Attached files

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EX-21 - EXHIBIT 21 - China TransInfo Technology Corp.exhibit21.htm
EX-23.1 - EXHIBIT 23.1 - China TransInfo Technology Corp.exhibit23-1.htm
EX-31.1 - EXHIBIT 31.1 - China TransInfo Technology Corp.exhibit31-1.htm
EX-10.54 - EXHIBIT 10.54 - China TransInfo Technology Corp.exhibit10-54.htm
EX-10.55 - EXHIBIT 10.55 - China TransInfo Technology Corp.exhibit10-55.htm
EX-31.2 - EXHIBIT 31.2 - China TransInfo Technology Corp.exhibit31-2.htm
EX-32.2 - EXHIBIT 32.2 - China TransInfo Technology Corp.exhibit32-2.htm
EX-32.1 - EXHIBIT 32.1 - China TransInfo Technology Corp.exhibit32-1.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, 2010

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________

Commission File No. 001-34134

CHINA TRANSINFO TECHNOLOGY CORP.
(Exact name of registrant as specified in its charter)

Nevada 87-0616524
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

 9th Floor, Vision Building,
No. 39 Xueyuanlu, Haidian District,
Beijing, China 100191
(Address of principal executive offices)

(86) 10-51691999
(Registrant’s telephone number, including area code)

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

Title of each class Name of each exchange on which registered
Common Stock, Par Value $0.001 NASDAQ GLOBAL MARKET

Securities registered pursuant to Section 12(g) of the Exchange Act: None.

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

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 [_]         No [X]

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.
Yes [X]         No [_]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)
Yes [_]         No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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.
Yes [_]         No [_]


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 [_]
(Do not check if a smaller reporting company)
Smaller reporting company [X]

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes [_]         No [X]

As of June 30, 2010 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of the shares of the registrant’s common stock held by non-affiliates(based upon the closing sale price of such shares as reported on the NASDAQ Global Market) was approximately $72.4 million. Shares of the registrant’s common stock held by each executive officer and director and each by each person who owns 10% or more of the outstanding common stock have been excluded from the calculation in that such persons may be deemed to be affiliates of the registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

There were a total of 25,270,069 shares of the registrant’s common stock outstanding as of March 28, 2011.

DOCUMENTS INCORPORATED BY REFERENCE

None.


CHINA TRANSINFO TECHNOLOGY CORP.
 
Annual Report on FORM 10-K
For the Fiscal Year Ended December 31, 2010
 
TABLE OF CONTENTS

 PART I 
     
ITEM 1. BUSINESS. 3
ITEM 1A. RISK FACTORS. 16
ITEM 1B. UNRESOLVED STAFF COMMENTS. 27
ITEM 2. PROPERTIES. 27
ITEM 3. LEGAL PROCEEDINGS. 28
ITEM 4. [REMOVED AND RESERVED]. 28
     
 PART II 
     
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. 29
ITEM 6. SELECTED FINANCIAL DATA. 30
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 30
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. 43
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. 43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. 43
ITEM 9A. CONTROLS AND PROCEDURES. 43
ITEM 9B. OTHER INFORMATION. 44
     
 PART III 
     
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. 45
ITEM 11. EXECUTIVE COMPENSATION. 50
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. 53
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. 55
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. 56
     
 PART IV 
     
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES. 59


Special Note Regarding Forward Looking Statements

In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We use words such as “believe,” “expect,” “anticipate,” “project,” “target,” “plan,” “optimistic,” “intend,” “aim” or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in China, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those identified in Item 1A, “Risk Factors” included herein, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements.

Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We are under no duty to update any of these forward-looking statements after the date of this report to conform our prior statements to actual results or revised expectations.

Use of Terms

Except where the context otherwise requires and for the purposes of this report only:

  • “BVI” refers to the British Virgin Islands;
  • “China TransInfo,” “the Company,” “we,” “us,” and “our” refer to China TransInfo Technology Corp., its subsidiaries, and, in the context of describing our operations and business, and consolidated financial information, include our VIE Entities;
  • “China,” “Chinese” and “PRC” refer to the People’s Republic of China and do not include Taiwan and special administrative regions of Hong Kong and Macao;
  • “Exchange Act” refers to the Securities Exchange Act of 1934, as amended;
  • “RMB” refers to Renminbi, the legal currency of China;
  • “SEC” refers to the United States Securities and Exchange Commission;
  • “Securities Act” refers to the Securities Act of 1933, as amended;
  • “U.S. dollar,” “$” and “US$” refer to the legal currency of the United States; and
  • "VIE Entities" means our consolidated variable interest entities, including China TransInfo Technology Group Co., Ltd. and its subsidiaries as depicted in our organization chart on page 5 below.

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PART I

ITEM 1. BUSINESS.

Business Overview

We are a leading provider of end-to-end intelligent transportation systems (“ITS”) and related comprehensive technology solutions servicing the transportation industry in China. Our goal is to become the largest provider of intelligent transportation system products and related comprehensive technology solutions in China, as well as a major operator and provider of value-added ITS and location based services (“LBS”) to commercial clients and consumers in China. Substantially all of our operations are conducted through our VIE Entities that are PRC domestic companies owned principally or entirely by our PRC affiliates. Through our VIE Entities, we are involved in developing multiple applications in highway ITS, urban ITS, commercial vehicles ITS plus LBS, and in a lesser degree, in digital city, and land and resource filling systems based on Geographic Information Systems (“GIS”), technologies which are used to service both the public and private sector.

Our main focus is on providing end-to-end ITS solutions and related services to the transportation industry. Our major products and services can be divided into three categories, which include:

Intelligent Transportation System

  • Transportation Planning Information System

  • Electronic Toll Collection(ETC)

  • Passenger Flow Statistic, Detecting and Analysis System (TransPLE)

  • Traffic Information Integration and Exchange Platform

  • Traffic Emergency Command Center

  • Transportation Hub Comprehensive Management Information System

  • Intelligent Traffic Management Platform

  • Intelligent Parking System

  • Traffic Flow Surveying Solutions

  • GIS-T (Transportation) Middleware

  • Highway Electronics & Machinery (E&M) System Solution

  • UNISITS Highway Lightening and Energy Saving Product (UNIS-LCS)

  • UNISITS Weigh-in-Motion System

Commercial Vehicle ITS plus LBS

  • Commercial Vehicles Monitoring and Public Service Platform

  • Commercial Vehicles Comprehensive Information Service Operation Platform

  • Commercial Vehicles Terminal Products

  • Taxi LED Advertisement Dynamic Display System

  • Taxi LED GPS Monitoring and Coordinating System

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Other Vehicle and Consumer ITS Applications

  • Palmcity Telematics Service Platform

  • Palmcity Real-time Traffic Information Terminal Software

  • Palmcity Smart Phone Public Transport Information Service System

  • Palmcity Website (http://www.palmcity.cn)

  • Auto Energy-saving Analysis Service System

  • D-TIPS Dynamic Transportation Information Processing and Prediction Service System

We also offer comprehensive solutions for transportation oriented GIS (“GIS-T”), covering transportation planning, design, construction, maintenance and operation.

History and Corporate Structure

Corporate History

We were originally incorporated in Nevada on August 3, 1998 under the name R & R Ranching, Inc. to breed bison. On December 10, 2003, we executed an agreement and plan of reorganization (the “Intra-Asia Agreement”) with Intra-Asia Entertainment Corporation, a Delaware corporation (“Intra-Asia Delaware”), whereby Intra-Asia Delaware became our wholly-owned subsidiary and we amended our articles of incorporation to change our name to “Intra-Asia Entertainment Corporation.” From the first half of 2006 until May 14, 2007 when we completed a reverse acquisition transaction with Cabowise International Ltd. (“Cabowise”), a BVI company, we were a shell company and did not engage in active business operations other than our search for, and evaluation of, potential business opportunities for acquisition or participation.

On May 14, 2007, we acquired Cabowise through a share exchange transaction pursuant to which we issued to the shareholders of Cabowise 10,841,492 shares of our common stock in exchange for all of the issued and outstanding capital stock of Cabowise. Cabowise thereby became our wholly-owned subsidiary and the former shareholders of Cabowise became our controlling stockholders. On the same day, our indirect Chinese subsidiary, Oriental Intra-Asia Entertainment (China) Limited (“Oriental Intra-Asia”), acquired 85% equity interest in Beijing PKU Chinafront High Technology Co., Ltd. (“PKU”), which commenced its businesses in October 2000. As a result, PKU became a majority-owned subsidiary of Oriental Intra-Asia.

Current Chinese laws restrict companies with foreign ownership to operate in three business areas that we recently entered into: online services, taxi advertising, and security and surveillance related business. In order to comply with applicable Chinese laws, we restructured our subsidiaries and entered into a series of commercial arrangements to allow the Company to operate in these restricted business areas.

On February 3, 2009, through our indirect Chinese subsidiaries, Oriental Intra-Asia and PKU, we entered into a series of equity transfer agreements with China TransInfo Technology Group Co., Ltd., a company formed under Chinese law (the “Group Company”), pursuant to which we transferred all of our indirect equity interests in PKU and PKU’s subsidiaries to the Group Company. In connection with the equity transfer, on February 3, 2009, we also entered into a series of contractual arrangements with relevant parties, which have given us contractual rights to control and manage the business of the Group Company and the Group Company’s subsidiaries (the “Restructuring”). As a result, we transferred all of our indirect equity interests in PKU and PKU’s subsidiaries to the affiliated Group Company and accordingly, PKU and PKU’s subsidiaries became direct and indirect subsidiaries of the Group Company, which is wholly or majority owned by the Group Company shareholders who are all Chinese citizens. At the same time, through the contractual arrangements, we maintain substantial control over the VIE Entities’ daily operations and financial affairs, election of their senior executives and all matters requiring shareholder approval. According to ASC 810, we are required to consolidate the VIE Entities into our financial statements because the contractual arrangement provides us with the risks and rewards associated with equity ownership, even though we do not own any of the outstanding equity interests in any of the VIE Entities. We are now able to engage in these three restricted business segments through the VIE Entities and derive the economic benefits that we would otherwise have as the owner of VIE Entities while still complying with PRC laws.

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The following chart reflects our organizational structure as of the date of this report:


5


On October 19, 2010, the Group Company entered into a registered capital contribution agreement with Beijing Shiji Yingli Science and Technology Co., Ltd. (“Shiji Yingli”) whereby Shiji Yingli agreed to contribute RMB 9.6 million (approximately $1.4 million) in cash and RMB 44.6 million (approximately $6.6 million) in intangible assets (mostly technology and intellectual property owned by Shiji Yingli) into the Group Company’s wholly owned subsidiary, Beijing Zhangcheng in exchange for a 49% equity interest in Beijing Zhangcheng. Pursuant to the approving procedure of Beijing Administration for Industry & Commerce (BAIC), we expect that the transaction will be completed by the end of March, 2011. Following this transaction, the Group Company will retain a 51% majority ownership of Beijing Zhangcheng while Shiji Yingli will own the rest 49% equity interest.

On October 21, 2010, the Group Company entered into a registered capital contribution agreement with Beijing Marine Communication & Information Co., Ltd. (“Beijing Marine”) and Zhongyuan Credit Guarantee Co., Ltd.(“Zhongyuan Credit”) whereby Zhongyuan Credit agreed, to contribute RMB 30 million (approximately $4.38 million) in cash into the Group Company’s majority-owned subsidiary, China TranWiseway in exchange for a 30% equity interest in China TranWiseway. Pursuant to the approving procedure of Beijing Administration for Industry & Commerce (BAIC), we expect that the transaction will be completed by the end of March, 2011. Following this transaction, the Group Company will retain a 55% majority ownership of China TranWiseway while Beijing Marine and Zhongyuan Credit will own 15% and 30% equity interest in China TranWiseway, respectively.

Industry

Transportation in China

The Fast Development in Transportation Infrastructure

Over the past two decades, China has completed series of large-scale highway infrastructure projects. As a result, according to the Ministry of Transport of China, China now has the second largest highway network in the world with a total length of approximately 74,100 kilometers at the end of 2010 as per the National Economy and Society Development Statistic Announcement 2010. In addition, China has approximately 70% of the world’s toll highways according to the Highway Management Department of the Ministry of Transport. According to CI Consulting, the total mileage of urban rapid transit exceeded 813.7 kilometers as of 2009. According to the China International Capital Corporation (CICC) report in 2010, the public spending in urban rapid transit will exceed RMB 3 trillion in the next ten years. It is estimated that the total mileage of urban rapid transit projects in China will reach 7,395 kilometers by 2020, with annual investment of nearly RMB 270 billion from 2009 to 2020.

The Ministry of Transport of China is the country’s top transportation regulator. In December 2004, the Ministry of Transport announced a development plan for the Chinese national highway system. Under this plan, China will expand its highway network to 85,000 kilometers by 2020. After its completion, the Chinese national highway network will connect all provincial capitals and cities with population above five hundred thousand. Based on the plan, the total public spending in the national highway network will be about $294 billion from 2005 to 2020. From 2005 to 2010, the annual spending according to the plan is expected to be approximately $21 billion, from 2010 to 2020, the annual spending according to the plan is expected to be approximately $14.6 billion. According to the 11th 5-Year Economy and Society Development Achievement Report-- Transportation industry, China’s highway length is expected to reach 100,000 kilometers by 2015 (more than the 2004 Ministry of Transport expectation) and become the country with the largest highway network in the world.

The Fast Increase in Commercial Vehicles

China commercial vehicles have experienced rapid growth in the past five years. According to the National Statistic Yearbook 2009, the number of commercial vehicles in China has reached approximately 10.87 million at the end of 2009, increased from approximately 7.33 million at the end of 2005. Based on National Economy and Society Development Statistic Announcement 2010, the number of commercial vehicles has increased to approximately 12.63 million in 2010, of which about 80% are trucks and the rest are passenger vehicles. We expect that the number of commercial vehicles will continue to grow steadily in the future, with the annual growth rate of commercial vehicles correlated to the country’s national GDP growth. The fast growth in number of commercial vehicles on highway as well as the growing volume of logistics handled by the commercial vehicles is increasingly a challenge in transportation safety and efficiency. According to the Ministry of Transport of China, approximately 80% of serious traffic accidents are caused by commercial vehicles and approximately 37% of commercial vehicles running on the road are not loaded with carry-ons. From 2004 to 2009, the logistic cost increased to above 10% annually.

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The Fast Increase in Consumer Vehicles

China has a population of about 1.33 billion, which accounts for about 20% of the world’s population and makes it the most populous country in the world. With rapid economic development and urbanization, car ownership has increased dramatically, leading to unprecedented transportation challenges in many cities of China. According to China’s Traffic Management Bureau of the Ministry of Public Security, China had roughly 199 million motor vehicles as of September 2010. According to the National Economy and Society Development Statistic Announcement 2010, the number of private vehicles has reached approximately 65.39 million at the end of 2010, an increase of 25.3% over 2009. Private vehicles are estimated to increase at least 10% year over year in the next several years. In order to tackle the increasing traffic congestion, the Chinese government plans to improve transportation management using advanced information technology solutions. At the same time, motorists are also eager to have access to real time traffic information. The strong demand from both the private and public sectors is creating an unprecedented market opportunity for our transportation information products and services.

The Intelligent Transportation Systems Industry in China

Intelligent Transportation Systems (“ITS”) provide information and data tools for different types of transportation infrastructure by deploying solutions such as communication, monitoring, tolling and planning. The 14th World Congress on ITS, defined ITS as comprehensive systems that integrate and apply advanced information, communication, control, sensor, and computer technology to effectively coordinate people, vehicles, and roads/rails to realize real-time information transfer, as well as on-time, highly efficient, safe, and energy-efficient transportation.

China’s ITS industry is still at its early stage of development. Although China’s rapid economic growth over the past decade and accelerating urbanization have already resulted in significant development of its transportation infrastructure, China still has a big task to use nationwide transportation networks more efficiently and effectively. China began its ITS efforts in early 1990s with goals to enhance transportation management efficiency, to improve network throughput, and to reduce the negative effect of transportation bottleneck exerted on the economy and environment. Given that China is ranked second in total highway length and first in total toll highway mileage in the world, a larger-scale, more advanced ITS is needed. The increasing urban and highway traffic density also drives continued development of ITS applications in communication and planning. As more urban and highway ITS gets deployed, the ITS market will start to see growing demand in the service sector, focusing on specialized information solutions and value-added information services that meet the needs from both businesses and consumers of transportation. The urban ITS market is still at an initial development stage, comparable to that of the highway ITS market 10 years ago. Overall, ITS is a large but fragmented market with great growth potential.

The Growing and Steady Public Spending in ITS Implementation

Despite being at an early stage of development, the overall demand for ITS products and services is very strong in China thanks to the rapid development in transportation infrastructure and increasing needs for ITS applications that manages transportation. The unique characteristics of China’s ITS industry mentioned above and the current low penetration level underscore the large market potential. As a result of this as well as the support promulgated by recent central government policies, investment in the ITS industry has been and will be increased significantly. The Ministry of Transport in November 2008 submitted its new budget to the Chinese central government, with the total investments in the transportation sector set at about $730 billion for the next 3 to 5 years. Even though currently there is no breakdown of ITS spending out of the $730 billion budget by the Ministry of Transport, we estimated that it would not be less than 5% of the total spending.

The Growing Value-Added ITS Service Market

Along with the fast deployment of ITS in China’s highway and cities, the large user base of ITS in both public and private section has a growing and large demand for a variety of value-added ITS applications and services, including but not limited to: real-time traffic information and dynamic navigation, intelligent parking, electronic toll collection, ITS plus location based services (LBS) applications to enhance commercial vehicle safety and fleet efficiency, traffic flow surveying, vehicle and pedestrian ITS plus LBS allocations. It will create a very large value-added ITS service market in China.

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Our Growth Strategy

Our goal is to become the largest provider of intelligent transportation system products and related comprehensive technology solutions in China, as well as a major operator and provider of value-added ITS and LBS to commercial clients and consumers in China. Our strategy to achieve our objectives includes the following key elements:

Expand geographic footprint to cover all major markets in China

Based on our successful track record and reputation, we believe there are significant opportunities to grow revenues from our existing clients by winning follow-on contracts for subsequent phases of project implementation, and by capitalizing on our first mover advantage and higher cost for customers to switch to other vendors. In addition to our executive offices in Beijing, we have offices established in Shanghai, Chongqing, Taiyuan (Shanxi Province), Chengdu (Sichuan Province), Hangzhou (Zhejiang Province), Huhhot (Inner Mongolia), Urumqi (Xinjiang) Shijiazhuang (Hebei Province), Changsha (Hunan Province) and Guiyang (Guizhou Province) and Dalian (Liaoning Province). We currently provide our products and services in over twenty provinces in China. Our long-term plan is to manage our national operations through different offices and identify potential expansion opportunities.

Strengthen R&D capability to enhance and expand core products and further penetrate customer base

We expect to provide additional value-added services and add-ins to our current platform through continuous research and development, enhancement of our product and service offerings and maintenance of our technological leadership position in our core areas of focus. We believe the continuous refinement of our offerings will make the overall platform more attractive to potential customers.

Continue to enhance our leadership position in the rapidly growing transportation information technology market

We plan to leverage our strong brand recognition and maintain a high contract bid/win ratio and follow on orders with our transportation information products and services by expanding our sales channels, increasing our product offerings and focusing on customer satisfaction and our other competitive strengths to gain additional market shares.

Pursue strategic acquisitions to support strong growth

We will continue to use acquisitions in addition to organic growth effort to enable our geographic expansion, enhance our technological capabilities or competitive advantages, enrich product and service lines, provide recurring revenue opportunities and propel our expansion into high growth enterprise class markets.

Leverage existing capabilities

We plan to leverage our GIS-T strength with Beijing UNISITS Technology Co., Ltd. (“UNISITS”), to extend our competitive advantage in the highway ITS market. UNISITS is a leader in China’s intelligent transportation systems industry. UNISITS primarily provides traffic engineering E&M (electronic & machinery) systems for highways in China. Presently, UNISITS provides products and services in over 20 provinces with an accumulated coverage of over 8,000 kilometers of highway in China. We intend to leverage UNISITS technology and market channels to cover a larger addressable market. By leveraging UNISITS’ large presence in China’s highway market in addition to our leadership in the urban transportation market, we expect to better penetrate markets for our current products and services. We also expect that through UNISITS we will be able to tap into China’s highway real time traffic information services market, in conjunction with the opportunity to offer LBS provided to commercial vehicles.

Further penetrate the large China consumer market with new real-time traffic data solutions

We believe the Chinese consumer market represents a large growth opportunity for us. China has over 600 million cell phone users and over 180 million motor vehicles. The number of vehicles is expected to continue to grow. As a result, traffic congestion is becoming a serious concern in many Chinese cities. We provide real-time traffic information on our real-time traffic website. Our real-time traffic software for mobile devices is pre-installed in some cell phones and can also be downloaded from our website as well as from the website of China’s telecommunication companies. The increase of motorists in China as well as 3G deployment will enable Chinese consumers to make more use of their mobile devices and applications to obtain real-time traffic data and services.

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Offering Value-Added ITS and LBS services to commercial vehicles

We plan to offer value-added ITS and LBS services to commercial vehicles, to enhance safety and fleet efficiency. By the end of 2009, there were more than 10 million commercial vehicles in China. Over the past several years, the number of commercial vehicles in China has been increasing at about 10% annually, which is about the same pace as the national GDP growth. We expect that China’s GDP will grow steadily in the forthcoming years, as such, we expect the number of commercial vehicles will increase steadily and creates a large service market for our value-added ITS and LBS applications.

Our Products and Services

Our core business is to develop the ITS service to the transportation industry utilizing GIS application software and technologies as well as other information technologies, and develop ITS related value-added applications and LBS applications to service the commercial and consumer sectors of transportation. We also develop GIS applications in Digital City and Land and Resource areas. When providing services to customers with GIS software applications, some of our customers required us to purchase the necessary hardware and provide system integration for them. Our major products and services include the followings:

ITS

Transportation Planning Information System

Our transportation planning information system is a software system utilized by traffic management authorities to plan roads and water transportation, safety monitoring and conduct strategic planning. The system enable comprehensive management of information and data required for traffic planning such as national economic data, road and waterway data and digital mapping data. The system provides planners with information on search tools, statistical analysis and models to serve planning and organizing needs. We have been providing this system to the Ministry of Transport of China for their nationwide transportation planning and analysis purposes.

Electronic Toll Collection

ETC is a technology that allows for electronic payment of tolls. An ETC system is able to determine if a car is registered in a toll payment program, alert enforcers on toll payment violations, and debit the participants account. With ETC, these transactions can be performed without the need for vehicles to stop or slow down. Our ETC system is operational in seven provinces as of the end of 2010.

Passenger Flow Statistic, Detecting and Analysis System

Our Passenger Flow Statistic, Detecting and Analysis System (“TransPLE”) mainly consists of one to eight laser scanners, cameras, statistics, detecting and analysis hosts. It provides seamless coverage and multi-level detecting and tracking of passenger flow by utilizing distributed multi-modal sensor networks that include several laser scanners and cameras. It is also applied to rendering the statistics of passenger flows when the channel width is over 10 meters. This product is often used by governmental agencies to optimize pedestrian flow configurations in transportation centers such as bus stations, metro stations, railway stations and airports and to improve public safety management through crowd control, emergency response and anti-terrorism activities. We have launched this system for commercial use and have been awarded several contracts in 2010, including service contracts for Dongzhimen Comprehensive Transport Hub Information Service Platform and passenger flow statistic service for Beijing Sihui metro station and Fuxingmen subway station.

