | 0 | 334,014 | |||
Interest Expense Contributed | 0 | 0 | 23,022 | |||
Loss on write down of assets | 0 | 0 | 224,136 | |||
Depreciation and amortization | 0 | 0 | 242,745 | |||
Changes in assets and liabilities: | ||||||
Intangible and other assets | 0 | 0 | (125,903) | |||
Accounts payable and accruals | (29,946) | 45,800 | 488,578 | |||
Payables-related parties | (538,754) | 0 | (344,592) | |||
NET CASH (USED) BY OPERATING ACTIVITIES | $ | (613,660) | $ | (227,760) | $ | (3,259,244) |
FINANCING ACTIVITIES | ||||||
Cash of subsidiary | $ | 0 | $ | 0 | $ | 1,152 |
Additional paid in capital | 721,336 | 0 | 1,373,594 | |||
Issue of Capital Stock | 4,406 | 22,200 | 26,606 | |||
Note payable-related corporations | 0 | 205,560 | 2,301,449 | |||
NET CASH PROVIDED BY FINANCING ACTIVITIES | $ | 725,742 | $ | 227,760 | $ | 3,702,801 |
INVESTING ACTIVITIES | ||||||
Goodwill on acquisition of subsidiaries | $ | 0 | $ | 0 | $ | (162,087) |
Disposition of assets | 0 | 0 | 52,606 | |||
Acquisition of capital assets | 0 | 0 | (221,994) | |||
Patents | 0 | 0 | 0 | |||
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES | $ | 0 | $ | 0 | $ | (331,475) |
Increase (Decrease in cash and cash equivalents | $ | 112,082 | $ | 0 | $ | 112,082 |
Cash and cash equivalents at beginning of year | $ | 0 | $ | 0 | $ | 0 |
CASH & CASH EQUIVALENTS AT END OF PERIOD | $ | 112,082 | $ | 0 | $ | 112,082 |
The accompanying notes are an integral part of these financial statements.
F-3
CHINA TITANIUM & CHEMICAL CORP.
(A Development Stage Company)
Statements of Cash Flow (Continued)
(Unaudited)
Nine Months Ended | ||||||
September 30, 2005 | September 30, 2004 | From inception (March 19,1999) through September 30, 2005 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||
Cash paid during the period for: | ||||||
Interest | $ | 0 | $ | 0 | $ | 125,166 |
Income taxes | $ | 0 | $ | 0 | $ | 1,493 |
NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||
Issuance of 54,500 shares upon reorganization | $ | 0 | $ | 0 | $ | 5,450 |
Issuance of shares to retire debt | $ | 397,742 | $ | 22,200 | $ | 2,376,294 |
The accompanying notes are an integral part of these financial statements.
F-4
CHINA TITANIUM & CHEMICAL CORP.