Traffic Information Integration and Exchange Platform

Our Traffic Information Integration and Exchange Platform is based on GIS technology and establishes a unified standard information sharing platform, including Transportation Management Intelligent Platform, 110 Comprehensive Command Center, Police Comprehensive Information System and Digital City Management Information System. This platform provides full services in industry management, government decision-making, transportation company operations and public transportation and strengthening coordination among various transportation information systems. It helps improve industrial management and service quality. We provide this system to several municipal transportation authorities for their local transportation management purposes.

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Traffic Emergency Command Center

Our Traffic Emergency Command Center integrates wireless and wired communication, integrates files, audios, videos and images, realizes information receiving, cases disposal, resources dispatching and comprehensive commanding with rapid reaction and high efficiency. It performs emergency information collection, information management, emergency response service, emergency management, and application analysis. As of December 31, 2010, this application was not yet launched.

Transportation Hub Comprehensive Management Information System

Our Transportation Hub Comprehensive Management Information System is the foundation for cargo and passenger transportation intelligent management. This system can accurately collect, analyze, store and transfer related information on a real time basis, such information includes information on truck flow, passenger flow, organization management information, dispatching information, loading and unloading information, transfer information and other supporting information services. This system can also provide, on a real time basis, information inquiry, retrieval, display and distribute for different management organization authorities. As of December 31, 2010, this application was not yet launched.

Intelligent Traffic Management Platform

Our intelligent traffic management platform is a comprehensive GIS based traffic management platform specifically developed for urban traffic command centers. This platform functions as an interface for all ITS subsystems and is an integral element for our intelligent traffic management system. The intelligent traffic management platform captures visual images from monitored roads, provides evidence of traffic violations at monitored intersections and records the number of vehicles passing through major urban entrances and exits, among other things. In 2008, we successfully provided real time traffic management solution based on the intelligent traffic management platform to serve the 2008 Olympic Game in Beijing. Since 2008, the system has been installed in other cities in China.

Intelligent Parking System

Our Intelligent Parking System (“IPS”), provides information of available parking spaces to drivers. Our system guides drivers in congested areas to the nearest parking facilities with available parking spaces and it guides drivers within parking facilities to empty spaces. IPS reduces time and fuel otherwise wasted while searching for empty spaces and helps the parking facilities operate more efficiently. We are one of the first companies in China deploying IPS to serve public and private sector clients.

Traffic Flow Surveying Solutions

We provide transportation management authorities at provincial and municipal levels with traffic flow monitoring solutions. These solutions include coil traffic flow detectors, microwave traffic flow detectors and video traffic flow detectors for base stations as well as traffic flow intelligent data centers. We have been selling this solution to multiple provinces in China.

GIS-T (Transportation) Middleware

Our GIS-T middleware is based on China’s mainstream traffic GIS platform. The user of our middleware can quickly establish its own application systems without significant customization. This product has strong applications in traffic information management, model analysis and visual expression. Our product supports efficient integration of various traffic information models and systems. GIS-T middleware has been widely utilized as technological foundation of many of our transportation information solutions designed for public sector clients.

Highway Electronics & Machinery (E&M) System Solution

Our highway E&M system solution consists of a communication system, a monitoring system and a toll fee system. The communication system is mainly composed of an optical fiber transition system, an optical comprehensive service access network system, and a digital programming control exchange system. The monitoring system is mainly composed of an information collection subsystem, a monitoring center and an information sub-system, that accurately and quickly assesses transportation situations. The toll system is composed of a toll center, a toll station and toll lanes. It enables accurate collection of toll. We sell this solution to over 20 provinces in China.

10


UNISITS Highway Lighting and Energy Saving Product (UNIS-LCS)

The UNISITS Lighting and Energy Saving system consists of an electric monitoring system, a blurry intelligent control system, power adjusting system, manual-automatic interactive control system, long-term control system and protection system. This system can automatically monitor voltage, detect factors and transportation parameters which affect lighting system, automatically adjust lighting output through advanced power electronic control, fuzzy control and micro-electronics control technologies, to realize an accurate and balanced adjustment for transportation lighting. We have been selling this solution to multiple provinces in China.

UNISITS Weigh-in-Motion System

The UNISITS Weigh-in-Motion System integrates Automatic Vehicle Identification (AVI) technology, Automatic Vehicle Classification (AVC) technology, Weigh-in-Motion (WIM) technology, and Data Acquisition and Processing (DAP) technology to realize the vehicle in motion identification function, vehicles weigh-in-motion function and other accurate vehicles in motion dynamic survey functions. The system has been applied to and integrated into our highway solutions provided to various governmental agencies.

Commercial Vehicle ITS plus LBS

Commercial Vehicles Monitoring and Public Service Platform

Our Commercial Vehicles Monitoring and Public Service Platform is designed to monitor, control, and manage passenger vehicles, freight vehicles and vehicles carrying hazardous goods. The platform has the following functional subsystems: the real-time monitoring and control subsystem, the accident alarm and processing subsystem, the safety control information release subsystem, key transportation data analysis subsystem, platform assessment and management subsystem. This platform has been utilized in multiple provinces as of December 31, 2010.

Commercial Vehicles Comprehensive Information Service Operation Platform

Our Commercial Vehicles Comprehensive Information Service Operation Platform is designed to serve transportation businesses and professional drivers. It consists of call center comprehensive service system, value-added service system, mobile phone system. The functions and features include vehicle navigation, vehicle status detecting, anti-theft, remote inspection, driving assistant, emergency rescue. This platform is comprised of a central hub and multiple local centers which are connected to each other. As of December 31, 2010, this application was not yet launched.

Commercial Vehicles Terminal Product

The product is a hardware terminal designed for commercial vehicles working with the Commercial Vehicles Monitoring and Public Service Platform and Commercial Vehicles Comprehensive Information Service Operation Platform.

It has functions of positioning, black box, driver ID verification, communication, speeding alarm, fatigue driving alarm and terminal error alert. The Terminal supports further upgrades in the future promulgated by us for other value-added service function. As of December 31, 2010, this application was not yet launched.

Taxi LED Advertisement Dynamic Display System

Our Taxi LED Advertisement Dynamic Display System is a highly integrated technological system operated with wireless satellite communication which can display the same advertisement content on LED screens through central hub. The system is used in the cities of Urumqi and Huhhot as of December 31, 2010.

Taxi LED GPS Monitoring and Coordinating System

Our Taxi LED GPS Monitoring and Coordinating System is a highly integrated technological system operated with wireless satellite communication. The system can be used to increase safety and oversight in the taxi industry as well as remote supervision and management of public transportation. The system is composed of a GPS monitoring management center, imbedded GIS, an information transmitting center and onboard monitoring terminal modules. The system platform provides taxi authorities with basic information such as the location of accidents, incident time and images from within a taxi. The system also allows for better coordination with emergency services. The system is being used in the cities of Huhhot as of December 31, 2010.

11


Other Vehicle and Consumer ITS Applications

Palmcity Telematics Service Platform

The Palmcity Telematics Service Platform provides basic driving and leisure information to passenger car users on a real time basis through the wireless network and navigation terminals installed on the vehicles. As of December 31, 2010, this application was not yet launched.

Palmcity Real-time Traffic Information Terminal Software

The product is a cell phone application to distribute real-time traffic information. It is operated through our dynamic traffic information system platform which integrates the traffic information engine with road maps. This system has been widely downloaded for free from our website by users.

Palmcity Smart Phone Public Transport Information Service System

The system is a platform which delivers dynamic public transportation information service to users through smart phones. As of December 31, 2010, this application was not yet launched.

Palmcity Website (http://www.palmcity.cn)

Palmcity website offers real time traffic information to the general public. Users could download the Palmcity cell phone traffic information application. The Palmcity website was launched on August 8, 2009.

Auto Energy-Saving Analysis Service System

Our Auto Energy-Saving Analysis Service System provides dynamic traffic information service and drivers behavior analysis services. The services are delivered through our Call-Centers and Personal Navigation Devices (PND) installed in the cars. The drivers’ behavior analysis service can help enhance driver performance to save energy and reduce emission. We had not officially launched the system and services to the market as of December 31, 2010.

D-TIPS Dynamic Transportation Information Processing and Prediction Service System

Our D-TIPS Dynamic Transportation Information Processing and Prediction Service System is based on floating car data collection technology. It collects data including location, direction and speed from floating vehicles which is equipped with GPS terminals, and processes those data to gather the traffic information reflected by floating car travel speed and travel time. It can also predict traffic information within next 2 hours. This system has been widely applied and integrated into our Palmcity products.

The Markets for Our Products and Services

We have been marketing and selling our products and services to the highway and urban intelligent transportation system markets within the public sectors in China, and to a lesser degree, in Digital City and Land and Resources. Having built a customer base over the years, our strategy in the public sectors is to deliver high quality products and also to provide ongoing services such as system maintenance and upgrades that may become necessary over time. In addition, the massive deployment of ITS and a large public and private user base will create a large service market for both commercial and consumer applications. We continue to penetrate our existing markets and believe that we can leverage our extensive experience to expand our product and service offering in the business and consumer markets.

ITS-Highway

Our specially designed systems process and store national highway network data and travelers’ information, such as highway information management systems, which perform functions of archiving and retrieving highway data and provide transportation analysis tools. Decision support, predictive information, and performance monitoring are some of ITS applications enabled by highway ITS information management systems. In addition, ITS information management systems can assist in transportation planning, research, and safety management. Our major clients in this area include the Ministry of Transport, traffic management bureaus, highway management bureaus, and municipal construction committees.

12


ITS-Urban

Key ITS applications for urban traffic management include incident management, signal control, traveler information, traffic surveillance, and intelligent parking indication system. Urban ITS is a combination of basic traffic data, electronic technology, wireless and wire communication technologies, which relies on computer and communication technologies to improve safety and efficiency of urban traffic networks. Traffic surveillance provides monitoring functions in the urban ITS. Most metropolitan areas use loop detectors for traffic surveillance, and many use closed circuit televisions. There are also other types of surveillance tools, such as radar, lasers, or video image processing equipments. The use of vehicles equipped with toll tags or global positioning systems as probes, to determine travel times and locations, is also growing in use. Incident management provides real time incident reporting functions in urban ITS, and it is commonly used by traffic management centers in large metropolitan areas and cities. In some large cities, such as Los Angeles, traffic signal control is also centralized in the traffic management center. In many situations, traffic signal control systems use traffic responsive signals to manage the traffic within urban areas. Such responsive signals can be single signals or a group of interconnected signals. Urban traffic management centers utilize all traffic condition information collected from their ITS to give feedbacks and suggestions to travelers. Such information can be provided directly to the public or to organizations who provide it to users through radio broadcast, internet, or other means. Some major types of traveler information include pre-trip information, en-route driver information, en-route transit information and route guidance.

Digital City

Digital City sector is designed to aid the Chinese government’s initiative to equip all major cities with broadband, wireless internet access, and information technology infrastructure. Many cities in China, especially in southern China, have experienced rapid economic developments since early 1990s. However, the construction of information infrastructures in these cities does not match their economy developments. We are one of the pioneers to develop the “Digital City” concept in China. We provide full range digital services to many cities in China with the model of “Planning-Construction-Operation”. We analyze different requirements of different regions or cities and design specific information technology systems based on unique requirements. Typical clients include local governments, public service departments and enterprises.

Land and Resources

Land and resources systems cover planning, analysis, statistics and construction management for mineral resources. In this business line, we have developed a city geological information analysis system that provides tools to analyze the geological environment based on the integration of a variety of geological information, such as determining the underground structure for city planning and construction. In addition, we have created a disaster forecast system and a mineral resources assessment system that provide a platform to assess the reserves and then help to make decisions regarding the development of the mineral resources by setting up assessment models of mineral resources.

Our Intellectual Property

The following table illustrates the title of different copyrights and patents that we own, their registration numbers, first publication dates, issuance dates, and durations.

                First              
    Certificate     Registration      Publication            Expiration  
Copyright Title   Number     Number     Date     Issue Date     Date  
                               
Computer Software Copyright Registered Certificate
(JTLWeb V1.0)
  028661     2004SR10260     09.08.2004     10.21.2004     12.31.2054  
                               
Computer Software Copyright Registered Certificate
(Land & Resources and House Affairs Information System V1.0)
  027924     2004SR09523     06.15.2004     09.29.2004     12.31.2054  

13



Computer Software Copyright Registered Certificate
(GeoPad V1.0)
  002827     2002SR2827     09.01.2002     09.24.2002     12.31.2052  
                               
Computer Software Copyright Registered Certificate
(Command System of Meeting Urgent Need for Urban Public Emergencies V1.0)
  009303     2003SR4212     05.10.2003     06.9.2003     12.31.2053  
                               
Computer Software Copyright Registered Certificate
(GeoWeb V1.0)
  006881     2003SR1790     09.05.2002     03.19.2003     12.31.2053  
                               
Computer Software Copyright Registered Certificate
(EnvMonitor 1.0)
  004358     2002SR4358     05.18.2002     12.6.2002     12.31.2052  
                               
Computer Software Copyright Registered Certificate
(TranPlan 1.0) V1.0
  003664     2002SR3664     06.18.2002     11.11.2002     12.31.2052  
                               
Computer Software Copyright Registered Certificate
(e-Gov.Suite 1.0) V 1.0
  000823     2002SR0823     05.23.2002     07.04.2002     12.31.2052  
                               
Computer Software Copyright Registered Certificate
(Sm@rtOA 1.0) V 1.0
  000824     2002SR0824     09.28.2001     07.04.2002     12.31.2052  
                               
Computer Software Copyright Registered Certificate
(WebMap Engine) V 1.0
  0009123     2001SR2190     07.08.2001     07.30.2001     12.31.2051  
                               
Computer Software Copyright Registered Certificate
(Environment Geo V 1.0)
  062877     2006SR15211     11.30.2005     10.31.2006     12.31.2056  
                               
Computer Software Copyright Registered Certificate
(Environment Protection Emergency Conduct System V 1.0)
  062879     2006SR15213     11.30.2005     10.31.2006     12.31.2056  
                               
Computer Software Copyright Registered Certificate
(Land and Resources Files’ Collection System V 1.0)
  063008     2006SR15342     06.30.2006     11.02.2006     12.31.2056  
                               
Computer Software Copyright Registered Certificate
(Embed-3D-GIS V1.0)
  071603     2007SR05608     01.30.2007     04.17.2007     12.31.2057  
                               
Computer Software Copyright Registered Certificate
(Environment Protection Emergency Conduct System V 1.0)
  063509     2006SR15843     04.30.2006     11.13.2006     12.31.2056  
                               
Computer Software Copyright Registered Certificate
(Environment Information System V 1.0)
  063510     2006SR15844     04.30.2006     11.13.2006     12.31.2056  

14



Computer Software Copyright Registered Certificate
(Land and Resources Information Management System V 1.0)
  063508     2006SR15842     06.30.2006     11.13.2006     12.31.2056  
                               
Computer Software Copyright Registered Certificate
(GeoWeb For Linux) V1.0
  086634     2007SR20639     05.10.2007     12.24.2007     12.31.2057  
                               
Computer Software Copyright Registered Certificate
(Water Carriage Information System) V1.0
  BJ10658     2008SRBJ0352     06.25.2006     02.03.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Intelligent Parking Guide System) V1.0
  BJ10662     2008SRBJ0356     06.30.2007     02.03.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Urban Geological Information Management and Services System) V1.0
  BJ10679     2008SRBJ0373     10.10.2007     02.03.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Exploiter Navigation Software V1.0)
  BJ10485     2008SRBJ0179     11.20.2007     01.16.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Location Services Platform System V 1.0)
  088919     2008SR01740     11.15.2007     01.24.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Taxi Security Alarm System Certificate V1.0)
  BJ16618     2008SRBJ6312     11.22.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(City One Card Solution Consumption Real Time Transaction System) V1.0
  BJ16638     2008SRBJ6332     09.12.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Taxi Monitoring Management System V1.0)
  BJ16626     2008SRBJ6320     11.18.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Taxi Calling System V1.0)
  BJ16653     2008SRBJ6347     09.18.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Advertisement Contract Management System V1.0)
  BJ16612     2008SRBJ6306     10.21.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Advertisement Business Information Processing System V1.0)
  BJ16639     2008SRBJ6333     09.26.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Media Call Center Business Management System V1.0)
  BJ16620     2008SRBJ6314     10.27.2008     12.13.2008     12.31.2058  

15



Computer Software Copyright Registered Certificate
(Real Time Information Broadcasting System V1.0)
  BJ16615     2008SRBJ6309     09.30.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Electronic Project Management System V1.0)
  BJ16795     2008SRBJ6489     10.20.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Data Collection System V1.0)
  BJ16796     2008SRBJ6490     09.18.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Employee Information Management System V1.0)
  BJ16809     2008SRBJ6503     11.20.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Digitalization Assets Management System V1.0)
  BJ16797     2008SRBJ6491     06.10.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Logistics Information System V1.0)
  BJ16793     2008SRBJ6487     01.20.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Students Archive Management System V1.0)
  BJ16808     2008SRBJ6502     12.10.2007     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Product Selling Monitoring System V1.0)
  BJ16792     2008SRBJ6486     01.20.2007     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(E-business Shopping System V1.0)
  BJ16794     2008SRBJ6488     08.16.2007     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Expressway ETC System V1.0)
  BJ16694     2008SRBJ6388     10.30.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(GIS-T Expressway Equipment Management System V1.0)
  BJ16771     2008SRBJ6465     10.21.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Highway Data Collection and Distribution System V1.0)
  BJ16770     2008SRBJ6464     10.29.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Highway Transportation Indication System V1.0)
  BJ16769     2008SRBJ6463     08.20.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Expressway Emergency Command and Monitoring System V1.0)
  BJ16699     2008SRBJ6393     09.10.2008     12.13.2008     12.31.2058  

16



Computer Software Copyright Registered Certificate
(Traffic Information Service System V1.0)
  BJ16751     2008SRBJ6445     10.22.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Urban Intelligent Traffic Management System V1.0)
  BJ16906     2008SRBJ6600     12.20.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Urban Traffic Information Decision-making and Analysis System V1.0)
  BJ16926     2008SRBJ6620     11.18.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Appropriative GIS V1.0)
  BJ16928     2008SRBJ6622     12.10.2007     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Highway Information Total Solution and Decision-analysis System V1.0)
  BJ16927     2008SRBJ6621     05.18.2007     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Red Light Violation Snapshot System V1.0)
  BJ16905     2008SRBJ6599     09.20.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Highway Vehicles Intelligent Testing and Recording System V1.0)
  BJ16876     2008SRBJ6570     11.20.2007     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Public Sanitation Quality Monitoring and Alarm System V1.0)
  BJ16457     2008SRBJ6151     10.30.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Human Resource Management System V1.0)
  BJ16428     2008SRBJ6122     10.20.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Local Sanitation Information Platform V1.0)
  BJ16450     2008SRBJ6144     10.10.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Management Competition Imitation Platform V1.0)
  BJ16424     2008SRBJ6118     10.14.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Disabled Association Job Information Management System V1.0)
  BJ16473     2008SRBJ6167     09.08.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Message Service Platform V1.0)
  BJ16423     2008SRBJ6117     09.30.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Telecom Value-added Service System V1.0)
  BJ16422     2008SRBJ6116     10.25.2008     12.13.2008     12.31.2058  

17



Computer Software Copyright Registered Certificate
(Emergency Command and Prevention System V1.0)
  BJ16472     2008SRBJ6166     10.22.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Palmcity WebGIS Engine V1.0)
  BJ16589     2008SRBJ6283     04.10.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Mobile Map Software V1.0)
  BJ16591     2008SRBJ6285     05.10.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Multiple-source Traffic Information Integration System V1.0)
  BJ16629     2008SRBJ6323     08.26.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Palmcity Traffic information collection System V1.0)
  BJ16605     2008SRBJ6299     10.30.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(PalmCity Floating Car Data Processing System V1.0)
  BJ16628     2008SRBJ6322     05.30.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(PalmCity Information Exchange Platform V1.0)
  BJ16631     2008SRBJ6325     06.21.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(PalmCity In-car PND Comprehensive Information System V1.0)
  BJ16617     2008SRBJ6311     10.31.2007     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Super GIS Data Comprehensive Integration System V1.0)
  BJ16604     2008SRBJ6298     10.26.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Water Transportation Flow Investigation VTS System V1.0)
  BJ16641     2008SRBJ6335     11.12.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Highway Traffic Flow Investigation Data Center V1.0)
  BJ16507     2008SRBJ6201     09.30.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Highway Traffic Flow GIS System V1.0)
  BJ16476     2008SRBJ6170     10.27.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Highway Traffic Flow Investigation Equipment Long-distance Monitoring Platform V1.0)
  BJ16557     2008SRBJ6251     09.30.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Coil Traffic Flow Data Collection System V1.0)
  BJ16621     2008SRBJ6315     10.28.2008     12.13.2008     12.31.2058  

18



Computer Software Copyright Registered Certificate
(Video Traffic Flow Data Collection System V1.0)
  BJ16643     2008SRBJ6337     11.20.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Video Traffic Flow Investigation - Digital Image Processing System V1.0)
  BJ16622     2008SRBJ6316     11.06.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Video Traffic Flow Investigation Watching-dog System V1.0)
  BJ16627     2008SRBJ6321     10.10.2008     12.13.2008     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Yootu Real-Time Road Condition Information Processing and Releasing Software V1.0)
  077504     2007SL11509     05.01.2007     08.01.2007     12.31.2057  
                               
Computer Software Copyright Registered Certificate
(Portable Survey Instruments of Traffic Flow Management Software V1.0(Portable NC200 V1.0))
  BJ24485     2009SRBJ7479     09.21.2009     09.21.2009     12.31.2059  
                               
Computer Software Copyright Registered Certificate
(ETC RSU Control Software V1.0)
  BJ12307     2009SRBJ2001     11.10.2008     04.18.2009     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(ETC OBU Control Software V1.0)
  BJ12625     2009SRBJ2319     12.20.2008     04.19.2009     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Passenger Flow Statistics Analysis Core Software System V1.0)
  0145950     2009SR018951     07.05.2008     05.22.2009     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(TransGIS Middleware System Software V6.0)
  0152607     2009SR025608     04.28.2009     06.30.2009     12.31.2059  
                               
Computer Software Copyright Registered Certificate
(GPS Police Vehicles Positioning and Dispatching System V2.0)
  0145373     2009SR018374     09.25.2008     05.18.2009     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Taxi GPS Monitoring and Dispatching Management System V3.0)
  BJ22027     2009SRBJ5021     05.10.2007     08.12.2009     12.31.2057  
                               
Computer Software Copyright Registered Certificate
(GPS Monitoring and Dispatching Management System V2.0for Vehicles Carrying Goods)
  BJ22026     2009SRBJ5020     06.15.2008     08.24.2009     12.31.2058  

19



Computer Software Copyright Registered Certificate
(Passenger Vehicles GPS Monitoring and Dispatching Management System V5.0)
  BJ22028     2009SRBJ5022     11.10.2007     08.24.2009     12.31.2057  
                               
Computer Software Copyright Registered Certificate
(GPS Monitoring and Dispatching Management System V2.0 for Vehicles Carrying Dangerous Goods)
  BJ22030     2009SRBJ5019     09.25.2008     08.24.2009     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Traffic Management Intelligent Platform Software V2.0)
  BJ14683     2009SRBJ4377     03.10.2009     07.21.2009     12.31.2059  
                               
Computer Software Copyright Registered Certificate
(Multi-source Traffic Information Collection and Dynamic Navigation System V2.0)
  0203602     2010SR015329     09.19.2008     04.08.2010     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Palmcity Real-timeTraffic Information Software V2.0)
  BJ11636     2009SRBJ1330     12.18.2008     04.01.2009     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Palmcity Public Transportation System V1.0)
  BJ27498     2010SRBJ2115     3.10.2010     05.28.2010     12.31.2060  
                               
Computer Software Copyright Registered Certificate
(Passenger Flow Statistics Analysis Core Software System V2.0)
  BJ28704     2010SRBJ3321     09.21.2009     08.03.2010     12.31.2059  
                               
Computer Software Copyright Registered Certificate
(Traffic Information Distribution System Software V3.0)
  BJ28705     2010SRBJ3322     10.19.2009     08.03.2010     12.31.2059  
                               
Computer Software Copyright Registered Certificate
(Trucks GPS Monitoring and Dispatching Management System V3.0 )
  BJ28706     2010SRBJ3323     06.15.2009     08.03.2010     12.31.2059  
                               
Computer Software Copyright Registered Certificate
(Passenger Vehicles GPS Monitoring and Dispatching Management System V6.0)
  BJ28707     2010SRBJ3324     11.10.2008     08.03.2010     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(GPS Monitoring and Dispatching Management System V3.0 for Vehicles Carrying Dangerous Cargo)
  BJ28708     2010SRBJ3325     09.25.2008     08.03.2010     12.31.2058  
                               
Computer Software Copyright Registered Certificate
(Multi-source Traffic Information Collection and Distribution System V3.0)
  BJ28709     2010SRBJ3326     09.19.2008     08.03.2010     12.31.2058  

20



Computer Software Copyright Registered Certificate
(Taxies GPS Monitoring and Dispatching Management System V5.0)
  BJ28717     2010SRBJ3334     09.10.2009     08.03.2010     12.31.2059  
                               
Computer Software Copyright Registered Certificate
(TransGIS Middleware System Software V7.0)
  BJ28718     2010SRBJ3335     04.28.2009     08.03.2010     12.31.2059  
                               
Computer Software Copyright Registered Certificate
(Pedestrian Detection and Analysis System V1.0)
  0155974     2009SR028975     04.15.2009     06.20.2009     12.31.2059  
                               
Computer Software Copyright Registered Certificate
(Yootu FCD Data Sources Processing System Software V2.0)
  0195116     2010SR006843     10.09.2009     02.05.2010     12.31.2059  
                               
Computer Software Copyright Registered Certificate
(Traffic Information Distribution System Software V2.0)
  0195273     2010SR007000     10.19.2009     02.08.2010     12.31.2059  
                               
Computer Software Copyright Registered Certificate
(FCD Data Sources Receiving System Software V2.0)
  0196808     2010SR008535     10.19.2009     02.23.2010     12.31.2059  
                               
Computer Software Copyright Registered Certificate
(FCD Data Sources and Fixed Point Data Traffic Information Fusion System Software V2.0)
  0196736     2010SR008463     10.19.2009     02.22.2010     12.31.2059  
                               
Computer Software Copyright Registered Certificate
(Historical Data Products Software V2.0)
  0196810     2010SR008537     10.19.2009     02.23.2010     12.31.2059  
                               
Computer Software Copyright Registered Certificate
(Traffic Information Emulation System Software V2.0)
  0196809     2010SR008536     10.19.2009     02.23.2010     12.31.2059  
                               
Computer Software Copyright Registered Certificate
(Traffic Information Forecast System Software V2.0)
  0196811     2010SR008538     10.19.2009     02.23.2010     12.31.2059  
                               
Computer Software Copyright Registered Certificate
(Intelligent Energy Saving Software V1.0)
  099887     2008SR12708     05.26.2008     07.04.2008     07.03.2013  
                               
Computer Software Copyright Registered Certificate
(Tunnel Monitoring System V1.0)
  BJ13492     2008SRBJ3186     08.10.2008     09.26.2008     09.25.2013  
                               
Computer Software Copyright Registered Certificate
(Highway Trunk way Monitoring System V1.0)
  BJ13504     2008SRBJ3198     03.28.2008     09.26.2008     09.25.2013  
                               
Computer Software Copyright Registered Certificate
(Bridge Physical Status Monitoring and Digital Maintenance Management System V1.0)
  BJ13732     2008SRBJ3426     09.10.2008     10.09.2008     10.08.2013  

21



\
Computer Software Copyright Registered Certificate
(Rail Transit Passenger Flow Analysis System)
  0160415     2009SR033416     08.02.2009     08.20.2009     08.19.2014  
                               
Computer Software Copyright Registered Certificate
(Rail Transit Comprehensive Monitoring System)
  BJ23177     2009SRBJ6171     08.07.2009     09.17.2009     09.16.2014  
                               
Computer Software Copyright Registered Certificate
(Rail Transit Automatic Fare Collection Machine System)
  BJ23157     2009SRBJ6170     08.07.2009     09.17.2009     09.16.2014  
                               
Computer Software Copyright Registered Certificate
(Rail Transit Automatic Fare Collection System)
  BJ23176     2009SRBJ6151     08.07.2009     09.17.2009     09.16.2014  
                               
Computer Software Copyright Registered Certificate
(Data Transmission System V1.0)
  0168450     2009SR041451     08.03.2009     09.22.2009     09.21.2014  
                               
Computer Software Copyright Registered Certificate
(Video Online Monitoring System)
  0168441     2009SR041442     07.16.2009     09.22.2009     09.21.2014  
                               
Computer Software Copyright Registered Certificate
(Data Collection System)
  0168490     2009SR041491     08.03.2009     09.22.2009     09.21.2014  
                               
Computer Software Copyright Registered Certificate
(Optical Fiber Grating Based Train Axle Management System)
  0178497     2009SR051498     09.22.2009     11.05.2009     11.04.2014  
                               
Computer Software Copyright Registered Certificate
(Highway Toll Collection System Software V1.0)
  0196678     2010SR008405     09.05.2009     02.21.2010     02.20.2015  
 
Patent Title   Application Number     Patentee     Type     Application
Date
    Certificate Number     Authorization Announcement Date  
                                     
Computer Software Patent Registered
(Multiple Patterns Transportation Information Distribution Terminal)
  200920110029.X     Beijing PKU Chinafront High Technology Co., Ltd.     Utility Model Patent     07.09.2009     1506633     08.18.2010  
                                     
Computer Software Patent Registered
(Multiple Patterns Transportation Information Distribution Terminal)
  200930127265.8     Beijing PKU Chinafront High Technology Co., Ltd.     Design Patent     07.09.2009     1312330     08.11.2010  
                                     
Computer Software Patent Registered
(Passenger Flow Detecting and Analyzing Device)
  200920110658.2     Beijing PKU Chinafront High Technology Co., Ltd.     Utility Model Patent     08.06.2009     1408769     05.12.2010  

22



Computer Software Patent Registered
(Information Filtering Device)
  200920222354.5    

China TranWiseway
Information Technology Co., Ltd.

    Utility Model Patent     09.03.2009     1572959     11.03.2010  
                                     
Computer Software Patent Registered
(A Method and System Utilizing Natural Language Setting and Operating to Control Others )
  200710121229.0     Beijing PKU Chinafront High Technology Co., Ltd.     Invention Patent     08.31.2007     508906     06.10.2009  
                                     
Computer Software Patent Registered
(Pipe Leakage and Blockage Detecting System)
  ZL 2009 2 0109073.9     Beijing UNISITS Technology Co., Ltd.     Utility Model Patent     07.07.2009     1420232     05.12.2010  
                                     
Computer Software Patent Registered   ZL 2010 2 0000051.1     Beijing UNISITS Technology Co., Ltd.     Utility Model Patent     01.05.2010     1584025     11.10.2010  

Research and Development

In 2010 and 2009, our research and development expenses amounted to approximately $8.07 million and $3.80 million, respectively. These expenses were mainly composed of staff costs and research and development equipment expenses.

Our Research and Development (R&D) Department consists of two teams, one is internal and the other is external. Our external team involves in strategic relationship with the GeoSIS Laboratory at Peking University.

Internal R&D Department

Our internal R&D team consists of 479 researchers with extensive experience in the GIS and transportation information industry. Many of these researchers have worked at multinational corporations. The primary focus of the internal R&D team is to analyze customer demands and develop application software products, with the use of the most highly advanced software development tools available today. Our internal R&D team is also responsible for monitoring developments in the market for our services so that they can develop new products or improve upon existing products by adopting new technologies and skills. In addition, our internal team is responsible for creating training and support manuals and creating new processes for implementation of our software products.

Strategic R&D Partnership with Peking University

PKU was established in connection with the Peking University’s GeoSIS Laboratory in order to provide university researchers with real life opportunities to test and implement the discoveries from the University. On August 6, 2005, PKU entered into a cooperation agreement (the “Cooperation Agreement”) with Earth and Space College of Peking University, pursuant to which PKU obtained the access to the university’s GeoSIS Research Lab, which houses over thirty PhDs and researchers to support PKU’s research and development initiatives. Under the Cooperation Agreement, we pay for all R&D expenses of the GeoSIS Laboratory. The Cooperation Agreement has a three-year term that has been automatically renewed for an additional three years.

Our Major Customers

The following table provides information on our most significant clients in fiscal year 2010.

23


TOP TEN CLIENTS IN 2010

      Sales    
      (in thousands   Percentage
      of   of
No Name Description of Client US dollars)   Total Sales
           
1 Zhejiang Huangqunan Highway Co., Ltd. A state-owned highway construction company 9,030   7.36%
           
2 Hunan Highway Construction & Development Corporation A state-owned highway construction company 6,807   5.55%
           
3 Hubei Mawu Highway Construction Project Department Local governmental transportation authority 6,702   5.46%
           
4 Shandong High-Speed Group Co., Ltd. A state-owned highway construction company 4,348   3.54%
           
5 Chongqing Highway Group Co., Ltd. Southeast Construction Branch Company A state-owned highway construction company 4,316   3.52%
           
6 Gansu Province High Grade Road Construction Co., Ltd. A provincial transportation authority owned road construction company 4,286   3.49%
           
7 Shandong High-Speed Group Sichuan Leyi Highway Co., Ltd. A state-owned highway construction company 3,471   2.83%
           
8 Construction and Transportation Committee of Shanghai Minhang District City-level governmental department 2,988   2.44%
           
9 Shandong High-Speed Group Xuhao Highway Co., Ltd. A state-owned highway construction company 2,927   2.39%
           
10 Highway Fees Collecting and Settling Center for Shandong Ministry of Transportation Local governmental transportation authority 2,331   1.90%
           
  TOTAL   47,206   38.47%

Regulation

Because our operating VIE Entities are located in the PRC, our business is regulated by the national and local laws of the PRC. There are no specific rules or regulations for a company engaged in software development other than mapping which is highly regulated in China.

In addition, we and our PRC subsidiary, Oriental Intra-Asia, are considered foreign persons or foreign-invested enterprises under PRC laws, and therefore subject to foreign ownership restrictions in connection with our online services, advertising in taxies, and security and surveillance related businesses:

Online Service

On December 11, 2001, the State Council of China promulgated the Regulations on the Administration of Foreign Invested Telecommunication Enterprises (the “FITE Regulations”) , which became effective on January 1, 2002. Under the FITE Regulations, a foreign entity is prohibited from owning more than 50% of equity of a provider of value-added telecommunications services in China, which include internet content provider. In addition, the current Catalogue of Industries for Guiding Foreign Investment (Revised 2007) prohibits a foreign investor from investing in businesses such as news websites and web streaming audio-visual services. As a result, if we had invested directly in the value-added telecommunications services in China, we could have at most 50% of the ownership of the business and thus only consolidated no more than 50% of the revenues generated from such business.

Taxi Advertising

For an advertising business involving foreign investment, there have been rigid overseas operational requirements on the foreign investors under the current Chinese laws. Pursuant to the Provisions on Administration of Foreign Invested Advertising Enterprises promulgated by the State Administration for Industry & Commerce and the Ministry of Commerce of China on March 2, 2004, for a wholly foreign owned advertising enterprise, the foreign investors must have at least three years of direct operations in the advertising business outside of China. In case of a joint venture, foreign investors must have at least two years of direct operations in the advertising business outside of China. However, a domestic company without direct foreign investment is not subject to any of these restrictions.

24


Security and Surveillance Related Business

While there is no Chinese law or regulation specifically prohibiting foreign investment in the security and surveillance related business in China, the nature of this business implies that a vast majority of the customers of this business are governmental entities. Maintaining confidentiality of sensitive information about national security and other various governmental affairs is one of the most important concerns of those governmental entities. Therefore, as a practicable matter, governmental entities are more willing to have business relations with purely domestic companies than a company involving foreign investment where confidential governmental information could be a concern.

In order to comply with these legal restrictions, on February 3, 2009, we conducted the Restructuring and entered into the contractual arrangements with the VIE Entities. Such arrangements enabled us to operate these restricted businesses through our VIE Entities in which we do not hold a direct equity interest. For more information on the regulatory and other risks associated with our contractual agreements related to our VIE Entities, please see the discussion below Item 1A, “Risk Factors.”

We are also subject to PRC’s foreign currency regulations. The PRC government has controlled RMB reserves primarily through direct regulation of the conversion of RMB into other foreign currencies. Although foreign currencies, which are required for “current account” transactions, can be bought freely at authorized PRC banks, the proper procedural requirements prescribed by PRC law must be met. At the same time, PRC companies are also required to sell their foreign exchange earnings to authorized PRC banks and the purchase of foreign currencies for capital account transactions still requires prior approval of the PRC government.

The Competition and Our Competitive Strength

China’s transportation information industry is very fragmented. Our major competitors consist of several foreign companies and many domestic transportation information technology companies. While most international competitors seek to provide component software for the industry, we focus on developing application software and services for the Chinese government and regulated sectors.

We believe that the following competitive strengths enable us to compete effectively in China’s transportation information industry:

Leading-Edge R&D Team - Our research and development team has a strong and extensive technology background and was an early entrant into the three-dimensional GIS market. The head of our research and development team was the lead engineering architect of the first three-dimensional GIS platform software in China, which won the Chinese Excellence Software Award in 1995.

R&D Affiliation with Peking University - Through our early alliance with Peking University, we developed a strong and extensive technology foundation. Under the cooperation agreement between PKU and Earth and Space College of Peking University, we have access to the university’s GeoSIS Research Lab and its team of over 30 scientists and researchers to support our R&D initiatives. Peking University is a 3% owner of PKU.

Award Winning Technology - Since inception, we have won nine product awards, including the National Transportation Planning System and Digital City Program award. The awards demonstrate the technological leadership of our ITS and give customers a sense of security that they are purchasing a quality product.

Brand Image - We have built a valuable brand image through our track record of successful execution of projects for customers in various sectors. We provide products and services, including value-added services to meet maintenance and technology upgrade requirements, to our governmental and other customers. Our customers include central, provincial and municipal government agencies, construction, real estate development and high-tech companies. We plan to leverage our brand image to obtain new and recurring business.

25


Superior Management Team - Three members of our executive management team were among the first GIS software developers in China. Collectively, they have more than 34 years of experience with GIS, and each has been with PKU since its early days. They are complemented by two executives with extensive finance and corporate financial reporting experience.

Operational and Quality Management - We are ISO 9000 certified and conduct internal performance assessments three times per year. Being in close proximity to two of China’s top universities, we have a large pool of qualified candidates to choose from for our hiring needs. We hire our employees based on a rigorous review of their academic and technical skills. We also screen each candidate’s background for potential conflicts of interest and in order to avoid the possible appearance of impropriety in our dealings with government agencies.

We experience competition from both foreign and domestic Chinese competitors. The following is a description of some of our major competitors:

Foreign Competitors

  • Image Sensing System, Inc. (“ISS”) - ISS is headquartered in St. Paul, Minnesota, a technology company focused in infrastructure productivity improvement through the development of software-based detection solutions for the ITS sector and adjacent overlapping markets. ISS’s industry leading computer-enabled detection (CED) products combine embedded software signal processing with sensing technologies for use in transportation, environmental and safety/surveillance management. With more than 90,000 instances sold in over 60 countries worldwide, its products are well positioned to the traffic, security and environmental management markets.

  • Satellic Traffic Management GmbH - Satellic Traffic Management GmbH (Satellic) is a global technology service provider for the setup and operation of progressive toll and traffic management systems. Satellic is a wholly-owned subsidiary of T-Systems, the business customers segment of Deutsche Telekom. The company, which was founded in 2005, has its headquarters in Berlin. Satellic advises governments, companies and associations and is working with industrial partners, in the implementation of traffic infrastructure projects. The company develops new concepts (public and private partnerships) for financing, traffic management and for emissions protection.

  • Vehicle Information and Communication System Center - Vehicle Information and Communication System Center, founded in 1995 in Tokyo, Japan, is involving in the business of systematical gathering, processing, and editing road traffic information, and managing and operating traffic information system by using communication and broadcasting media, and in turn transmitting accurate traffic information to drivers via in-vehicle navigation devices.

  • Organization for Road System Enhancement - Organization for Road System Enhancement (ORSE), was founded in 1999 in Japan. ORSE is in the business of ETC system in Japanese market including establishing standard for data security in ETC systems, establishing processed data for other ETC systems and develop ETC related technologies.

  • Navteq - Navteq is a world leader in premium-quality digital map data. Its data has been widely applied in vehicle navigation systems in North America and Europe. Founded in California in 1985, this company has been acquired by Nokia in 2008. Currently, Navteq has more than 4,000 employees worldwide located with 196 offices in 36 countries.

The products offered by our foreign competitors are generally priced higher than our products. In addition, their software cannot be applied in China without significant modification due to differing industry standards and background. For these reasons, we do not foresee much competition from these international competitors in the area of transportation information application software.

Domestic Chinese Competitors

  • Beijing E-Hualu Info Technology Co., Ltd. (E-Hualu) - Founded in 2001, based in Beijing, E-Hualu is involved in the business of design and construction of intelligent traffic projects, and the urban traffic command center software development and system integration technology. E-Hualu has developed a series of traffic management application software and hardware systems with independent intellectual property and cooperated with police departments for urban public security and traffic command center constructions.

26



  •  
  • Beijing Rhytech Co., Ltd. (Rhytech) - Based in Beijing, Rhytech focuses on intelligent traffic sector including inter-city intelligent traffic management system, police intelligent traffic management system, railway and tunnel intelligent traffic management system and other value-added intelligent traffic service. Currently, the company has 3 offices throughout China.

     

     

  •  
  • BOCO Inter-Telecom Holding Co., Ltd. (BOCO Inter-Telecom) - BOCO Inter-Telecom has been listed in Shanghai stock market of A-Share with ticker 600289 since 2000. Affiliated with Beijing University of Posts and Telecommunications, BOCO Inter-Telecom’s main business includes telecom operation support systems, information security systems and intelligent traffic systems. Its intelligent traffic systems are mainly highway management systems, highway maintenance systems and electronic toll collection systems.

     

     

  •  
  • Qingdao Hisense TransTech Co., Ltd. (QHNTC) - QHNTC was founded in October 1998. It is a subsidiary of Hisense Co., Ltd. QHNTC is in the business of development and service of ITS. Focusing on urban traffic, public transport, logistics and commercial service, the company has developed several proprietary rights in traffic light control systems and urban public security and traffic comprehensive information platforms and other public transportation systems.

     

     

  •  
  • Beijing Stone Intelligent Transportation System Integration Co., Ltd. - Beijing Stone focuses on ITS, traffic engineering technical system, traffic information system and other serial traffic products.

     

     

  •  
  • Guangzhou Heartly Teamgo Information System Engineering Co., Ltd. (Heartly Teamgo) - Based in Guangzhou, Guangdong Province, founded in 1997, Heartly Teamgo is engaged in the business of intelligent traffic products development, solution and system integration. Mainly operate in Guangdong Province, this company has developed city intelligent public transportation system, public media information display system, electronic bulletin boards and GPS in-car platform. The company has completed Guangzhou parking systems, public transportation sensor dispatch system and related projects.

     

     

  •  
  • CenNavi Technologies Co., Ltd. (CenNavi) - Founded in 2005, CenNavi collects, processes, distributes and optimizes dynamic traffic information technologies. This company provides real-time traffic information services for vehicle terminals, PND terminals, mobiles phones and internets as well as supports traffic information display and optimal route query to above terminals. Acquired by China's largest navigable e-map manufacturer—NavInfo, this company’s products are mainly sold in the vehicle market currently.

     

     

  •  
  • Shenzhen GENVICT Technologies Co., Ltd. (GENVICT) - GENVICT is a high-tech corporation specialized in developing, designing, manufacturing, supplying and providing technical services for Intelligent Transportation System (ITS) devices, IC card readers, embedded intelligent terminals and related hardware products. The company is headquartered in Shenzhen, with major customers such as expressway, public security, traffic control, finance, urban traffic authorities.

     

     

  •  
  • NAVINFO - NavInfo is a company in China’s vehicle navigation and mapping market. It provides products and services in portable navigation, (location based services) LBS and internet–based location services and traffic information services. Currently, NavInfo map data have been mainly applied in vehicle navigation market and portable navigation market, as well as used by Internet-based location service providers and mobile phone operators in China.

     

     

  •  
  • AUTONAVI- AutoNavi is a provider of digital map content and navigation and location-based solutions in China. At the core of its business is a comprehensive nationwide digital map database that covers approximately 3.1 million kilometers of roadway and over 13 million points of interest across China. Through its digital map database, AutoNavi provides comprehensive, integrated navigation and location-based solutions optimized for the Chinese market and users, including automotive navigation solutions, public sector and enterprise applications, wireless location-based solutions and Internet location-based solutions.

    Raw Materials

    27


    Since we are in the business of developing software applications and providing related services, we do not utilize any significant amount of raw materials. All of the raw materials needed for our business are readily available from several different suppliers and at market driven prices. We only purchase computers and other software in order to provide our services and software applications to customers.

    Employees

    As of December 31, 2010, we employed a total of 725 full-time employees. The following table sets forth the number of our employees by function as of December 31, 2010.

        Number of  
    Department   Employees  
    Software Development (R&D)   479  
    Quality Control   16  
    Sales and Marketing   98  
    Administration   70  
    Human Resources   24  
    Finance   38  
     Total   725  

    Our employees are not represented by a labor organization or covered by a collective bargaining agreement. We have not experienced any work stoppages. In addition, we are required by the PRC law to cover employees in China with various types of social insurance. We believe that we are in compliance with the relevant PRC laws.

    We believe that we maintain a satisfactory working relationship with our employees and we have not experienced any significant labor disputes or any difficulty in recruiting staff for our operations.

    Insurance

    We do not have any business liability, interruption or litigation insurance coverage for our operations in China. Insurance companies in China offer limited business insurance products. While business interruption insurance is available to a limited extent in China, we have determined that the risks of interruption, cost of such insurance and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. Therefore, we are subject to business and product liability exposure. See Item 1A, “Risk Factors – Our inability to protect our trademarks, patent and trade secrets may prevent us from successfully marketing our products and competing effectively.”