(A Development Stage Company)
Statements of Stockholders’ Equity
FOR THE PERIOD MARCH 19, 1999 (DATE OF INCEPTION) TO SEPTEMBER 30, 2005
UNAUDITED
Common Stock | Accumulated Deficit | Total Stockholders Equity | ||||||||||||
Shares | Amount | Additional Paid in Capital | Treasury Stock | |||||||||||
Balance at March 19, 1999 | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | |||
Disposition of Subsidiary | 0 | 0 | 0 | (2,885) | 0 | (2,885) | ||||||||
Acquisition of Arrow Management, Inc. | 55,814 | 56 | 5,525 | 0 | 0 | 5,581 | ||||||||
Issuance of treasury stock upon reorganization | 0 | 0 | 0 | 2,885 | 0 | 2,885 | ||||||||
Issuance of 54,500 shares upon reorganization | 54,500 | 54 | 5,396 | 0 | 0 | 5,450 | ||||||||
Net Loss | 0 | 0 | 0 | 0 | (897,986) | (897,986) | ||||||||
Balance at December 31, 1999 | 110,314 | 110 | 10,921 | 0 | (897,986) | (886,955) | ||||||||
Additional paid-in capital | 0 | 0 | 1,050,000 | 0 | 0 | 1,050,000 | ||||||||
Net loss | 0 | 0 | 0 | 0 | (1,723,395) | (1,723,395) | ||||||||
Balance at December 31, 2000 | 110,314 | 110 | 1,060,921 | 0 | (2,621,381) | (1,560,350) | ||||||||
Issuance of restricted shares at $35.00 for debt | 55,695 | 56 | 1,949,271 | 0 | 0 | 1,949,327 | ||||||||
Net loss | 0 | 0 | 0 | 0 | (948,195) | (948,195) | ||||||||
Balance at December 31, 2001 | 166,009 | 166 | 3,010,192 | 0 | (3,569,576) | (559,218) | ||||||||
Issuance of restricted shares at $35.00 for debt | 201 | 0 | 7,025 | 0 | 0 | 7,025 | ||||||||
Net loss | 0 | 0 | 0 | 0 | (171,594) | (171,594) | ||||||||
The accompanying notes are an integral part of these financial statements
F-5
CHINA TITANIUM & CHEMICAL CORP.
(A Development Stage Company)
Statements of Stockholders’ Equity (continued)
FOR THE PERIOD MARCH 19, 1999 (DATE OF INCEPTION) TO SEPTEMBER 30, 2005
UNAUDITED
Balance at December 31, 2002 | 166,210 | $ | 166 | $ | 3,017,217 | $ | 0 | $ | (3,741,170) | $ | (723,787) | |
Net Loss | 0 | 0 | 0 | 0 | (479,347) | (479,347) | ||||||
Balance at December 31, 2003 | 166,210 | 166 | 3,017,217 | 0 | (4,220,517) | (1,203,134) | ||||||
Issuance of shares for debt | 222,006 | 222 | 21,978 | 0 | 0 | 22,200 | ||||||
Debt Cancellation Contributed | 0 | 0 | 334,014 | 0 | 0 | 334,014 | ||||||
Interest Expense Contributed | 0 | 0 | 23,022 | 0 | 0 | 23,022 | ||||||
Net Income | 0 | 0 | 0 | 0 | 164,233 | 164,233 | ||||||
Balance at December 31, 2004 | 388,216 | 388 | 3,396,231 | 0 | (4,056,284) | (659,665) | ||||||
Issuance of Shares for Debt | 1,926,820 | 1,927 | 190,755 | 0 | 0 | 192,682 | ||||||
Issuance of Shares for Debt | 2,050,600 | 2,051 | 203,009 | 0 | 0 | 205,060 | ||||||
Issuance of shares for private placement at $.50 per share (See Note 4) | 200,000 | 200 | 99,800 | 0 | 0 | 100,000 | ||||||
Issuance of shares for private placement at $1.00 per share (See Note 4) | 228,000 | 228 | 227,772 | 0 | 0 | 228,000 | ||||||
Net Loss | 0 | 0 | 0 | 0 | (44,960) | (44,960) | ||||||
Balance at September 30, 2005 | 4,793,636 | $ | 4,794 | $ | 4,117,567 | $ | 0 | $ | (4,101,244) | $ | 21,117 |
The accompanying notes are an integral part of these financial statements.
F-6
CHINA TITANIUM & CHEMICAL CORP.
(A Development Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2005
1. ORGANIZATION AND BUSINESS ACTIVITIES
China Titanium and Chemical Corp. was originally incorporated with the name Arrow Management Inc. under the laws of the State of Nevada on January 14, 1988. On September 30, 1993, Arrow issued 52,507 shares of its common stock to acquire 99.45% of the outstanding stock of Panorama, an affiliated company. The transaction was accounted for under the pooling-of-interests method of accounting, thus, the financial statements were restated as if the Companies had been consolidated for all periods presented. In December 1996, Arrow cancelled 3,500 shares of its common stock held for issuance to a shareholder of Panorama. As a result of this transaction, Arrow's ownership of Panorama was reduced from 99.45% to 90.73%. On November 19, 1999, Arrow exchanged its interest in Panorama for 30,947 sh ares held as treasury stock. At approximately the same time, Arrow entered into a plan of reorganization with W-Waves USA, Inc. (W-Waves) (a Delaware corporation) to issue the 30,947 shares of treasury stock and an additional 54,500 previously un-issued shares to acquire 100% of the outstanding stock of W-Waves.
The transaction was accounted for as a reverse acquisition. On October 21, 1999, Arrow filed a Certificate of Name Change with the State of Nevada changing its name to W-Waves USA, Inc. On August 27, 2004, W-Waves USA, Inc. filed a Certificate of Name Change with the State of Nevada changing its name to China Titanium & Chemical Corp. (the “Company”). The Company also effected a reverse split of its shares on the basis of one share for each 100 shares issued on August 27, 2004 and increased its authorized capital to 100,000,000 common shares.
As of September 2003, the Company and its subsidiaries ceased operations relating to the marketing of its technologies and products in the audio industry and as of the year ended December 31, 2004, the Company had divested itself of all of its subsidiaries.
On October 7, 2004, the Company entered into a share exchange agreement with China Titanium & Chemical Corp., a private Bahamian company. Under the terms of the share exchange agreement, the Company is responsible to raise certain funding to finalize the transaction. The Company is in default under the terms of the share exchange agreement but has verbally agreed to extend the date for closing at this time. There can be no assurance that the Company will be able to conclude this acquisition. Management expects to either finalize this acquisition or seek other potential acquisitions by the fiscal year ended December 31, 2005.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company recognizes revenue when earned and realized or realizable.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with original maturities of less than three months to be cash equivalents.
Comprehensive Income
Since 1999, the Company adopted Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income". This statement establishes rules for the reporting of comprehensive income and its components. The adoption of SFAS No.130 had no significant impact on total stockholders’ deficit as of September 30, 2005.
F-7
CHINA TITANIUM & CHEMICAL CORP.
(A Development Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (Continued)
For the Nine Months Ended September 30, 2005
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
Income taxes are computed using the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based on the differences between the financial and tax basis of assets and liabilities and are measured using the currently enacted tax rates and laws. Statement of Financial Accounting Standards No.109, requires recording a valuation allowance against deferred tax assets if based on the weight of available evidence, it is more likely than not that some or all of its deferred tax assets will not be realized.
Depreciation and Amortization
Property and equipment are stated at cost. Depreciation is calculated on a diminishing balance basis over the estimated useful lives of the assets, generally five to seven years. Trademarks and patents are depreciated on a straight-line basis over a period of twenty years. Maintenance and repairs are charged to operations when incurred. Betterments and renewals are capitalized.
Estimates and Assumptions
Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were assumed in preparing the financial statements.
Basic and Diluted Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net loss available to common stockholders by the weighted average number of shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted average number of common shares and common equivalent shares outstanding during the period. Common equivalent shares consist of shares issuable upon the exercise of stock warrants. At September 30, 2005, 2,590,392 warrants are outstanding. They have not been included in the calculations of earnings per share as the effect is antidilutive. 111,792 warrants are exercisable at $60.00 per share, 2,050,600 warrants are exercisable at $0.25 per share, 200,000 warrants are exercisable at $0.75 per share and 228,000 warrants are excisable at $1.50 per share.
Allowance for Doubtful Accounts
The Company provides an allowance for uncollectible accounts which are doubtful of collection. The allowance is based upon management's periodic analysis of receivables, evaluation of current economic conditions and other pertinent factors. Ultimate losses may vary from current estimates and, as additions to the allowance become necessary, they are charged against earnings in the period they become known. Losses are charged and recoveries are credited to the allowance.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of long-lived assets in accordance with "SFAS" No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed of". SFAS No.121 requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets.