    Available Information

    We maintain an internet website at www.ctfo.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, including exhibits and amendments to those reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available on our website at www.ctfo.com, free of charge, as soon as reasonably practicable after the electronic filing of these reports with, or furnishing of these reports to, the SEC. Any materials we file with the SEC are available at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Additional information about the operation of the Public Reference Room can also be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.

    ITEM 1A. RISK FACTORS.

    The shares of our common stock are highly speculative in nature, involve a high degree of risk and should be purchased only by persons who can afford to lose the entire amount invested in the common stock. Before purchasing any of the shares of common stock, you should carefully consider the following factors relating to our business and prospects. You should pay particular attention to the fact that we conduct all of our operations in China and are governed by a legal and regulatory environment that in some respects differs significantly from the environment that may prevail in the U.S. and other countries. If any of the following risks actually occurs, our business, financial condition or operating results will suffer, the trading price of our common stock could decline, and you may lose all or part of your investment.

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    RISKS RELATED TO OUR BUSINESS

    In order to comply with PRC regulatory requirements, we operate our businesses through companies with which we have contractual relationships but in which we do not have controlling ownership. If the PRC government determines that our agreements with these companies are not in compliance with applicable regulations, our business in the PRC could be materially adversely affected.

    The Chinese government restricts foreign investment in certain business segments including online services, taxi advertising, and security and surveillance related businesses. Accordingly we transferred all of our indirect equity interests in PKU and PKU’s subsidiaries to the affiliated Group Company and as a result, PKU and PKU’s subsidiaries became direct and indirect subsidiaries of the Group Company, which is wholly owned by the Group Company Shareholders who are all Chinese citizens. At the same time, we are able to control these VIE Entities and operate these businesses through contractual arrangements with the respective companies and their individual owners, but we have no equity control over these companies.

    Although we believe the Restructuring and our current business operations are in compliance with the current laws in China, we cannot be sure that the PRC government would view our operating arrangements to be in compliance with PRC regulations that may be adopted in the future. If we are determined not to be in compliance, the PRC government could levy fines, revoke our business and operating licenses, require us to discontinue or restrict our operations, restrict our right to collect revenues, require us to restructure our business, corporate structure or operations, impose additional conditions or requirements with which we may not be able to comply, impose restrictions on our business operations or on our customers, or take other regulatory or enforcement actions against us that could be harmful to our business. As a result, our business in the PRC could be materially adversely affected.

    We rely on contractual arrangements with our VIE Entities for our operations, which may not be as effective in providing control over these entities as direct ownership.

    Our operations are dependent on our VIE Entities in which we have no equity ownership interest and must rely on contractual arrangements to control and operate the businesses of the VIE Entities. These contractual arrangements may not be as effective in providing control over these entities as direct ownership. For example, the VIE Entities may be unwilling or unable to perform their obligations under our commercial agreements with them, including payment of annual development and consulting fees as they become due, we will not be able to conduct our operations in the manner currently planned. In addition, the VIE Entities may seek to renew their agreements on terms that are disadvantageous to us. Although we have entered into a series of agreements that provide us with substantial ability to control the VIE Entities, we may not succeed in enforcing our rights under them by relying on legal remedies under Chinese law, which may not be adequate. In addition, if we are unable to renew these agreements on favorable terms when these agreements expire, or to enter into similar agreements with other parties, our business may not be able to operate or expand, and our operating expenses may significantly increase.

    The shareholders of the Group Company may have potential conflicts of interests with us, which may adversely affect our business.

    We operate our businesses in China through the Group Company, which is wholly owned by our four Chinese affiliates: Shudong Xia, our Chairman, CEO and President and the beneficial owner of approximately 70.70% of the Group Company’s outstanding capital stock, Zhiping Zhang, our Vice President of Research and Development, Zhibin Lai, our Vice President and Wei Gao, the designee of SAIF Partners III L.P. (“SAIF Partners”), who in aggregate own 29.30% of the Group Company. Conflicts of interests between their duties to us and to the Group Company and its subsidiaries may arise. We cannot assure you that when conflicts of interest arise, any or all of these persons will act in the best interests of our company or that any conflict of interest will be resolved in our favor. These conflicts may result in management decisions that could negatively affect our operations and potentially result in the loss of opportunities.

    Our arrangements with the VIE Entities and its shareholders may be subject to a transfer pricing adjustment by the PRC tax authorities which could have an adverse effect on our income and expenses.

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    We could face material and adverse tax consequences if the PRC tax authorities determine that our contracts with the VIE Entities and its shareholders were not entered into based on arm’s length negotiations. Although our contractual arrangements are similar to other companies conducting similar operations in China, if the PRC tax authorities determine that these contracts were not entered into on an arm’s length basis, they may adjust our income and expenses for PRC tax purposes in the form of a transfer pricing adjustment. Such an adjustment may require that we pay additional PRC taxes plus applicable penalties and interest, if any.

    The exercise of our option to purchase part or all of the equity interests in the VIE Entities under the Option Agreement might be subject to approval by the PRC government and foreign ownership restrictions on the VIE Entities’ current businesses under PRC laws. Our failure to purchase the equity of the VIE Entities without discontinuing the current businesses and operations of the VIE Entities may impair our ability to substantially control the VIE Entities and could result in actions by VIE Entities that conflict with our interests.

    Our Option Agreement with the VIE Entities gives our Chinese subsidiary, Oriental Intra-Asia, the option to purchase all or part of the equity interests in the VIE Entities, however, the option may not be exercised by Oriental Intra-Asia if the exercise would violate any applicable laws and regulations in China or cause any license or permit held by, and necessary for the operation of the VIE Entities, to be cancelled or invalidated. Under the laws of China, if a foreign entity, through a foreign investment company that it invests in, acquires a domestic related company, China’s regulations regarding mergers and acquisitions would technically apply to the transaction. Application of these regulations requires an examination and approval of the transaction by China’s Ministry of Commerce (“MOFCOM”), or its local counterparts. Also, an appraisal of the equity or assets to be acquired is mandatory. However, our local PRC counsel has advised us that Beijing and other local counterparts of MOFCOM hold the view that such a transaction would not require their approval. Therefore, we do not believe at this time that an approval and an appraisal are required for Oriental Intra-Asia to exercise its option to acquire the VIE Entities in Beijing. In light of the different views on this issue, however, it is possible that the central MOFCOM office in Beijing will issue a standardized opinion imposing the approval and appraisal requirement. In addition, even if we successfully acquire the equity interests in the VIE Entities through exercising our option, we may not be able to continue the current operations and businesses of the VIE Entities as, under the current PRC laws, we are subject to foreign ownership restrictions in connection with the online services, advertising in taxies, and security and surveillance related businesses, as described under the heading of "Regulation" above. If we are not able to purchase the equity of the VIE Entities without discontinuing the current businesses and operations of the VIE entities, then we will lose a substantial portion of our ability to control the VIE Entities and our ability to ensure that the VIE Entities will act in our interests.

    We are highly dependent on the ITS industry which is characterized by rapid technological change.

    Our financial performance is dependent upon the continuing growth of the ITS industry which has historically been characterized by rapid technological change, evolving industry standards and changing customer needs. We cannot guarantee that we will be able to continue to anticipate and respond to future industry demands in a timely manner. New services or technologies may render our existing services or technologies less competitive or even obsolete. If we fail to anticipate and respond to technological advancements and developments in the ITS industry in the future in a timely manner, our results of operations may be materially and adversely affected. We are also subject to the risks generally associated with new technology introductions and applications, including the lack of market acceptance, delays in new application development and failure of applications to operate properly.

    A termination of our relationship with Peking University could have a negative impact on our future operating results.

    PKU has historically been able to successfully leverage the marketability and resources offered by its strategic partner and investor, Peking University. PKU’s affiliation with Peking University helps to create brand awareness for its products and services and also provides access to the university’s GeoGIS Laboratory, which houses over thirty PhDs and researchers to support PKU’s research and development initiatives. A termination of the relationship/strategic partnership with Peking University could have a negative impact on our future operating results.

    We rely heavily on sales to the Chinese government and a significant decline in overall government expenditures or a delay in the payment of our invoices by the government could have a negative impact on our future operating results.

    Historically, substantially all of our sales of our products have been to the Chinese government entities at both central and local levels. We believe that the success and growth of our business for the foreseeable future will continue to depend on our ability to win government contracts. Many of our government customers are subject to budgetary constraints and our continued performance under these contracts, or award of additional contracts from these agencies, could be jeopardized by spending reductions or budget cutbacks at these agencies. Our operating results may also be negatively impacted by other developments that affect these government programs generally, including the following:

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    • adoption of new laws or regulations relating to government contracting or changes to existing laws or regulations;

    • delays or changes in the government appropriations process; and

    • delays in the payment of our invoices by government payment offices.

    We have experienced significant growth in the past, and we may not be able to maintain such growth in the future.

    During the past years, we significantly increased the scope of our operations and increased our revenues from $11.9 million in 2007 to $122.7 million in 2010. Part of this growth was due to the acquisition of certain PRC companies, which made material contributions to our overall revenues and profits during the relevant period. Our growth may not be sustained in the future if we do not continue to expand the scope of our operations. In addition, contributions to our rapid growth by acquisitions may not be sustainable in the future to the extent that we are not able to identify and execute suitable acquisitions. The expansion of our business has, and will continue to, put pressure on our managerial, financial, operational and other resources. We also need to enhance financial and quality controls and recruit and train additional staff in order to keep pace with our growth. We may need to increase employee compensation levels in order to retain our existing executives and staff and attract the additional personnel we expect we may require. We cannot assure you that we will be able to manage our future expansion effectively. If we are unable to effectively manage our expanding operations and control increasing labor costs, our profitability may be materially and adversely affected.

    We face risks associated with potential acquisitions, investments, strategic partnership or other ventures.

    For expansion purposes, we may acquire or make investments in complementary businesses, facilities or services or products, or enter into strategic partnerships with parties who can provide access to such assets, if appropriate opportunities arise. We may not be able to identify suitable acquisition, investment or strategic partnership candidates, which may place us at a disadvantage if our competitors are able to grow their market share through acquisitions. If we do identify suitable candidates, we may not be able to obtain necessary funding or be able to complete those transactions on commercially acceptable terms or at all. If we acquire another company, we may have difficulty in integrating that company’s personnel, products and operations. In addition, the key personnel of the acquired company may decline to work for us. These difficulties could disrupt our ongoing business, distract our management and employees and increase our expenses.

    We rely on our management to understand and react to our rapidly evolving and highly competitive GIS software development and application total solution industry and our failure to react to such changes or to introduce new products and product enhancements could adversely affect our business.

    The Chinese GIS industry is nascent and rapidly evolving. Therefore, it is critical that our management is able to understand industry trends and make good strategic business decisions. If our management is unable to identify industry trends and act in response to such trends in a way that is beneficial to us, our business will suffer.

    In addition, we expect that a significant portion of our future revenue will be derived from sales of newly-introduced products. The market for our products is characterized by rapidly changing technology, evolving industry standards and changes in customer needs. If we fail to introduce new products or to modify or improve our existing products in response to changes in technology, industry standards or customer needs, our products could rapidly become less competitive or obsolete. We must continue to make significant investments in research and development in order to continue to develop new products, enhance existing products and achieve market acceptance for such products. However, there can be no assurance that development stage products will be successfully completed or, if developed, will achieve significant customer acceptance.

    If we are unable to successfully develop and introduce competitive new products and enhance our existing products, our future results of operations would be adversely affected. Our pursuit of necessary technology may require substantial time and expense. We may need to license new technologies to respond to technological change. These licenses may not be available to us on terms that we can accept or may materially change the gross profits that we are able to obtain on our products. We may not succeed in adapting our products to new technologies as they emerge. Development and manufacturing schedules for technology products are difficult to predict and there can be no assurance that we will achieve timely initial customer shipments of new products. The timely availability of these products in volume and their acceptance by customers are important to our future success. Any future delays, whether due to product development delays, manufacturing delays, lack of market acceptance, delays in regulatory approval, or otherwise, could have a material adverse effect on our results of operations.

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    We may not be able to adequately protect our proprietary intellectual property and technology, which may harm our competitive position and result in increased expenses incurred to enforce our rights.

    We rely on a combination of copyright, trade secret laws, non-disclosure agreements and other confidentiality procedures and contractual provisions to establish, protect and maintain our proprietary intellectual property and technology and other confidential information. Some of these technologies are important to our business and are not protected by patents. Despite our efforts, the steps we have taken to protect our proprietary intellectual property and technology and other confidential information may not be adequate to preclude misappropriation of our proprietary information or infringement of our intellectual property rights. Protecting against the unauthorized use of our products and other proprietary rights is also expensive, difficult and, in some cases, impossible. Litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of management resources, either of which could harm our business, operating results and financial condition.

    Product branding is important to us and if our brands are misappropriated such that our reputation could be harmed, this could result in lower sales having a negative impact on our financial results.

    We rely upon a combination of licensing and contractual covenants to establish and protect the brand names of our products. In many market segments, our reputation is closely related to our brand names. Monitoring unauthorized use of our brand names is difficult and we cannot be certain that the steps we have taken will prevent their unauthorized use, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. Our brand names may be misappropriated or utilized without our consent and such actions may have a material adverse effect on our reputation and on the results of our operations.

    If we are unable to compete effectively with existing or new competitors, our resulting loss of competitive position could result in price reductions, fewer customer orders, reduced margins and loss of market share.

    The markets for our products are highly competitive and we expect competition to increase in the future. Some of our competitors have significantly greater financial, technical and marketing resources than we do. These competitors may be able to respond more rapidly to new or emerging technologies or changes in customer requirements. They may also be able to devote greater resources to the development, promotion and sale of their products. Increased competition could result in price reductions, fewer customer orders, reduced margins and loss of market share. Our failure to compete successfully against current or future competitors could seriously harm our business, financial condition and results of operations.

    Our products are complex and errors or defects could result in the rejection of our products and damage to our reputation, as well as lost revenues and increased costs.

    Products as sophisticated as ours are likely to contain undetected errors or defects, especially when first introduced or when new models or versions are released. Our products may not be free from errors or defects after commercial shipments have begun, which could result in the rejection of our products, damage to our reputation, lost revenues, diverted development resources and increased customer service and support costs and warranty claims. Any of these results could harm our business.

    We do not carry any business interruption insurance, product liability or recall insurance or third-party liability insurance.

    Operation of our business and facilities involves many risks, including equipment failures, natural disasters, industrial accidents, labor disturbances, business interruptions, property damage, and product liability. We do not carry any business interruption insurance or third-party liability insurance for our business to cover claims in respect of product liability, personal injury or property damage arising from accidents on our property or relating to our operations. As a result, we may be required to pay for financial and other losses, damages and liabilities, including those caused by natural disasters and other events beyond our control, out of our own funds, which could have a material adverse effect on our business, financial condition and results of operations.

    We may be exposed to potential risks relating to our internal control over financial reporting.

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    To implement Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring public companies to include a report of management on the company’s internal control over financial reporting in their annual reports on Form 10-K. Under current law, we are subject to the requirement that we maintain internal controls and that management perform periodic evaluation of the effectiveness of the internal controls, assuming our filing status remains as a smaller reporting company. A report of our management is included under Item 9A of this Annual Report on Form 10-K. Our management has concluded that our internal control over financial reporting was effective at the reasonable assurance level for the fiscal year ended December 31, 2010. However, in the future, our management may conclude that our internal controls over financial reporting are not effective, if one or more material weaknesses are identified. In the event we identify significant deficiencies or material weaknesses in our internal controls that we cannot remediate in a timely manner, investors and others may lose confidence in the reliability of our financial statements.

    We may be exposed to liabilities under the Foreign Corrupt Practices Act, and any determination that we violated the Foreign Corrupt Practices Act could have a material adverse effect on our business.

    We are subject to the Foreign Corrupt Practice Act (the “FCPA”), and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute for the purpose of obtaining or retaining business. We have operations, agreements with third parties and make sales in China, which may experience corruption. Our activities in China create the risk of unauthorized payments or offers of payments by one of the employees, consultants, sales agents or distributors of our company, because these parties are not always subject to our control. It is our policy to implement safeguards to discourage these practices by our employees. Also, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants, sales agents or distributors of our Company may engage in conduct for which we might be held responsible. Violations of the FCPA may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.

    Since we depend heavily on key personnel, turnover of key employees and senior management could harm our business.

    Our future business and results of operations depend in significant part upon the continued contributions of our key technical and senior management personnel, including Shudong Xia, our chief executive officer and president, our chief financial officer, Rong Zhang and our vice presidents, Zhibin Lai, Zhiping Zhang, Shan Qu and Danxia Huang. We also depend in significant part upon our ability to attract and retain additional qualified management, technical, marketing and sales and support personnel for our operations. If we lose a key employee, or if a key employee fails to perform his or her current position, or if we are not able to attract and retain skilled employees as needed, our business could suffer. Significant turnover in our senior management could significantly deplete our institutional knowledge held by our existing senior management team. We depend on the skills and abilities of these key employees in managing the manufacturing, technical, marketing and sales aspects of our business, any part of which could be harmed by further turnover.

    RISKS RELATED TO DOING BUSINESS IN CHINA

    Adverse changes in political and economic policies of the PRC government could impede the overall economic growth of China, which could reduce the demand for our products and damage our business.

    We conduct substantially all of our operations and generate most of our revenue in China. Accordingly, our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. The PRC economy differs from the economies of most developed countries in many respects, including:

    • a higher level of government involvement;

    • an early stage of development of the market-oriented sector of the economy;

    • a rapid growth rate;

    • a higher level of control over foreign exchange; and

    • the allocation of resources.

    As the PRC economy has been transitioning from a planned economy to a more market-oriented economy, the PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. While these measures may benefit the overall PRC economy, they may also have a negative effect on us.

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    Although the PRC government has in recent years implemented measures emphasizing the utilization of market forces for economic reform, the PRC government continues to exercise significant control over economic growth in China through the allocation of resources, controlling the payment of foreign currency-denominated obligations, setting monetary policy and imposing policies that impact particular industries or companies in different ways.

    Any adverse change in economic conditions or government policies in China could have a material adverse effect on the overall economic growth in China, which in turn could lead to a reduction in demand for our services and consequently have a material adverse effect on our business and prospects.

    Uncertainties with respect to the PRC legal system could limit the legal protections available to you and us.

    We conduct substantially all of our business through our VIE Entities in the PRC and they are subject to laws and regulations in China. The PRC legal system is based on written statutes, and prior court decisions may be cited for reference but have limited precedential value. Since 1979, a series of new PRC laws and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, since the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties, which may limit legal protections available to you and us. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention. In addition, all of our executive officers and all of our directors are residents of China and not of the United States, and substantially all the assets of these persons are located outside the United States. As a result, it could be difficult for investors to affect service of process in the United States or to enforce a judgment obtained in the United States against our Chinese operations.

    If we are found to have failed to comply with applicable laws, we may incur additional expenditures or be subject to significant fines and penalties.

    Our operations are subject to PRC laws and regulations applicable to us. However, many PRC laws and regulations are uncertain in their scope, and the implementation of such laws and regulations in different localities could have significant differences. In certain instances, local implementation rules and/or the actual implementation are not necessarily consistent with the regulations at the national level. Although we strive to comply with all the applicable PRC laws and regulations, we cannot assure you that the relevant PRC government authorities will not later determine that we have not been in compliance with certain laws or regulations. Our failure to comply with applicable PRC laws and regulations could subject us to administrative penalties and injunctive relief, as well as civil remedies, including fines, injunctions and recalls of our products. It is possible that changes to such laws or more rigorous enforcement of such laws or with respect to our current or past practices could have a material adverse effect on our business, operating results and financial condition.

    The PRC government exerts substantial influence over the manner in which we must conduct our business activities.

    The PRC government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, import and export tariffs, environmental regulations, land use rights, property and other matters. We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of the jurisdictions in which we operate may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations.

    Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof and could require us to divest ourselves of any interest we then hold in Chinese properties or joint ventures.

    Restrictions on currency exchange may limit our ability to receive and use our sales revenue effectively.

    All our sales revenue and expenses are denominated in RMB. Under PRC law, the RMB is currently convertible under the “current account,” which includes dividends and trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment and loans. Currently, Oriental Intra-Asia may purchase foreign currencies for settlement of current account transactions, including payments of dividends to us, without the approval of the State Administration of Foreign Exchange (“SAFE”), by complying with certain procedural requirements. However, the relevant PRC government authorities may limit or eliminate our ability to purchase foreign currencies in the future. Since a significant amount of our future revenue will be denominated in RMB, any existing and future restrictions on currency exchange may limit our ability to utilize revenue generated in RMB to fund our business activities outside China that are denominated in foreign currencies.

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    Foreign exchange transactions by our PRC VIE Entities under the capital account continue to be subject to significant foreign exchange controls and require the approval of or need to register with PRC government authorities, including SAFE. In particular, if Oriental Intra-Asia borrows foreign currency through loans from us or other foreign lenders, these loans must be registered with SAFE, and if we finance the subsidiaries by means of additional capital contributions, these capital contributions must be approved by certain government authorities, including MOFCOM, or their respective local counterparts. These limitations could affect their ability to obtain foreign exchange through debt or equity financing.

    Fluctuations in exchange rates could adversely affect our business and the value of our securities.

    The value of our common stock will be indirectly affected by the foreign exchange rate between U.S. dollars and RMB and between those currencies and other currencies in which our sales may be denominated. Appreciation or depreciation in the value of the RMB relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. Fluctuations in the exchange rate will also affect the relative value of any dividend we issue in the future as well as earnings from, and the value of, any U.S. dollar-denominated investments we make in the future.

    Since July 2005, the RMB has no longer been pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market.

    Very limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and we may not be able to successfully hedge our exposure at all. In addition, our foreign currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currencies.

    Restrictions under PRC law on our PRC subsidiary’s ability to make dividends and other distributions could materially and adversely affect our ability to grow, make investments or acquisitions that could benefit our business, pay dividends to you, and otherwise fund and conduct our businesses.

    Substantially all of our revenues are generated from our indirect PRC subsidiary, Oriental Intra-Asia, after it receives payments from our VIE Entities under various services and other arrangements. However, PRC regulations restrict the ability of Oriental Intra-Asia to make dividends and other payments to its offshore parent company. PRC legal restrictions permit payments of dividend by Oriental Intra-Asia only out of its accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Oriental Intra-Asia is also required under PRC laws and regulations to allocate at least 10% of our annual after-tax profits determined in accordance with PRC GAAP to a statutory general reserve fund until the amounts in said fund reaches 50% of our registered capital. Allocations to these statutory reserve funds can only be used for specific purposes and are not transferable to us in the form of loans, advances or cash dividends. Any limitations on the ability of Oriental Intra-Asia to transfer funds to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.

    Future inflation in China may inhibit our ability to conduct business profitably in China.

    In recent years, the Chinese economy has experienced periods of rapid expansion and highly fluctuating rates of inflation. During the periods of high inflation, the Chinese government, from time to time, adopted various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. High inflation may in the future cause the Chinese government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China, and thereby harm the market for our products and our company.

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    Dividends payable to us by our PRC subsidiary may be subject to PRC withholding taxes, we may be subject to PRC taxation on our worldwide income, and dividends distributed to our non-PRC investors may be subject to PRC withholding taxes under the PRC Enterprise Income Tax Law.

    As a result of our holding company structure, we rely substantially on dividend payments from our indirect PRC subsidiary, Oriental Intra-Asia, after it receives payments from our VIE Entities under various services and other arrangement. Under the PRC tax laws effective prior to January 1, 2008, dividends paid to foreign investors by foreign-invested enterprises, such as dividends paid to us by Oriental Intra-Asia, were exempt from PRC withholding tax. Under the PRC Enterprise Income Tax Law and its implementation rules effective on January 1, 2008, all domestic and foreign-invested companies in China are subject to a uniform enterprise income tax at the rate of 25% and dividends from a PRC subsidiary to its foreign parent company are subject to a withholding tax at the rate of 10%, unless such foreign parent company’s jurisdiction of incorporation has a tax treaty with China that provides for a reduced rate of withholding tax, or the tax is otherwise exempted or reduced pursuant to the PRC tax laws.

    Under the PRC Enterprise Income Tax Law, enterprises organized under the laws of jurisdictions outside China with their “de facto management bodies” located within China are considered PRC resident enterprises and therefore are subject to PRC enterprise income tax at the rate of 25% on their worldwide income. Under the implementation rules of the PRC Enterprise Income Tax Law, “de facto management bodies” is defined as the bodies that have material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and treasury, and acquisition and disposition of properties and other assets of an enterprise. In addition, a recent circular issued by the State Administration of Taxation on April 22, 2009 provides that a foreign enterprise controlled by a PRC company or a PRC company group will be classified as a “resident enterprise” with its “de facto management bodies” located within China if the following requirements are satisfied: (i) the senior management and core management departments in charge of its daily operations function mainly in the PRC; (ii) its financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (iii) its major assets, accounting books, company seals, and minutes and files of its board and stockholders’ meetings are located or kept in the PRC; and (iv) more than half of the enterprise’s directors or senior management with voting rights reside in the PRC.

    The PRC Enterprise Income Tax Law and its implementation rules are relatively new and ambiguities exist with respect to the interpretation of the provisions relating to resident enterprise issues. Although our offshore holding companies are not controlled by any PRC company or company group, we cannot assure you that we will not be deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law and its implementation rules. If we are deemed to be a PRC resident enterprise, we will be subject to PRC enterprise income tax at the rate of 25% on our worldwide income. In that case, however, dividend income we receive from Oriental Intra-Asia may be exempt from PRC enterprise income tax because the PRC Enterprise Income Tax Law and its implementation rules generally provide that dividends received by a PRC resident enterprise from its directly invested entity that is also a PRC resident enterprise is exempt from enterprise income tax. However, as there is still uncertainty as to how the PRC Enterprise Income Tax Law and its implementation rules will be interpreted and implemented, we cannot assure you that we are eligible for such PRC enterprise income tax exemptions or reductions.

    In addition, the PRC Enterprise Income Tax Law and its implementation rules are relatively new and ambiguities exist with respect to the interpretation of the provisions relating to identification of PRC-sourced income. If we are deemed to be a PRC resident enterprise, dividends distributed to our non-PRC entity investors by us, or the gain our non-PRC entity investors may realize from the transfer of our ordinary shares, may be treated as PRC-sourced income and therefore be subject to a 10% PRC withholding tax pursuant to the PRC Enterprise Income Tax Law.

    If we became a PRC resident enterprise under the new PRC tax system and received income other than dividends, our profitability and cash flows would be adversely affected due to our worldwide income being taxed in China under the PRC Enterprise Income Tax Law. Additionally, we would incur an incremental PRC dividend withholding tax cost if we distributed our profits to our ultimate stockholders. There is however not necessarily an incremental PRC dividend withholding tax on the piece of the profits distributed from our PRC subsidiaries, since they would have been subject to PRC dividend withholding tax even if we were not a PRC tax resident.

    Our holding company structure may restrict our ability to receive dividends from, or transfer funds to, our PRC subsidiary and our VIE Entities, which could restrict our ability to act in response to changing market conditions and reallocate funds among our Chinese entities timely.

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    We are a holding company and conduct substantially all of our operations through our PRC subsidiary and VIE Entities. Any funds we transfer to our PRC subsidiary and VIE Entities, either as a loan or as an increase in registered capital, is subject to registration or approval of PRC governmental authorities, including the relevant administration of foreign exchange and/or the relevant examining and approval authority. Our PRC subsidiary and VIE Entities are prohibited by PRC law to directly lend money to each other. These limitations on the free flow of funds between us and our PRC companies could restrict our ability to act in response to changing market conditions and reallocate funds among our PRC companies on a timely basis. Moreover, according to a circular jointly issued by the Ministry of Finance and the State Administration of Taxation on September 19, 2008, the debt-to-equity ratio of a non-financial institution may not exceed 2:1 unless the shareholder loan in question can meet certain conditions. Although there is uncertainty at this time as to how the circular will be interpreted and implemented, such circular may have a negative impact on our PRC subsidiary’s abilities to obtain loans from its shareholders.

    We may be subject to fines and legal sanctions if we or our Chinese employees fail to comply with PRC regulations relating to employee stock options granted by overseas listed companies to PRC citizens.

    On December 25, 2006, the People’s Bank of China issued the Administrative Measures on Individual Foreign Exchange Control, and its Implementation Rules were issued by the SAFE, on January 5, 2007. Both took effect on February 1, 2007. Under these regulations, all foreign exchange matters involved in an employee stock holding plan, stock option plan or similar plan of an overseas publicly-listed company in which PRC citizens’ participation requires approval from the SAFE or its authorized branch. On March 28, 2007, the SAFE issued the Application Procedure for Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Holding Plans or Stock Option Plans of Overseas Listed Companies (“Notice 78”). Under Notice 78, PRC individuals who participate in an employee stock option holding plan or a stock option plan of an overseas listed company are required, through a PRC domestic agent or PRC subsidiary of the overseas listed company, to register with the SAFE and complete certain other procedures. We and our Chinese employees who have been granted restricted shares or stock options pursuant to the China TransInfo Technology Corp. Equity Incentive Plan 2009 (the “Plan”), are subject to Notice 78. However, in practice, there are significant uncertainties with regard to the interpretation and implementation of Notice 78. We are committed to complying with the requirements of Notice 78. However, we cannot provide any assurance that we or our Chinese employees will be able to qualify for or obtain any registration required by Notice 78. In particular, if we and/or our Chinese employees fail to comply with the provisions of Notice 78, we and/or our Chinese employees may be subject to fines and legal sanctions imposed by the SAFE or other PRC government authorities, as a result of which our business operations and the implementation of the Plan could be materially and adversely affected.

    The discontinuation or reduction of any preferential tax treatments currently available to us in the PRC may have a negative impact on our results of operations.

    Our PRC companies, including the PRC subsidiary and VIE Entities, are subject to PRC income tax. Under the new corporate income tax law effective January 1, 2008, both foreign-invested enterprises and domestic enterprises are subject to a unified 25% income tax rate. Several of our VIE Entities, including PKU, China TranWiseway, Shanghai Yootu, UNISITS, Beijing Tian Hao and Beijing Zhangcheng, currently enjoy certain reduced income tax rates or income tax exemption. For the years ended December 31, 2010 and 2009, our effective tax rate was 9.8% and 4.4%, respectively. If there is any discontinuation or reduction of the existing preferential tax treatments, our business, financial condition and results of operations could be materially and adversely affected.

    The M&A Rule establishes more complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.

    On August 8, 2006, six PRC regulatory agencies, including the China Securities Regulatory Commission, or CSRC, promulgated the Provisions Regarding Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the “M&A Rule”), which became effective on September 8, 2006. The M&A Rule establishes additional procedures and requirements that could make some acquisitions of Chinese companies by foreign investors more time-consuming and complex, including requirements in some instances that the PRC Ministry of Commerce be notified in advance of any change-of-control transaction and in some situations, require approval of the PRC Ministry of Commerce when a foreign investor takes control of a Chinese domestic enterprise. In the future, we may grow our business in part by acquiring complementary businesses, although we do not have any plans to do so at this time. The M&A Rule also requires PRC Ministry of Commerce anti-trust review of any change-of-control transactions involving certain types of foreign acquirers. Complying with the requirements of the M&A Rule to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from the PRC Ministry of Commerce, may delay or inhibit our ability to complete such transactions, which could adversely affect our ability to expand our business or maintain our market share.

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    You may have difficulty enforcing judgments against us.

    We are a Nevada holding company and most of our assets are located outside of the United States. Most of our current operations are conducted in the PRC. In addition, most of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons is located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce in U.S. courts judgments on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, most of whom are not residents in the United States and the substantial majority of whose assets are located outside of the United States. In addition, there is uncertainty as to whether the courts of the PRC would recognize or enforce judgments of U.S. courts. Courts in China may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based on treaties between China and the country where the judgment is made or on reciprocity between jurisdictions. China does not have any treaties or other arrangements that provide for the reciprocal recognition and enforcement of foreign judgments with the United States.

    In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates basic principles of PRC law or national sovereignty, security or the public interest. So it is uncertain whether a PRC court would enforce a judgment rendered by a court in the United States.

    RISKS RELATED TO THE MARKET FOR OUR STOCK GENERALLY

    The market price of our common stock is volatile, leading to the possibility of its value being depressed at a time when you want to sell your holdings.

    The market price of our common stock is volatile, and this volatility may continue. For instance, between January 1, 2010 and December 31, 2010, the closing price of our common stock, as reported on the markets on which our securities have traded, ranged between $4.28 and $9.72. Numerous factors, many of which are beyond our control, may cause the market price of our common stock to fluctuate significantly. These factors include:

    • our earnings releases, actual or anticipated changes in our earnings, fluctuations in our operating results or our failure to meet the expectations of financial market analysts and investors;

    • changes in financial estimates by us or by any securities analysts who might cover our stock;

    • speculation about our business in the press or the investment community;

    • significant developments relating to our relationships with our customers or suppliers;

    • stock market price and volume fluctuations of other publicly traded companies and, in particular, those that are in the transportation information systems industries;

    • customer demand for our products;

    • investor perceptions of the transportation information systems industries in general and our company in particular;

    • the operating and stock performance of comparable companies;

    • general economic conditions and trends;

    • major catastrophic events;

    • announcements by us or our competitors of new products, significant acquisitions, strategic partnerships or divestitures;

    • changes in accounting standards, policies, guidance, interpretation or principles;

    • loss of external funding sources;

    • sales of our common stock, including sales by our directors, officers or significant stockholders; and

    • additions or departures of key personnel.

    Securities class action litigation is often instituted against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs to us and divert our management’s attention and resources. Moreover, securities markets may from time to time experience significant price and volume fluctuations for reasons unrelated to operating performance of particular companies. For example, since mid-2008, the securities markets in the United States have experienced a significant decline in share prices. These market fluctuations may adversely affect the price of our common stock and other interests in our company at a time when you want to sell your interest in us.

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    Although publicly traded, the trading market in our common stock has been substantially less liquid than the average trading market for a stock traded on the Nasdaq Stock Market and this low trading volume may adversely affect the price of our common stock.

    Our common stock started trading on the Nasdaq Global Market under the symbol “CTFO” in July 2009. The trading market in our common stock has been less liquid than the average trading market for companies traded on the Nasdaq stock market. Limited trading volume will subject our shares of common stock to greater price volatility and may make it difficult for you to sell your shares of common stock at a price that is attractive to you.

    We may be subject to penny stock regulations and restrictions and you may have difficulty selling shares of our common stock.

    The SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. If our common stock becomes a “penny stock”, we may become subject to Rule 15g-9 under the Exchange Act (the “Penny Stock Rule”). This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their spouses). For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary market.

    For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in penny stock, of a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.

    There can be no assurance that our common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest.

    Certain of our stockholders hold a significant percentage of our outstanding voting securities and accordingly may make decisions regarding our daily operations, significant corporate transactions and other matters that other stockholders may believe are not in their best interests.

    Shudong Xia, our chief executive officer and president, is the beneficial owner of approximately 24.71% of our outstanding voting securities. As a result, he possesses significant influence over the election of our board of directors and significant corporate transactions. His ownership may also have the effect of delaying or preventing a future change in control, impeding a merger, consolidation, takeover or other business combination or discourage a potential acquirer from making a tender offer. Other stockholders may believe that these future decisions made by Mr. Xia are not in their best interests.

    Certain provisions of our Articles of Incorporation may make it more difficult for a third party to effect a change-of-control.

    Our Articles of Incorporation authorizes our board of directors to issue up to 10,000,000 shares of preferred stock. The preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the board of directors without further action by the stockholders. These terms may include preferences as to dividends and liquidation, conversion rights, redemption rights and sinking fund provisions. The issuance of any preferred stock could diminish the rights of holders of our common stock, and therefore could reduce the value of such common stock. In addition, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of our board of directors to issue preferred stock could make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change-in-control, which in turn could prevent our stockholders from recognizing a gain in the event that a favorable offer is extended and could materially and negatively affect the market price of our common stock.

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    We do not intend to pay dividends on shares of our common stock for the foreseeable future.

    We have never declared or paid any cash dividends on shares of our common stock. We intend to retain any future earnings to fund the operation and expansion of our business and, therefore, we do not anticipate paying cash dividends on shares of our common stock in the foreseeable future.

    ITEM 1B. UNRESOLVED STAFF COMMENTS.

    Not Applicable.

    ITEM 2. PROPERTIES.

    All land in China is owned by the State or collectives. Individuals and companies are permitted to acquire land use rights for general or specific purposes. In the case when land is used for industrial purposes, the land use rights are granted for a period of 50 years. The rights may be renewed at the expiration of the initial and any subsequent terms according to the relevant Chinese laws. Granted land use rights are transferable and may be used as security for borrowings and other obligations.

    We have entered into a lease agreement to lease office spaces at the 8th and 9th floors of Vision Building, No. 39 Xueyuanlu, Haidian District, Beijing China. Pursuant to this lease, we have the right to use the office space of 5,311 square meters in the Vision Building from November 1, 2009. We pay a monthly rent (including a monthly property management fee of RMB 258,460) of RMB 605,765 (approximately $88,800) for this facility. We are entitled to one free month rental of RMB 476,535 (approximately $69,855) per year. This lease expires on October 31, 2012. We expect to renew the lease on similar terms prior to its expiration. UNISITS, one of the Company’s VIE Entities, also entered into a lease agreement to lease office spaces at the 12th floor of Vision Building. Pursuant to this lease, UNISITS has the right to use the office space of 1,175.22 square meters in the Vision Building from February 15, 2010. UNISITS pays a monthly rent (including a monthly property management fee of RMB 28,597) of RMB 142,985 (approximately $20,935) for this facility. UNISITS is entitled to a two-month free rental of RMB 228,776 (approximately $33,496) for the first two months. This lease expires on February 28, 2013. We believe that our properties have been adequately maintained, are generally in good condition, and are suitable and adequate for our business.

    ITEM 3. LEGAL PROCEEDINGS.

    From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.

    ITEM 4. [REMOVED AND RESERVED]

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    PART II

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

    Market Information

    Our common stock is listed on the Nasdaq Global Market under the symbol “CTFO.” Prior to July 31, 2008, our common stock was quoted on the Over-the-Counter Bulletin Board under the symbol “CTFO.OB.”

    The following table sets forth, for the quarters indicated, the range of closing high and low bid prices of our common stock as reported These prices reported by the Nasdaq do not include retail markup, markdown or commission and may not represent actual transactions.

        Closing Prices(1)
        High     Low  
    Year Ended December 31, 2010            
    1st Quarter $  9.72   $       6.33  
    2nd Quarter   7.78     5.05  
    3rd Quarter   7.85     5.15  
    4th Quarter   6.43     4.28  
                 
    Year Ended December 31, 2009            
    1st Quarter $  3.44   $         2.47  
    2nd Quarter   5.36     2.88  
    3rd Quarter   8.42     4.19  
    4th Quarter   12.00     6.97  

    (1) The above tables set forth the range of high and low closing prices per share of our common stock as reported by www.quotemedia.com for the periods indicated.

    Approximate Number of Holders of Our Common Stock

    As of March 28, 2011, there were approximately 82 holders of record of our common stock. This number excludes the shares of our common stock owned by stockholders holding stock under nominee security position listings.

    Dividends

    We have never declared or paid a cash dividend. Any future decisions regarding dividends will be made by our board of directors. We currently intend to retain and use any future earnings for the development and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Our board of directors has complete discretion on whether to pay dividends. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.

    Securities Authorized for Issuance Under Equity Compensation Plans

    See Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters — Securities Authorized for Issuance Under Equity Compensation Plans.”

    Recent Sales of Unregistered Securities

    We have not sold any equity securities during the fiscal year ended December 31, 2010 that were not previously disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K that was filed during the 2010 fiscal year.

    Purchases of Equity Securities

    No repurchases of our common stock were made during the year of 2010.

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    ITEM 6. SELECTED FINANCIAL DATA.

    Not Applicable.

    ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

    The following management’s discussion and analysis should be read in conjunction with our financial statements and the notes thereto and the other financial information appearing elsewhere in this report. In addition to historical information, the following discussion contains certain forward-looking information. See “Special Note Regarding Forward Looking Statements” above for certain information concerning those forward looking statements.

    Our Company

    We are a leading provider of end-to-end ITS and related comprehensive technology solutions servicing the transportation sector in China. Our goal is to become the largest provider of intelligent transportation system products and related comprehensive technology solutions in China, as well as a major operator and provider of value-added ITS and LBS to commercial clients and consumers in China. Substantially all of our operations are conducted through our VIE Entities that are PRC domestic companies owned principally or entirely by our PRC affiliates. Through our VIE Entities, we are involved in developing multiple applications in transportation, digital city, and land and resource filling systems based on GIS technologies which are used to service the public sector.

    Historically, our core business is developing the ITS servicing the public transportation industry utilizing GIS application software and technologies as well as other information technologies, and developing ITS related value-added applications and LBS applications to service the commercial and consumer sector of transportation. We also develop GIS applications in digital city and land and resource areas. Due to the substantial market demand for transportation information products in China, we have decided to devote more energy and resources to our transportation business since late 2007, and expected that this line of business will become a major driver of our future development. Historically, our transportation products and solutions are targeted for transportation management authorities under the oversight of the Ministry of Transport. Going forward, we also plan to provide services to commercial users and the general public.

    Industry Wide Factors that are Relevant to Our Business

    The transportation information industry in China is in the process of rapid and continuous development. We believe that the trend in China’s transportation information industry is toward a continuous increase of the Chinese government’s and public’s demand for advanced transportation information products and services to support more effective and efficient transportation networks in China. One result of this trend is the growing amount of governmental spending in the sector of transportation. We believe that further development of China’s highway and urban transportation infrastructure will impact favorably on the demand for our transportation information products and services. In addition, the large and growing user base of the transportation infrastructure will create a large consumer market for our value-added ITS application and services.

    The development of transportation information products and solutions that are “Made in China” has grown rapidly since 2000. As a leading company in the transportation information products and solutions in China, the industry growth impacts favorably to our business. We believe that the industry growth will continue to impact favorably on our business growth in the future.

    One main factor that management considers when estimating our future growth is the potential revenue from larger government projects in the transportation sector of the Chinese government based on annual budget reports issued by relevant governmental sectors at both central and local levels. We expect that these potential new projects will generate revenues from new transportation information product sales and services. We expect to bid on large projects in the transportation sector going forward.

    The growing use of GPS and location-based service in China also has a material impact on our industry. The Chinese economy is developing at a rapid pace. As a result, there is a growing consumer market that is developing in China. We believe that we are well positioned to provide state-of-art transportation information products and services to the commercial and consumer clients.

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    Taxation

    United States

    China TransInfo Technology Corp. is subject to United States tax at a tax rate of 34%. No provision for income taxes in the United States has been made as China TransInfo Technology Corp. had no U.S. taxable income in 2010 and 2009.

    British Virgin Islands

    Our wholly owned subsidiary Cabowise was incorporated in the BVI. Under the current law of the BVI, Cabowise is not subject to income or capital gains tax. In addition, dividend payments are not subject to withholding tax and income tax in the BVI.

    Delaware, Hong Kong and Samoa

    Our wholly owned subsidiary Intra-Asia Entertainment Corporation (Delaware) was incorporated in Delaware. No provision for state income taxes in Delaware has been made as Intra-Asia Entertainment Corporation (Delaware) had no Delaware taxable income in 2010 and 2009. Our wholly owned subsidiary Oriental Intra-Asia Entertainment (China) Limited (Hong Kong) was incorporated in Hong Kong and, under the current laws of Hong Kong, is not subject to income taxes. Our wholly owned subsidiary Intra-Asia Entertainment (Asia-Pacific) Limited (Samoa) was incorporated in Samoa and, under the current laws of Samoa, is not subject to income taxes.

    PRC

    Certain of our Chinese operating subsidiaries used to enjoy certain special or preferential tax treatments regarding foreign enterprise income tax in accordance with the “Income Tax Law of the PRC for Enterprises with Foreign Investment and Foreign Enterprises” and its implementing rules. However, on March 16, 2007, the National People’s Congress of China passed the new Enterprise Income Tax Law (“EIT Law”), and on November 28, 2007, the State Council of China passed the Implementing Rules for the EIT Law (“Implementing Rules”), which took effect on January 1, 2008. The EIT Law and Implementing Rules impose a unified EIT of 25.0% on all domestic-invested enterprises and FIEs, unless they qualify under certain limited exceptions. Therefore, nearly all FIEs are subject to the new tax rate alongside other domestic businesses rather than benefiting from the FEIT, and its associated preferential tax treatments, beginning January 1, 2008.

    In addition to the changes to the current tax structure, under the EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a resident enterprise and will normally be subject to an EIT of 25.0% on its global income. The Implementing Rules define the term “de facto management bodies” as “an establishment that exercises, in substance, overall management and control over the production, business, personnel, accounting, etc., of a Chinese enterprise.” If the PRC tax authorities subsequently determine that we should be classified as a resident enterprise, then the organization’s global income will be subject to PRC income tax of 25.0% . For the year ended December 31, 2010, the above tax rules did not have any material financial impact on the Company because we did not have material income from outside of the PRC in 2010.

    Hebei TranWiseway, Hunan TranWiseway, Guizhou TranWiseway, PKU Chengdu Branch, PKU Shanxi Branch, Chongqing PKU, Shanghai PKU, Chongqing Jiaokai, Qianfang Hongxin, Xinjiang Zhangcheng, and Dajian Zhitong are subject to a tax rate of 25% on the taxable income for PRC income tax purposes under the new EIT Law in 2010. PKU, China TranWiseway, UNISITS, Beijing UNISITS, and Hangzhou UNISITS, are qualify as “new or high-technology enterprises” and subject to a tax rate of 15% on the taxable income for PRC income tax purposes in 2010. Beijing Tian Hao, Beijing Zhangcheng and Shanghai Yootu, Beijing Zhangcheng Media and the Group Company qualify as “software enterprises” located in Beijing and Shanghai, and are entitled to tax exemptions or preferential tax rates on the taxable income for PRC income tax purposes in 2010. Henan UNISITS are subject to a special rate of 2.5% for its taxable revenue in 2010.

    Results of Operations

    For the year ended December 31, 2010, our revenues increased to $122.70 million, an increase of 92.71% over 2009. Gross profit was up 67.28% from the previous year, increasing from $25.38 million to $42.45 million, and operating income reached $19.97 million, an increase of 45.66% . Finally, the Company’s net income for the year increased 19.23% to $15.47 million from $12.97 million in 2009.