Advertising Costs
The Company recognizes advertising expenses in accordance with Statement of Position 93-7, "Reporting on Advertising Costs". As such, the Company expenses the cost of communicating advertising in the period in which the advertising space or airtime is used. There were no advertising costs for the periods ended September 30, 2005 and September 30, 2004.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and accounts receivable. Cash is deposited with high credit, quality financial institutions. Accounts receivable are typically unsecured and are derived from revenues earned from customers located throughout the United States. The
F-8
CHINA TITANIUM & CHEMICAL CORP.
(A Development Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (Continued)
For the Nine Months Ended September 30, 2005
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Company performs ongoing credit evaluations of its customers and maintains reserves for potential credit losses; historically, such losses have been within management's expectations.
Fair Value of Financial Instruments
The Company's financial instruments, including cash, accounts receivable, accounts payable, notes payable and long-term obligations are carried at cost, which approximates their fair value because of the short-term maturity of these instruments.
Goodwill
Goodwill will be amortized on straight-line basis over the estimated life of the benefit of five years.
New Accounting Pronouncements
In December of 2002, the FASB issued SFAS 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - An Amendment of FASB Statement No. 123." SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, the statement amends the disclosure requirement of Statement No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results.
In April, 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149 is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003.
In May, 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer measures certain financial instruments with characteristics of both liabilities and equity and requires that an issuer classify a financial instrument within its scope as a liability (or asset in some circumstances). SFAS No. 150 was effective for financial statements entered into or modified after May 31, 2003 and otherwise was effective and adopted by the Company in 2003.
None of the above new pronouncements have current application to the Company, but may be applicable to the Company’s future financial reporting.
3. NOTE PAYABLE - RELATED CORPORATIONS
At September 30, 2005, the Company owed $50,000 to related parties. The notes bear no interest.
4. COMMON STOCK
The Company is authorized to issue 100,000,000 shares of $.001 par value Class A common stock. As of September 30, 2005 and 2004, the Company had 4,793,636 and 166,210 shares of common stock outstanding, respectively. The shares of common stock outstanding as at September 30, 2005 includes a total of 428,000 shares which are reserved for issuance pursuant to subscriptions for private placements accepted by the Company during the three month period ended September 30, 2005 but not issued during the period.
F-9
CHINA TITANIUM & CHEMICAL CORP.
(A Development Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (Continued)
For the Nine Months Ended September 30, 2005
4. COMMON STOCK (continued)
On August 27, 2004, the Company completed a reverse split of its common stock on the basis of 1 share for each 100 shares previously held and increased its authorized capital to 100,000,000. All share and per share amounts have been restated as if the split had taken place at the beginning of the earliest period presented.
On February 28, 2005, the Board of Directors approved the settlement of certain of the outstanding debts of the Company by way of the issuance of a total of 1,926,820 common shares at a deemed price of $0.10 per common share and the issuance of a total of 2,050,600 units, each unit consisting of one common share and a warrant to purchase an additional common share at $0.25 per share for a period of two years. The shares and the units were issued on March 3, 2005.
During the quarter ended September 30, 2005 the Company accepted a private placement subscription in the amount of $100,000.00 for an issuance of 200,000units of Class A common stock, each unit consisting of one share and one warrant to purchase one share of Class A common stock at $ 0.75 per share, exercisable for a period of two years. The Company did not issue the shares during the period but has reflected them in these financial statements under stockholders equity.
During the quarter ended September 30, 2005, the Company accepted two private placement subscriptions totaling $228,000.00 for the issuance of 228,000 units of Class A common stock, each unit consisting of one share and one warrant to purchase one share of common stock at $1.50 per share, exercisable for a period of two years. The Company did not issue the shares during the period but has reflected them in these financial statements under stockholders equity.