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    As these results show, the Company had a successful year of significant growth in 2010. It was the third successful year for the Company as we evolved from a Geo-GIS custom software producer to a comprehensive transportation information solutions provider. As a result, transportation products and solutions have continued to comprise an increasingly larger portion of our revenue throughout the year. For 2010, revenue from this area accounted for 92.99%, growing from 85.95% in 2009. Our digital city and land resources urban planning software accounted for the remainder.

    In 2010 we continued to expand our ITS business in more markets through UNISITS’ market coverage. Especially, our ITS in highway markets was expanded to more than 20 provinces of China.

    Year Ended December 31, 2010 Compared to Year Ended December 31, 2009

    The following tables set forth key components of our results of operations for the periods indicated, in dollars and percentage of revenues and key components of our revenue for the periods indicated in dollars.

        Years Ended December 31,  
        2010     2009  
              % of Net           % of Net  
        Amount     Sales     Amount     Sales  
                             
    Revenues $  122,727,958     100.00%   $ 63,686,121     100.00%  
    Cost of sales   80,279,465     65.41%     38,310,183     60.15%  
                             
    Gross profit   42,448,493     34.59%     25,375,938     39.85%  
                             
    Selling, general and administrative expenses   22,481,758     18.32%     11,667,895     18.32%  
                             
    Income from operation   19,966,735     16.27%     13,708,043     21.52%  
                             
    Other income and (expenses)                        
    Interest income   127,468     0.10%     109,744     0.17%  
    Interest expense   (470,711 )   (0.38% )   (244,574 )   (0.38% )
    Subsidy income   1,574,928     1.28%     1,730,291     2.72%  
    Other income   (54,443 )   (0.04% )   91,439     0.14%  
        1,177,242     0.96%     1,686,900     2.65%  
    Income before income taxes, noncontrolling interests, and equity investments 21,143,977 17.23% 15,394,943 24.17%
                             
    Income tax expenses   2,074,187     1.69%     677,355     1.06%  
    Net income before noncontrolling interests and gain on equity investments in affiliates 19,069,790 15.54% 14,717,588 23.11%
    Gain on investments in affiliates due to proportional shares of the affiliates net income 1,307,679 1.07% 1,793,387 2.82%
    Net income before noncontrolling interests   20,377,469     16.60%     16,510,975     25.92%  
    Noncontrolling interests in net income of subsidiary   4,908,311     4.00%     3,536,876     5.55%  
    Net income – controlling interests $  15,469,158     12.60%   $ 12,974,099     20.37%  

    Revenues. Revenues increased approximately 59.04 million, or 92.71% to approximately $122.73 million for the year ended December 31, 2010, from approximately $63.69 million in 2009. Approximately 100.58% of this increase is attributable to the increase of our Transportation business in 2010, which had approximately 108.50% increase year over year comparing to 2009. Such an increase mainly resulted from the successful execution of the Company’s major business since it started shifting to the Transportation business in late 2007 and the rapidly developing market opportunities in the transportation information sector in China, as well as our consolidation of the financial results of UNISITS for the full year of 2010. However, our Digital City and Land and Resource businesses in total experienced about 18.9% decrease compared to the same period of 2009. We believe Digital City and Land and Resource businesses are still experiencing healthy development and growth in China and we will continue to operate in these markets. In addition, we believe that the overall sales increase in 2010 is also a result of the growing recognition of our brand name and technology. During 2010, the Company had been constantly offering new products and solutions to the market and was able to secure more contracts from recurring clients.

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    The following table illustrates the revenues from the Chinese government sectors and regulated industries in which we sell our products and services for the periods indicated. The table also provides the percentage of total revenues represented by each listed sector.

        Year Ended     Percentage of     Year Ended     Percentage of  
        December 31,     Total     December 31,     Total  
        2010     Revenues     2009     Revenues  
    Transportation $  114,121,205     92.99%   $  54,735,455     85.95%  
    Digital City   6,805,112     5.54%     6,898,472     10.83%  
    Land and Resources   19,873     0.02%     1,517,908     2.38%  
    Other   1,781,768     1.45%     534,286     0.84%  
    Total $  122,727,958     100.00%   $  63,686,121     100.00%  

    As the table above indicates, the Transportation and Digital City sectors accounted for an aggregate of 98.53% and 96.78% of our sales for the years ended December 31, 2010 and 2009, respectively. Sales in Land and Resources account for 0.02% and 2.38% of total sales for each of the periods indicated above, respectively.

    Cost of Sales. Our cost of goods sold increased approximately $41.97 million, or 109.55%, to approximately $80.28 million for the year ended December 31, 2010, from approximately $38.31 million in 2009. This increase was mainly due to the increase in the costs in line with the increase in our sales. As a percentage of revenues, the cost of sales increased to 65.41% during the year ended December 31, 2010 from 60.15% in 2009. The increase of our cost of sales as a percentage of revenue was mainly attributable to the fact that we have expanded into more ITS markets through UNISITS and resulted in a relatively lower gross margin on average than that of the Company’s in 2009.

    The following table illustrates in detail the items constituting our costs of goods sold.

       
    Years ended December 31,
     
    Cost Item   2010     2009  
    Salary $  1,272,081   $  1,900,370  
    Hardware   56,645,728     23,444,889  
    Software licenses   3,316,863     2,271,370  
    Outsourcing   12,600,523     6,884,631  
    Others   6,444,270     3,808,923  
    Total $  80,279,465   $  38,310,183  

    Gross Profit. Our gross profit increased approximately $17.07 million, or 67.28%, to approximately $42.45 million for the year ended December 31, 2010, from approximately $25.38 million in 2009. Gross profit as a percentage of revenues was 34.59% for the year ended December 31, 2010, a decrease of 5.26% from 39.85% in 2009. Our gross profit decrease was mainly attributable to the fact that we have expanded into more ITS markets through UNISITS and resulted in a relatively lower margin on average than that of the Company’s in 2009.

    Selling, General and Administrative Expenses. Majority of our services and products are sold to the domestic Chinese market through contracts commissioned by the Chinese government. Various government entities and agencies either invite us to bid for a specific contract or award a contract to us on a non-bid basis. We are often invited to bid on contracts through our professional relationships and are awarded recurring businesses. Historically, we did not incur high cost in our sales and marketing activities. We promoted our products by developing relationships through Peking University, professional relationships with various agencies and municipalities and through participation in industry trade exhibitions.

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    Our marketing expenses therefore were relatively low in comparison to our competitors who do not have a record of performance and brand recognition or well-established government contacts. In 2010, we have enhanced our marketing efforts by organizing various industry trade exhibitions and conferences in order to further promote our corporate image and brand recognition within the transportation information industry in China.

    Our selling expenses including sales representative commissions, promotion fees and marketing expenses, increased approximately $1.20 million, or 60.91%, to $3.17 million for the year ended December 31, 2010, from $1.97 million in 2009. The increase of selling expenses was mainly attributable to our expanded operations and sales volume as well as the enhanced marketing activities for the year ended December 31, 2010.

    Our general and administrative expenses were approximately $19.31 million (15.74% of total sales) and approximately $9.70 million (15.22% of total sales) for the years ended December 31, 2010 and 2009, respectively. The increase of administrative expenses was mainly attributable to our expanded operations, the increase of 71 employees, and enhanced research and development efforts.

    Income Taxes. For the year ended December 31, 2010, we recognized income tax expense of $2.07 million and effective tax rate of 9.81% while in 2009, we recognized an income tax expense of $0.68 million at an effective tax rate of 4.40% . The increase in the income tax expense is mainly resulted from our increased sales and profit, as well as the inclusion of UNISITS result for the whole year of 2010. Some of our operating VIE Entities in China enjoy tax breaks from the local government to promote “high technology and new technology” businesses within a promotional periods. UNISITS’s effective tax rate in 2010 was 14.02% and 8.76% for 2009.

    Liquidity and Capital Resources

    As of December 31, 2010, we had cash and cash equivalents (excluding restricted cash) of approximately $43.92 million and restricted cash of approximately $3.13 million. The following table provides detailed information about our net cash flow for all financial statements periods presented in this report.

    Cash Flow

        Years Ended December 31,  
        2010     2009  
    Net cash provided by operating activities $  3,866,303   $  8,823,845  
    Net cash provided by (used in) investing activities   (4,073,547 )   1,674,998  
    Net cash provided by financing activities   15,389,585     1,134,165  
    Net cash inflow   16,516,177     11,277,956  

    Operating Activities

    Net cash provided by operating activities was approximately $3.87 million in fiscal year ended December 31, 2010, which was a decrease of approximately $4.95 million from approximately $8.82 million net cash provided by operating activities in fiscal year ended December 31, 2009. Such decrease of net cash provided by operating activities was primarily attributable to the increase in accounts receivables as a result of the increase in our sales in 2010, the increase of prepaid expenses in 2010 as a result of more material procurement for projects, offset by an increase in net profit in 2010, increase in accounts payable in 2010 as a result of our expanded operations which required more material procurement for projects, increase in net billings in 2010, that is, the difference between the billings in excess of costs and estimated earnings on uncompleted projects (when we receive payments from clients ahead of cost and earnings realization) and costs and estimated earnings in excess of billings of uncompleted projects (when our work was performed ahead of customer payments in some of our contracts per the contract payment terms).

    Investing Activities

    Our main uses of cash for investing activities are payments relating to the acquisitions of property and equipment, such as machinery and equipment, transportation equipment for Company operation, and intangible assets for further research and development.

    Net cash used in investing activities was approximately $4.07 million in fiscal year 2010, a decrease of $5.74 million from the $1.67 million net cash provided by investing activities in fiscal year 2009. Such decrease of net cash provided by investing activities was primarily attributable to the acquisition of UNISITS which contributed a one–time net cash increase of $5.67 million to the Company in 2009.

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    Financing Activities

    Net cash provided by financing activities for the fiscal year ended December 31, 2010 was approximately $15.39 million, while in the same period of 2009 we had approximately $1.13 million of net cash provided by financing activities. Such change was mainly attributable to the facts that we raised $10 million in the private placement transaction in February 2010 and the Company increased short term borrowing by about $6 million in 2010.

    Financing Agreements

    On June 17, 2008, we entered into a short-term loan agreement with Beijing Bank, Youyi Branch (“Youyi Branch”), pursuant to which Youyi Branch has agreed to loan to us RMB 20 million (approximately $2.93 million) for working capital purposes. The loan had an initial annual interest rate of 8.96%, which was floating based on interest rates determined by the People’s Bank of China from time to time. Interest is payable on a quarterly basis commencing from September 20, 2008. The loan expired on June 17, 2009 and was renewed on June 22, 2009 for one more year with an initial interest rate of 5.31% per annum, which is also floating based on interest rates determined by the People’s Bank of China from time to time. Under the terms of the loan agreement, we are subject to customary affirmative and negative covenants. The loan may be accelerated and Youyi Branch may demand immediate payment of the principal and accrued interests upon the occurrence of an event of default which includes, among other things, a failure to make principal or interest payments, a failure to comply with other covenants and certain events of bankruptcy. On June 21, 2010, the total amount of the loan was paid off.

    On September 29, 2009, PKU entered into a one-year short-term loan agreement with Huaxia Bank, Zhichunlu Branch (“Huaxia Bank”), pursuant to which Huaxia Bank agreed to loan to PKU RMB 30 million (approximately $4.55 million) for working capital purposes. The loan had an initial annual interest rate of 5.31%, which was floating based on interest rates determined by the People’s Bank of China from time to time. Interest is payable on a monthly basis commencing October 20, 2009. The term of the loan was extended on September 15, 2010 for six more months. Under the terms of the loan agreement, we are subject to customary affirmative and negative covenants. The loan may be accelerated and Huaxia Bank may demand immediate payment of the principal and accrued interests upon the occurrence of an event of default which includes, among other things, a failure to make principal or interest payments, a failure to comply with other covenants and certain events of bankruptcy. As of December 31, 2010, principal amount of approximately $4.55 million was outstanding.

    On February 24, 2010, the Company issued and sold a total of 1,564,945 shares of common stock to SAIF Partners for an aggregate purchase price of $10 million.

    On June 21, 2010, PKU, entered into a short-term loan agreement with Bank of Beijing, Zhongguancun Branch (“Zhongguancun Branch”), pursuant to which Zhongguancun Branch agreed to loan to PKU RMB 30 million (approximately $4.55 million) as working capital. The loan has an annual interest rate based on the benchmark interest rate as of the date of the first withdrawal of the principal and the interests must be paid on a quarterly basis. The loan expires within 12 months after the date of the first withdrawal but can be renewed upon the written consent by Zhongguancun Branch. Under the terms of the loan agreement, PKU is subject to customary affirmative and negative covenants. The loan may be accelerated and Zhongguancun Branch may demand immediate payment of the principal and accrued interests upon the occurrence of an event of default which includes, among other things, a failure to make principal or interest payments, a failure to comply with other covenants and certain events of liquidation or bankruptcy. As of December 31, 2010, principal amount of approximately $4.55 million was outstanding.

    On November 29, 2010, China TranWiseway entered into a short-term loan agreement with Zhongguancun Haidianyuan Branch of Bank of Beijing Co., Ltd. ("Haidianyuan Branch "), pursuant to which Haidianyuan Branch agreed to loan to China TranWiseway RMB 30 million (approximately $4.55 million). The loan has an annual interest rate equal to 10% above the benchmark interest rate as of the date of the first withdrawal of the principal and the interests must be paid on a quarterly basis. The loan expires within 12 months after the date of the first withdrawal but can be renewed upon the written consent by Haidianyuan Branch. Under the terms of the loan agreement, China TranWiseway is subject to customary affirmative and negative covenants. The loan may be accelerated and Haidianyuan Branch may demand immediate payment of the principal and accrued interests upon the occurrence of an event of default which includes, among other things, a failure to make principal or interest payments timely, material breach of representations and warranties by China TranWiseway, and certain events of liquidation or bankruptcy. As of December 31, 2010, principal amount of approximately $4.55 million was outstanding.

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    Future Capital Requirements

    We believe that our current cash and cash equivalents and anticipated cash flow from operations will be sufficient to meet our anticipated cash needs, including our cash needs for working capital and capital expenditures for at least the next 12 months. We may, however, require additional cash due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue. In addition, because substantially all of our revenues are generated from our indirect PRC subsidiary, Oriental Intra-Asia, after it receives payments from our VIE Entities under various services and other arrangements, the ability of Oriental Intra-Asia to make dividends and other payments to us is subject to the PRC dividend restrictions. Current PRC law permits payments of dividend by Oriental Intra-Asia only out of its accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Oriental Intra-Asia is also required under PRC laws and regulations to allocate at least 10% of its annual after-tax profits determined in accordance with PRC GAAP to a statutory general reserve fund until the amounts in said fund reaches 50% of Oriental Intra-Asia’s registered capital. Allocations to the statutory reserve fund can only be used for specific purposes and are not transferable to us in the form of loans, advances or cash dividends. As a result, if our existing cash and amount available under existing bank loans insufficient to meet our requirements, we may seek to sell additional equity securities, debt securities or borrow additional funds from lending institutions. We can make no assurances that financing will be available in the amounts we need or on terms acceptable to us, if at all. The sale of additional equity securities, including convertible debt securities, would dilute the interests of our current shareholders. The incurrence of debt would divert cash for working capital and capital expenditures to service debt obligations and could result in operating and financial covenants that restrict our operations and our ability to pay dividends to our shareholders. If we are unable to obtain additional equity or debt financing as required, our business operations and prospects may suffer. As of December 31, 2010 and 2009, our working capital was $73,750,644 and $44,358,761, respectively.

    Contractual Obligation and Capital Commitments

    We have entered into a lease agreement to lease office spaces at the 8th and 9th floors of Vision Building, No. 39 Xueyuanlu, Haidian District, Beijing China. Pursuant to this lease, we have the right to use the office space of 5,311 square meters in the Vision Building from November 1, 2009. We pay a monthly rent (including a monthly property management fee of RMB 258,460) of RMB 605,765 (approximately $88,800) for this facility. We are entitled for one free month rental of RMB 476,535 (approximately $69,855) per year. This lease expires on October 31, 2012. We expect that we will be able to renew the lease on similar terms prior to its expiration. UNISITS, one of the Company’s VIE Entities, has also entered a lease agreement to lease office spaces at the 12th floor of Vision Building. Pursuant to this lease, UNISITS has the right to use the office space of 1,175.22 square meters in the Vision Building from February 15, 2010. UNISITS pays a monthly rent (including a monthly property management fee of RMB 28,597) of RMB 142,985 (approximately $20,935) for this facility. UNISITS is entitled to a two-month free rental of RMB 228,776 (approximately $33,496) for the first two months. This lease expires on February 28, 2013.

    The aggregate future minimum payments under these lease agreements over one year are as follows:

        Less than 1 Year     1-3 Years  
    Long-term debt, including current portion   13,728,850        
    Operating leases         2,925,022  
    Total   13,728,850     2,925,022  

    Effects of Inflation

    Inflation and changing prices have not had a material effect on our business and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. However, our management will closely monitor the price change and continually maintain effective cost control in operations.

    Off Balance Sheet Arrangements

    We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in our securities.

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    Seasonality

    Our results of operations are affected by seasonality and we typically see lower sales during the first half than the second half of a year. Such seasonality is mainly caused by governmental seasonal budgeting activities and behaviors.

    Critical Accounting Policies and Estimates

    The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported in the financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. We consider our critical accounting policies to be those that require the more significant judgments and estimates in the preparation of financial statements, including the following:

    Principles of Consolidation—The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries Oriental Intra-Asia Entertainment (Asia Pacific) Limited, Intra-Asia Entertainment (China) Limited and Cabowise, its indirectly owned subsidiaries Oriental Intra-Asia, and the Company’s variable interest entities, or the VIE Entities, including the Group Company, PKU, Beijing Tian Hao , Beijing Zhangcheng, Xinjiang Zhangcheng, Zhangcheng Media, China TranWiseway, Hunan TranWiseway, Hebei TranWiseway, Guizhou TranWiseway, Dajian Zhitong, Shanghai Yootu, UNISITS, Hangzhou Ziguang Jietong Technology Co., Ltd., Hangzhou UNISITS, Henan Ziguang Jietong Technology Co., Ltd. (“Henan UNISITS”), and Beijing Ziguang Jinzhidun Information Technology Co., Ltd.(“Beijing UNISITS”). All material intercompany accounts, transactions, and profits have been eliminated in consolidation.

    On February 3, 2009, the Company, through its indirect Chinese subsidiaries, Oriental Intra-Asia and PKU, entered into a series of equity transfer agreements with the Group Company, a company incorporated under Chinese law, pursuant to which the Company transferred all of its indirect equity interests in PKU and PKU's subsidiaries to the Group Company. The main purpose of this restructuring is to allow the Company to engage in online services, taxi advertising, and security and surveillance related business in China in which companies with foreign ownership, like the Company and its subsidiaries, are either prohibited or restricted from operating under the current applicable Chinese laws and regulations. Through the contractual or variable interest entity, or VIE, arrangements, the Company maintains substantial control over the VIE Entities’ daily operations and financial affairs, election of their senior executives and all matters requiring shareholder approval. Furthermore, as the primary beneficiary of the VIE Entities, the Company is entitled to consolidate the financial results of the VIE Entities in its own consolidated financial statements under ACS 810.

    The consolidated financial statements include the accounts of VIE and VIE’s majority owned subsidiaries, which approximates 3% to 70% is owned by noncontrolling interests. All intercompany accounts, transactions, and profits have been eliminated upon consolidation.

    Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include accrued warranty costs, as well as revenue and costs recorded under the percentage-of-completion method. Actual results could materially differ from those estimates.

    Segment Information—ASC 280 requires companies to report information about operating segment in interim and annual financial statements. It also requires segment disclosures about products and services geographic and major customers. The Company has determined that it does not have any separately reportable operating segments.

    Cash Equivalents—The Company classifies all highly liquid investments purchased with a maturity of three months or less as cash equivalents.

    Accounts Receivable—Accounts receivable are carried at original invoice amount less the allowance for doubtful accounts based on a review of all outstanding amounts at year end. Management determines the allowance for doubtful accounts by using historical experience applied to an aging of accounts. Trade receivables are written off when deemed uncollectible.

    Long-Term Investment—The Company classifies its investments as available-for-sale in accordance with ASC 320 “Debt and Equity Securities”, Investments – Debt and Equity Securities, and are reported at fair value. Unrealized gains and losses as a result of changes in the fair value of the available-for-sale investments are recorded as a separate component within accumulated other comprehensive income in the accompanying consolidated balance sheets.

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    The Company uses the cost method of accounting for investments in companies that do not have a readily determinable fair value in which it holds an interest of less than 20% and over which it does not have the ability to exercise significant influence. For entities in which the Company holds an interest of greater than 20% or in which the Company does have the ability to exercise significant influence, the Company uses the equity method.

    The Company’s investments also include privately-held companies where quoted market prices are not available and as a result, the cost method, combined with other intrinsic information, is used to assess the fair value of the investment. If the carrying value is below the fair value of an investment at the end of any period, the investment is considered for impairment. Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established.

    Property and Equipment—Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is provided for using straight-line methods over the estimated useful lives of the respective assets. Amortization of leasehold improvements is over the lesser of the lease term or useful life of the improvement.

        Useful Lives (Years)  
    Automobiles   5 -10  
    Machinery and equipments   4 -7  
    Furniture and fixtures   3 -5  

    Amortization of Intangible Assets—Intangible assets primarily include the costs of capitalized R&D costs, costs for purchased intangibles and intangibles result from acquisitions. Purchased intangible costs are amortized on a straight-line basis over the estimated useful lives of the assets, which approximate 10 years. Intangible assets result from acquisitions and include developed technology, customer-related intangibles, trade names and other identifiable intangible assets with finite lives. With the exception of developed technology, these intangible assets are amortized using the straight-line method. Developed technology is amortized over the greater of (1) the amount calculated using the ratio of current quarter revenues to the total of current quarter and anticipated future revenues over the estimated useful life of the developed technology, and (2) the straight-line method over each developed technology’s remaining useful life. Amortization of developed technology is recorded within cost of revenues. Amortization of customer-related intangibles, trade names and other identifiable intangible assets is recorded within operating expenses.

    Intangible asset capitalized
    For the years ended 2010 and 2009, the intangible asset capitalized but not yet amortized were $1,510,823 and $ 2,126,399, respectively.

    Purchased assets from third parties for further research and development
    The Company purchased software from third parties for further research and development for total cash consideration of $986,050 and $1,184,057 for the years ended 2010 and 2009, respectively.

    Intangible asset capitalized through internal R&D or through acquisition and amortized
    For the years ended December 31, 2010 and 2009, the intangible asset capitalized through internal R&D or through acquisition and amortized were $4,000,047 and $711,028, and the amortization expenses for these assets were $211,237 and $74,380, respectively.

    The company completed the annual impairment testing for indefinite-lived intangible assets during the twelve months ended December 31, 2010 and 2009, and the Company determined that there was no impairment in any of these years. The Company performs its annual impairment test as of the last day of the fiscal year. These impairment tests must be performed more frequently if there are triggering events.

    Revenue Recognition—The Company recognizes revenue in accordance with ASC 605, Revenue Recognition, when persuasive evidence of an arrangement exists, the price is fixed or determinable, collection is reasonably assured and delivery of products has occurred or services have been rendered.

    The Company’s revenue of service fees are primarily fixed price contracts. Revenue on eligible fixed price contracts is recognized on the basis of the estimated percentage-of-completion within the scope of ASC 605 and is consistently applied for all fixed price contracts. Such contracts include services provided for software development projects, IT outsourcing and solutions, system integration, and network integration services at fixed price arrangements with its customers. Progress towards completion is typically measured based on achievement of specified contract milestones, or other measures of progress when available, or based on costs incurred as a proportion of estimated total costs. Profit in a given period is reported at the expected profit margin to be achieved on the overall contract. This method can result in the recognition of unbilled receivables or the deferral of costs or profit on these contracts. The company did not incur any deferred costs for the years ended December 31, 2010 and 2009. Management regularly reviews project profitability and underlying estimates. Revisions to the estimates at completion are reflected in results of operations as a change in accounting estimate in the period in which the facts that give rise to the revision become known by management. Provisions for estimated losses, if any, are recognized in the period in which the loss becomes evident. The provision includes estimated costs in excess of estimated revenue and any profit margin previously recognized. Any advance payments received from its customers prior to recognition of revenue is classified as a current liability as billings in excess of costs and estimated earnings on incompleted contracts.

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    For taxi media advertising revenue, the Company recognizes deferred revenue when cash is received, but the revenue has not yet been earned. The Company recognizes taxi media advertising revenue ratably over the period in which the advertisement is to be published.

    The Company has very limited system maintenance and technology upgrade services for the systems/platforms we have built for clients. In most cases, such service revenue was secured on separate contracts basis. Such service revenues are recognized ratably over the service periods.

    Research and Development—Research and development expenses include payroll, employee benefits, and other headcount-related expenses associated with product development. Such costs related to product development costs are included in research and development expense until the point that technological feasibility is reached, which for the Company's products, is generally shortly before the products are released for the commercial use. Once technological feasibility is reached, such costs are capitalized and amortized to cost of revenue over the estimated useful lives of the products. As of December 31, 2010 and 2009, research and development expenses were capitalized in the amount of $4,776,643 and $2,126,399 and were included in intangible assets in the Company's consolidated balance sheet.

    Stock-Based Compensation—The Company accounts for stock-based compensation in accordance with ASC topic 718, Compensation – Stock Compensation (formerly SFAS No. 123 (revised 2004), Share-Based Payment), which requires the application of a fair-value-based measurement method in accounting for share-based payment transactions with employees. During 2010, we granted stock options as part of our key performer stock-based compensation program. During 2009, we granted stock options as part of our key performer stock-based compensation program, as well as stock options or restricted stock units to management and directors. The vesting of stock option grants may be based on time, performance, market conditions, or a combination of performance and market conditions. In the future, we may grant stock awards, options, or other equity-based instruments allowed by our stock-based compensation plans, or a combination thereof, as part of our overall compensation strategy.

    The fair values of restricted stock awards with time-based vesting, including restricted stock and restricted stock units, are generally based on the market price of the stock awards at the date of grant. As permitted under ASC topic 718, we generally use the Black-Scholes option pricing model to estimate the fair value of stock option grants. The Black-Scholes model relies on a number of key assumptions to calculate estimated fair values. Our assumed dividend yield of zero is based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends. Our expected stock-price volatility assumption is based on recent (six to twelve months trailing) implied volatility calculations. These calculations are performed on exchange-traded options of our common stock. We believe that using a forward-looking market-driven volatility assumption will result in the best estimate of expected volatility. The assumed risk-free interest rate is the U.S. Treasury security rate with a term equal to the expected life of the option. The assumed expected life is based on company-specific historical experience. With regard to the estimate of the expected life, we consider the exercise behavior of past grants and model the pattern of aggregate exercises.

    We estimate forfeiture rates at the time awards are made based on historical and estimated future turnover rates and apply these rates in the calculation of estimated compensation cost. The estimation of forfeiture rates includes a quarterly review of historical turnover rates and an update of the estimated forfeiture rates to be applied to employee classes for the calculation of stock-based compensation. During 2010, forfeiture rates for the calculation of stock-based compensation were estimated and applied based on three classes, non-employee directors, executive management staff and other employees. At December 31, 2010, our annualized estimated forfeiture rates were 0% for non-employee director awards and 45-55% for both executive management staff and other employee awards. Then-current estimated forfeiture rates are also applied quarterly to all outstanding stock options and non-vested restricted stock awards, which may result in a revised estimate of compensation costs related to these stock-based grants.

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    If factors change and we employ different assumptions for estimating stock-based compensation expense in future periods, or if we decide to use a different valuation model, the stock-based compensation expense we recognize in future periods may differ significantly from what we have recorded in the current period and could materially affect our operating income, net income and earnings per share. It may also result in a lack of comparability with other companies that use different models, methods and assumptions. See Note to our Consolidated Financial Statements in Item 11 for further information regarding stock-based compensation.

    Income Taxes—The Company accounts for income taxes in accordance with ASC 740, Income Taxes, which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when, in the opinion of management, it is more likely than not that some or all of any deferred tax assets will not be realized.

    The Company adopted ASC 740-10-25, Income Taxes—Overall-Recognition, on January 1, 2007, which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax position. The Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company did not recognize any additional liabilities for uncertain tax positions as a result of the implementation of ASC 740-10-25.

    Goodwill—The Company performs an annual goodwill impairment test as of December 31 each year in accordance with ASC subtopic 350-20, Goodwill (formerly SFAS No. 142), and updates the test between annual tests if events or circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying value. The Company performs the annual review for goodwill impairments.

    The annual test of the potential impairment of goodwill requires a two step process. Step one of the impairment test involves comparing the estimated fair values of reporting units with their aggregate carrying values, including goodwill. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, step two must be performed to determine the amount, if any, of the goodwill impairment loss. If the carrying amount is less than fair value, further testing of goodwill impairment is not performed.

    Step two of the goodwill impairment test involves comparing the implied fair value of the reporting unit’s goodwill against the carrying value of the goodwill. Under step two, determining the implied fair value of goodwill requires the valuation of a reporting unit’s identifiable tangible and intangible assets and liabilities as if the reporting unit had been acquired in a business combination on the testing date. The difference between the fair value of the entire reporting unit as determined in step one and the net fair value of all identifiable assets and liabilities represents the implied fair value of goodwill. The goodwill impairment charge, if any, would be the difference between the carrying amount of goodwill and the implied fair value of goodwill upon the completion of step two.

    For purposes of the step one analyses, determination of reporting units’ fair value is typically based on the income approach, which estimates the fair value of the Company’s reporting units based on discounted future cash flows.

    The Company recorded $983,345, $189,748, $1,921,924, and $6,884,614 in goodwill in connection with its acquisitions (see Note 9) of equity of China TranWiseway, Dajian Zhitong, Shanghai Yootu, and UNISITS, respectively. As of December 31, 2010, the Company believed no goodwill was subject to the risk of impairment. In the disclosure of acquisitions, the Company uses the year-end exchange rate of the year when the acquisition occurred.

    Impairment of Long-Lived Assets—The Company accounts for the impairment and disposition of long-lived assets in accordance with ASC 360, Property, Plant and Equipment. The Company periodically evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset were less than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value.

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    The assumptions used by management in determining the future cash flows are critical. In the event these expected cash flows are not realized, future impairment losses may be recorded. Management has determined that no impairments of long-lived assets currently exist.

    Concentrations of Credit Risk—Financial instruments that subject the Company to credit risk consist primarily of accounts receivable, which are concentrated in a small number of customers in the Chinese governments. The Company performs ongoing credit evaluations of its customers. For the years ended December 31, 2010 and 2009, bad debt expenses totaled $54,540 and $5,767, respectively.

    Translation Adjustment—The Company financial statements are presented in the U.S. dollar ($), which is the Company’s reporting currency, while its functional currency is Renminbi (RMB). Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the consolidated statements of income. Monetary assets and liabilities denominated in foreign currency are translated at the functional currency rate of exchange ruling at the balance sheet date. Any differences are taken to profit or loss as a gain or loss on foreign currency translation in the statements of income.

    In accordance with ASC 830, Foreign Currency Matters, the Company translates the assets and liabilities into U.S. dollar ($) using the exchange rate on the balance sheet date and the statements of operations and cash flows are translated at an average rate during the reporting period. Adjustments resulting from the translation from RMB into U.S. dollar are recorded in stockholders’ equity as part of accumulated other comprehensive income. The exchange rates used for interim financial statements in accordance with ASC 830, Foreign Currency Matters, are as follows:

        Average Rate for the year  
    December 31,   2010     2009  
    Renminbi (RMB)   1.00     1.00  
    United States dollar ($)   0.14794     0.14661  

    December 31,   2010     2009  
    Renminbi (RMB)   1.00     1.00  
    United States dollar ($)   0.1517     0.1467  

    Comprehensive Income—Comprehensive income includes accumulated foreign currency translation gains and losses. The Company has reported the components of comprehensive income on its statements of stockholders’ equity.

    Fair Value Measurements—Effective January 1, 2008, the Company adopted ASC 820, Fair Value Measurement and Disclosures, for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. The adoption of ASC 820, Fair Value Measurements and Disclosures, to the Company’s financial assets and liabilities and non-financial assets and liabilities that are re-measured and reported at fair value at least annually did not have an impact on the Company’s financial results. The following table presents information about the Company’s assets and liabilities that are measure at fair value on recurring basis as of December 31, 2010, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (adjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices in markets that are not active, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and includes situations where there is little, if any, market activity for the asset or liability:

    Financial assets at fair value as of December 31, 2010:

                    Significant        
                    Other     Significant  
              Quoted Prices in     Observable     Unobservable  
        December 31,     Active Markets     Inputs     Inputs  
    Description   2010     (Level 1)   (Level 2)   (Level 3)
    Cash and cash equivalents $  43,916,597   $  43,916,597   $  -   $  -  
    Restricted cash   3,131,660     3,131,660     -     -  
    Total $  47,048,257   $  47,048,257   $  -   $  -  

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    Financial assets at fair value as of December 31, 2009:

                    Significant        
                    Other     Significant  
              Quoted Prices in     Observable     Unobservable  
        December 31,     Active Markets     Inputs     Inputs  
    Description   2009     (Level 1)   (Level 2)   (Level 3)
    Cash and cash equivalents $  27,400,420   $  27,400,420   $  -   $              -  
    Restricted cash   1,591,076     1,591,076     -     -  
    Total $  28,991,496   $  28,991,496   $  -   $ -  

    The fair values of the Company’s cash and cash equivalents and restricted cash are determined through market, observable and corroborated sources. The fair values of the Company’s long-term investments are unobservable data points and include situations where there is little, if any, market activity. The carrying amounts reflected in the consolidated balance sheets for other current assets, accounts payable, accrued expenses, long-term debt approximate fair value due to their short-term maturities.

    Recent Accounting Pronouncements

    In December 2010, the FASB amended the guidance related to application of the goodwill impairment model when a reporting unit has a carrying amount that is zero or a negative value. The guidance clarifies that when this is the case, a goodwill impairment test should be performed if qualitative factors indicate that it is more likely than not that goodwill impairment exists. The Company does not expect the adoption of this guidance to have a material effect on its consolidated financial statements.

    In April 2010 the FASB reached a consensus on the Milestone Method of Revenue Recognition which provides guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor can recognize consideration that is contingent upon the achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. The updated guidance is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years beginning on or after June 15, 2010, with early adoption permitted. The Company is currently evaluating the potential impact, if any, of the new accounting guidance on its consolidated financial statements.

    In January 2010, the FASB amended the guidance related to fair value disclosures. This amended guidance requires disclosures about inputs and valuation techniques used to measure fair value as well as disclosures about significant transfers, beginning in the first quarter of 2010. Additionally, this guidance requires presentation of disaggregated activity within the reconciliation for fair value measurements using significant unobservable inputs (Level 3), beginning in the first quarter of 2011. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operations and the Company does not believe that it will have subsequent impact after the 2011 adoption of the guidance around fair value measurements using unobservable inputs.

    In October 2009, the FASB updated the guidance related to Multiple Element Arrangements. This guidance relates to the final consensus reached by FASB on a new revenue recognition guidance regarding revenue arrangements with multiple deliverables. The new accounting guidance addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting, and how the arrangement consideration should be allocated among the separate units of accounting. The new accounting guidance is effective for fiscal years beginning after June 15, 2010 and may be applied retrospectively or prospectively for new or materially modified arrangements. In addition, early adoption is permitted. The Company is currently evaluating the potential impact, if any, of the new accounting guidance on its consolidated financial statements.

    In June 2009, the FASB issued ASC 810-10-30, Variable Interest Entities (formerly FASB 167), regarding when and how to determine, or re-determine, whether an entity is a variable interest entity. In addition, FASB No. 167 replaces FIN 46R’s quantitative approach for determining who has a controlling financial interest in a variable interest entity with a qualitative approach. Furthermore, ASC 810-10-30 requires ongoing assessments of whether an entity is the primary beneficiary of a variable interest entity. ASC 810-10-30 is effective beginning January 1, 2010 and the adoption did not to have a material impact on the Company’s consolidated financial statements.

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    ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

    Not Applicable.

    ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

    The full text of our audited consolidated financial statements as of December 31, 2010 and 2009 begins on page F-1 of this annual report.

    ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

    None.

    ITEM 9A. CONTROLS AND PROCEDURES.

    Evaluation of Disclosure Controls and Procedures

    We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

    Our management, including the Chief Executive Officer and Chief Financial Officer, do not expect that disclosure controls can or will prevent or detect all errors and all fraud, if any. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Our disclosure controls and procedures are designed to provide such reasonable assurance of achieving their objectives. Also, the projection of any evaluation of the disclosure controls and procedures to future periods is subject to the risk that the disclosure controls and procedures may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. As required by Rule 13a-15 under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2010. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2010, our disclosure controls and procedures were effective at the reasonable assurance level.

    Management’s Annual Report on Internal Control Over Financial Reporting

    Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Exchange Act defines internal control over financial reporting as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, 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 of America and includes those policies and procedures that:

    • Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

    • Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

    • Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

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    All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, 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 assessed the effectiveness of our internal control over financial reporting as of December 31, 2010. In making this assessment, management used the framework set forth in the report entitled Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. Based on our assessment we determined that, as of December 31, 2010, our internal control over financial reporting is effective based on those criteria.

    Changes in Internal Control Over Financial Reporting

    There have been no changes in our internal control over financial reporting during the fourth quarter of fiscal year 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

    This annual report on Form 10-K 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 rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report on Form 10-K.

    ITEM 9B. OTHER INFORMATION.

    We have no information to disclose that was required to be disclosed in a report on Form 8-K during fourth quarter of fiscal year 2010, but was not reported.

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    PART III

    ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

    Directors and Executive Officers

    The following sets forth information about our directors and executive officers as of the date of this report:

    Name Age Position
    Shudong Xia 38 Chairman, CEO, President and Secretary
    Zhibin Lai 37 Vice President
    Zhiping Zhang 41 Vice President of Research and Development
    Danxia Huang 38 Vice President of Operations, Treasurer and Director
    Shan Qu 42 Vice President
    Rong Zhang 50 Chief Financial Officer
    Jay Trien 70 Director
    Zhongsu Chen 47 Director
    Dan Liu 69 Director
    Brandon Ho-Ping Lin 39 Director
    Xingming Zhang 38 Director

    SHUDONG XIA. Mr. Xia has been our Chief Executive Officer, President, Secretary and Chairman since May 14, 2007. Mr. Xia also serves on several government advisory committees for the development of GIS services for urban planning. Mr. Xia founded our affiliate, PKU in 2000. From 2002, Mr. Xia, while with PKU, was involved with the “GIS-based digital city-services system study and demonstration”, one of the key projects of China 863-Plan. Prior to his involvement with PKU, Mr. Xia, from 1998 was involved in several research projects at Peking University. Specifically, he was a key team member of the “Study on the Key Technology of Information Release via the Super Media Network”, a key technology study project of the “China 9th 5-year Plan” and was instrumental in the compilation of “How to Digitize a City” and “Digital City-Theory, Method and Application”. Mr. Xia received his PhD in Remote Sensing from the GIS Institute of Peking University in 2003.

    ZHIBIN LAI. Mr. Lai has been our Vice President of Technology since May 14, 2007. Mr. Lai is in charge of GIS application service for the Transportation sector. From 2000, Mr. Lai was Vice President of PKU, where he was in charge of the GIS application service for the transportation sector. Mr. Lai has extensive experiences in system planning, analysis and project management and is involved in a variety of comprehensive software development projects at PKU. From 1988, Mr. Lai was head of the Software Department of Fangda Century Group (Beijing) where he was in charge of the GIS Study Center in City and Environment Department at Peking University. From 1996, Mr. Lai was head of the China team’s software department at GEOBasic, a Japan-based GIS company. Mr. Lai received his PhD in Remote Sensing from GIS Institute at Peking University.

    ZHIPING ZHANG. Mr. Zhang has been our Vice President of Research and Development since May 14, 2007. Mr. Zhang is in charge of the R&D and GIS application service in our Land and Resources sector. Since 2001, Mr. Zhang has been Vice President of PKU, where he is in charge of the R&D and GIS application service in Land and Resources sector. From July 1995 to 2001, Mr. Zhang was a professor of Remote Sensing at the Geography Information Institute of Peking University. From August 1997 Mr. Zhang was the lead expert and head of software department in Basic Engineering for GeoBasic, a Japanese GIS company. From 1995, Mr. Zhang led the development of the first Geo-info system software-Citystar, which was awarded the “Excellence Product Awards” in the first “Domestic GIS Software Assessment”. During his tenure at GeoBasic, Mr. Zhang led the development of the first GIS platform software-GeoBasic in Japan, which has won a 20% market share in the Japanese market. Mr. Zhang has a Master’s degree in Remote Sensing from the Geography Information Institute of Peking University.

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    DANXIA HUANG. Ms. Huang became our Vice President of Operations and Treasurer on May 14, 2007 and became our Director on May 27, 2007. Currently, Ms. Huang is Vice President of Operations in charge of our strategic development and business administration management. Since November 2006, Ms. Huang has been Vice President of PKU, where she is in charge of strategic development, business administration management and finance. From April 2005 to November 2006, Ms. Huang was the Vice President of First City Investment Inc. of Hong Kong. From April 2001 to April 2005, Ms Huang worked at Beijing Business Travel Holiday Net-Tech Co., Ltd., an internet company, as Chief Executive Officer. Ms. Huang has a Master’s degree in Business Administration in Finance from Murdoch University of Australia.

    SHAN QU. Mr Qu became our Vice President on January 26, 2011. Mr. Qu has served as the General Manager of UNISITS since November 2002. From September 1995 to November 2002, he served as the general manager in the intelligent transportation and engineering control department of Tsinghua Unisplendour Corporation Limited., a company engaged in the business of transportation. Mr. Qu is an associate professor and senior engineer at Tsinghua University. He holds an MBA from Business School of Economics and Management of Tsinghua University and a Bachelor of Science in electrical appliance from Shenyang University of Technology.

    RONG ZHANG. Mr. Zhang has been our Chief Financial Officer since January 1, 2011. Mr. Zhang has extensive experience in finance, accounting, management, and internal control. Prior to joining us, from July 2009 to December 2010, Mr. Zhang worked in Beijing as the Chief Financial Officer of China Vocational Training Holdings Co., Ltd., the largest automotive technician training school chain in China. Since August 2008, Mr. Zhang has served as a non-employee director of SVTeck, Inc., a silicon valley start-up in online reputation grading/search business using advanced dynamic programming as well as artificial intelligence and of OKIKI Education Management Co., Ltd., a preschool education chain aiming at expansion in China. From August 2007 to August 2008, Mr. Zhang worked as the Chief Financial Officer of Taizinai Group, a major company in China’s beverage market. From July 2005 to July 2007, Mr. Zhang was the Asia Pacific Controller of DraftFCB as well as the Asia Pacific Lead Area Controller of Interpublic Group of Companies, Inc. (DraftFCB's parent company), one of the world’s largest advertising and marketing services companies. From January 2004 to July 2005, Mr. Zhang was a Senior Analyst and Project Leader at MCI, Inc., now a telecommunications subsidiary of Verizon Communications Inc., a global broadband and telecommunications company. From July 1997 to January 2004, Mr. Zhang worked in several finance and accounting positions in the United States, including as a Senior Analyst in Atlanta at ACSI Network Technologies, a telecommunications company that specialized in fiber optic broadband services; Senior Auditor at Union Camp Corporation and International Paper, an American pulp and paper company and as a Staff Auditor at Deloitte & Touche's Atlanta, Georgia office. Mr. Zhang holds an MBA in accounting from J. Mack Robinson School of Business, Georgia State University, and Master of Arts in Economics from Georgia State University, and Master of Sciences in Environmental Science from East China Normal University in Shanghai. He is a U.S. Certified Public Accountant.

    JAY TRIEN. Mr. Trien has been our director since May 1, 2008. Since April 1989, Mr. Trien has been a senior partner at Trien Rosenberg Weinberg Ciullo & Fazzari LLP., a certified public accounting and business consulting firm with offices in Morristown, New Jersey and New York City. He oversees the firm’s financial and accounting service groups and also directs its M&A and capital finance departments. Mr. Trien has published several articles on accounting issues in American Venture Magazine, Capital Growth’s Guide to Entrepreneurial Venture Financing, NJBIZ and the Journal of the Family Firm Institute. Mr. Trien is the president of the Venture Association of New Jersey as well as the New Media Association of New Jersey and is a member of the American Institute of Certified Public Accountants, New Jersey Bar Association, New Jersey Society of Certified Public Accountants, New York State Society of Certified Public Accountants, the National Litigation Support Services Association and the Alliance of Merger & Acquisition Advisors. Mr. Trien is a Certified Public Accountant, holds a Bachelor’s of Science in Economics from The Wharton School of the University of Pennsylvania and a Juris Doctor degree from Rutgers Law School. Mr. Trien has the relevant experiences and expertise to serve as a director for the company.

    ZHONGSU CHEN. Dr. Chen has been our director since May 1, 2008. Dr. Chen has more than 20 years of experience in information technology, including nine years in Wall Street firms such as DLJ, Standard & Poor’s, New York Life and Ambac Financial Group. Since May 2005, Dr. Chen has been the managing director of Time Innovation Ventures, a venture capital company. He also serves on the board of directors for Beijing Ahelios Consulting, an IT consulting company and Beijing Xiakexing Network Technologies, a Chinese company producing animation products. From 2001 to 2005, Dr. Chen worked as the deputy chief technology officer at the Shanghai Stock Exchange. From 2003 to 2004, he led China’s National Financial Standardization Securities Trading Protocol Working Group, which defined China’s Securities Trading Exchange Protocol technology standard, and served as an advisor for the Shenzhen Stock Exchange Technology Development Strategy Committee. In 2006, Dr. Chen was appointed by the Chinese government as a member of the Working Group for the Foundation of China’s Futures Exchange. Dr. Chen holds a Bachelor’s degree in mathematics/computer science from Pace University, a Master’s degree in mathematical sciences from The Johns Hopkins University and a PhD degree in computer science/operations research from Stevens Institute of Technology. Mr. Chen has the relevant experiences and expertise to serve as a director for the company.