5. GOING-CONCERN
As of September 30, 2005, the Company has an accumulated deficit of $4,101,244and continues to operate at a net loss. Further, the Company has yet to engage in any revenue producing ventures. These factors create an uncertainty about the Company’s ability to continue as a going concern.
Continuation of the Company as a going concern is dependent upon obtaining funding and ultimately, upon the Company’s attaining profitable operations. The management of the Company has sold common stock through private placement memorandums. These sales have provided the Company with cash inflows used to fund the continued operations of the Company. At September 30, 2005, cash on hand was $112,082. Management intends to continue to seek additional funding to use for product development and continued operations. The Company recognizes that, if it is unable to raise adequate funding , it may find it necessary to substantially reduce or cease operations.
The Company is in the process of undertaking a secondary private offering of its Class A common stock to raise working capital and to date has closed a total of $428,000.00 in subscriptions.
6. COMPARATIVE FIGURES
Certain comparative amounts of previous years have been restated in order to conform with the current year’s presentation of the financial statements.
The figures presented in these statements for September 2004 reflect the consolidated figures for the Company and its, then, wholly owned subsidiaries. As at the year ended December 31, 2004, the Company had divested itself of all of its subsidiaries and therefore the figures as presented for the periods ending September 30, 2005 are not consolidated.
F-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Plan of Operation
At present, China Titanium and Chemical Corp. (the “Company”) has no operations. While the Company has sufficient cash to satisfy its cash requirements on a monthly basis, it does not have sufficient cash to conclude the terms of the share exchange agreement detailed below. The Company has entered into a Share Exchange Agreement with a private Bahamian corporation also known as China Titanium and Chemical Corp. (referred to herein as “CTCC”), whereby the Company would acquire CTCC’s 51% interest in a Chinese joint venture company. The owner of the remaining 49% interest in the joint venture company has agreed to assign ownership of an operating titanium plant to the joint venture company. However, the Share Exchange Agreement with CTCC is presently in default, and while the parties to the agreement have entered into a verbal agreement to extend the closing date until sufficient funds are raised to fund the Chinese joint venture as required under the Share Exchange Agreement, there can be no assurance that the Company will be able to conclude this acquisition. Management expects to either finalize this acquisition or seek other potential acquisitions by the fiscal year ended December 31, 2005.
The Company has minimal cash with which to fund any operations, despite the fact that subscribers to the private placement have released the funds to the Company for working capital there is not sufficient cash to be able to close on this acquisition. There is no assurance that the Company will be successful in continuing to raise capital to fund its ongoing expenses or to satisfy its obligations under the Share Exchange Agreement with CTCC.
The Company anticipates it will require approximately $300,000 over the next twelve months to meet its expenses for legal, accounting and other expenses related to the closing of the Share Exchange Agreement or any expenses that may be required to source another acquisition should the Company not be able to complete the Share Exchange Agreement. As part of the Share Exchange Agreement, the Company is assuming the obligation to make the capital contributions to the joint venture and has agreed to make such contributions on the following terms: $5,000,000USD to be paid on the closing of the Share Exchange Agreement and the remaining balance of $10,231,458USD to be paid, on a best efforts basis, within three (3) months from the closing.
The Company has no operations but has commitments for capital expenditures of at least $5,000,000 as of the date of this quarterly report in order to complete the terms of the Share Exchange Agreement. To date, a total of $650,759 has been raised and as at the period ended September 30, 2005 a total of $428,000 has been released for use by the Company as general working capital and the remaining $222,759is being held in trust for the Company pending the completion of raising the total $5,000,000USD as required under the Share Exchange Agreement. From the $428,000 released from trust only $112,082 remains for working capital. The Company cannot accurately state at this time whether it will be required to purchase any plant or equipment or have any significant changes in the number of employees. If, however, it is unable to complete the Share Exchange Agreement with CTCC, it does not anticipate making any such purchases or hiring any employees.
The Company had a net loss for the three month period ended September 30, 2005 of $56,110 as compared to a net loss of $230,560 for the three months ended September 30, 2004. The decrease in net loss is due to a decrease in general and administrative expenses during the three month period ended September 30, 2005 as there was little activity in the Company during the three month period ended September 30, 2005.
Current assets, at September 30, 2005 were $112,082. These assets are in the form of cash which the Company will use to carry on operations. At September 30, 2005 the Company had working capital of $21,117 and stockholders’ deficit of $4,101,244 as compared to working capital deficit of $659,665 and stockholders deficit of $4,056,284 as of December 31, 2004. The Company has minimal working capital to fund operations. The Company will be required to raise funds either by way of loans or equity to continue operations.
2
ITEM 3. 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 United States Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our President and acting Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision and with the participation of our management, including our President and acting Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14 as of the end of period covered by this report. Based upon the foregoing, our President and our acting Chief Financial Officer concluded that our disclosure controls and procedures are effective.
There were no changes in our internal control over financial reporting identified in connection with the evaluation referred to in the immediately preceding paragraph that occurred during our last fiscal quarter that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
Not Applicable
ITEM 2.
CHANGES IN SECURITIES
During the quarter ended September 30, 2005 the Company accepted a private placement subscription in the amount of $100,000.00 for an issuance of 200,000units of Class A common stock, each unit consisting of one share and one warrant to purchase one share of Class A common stock at $ 0.75 per share, exercisable for a period of two years. The Company did not issue the shares during the period but has reflected them in these financial statements under stockholders equity.
During the quarter ended September 30, 2005, the Company accepted two private placement subscriptions totaling $228,000.00 for the issuance of 228,000 units of Class A common stock, each unit consisting of one share and one warrant to purchase one share of common stock at $1.50
per share, exercisable for a period of two years. The Company did not issue the shares during the period but has reflected them in these financial statements under stockholders equity.
Each of the foregoing issuances of securities was exempt from registration due to the exemption found in Regulation S promulgated by the Securities and Exchange Commission under the Securities Act of 1933. These sales were offshore transactions since all of the offerees were not in the United States and the purchasers were outside the United States at the time of the purchase. Moreover, there were no directed selling efforts of any kind made in the Untied States neither by us nor by any affiliate or any person acting on our behalf in connection with any of these offerings. All offering materials and documents used in connection with the offers and sales of the securities included statements to the effect that the securities have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States or to U.S. persons unless the securities are registered under the Act or an exemption therefrom is available and t hat no hedging transactions involving those securities may not be conducted unless in compliance with the Act. Each purchaser under Regulation S certified that it is not a U.S. person and is not acquiring the securities for the account or benefit of any U.S. person and agreed to resell such securities only in accordance with the provisions of Regulation S, pursuant to registration under the Act or pursuant to an available exemption from registration. The shares sold are restricted securities and the certificates representing these shares have been affixed with a standard restrictive legend, which states that the securities cannot be sold without registration under the Securities Act of 1933 or an exemption there from and we are required to refuse to register any transfer that does not comply with such requirements.
3
ITEM 3.
DEFAULT UPON SENIOR SECURITIES
Not Applicable
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5.
OTHER INFORMATION
Not Applicable
ITEM 6.
EXHIBITS
Exhibits:
REGULATION S-B NUMBER | EXHIBIT | REFERENCE |
31.1 | Section 302 Certification- Principal Executive Officer and Principal Financial Officer | Filed herewith |
32.1 | Certification Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Filed herewith |
10.1 | Share Exchange Agreement dated October 15, 2004 between the Shareholders of China Titanium & Chemicals Corp., a Bahamian Corporation and the Company | Incorporated by reference to the Exhibits previously filed with the Company’s Current Report on Form 10-KSB filed with the Securities and Exchange Commission on April 15, 2005 |
4
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CHINA TITANIUM & CHEMICAL CORP.
Date: November 21, 2005
By: /s/ Michel Bourbonnais
Name: Michel Bourbonnais
Title: Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer
5