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    DAN LIU. Mr. Liu has been our director since May 1, 2008. Mr. Liu has over 40 years of experience in the electronics and information sectors. Mr. Liu held several management positions at China Electronics Import and Export Corporation for more than ten years and was vice president of China Electronics Corporation from 1990 to 1991. From 1991 to 1997, Mr. Liu was chairman of the board of Intel (China), a semiconductor manufacturer. Mr. Liu was also senior advisor to Motorola (China), a provider of mobile devices and broad band communication and enterprise mobility solutions, from 1994 to 1998. From 1991 to 2000, Mr. Liu was the president of China Tongda Networking Corporation, a communication system integration company. From 2001 to 2002, Mr. Liu was the Vice General Manager of China Electronics Corporation. Mr. Liu is currently a councilor at Chinese Association of Electronics, China Software Industry Association, China News Technology Association, and China Public Relations Association. Mr. Liu holds a Bachelor’s degree in Communication Engineering from Harbin Engineering University. Mr. Liu has the relevant experiences and expertise to serve as a director for the company.

    BRANDON HO-PING LIN. Mr. Lin has been our director since September 28, 2008. Mr. Lin is a partner at SAIF Partners, which is one of the largest and most successful growth venture capital funds focused on China. Prior to joining SAIF Partners in 2001, Mr. Lin was a Vice President in investment banking with Credit Suisse/Donaldson, Lufkin & Jenrette (DLJ) in New York from 1997 to 2001 where he executed mergers & acquisitions, high yield debt and initial public offering transactions for leveraged buy-outs and technology companies. From 1994 to 1997, Mr. Lin worked as an associate with Sullivan & Cromwell LLP. Mr. Lin is also a director of several SAIF Partners’ portfolio companies, which include NVC Lighting Holding Limited, Jiangxi Runtian Beverage LLC, Vienna Hotel Group Limited and Best Elite International Limited. Mr. Lin holds a Bachelor’s degree in Economics from Stanford University and a Juris Doctor degree from Harvard Law School. Mr. Lin has the relevant experiences and expertise to serve as a director for the company.

    XINGMING ZHANG. Mr. Zhang has been our director since June 11, 2010. Mr. Zhang has severed as an executive director of investment banking in Guotai Junan Securities Co., Ltd. ("Guotai"), one of the largest investment banking and securities companies in China, since March, 2009. Mr. Zhang is mainly in charge of the investment banking services of Guotai in the transportation industry including financing, IPO, restructuring and M&A. From May 2006 to March 2009, Mr. Zhang worked as the executive director of Antaeus Capital Inc.’s China office, which is a full service securities brokerage and investment banking firm. From 2003 to 2006, he worked as General Manager of the Investment Department of China Landgent Group, a company engaged in the business of real estate development and education industry. Mr. Zhang holds a Bachelor’s degree in material science from Tsinghua University and a Master’s degree in economics and management from Tsinghua University. Mr. Zhang is a qualified securities practitioner and a charted representative of underwriters in China. Mr. Zhang has the relevant experiences and expertise to serve as a director for the company.

    In connection with the private placement transaction consummated on July 17, 2008, we and our two major shareholders, Karmen Investment Holdings Limited and Leguna Verde Investments Limited (the “Major Shareholders”), entered into a voting agreement (the “Voting Agreement”) with SAIF Partners (“SAIF”), pursuant to which, among other things, SAIF Partners and the Major Shareholders agreed, during the term of the Voting Agreement, to vote, or cause to be voted, all shares owned by them, to ensure that Mr. Lin will be elected as a director of the Company. This Voting Agreement continues in effect until SAIF Partners beneficially owns fewer than 50% of the number of shares of Common Stock purchased in connection with the private placement transaction.

    Except as noted above, there are no other arrangements or understanding between any of our executive officers or directors and any other person pursuant to which such executive officer or director was or is to be selected as an officer or a director.

    Directors are elected until their successors are duly elected and qualified.

    Family Relationships

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    There is no family relationship among any of our officers or directors.

    Involvement in Certain Legal Proceedings

    To the best of our knowledge, none of our directors or executive officers has been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, or has been a party to any judicial or administrative proceeding during the past five years that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws, except for matters that were dismissed without sanction or settlement. Except as set forth in our discussion below in Item 13, “Certain Relationships and Related Transactions, and Director Independence,” none of our directors, director nominees or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.

    Board Composition and Committees

    The Company is governed by the Board of Directors that currently consists of seven members: Shudong Xia, Danxia Huang, Jay Trien, Zhongsu Chen, Dan Liu, Brandon Ho-Ping Lin and Xingming Zhang. Since May 2008, the Board has established three Committees: the Audit Committee, the Compensation Committee, and the Governance and Nominating Committee. Each of the Audit Committee, Compensation Committee and Governance and Nominating Committee is comprised entirely of our independent directors. From time to time, the Board may establish other committees. The Board has adopted a written charter for each of the committees which is available on the Company’s website www.chinatransinfo.com. Printed copies of each of our committee charters may be obtained, without charge, by contacting the Corporate Secretary, China TransInfo Technology Corp., 9th Floor, Vision Building, No. 39 Xueyuanlu, Haidian District, Beijing, China 100191.

    Audit Committee

    Our Audit Committee consists of three members: Jay Trien, Zhongsu Chen and Dan Liu. Mr. Trien is the Chair of the Audit Committee. Each member of the Audit Committee meets the independence criteria prescribed by applicable regulation and the rules of the SEC for audit committee membership and is an ‘‘independent director’’ within the meaning of applicable NASDAQ listing standards. Each Audit Committee member meets NASDAQ’s financial literacy requirements, and the Board has further determined that Mr. Jay Trien (i) is ‘‘audit committee financial expert’’ as such term is defined in Item 407(d) of Regulation S-K promulgated by the SEC, and (ii) also meet NASDAQ’s financial sophistication requirements.

    The Audit Committee oversees our accounting and financial reporting processes and the audits of the financial statements of our Company. The Audit Committee is responsible for, among other things:

    • selecting our independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by our independent auditors;

    • reviewing with our independent auditors any audit problems or difficulties and management’s response;

    • reviewing and approving all proposed related-party transactions, as defined in Item 404 of Regulation S-K under the Securities Act of 1933, as amended;

    • discussing the annual audited financial statements with management and our independent auditors;

    • reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of significant internal control deficiencies;

    • annually reviewing and reassessing the adequacy of our Audit Committee charter;

    • meeting separately and periodically with management and our internal and independent auditors;

    • reporting regularly to the full Board; and

    • such other matters that are specifically delegated to our Audit Committee by our Board from time to time.

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    Compensation Committee

    Our Compensation Committee consists of three directors, Zhongsu Chen, Dan Liu and Brandon Ho-Ping Lin. Mr. Liu is the Chair of the Compensation Committee. The members of the Compensation Committee are all independent directors within the meaning of applicable NASDAQ listing standards.

    Our Compensation Committee assists the Board in reviewing and approving the compensation structure of our executive officers, including all forms of compensation to be provided to our executive officers. Our chief executive officer may not be present at any Committee meeting during which his compensation is deliberated. The Compensation Committee is permitted to delegate its authority in accordance with Nevada law unless prohibited by the Company’s by-laws or the Compensation Committee charter. The Compensation Committee is responsible for, among other things:

    • approving and overseeing the compensation package for our executive officers;

    • reviewing and approving corporate goals and objectives relevant to the compensation of our chief executive officer, evaluating the performance of our chief executive officer in light of those goals and objectives, and setting the compensation level of our chief executive officer based on this evaluation; and

    • reviewing periodically and making recommendations to the Board regarding any long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans; and reviewing and making recommendations to the Board regarding succession plans for the chief executive officer and other senior officers.

    Compensation Committee Interlocks and Insider Participation

    All current members of the Compensation Committee are independent directors, and all past members were independent directors at all times during their service on such Committee. None of the past or present members of our Compensation Committee are present or past employees or officers of ours or any of our subsidiaries. No member of the Compensation Committee has had any relationship with us requiring disclosure under Item 404 of Regulation S-K. None of our executive officers serves on the board of directors or compensation committee of a company that has an executive officer that serves on our Board or the Compensation Committee.

    Governance and Nominating Committee

    Our Governance and Nominating Committee consists of three directors: Zhongsu Chen, Dan Liu and Brandon Ho-Ping Lin. Mr. Chen is the Chair of the Governance and Nominating Committee. The members of our Governance and Nominating Committee are all independent directors within the meaning of applicable NASDAQ listing standards.

    The Governance and Nominating Committee assists the Board in identifying individuals qualified to become our directors and in determining the composition of the Board and its committees. The Governance and Nominating Committee is responsible for, among other things:

    • identifying and recommending to the Board nominees for election or re-election to the Board, or for appointment to fill any vacancy;

    • reviewing annually with the Board the current composition of the Board in light of the characteristics of independence, age, skills, experience and availability of service to us;

    • review periodically the compensation paid to non-employee directors for annual retainers and meeting fees, if any, and making recommendations to the Board for any adjustments;

    • identifying and recommending to the Board the directors to serve as members of the Board’s committees; and

    • monitoring compliance with our Corporate Governance Guidelines.

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    Section 16(A) Beneficial Ownership Reporting Compliance

    Under U.S. securities laws, directors, certain executive officers and persons holding more than 10% of our common stock must report their initial ownership of the common stock, and any changes in that ownership, to the SEC. The SEC has designated specific due dates for these reports. Based solely on our review of copies of such reports filed with the SEC by and written representations of our directors and executive offers, we believe that our directors and executive offers filed the required reports on time in 2010 fiscal year.

    Code of Ethics

    On April 30, 2007, our board of directors adopted a code of ethics that applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer, and principal accounting officer. The code of ethics addresses, among other things, honesty and ethical conduct, conflicts of interest, compliance with laws, regulations and policies, including disclosure requirements under the federal securities laws, confidentiality, trading on inside information, and reporting of violations of the code. A copy of the code of ethics has been filed as Exhibit 14 to our current report on Form 8-K filed on May 14, 2007 and is also available on our website, http://www.chinatransinfo.com. Any amendments or waivers to the code of ethics will be posted on our website within four business days of such amendment or waiver.

    ITEM 11. EXECUTIVE COMPENSATION.

    The following table sets forth information concerning all compensation awarded to, earned by or paid to the following persons for services rendered in all capacities during 2010 and 2009: Shudong Xia, our Chief Executive Officer, President and Chairman, and Zhihai Mao, who was our Chief Financial Officer between January 1, 2008 and October 31, 2010. No other executive officers received total compensation in excess of $100,000 in either fiscal year.

                          Stock        
              Salary     Bonus     Awards     Total  
    Name and Principal Position   Year     ($)     ($)     ($)     ($)  
    Shudong Xia   2010     16,364     6,694     -     23,058  
    CEO, President and Chairman   2009     15,813           -     15,813  
                                   
    Zhihai Mao   2010     91,508           137,259 (1)   228,767  
    Former Chief Financial Officer   2009     109,810           183,512 (1)   293,322  

    (1)

    The amounts in this column reflect the aggregate grant date fair values of Restricted Stock, calculated in accordance with FASB ASC Topic 718. These are not amounts paid to or realized by Mr. Mao. Assumptions used in the calculation of these values are included in Note 11 to our audited financial statements included in this annual report. On October 31, 2010, Mr Mao resigned from the CFO position.

    Additional Narrative Disclosure

    Our VIE Entity, PKU has employment agreements with the following executive officers:

    Shudong Xia, our CEO, Secretary and President’s employment agreement became effective as of January 1, 2006 and expired on December 31, 2007. On the same date, Mr. Xia's employment agreement was renewed for a two-year term ended December 31, 2009. On July 10, 2009, Mr. Xia entered into a new employment agreement with a five-year term ending July 9, 2014. Mr. Xia is receiving RMB 9,000 per month (approximately $1,297) under the agreement. We expect that this agreement will be automatically renewed by the parties upon its expiration.

    Zhiping Zhang, our Vice President of Research and Development’s labor contract became effective as of January 1, 2006 and expired on December 31, 2007. On the same date, Mr. Zhang's employment agreement was renewed for a two-year term ended December 31, 2009. On July 10, 2009, Mr. Zhang entered into a new employment agreement with a five-year term ending July 9, 2014. Mr. Zhang is receiving RMB 10,000 per month (approximately $1,442) under the agreement. We expect that this agreement will be automatically renewed by the parties upon its expiration.

    Zhibin Lai, our Vice President’s labor contract became effective as of January 1, 2006 and expired on December 31, 2007. On the same date, Mr. Lai's employment agreement was renewed for a two-year term ended December 31, 2009. On July 10, 2009, Mr. Lai entered into a new employment agreement with a five-year term ending July 9, 2014. Mr. Lai is receiving RMB 9,000 per month (approximately $1,297) under the agreement. We expect that this agreement will be automatically renewed by the parties upon its expiration.

    62


    Danxia Huang, our Vice President of Operations’ labor contract became effective January 1, 2006 and expired on December 31, 2007. On the same date, Ms. Huang's employment agreement was renewed for a two-year term ended December 31, 2009. On July 10, 2009, Ms. Huang entered into a new employment agreement with a five-year term ending July 9, 2014. Ms. Huang is receiving RMB 8,000 per month (approximately $1,153) under the agreement. We expect that this agreement will be automatically renewed by the parties upon its expiration.

    On December 21, 2010, the Company and Mr. Rong Zhang entered into an employment agreement, which became effective on January 1, 2011. The term of the employment agreement is for four years, after which Mr. Zhang’s employment is “at will” and either the Company or Mr. Zhang may terminate the employment with or without cause or advance notice. The employment agreement provides, among other things, that Mr. Zhang’s annual base salary is RMB 737,700 (approximately $111,000) (the “Base Salary”). During the term of the employment agreement, if Mr. Zhang terminates his employment for any reason or if the Company terminates the employment due to death, permanent disability, or with cause, Mr. Zhang will be entitled only to the Base Salary through the date of the termination and any other benefits legally required to be paid to Mr. Zhang. “Cause” is defined generally to include crime, dishonesty, embezzlement, continuing inability or refusal to perform reasonable duties, and moral turpitude. The employment agreement also contains covenants prohibiting Mr. Zhang from competing with the Company, disclosing any confidential information of the Company and soliciting the Company’s customers and employees, both during his employment and for specified periods after the termination of employment.

    On January 3, 2011, the Company and Mr. Zhang entered into a stock option agreement. Pursuant to the terms of the stock option agreement, Mr. Zhang was granted a nonstatutory option under the Company’s 2009 Equity Incentive Plan to purchase 504,901 shares of common stock of the Company at an exercise price of $4.85 per share, which was the closing price per share of the Company’s common stock as reported on the Nasdaq Global Market on such date. The option has a term of five years and expires on January 3, 2016. The option vests in equal installments on a quarterly basis over a four-year period beginning on January 3, 2011. According to the stock option agreement, in the event Mr. Zhang’s employment with the Company is terminated for any reason except for death or disability, he may exercise the option only to the extent that the option would have been exercisable on the termination date and no later than three months after the termination date. If Mr. Zhang’s employment is terminated because of his death or disability, the option may be exercised only to the extent that such option would have been exercisable by Mr. Zhang on the termination date and must be exercised by Mr. Zhang no later than twelve months after the termination date. If Mr. Zhang is terminated for cause as defined in the stock option agreement, the option will terminate immediately. In no event will this option be exercised later than January 3, 2016.

    On January 26, 2011, the Company and Mr. Shan Qu entered into an employment agreement. The term of the employment agreement is for four years, after which Mr. Qu’s employment is “at will” and either the Company or Mr. Qu may terminate the employment with or without cause or advance notice. The employment agreement provides, among other things, that Mr. Qu’s annual base salary is RMB 480,000 (approximately $72,727) (the “Base Salary”). During the term of the employment agreement, if Mr. Qu terminates his employment for any reason or if the Company terminates the employment due to death, permanent disability, or with cause, Mr. Qu will be entitled only to the Base Salary through the date of the termination and any other benefits legally required to be paid to Mr. Qu. “Cause” is defined generally to include crime, dishonesty, embezzlement, continuing inability or refusal to perform reasonable duties, and moral turpitude. The employment agreement also contains covenants prohibiting Mr. Qu from competing with the Company, disclosing any confidential information of the Company and soliciting the Company’s customers and employees, both during his employment and for specified periods after the termination of employment.

    On January 26, 2011, the Company and Mr. Qu also entered into a stock option agreement. Pursuant to the terms of the stock option agreement, Mr. Qu was granted a nonstatutory option under the Company’s 2009 Equity Incentive Plan to purchase 300,000 shares of common stock of the Company at an exercise price of $4.82 per share, which was the closing price per share of the Company’s common stock as reported on the Nasdaq Global Market on such date. The option has a term of five years and expires on January 26, 2016. The shares underlying the option will vest in four equal installments on each of the first, second, third and fourth anniversary of the vesting commencement date and will only vest if Mr. Qu achieves above 80% of the performance goals determined by the Company at the beginning of each fiscal year. According to the stock option agreement, in the event Mr. Qu’s employment with the Company is terminated for any reason except for death or disability, he may exercise the option only to the extent that the option would have been exercisable on the termination date and no later than three months after the termination date. If Mr. Qu’s employment is terminated because of his death or disability, the option may be exercised only to the extent that such option would have been exercisable by Mr. Qu on the termination date and must be exercised by Mr. Qu no later than twelve months after the termination date. If Mr. Qu is terminated for cause as defined in the stock option agreement, the option will terminate immediately. In no event will this option be exercised later than January 26, 2016.

    63


    Retirement Benefits

    Currently, we do not provide any employees, including our named executive officers any company sponsored retirement benefits other than a state pension scheme in which all of our employees in China participate.

    Payment Upon Termination or Change-in Control

    The Company does not have change-in-control arrangements with any of its executive officers. The Company is not obligated to pay severance or other enhanced benefits to any executive officers upon termination of their employment.

    Outstanding Equity Awards at Fiscal Year End

    No executive officers received unexercised options, stock that has not vested or equity incentive plan awards that remained outstanding as of the end of the fiscal year 2010.

    Compensation of Directors

    The following table sets forth information concerning all compensation paid to our directors who were not also employed by us for services rendered in all capacities for the year ended December 31, 2010.

    Name   Fees Earned or     Option Awards     Total($)  
        Paid in Cash ($)     ($)        
    Jay Trien   30,000     29,408 (1)    59,408  
    Zhongsu Chen   14,056     29,408 (1)   43,464  
    Dan Liu   20,000     -     20,000  
    Brandon Ho-Ping Lin   1,8000     8,630 (1)   26,630  
    Xingming Zhang   4,393     12,311     16,704  
    Dongyuan Yang(2)   7,321     -     7,321  

    (1)

    Pursuant to a stock option repricing under the Plan, on June 1, 2009, we cancelled all of the outstanding stock options with an exercise price of $6.5 that the Company granted to these three directors to purchase an aggregate 90,000 shares of our common stock and replaced with the same amount of stock options with an exercise price of $5.09. The amount reported in the “Option Awards” column reflects the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 for the stock options awarded to each director in 2009. These are not amounts paid to or realized by each of the relevant directors. Assumptions used in the calculation of these values are included in Note 11 to our audited financial statements included in this annual report.

     

     

    (2)

    Mr. Dongyuan Yang did not stand for re-election to the Board at our 2010 Annual Meeting of Stockholders held on June 11, 2010. The compensation disclosed herein is his compensation for serving as our director from January 1, 2010 to June 11, 2010.

    On May 1, 2008, we entered into separate agreements with our independent directors, Jay Trien, Zhongsu Chen and Dan Liu. Under the terms of the agreements, we agreed to pay Mr. Trien an annual fee of $30,000, Dr. Chen an annual fee of RMB 96,000 (approximately $14,056) and Mr. Liu an annual fee of $20,000, as compensation for the services to be provided by them as independent directors, and as chairpersons of various board committees, as applicable. On May 1, 2008, we also entered into separate stock option agreements with each of Mr. Trien and Dr. Chen. Under the terms of the stock option agreements, we granted a stock option to each of Mr. Trien and Dr. Chen for the purchase of 30,000 shares of common stock of the Company at an exercise price equal to the closing price as reported on the OTC Bulletin Board on the grant date of the option. The options vested in equal installments on a quarterly basis over a three-year period. For Mr. Trien, the first installment of 2,500 shares vested immediately on the grant date of May 1, 2008. Mr. Trien’s compensation is greater because he has greater responsibilities as the Audit Committee Chairman.

    64


    On September 28, 2008, we entered into separate agreements with each of Mr. Brandon Ho-Ping Lin and Mr. Dongyuan Yang. Under the terms of the agreements, we agreed to pay Mr. Lin an annual fee of $18,000 and Mr. Mr. Yang an annual fee of RMB120,000 (approximately $17,570), as compensation for the services to be provided by them as directors of the Company. On the same date, we also entered into a stock option agreement with Mr. Lin, under which we granted a stock option to Mr. Lin for the purchase of 30,000 shares of common stock of the Company at an exercise price of $6.50. The option vests in equal installments on a quarterly basis over a three-year period.

    On June 1, 2009, pursuant to the Plan, we cancelled all of the outstanding stock options with an exercise price of $6.5 that the Company granted to Messrs. Trien, Chen and Lin to purchase an aggregate 90,000 shares of our common stock and replaced with the same amount of stock options with an exercise price of $5.09. For Mr. Trien, 12,500 options were vested on June 1, 2009 and the remaining options vest pro rata quarterly through February 1, 2011. For Mr. Chen, 10,000 options were vested on June 1, 2009 and the remaining options vest pro rata quarterly through May 1, 2011. For Mr. Lin, 5,000 options were vested on June 1, 2009 and the remaining options vest pro rata quarterly through September 28, 2011.

    On June 14, 2010, the Company entered into an independent director contract with Mr. Xingming Zhang. Under the terms of the contract, the Company agreed to pay Mr. Zhang an annual fee of RMB 60,000 (approximately $8,785), as compensation for the services to be provided by Mr. Zhang as a director of the Company. The Company also entered into a stock option agreement under the Company's 2009 Equity Incentive Plan with Mr. Zhang, under which the Company agreed to grant a stock option to Mr. Zhang for the purchase of 30,000 shares of common stock of the Company at an exercise price of $6.03. The options vest in equal installments on a quarterly basis over a three-year period.

    We also reimburse our directors for reasonable travel expenses related to attendance at board and committee meetings.

    ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

    Security Ownership of Certain Beneficial Owners and Management

    The following table sets forth information regarding beneficial ownership of our common stock as of March 28, 2011 (i) by each person who is known by us to beneficially own more than 5% of our common stock; (ii) by each of our officers and directors; and (iii) by all of our officers and directors as a group. Unless otherwise specified, the address of each of the persons set forth below is in care of China TransInfo Technology Corp., 9th Floor, Vision Building, No. 39 Xueyuanlu, Haidian District, Beijing, China 100191.


    Name & Address of Beneficial
    Owner


    Office, if Any


    Title of Class
    Amount & Nature
    of Beneficial
    Ownership(1)

    Percent of
    Class(2)
     Officers and Directors  
    Shudong Xia Chief Executive Officer, President, and Chairman Common Stock, $0.001 par value 6,245,242(3) 24.71%
    Rong Zhang Chief Financial Officer Common Stock $0.001 par value 0 *
    Danxia Huang Vice President of Operations, Treasurer and Director Common Stock $0.001 par value 509,896 2.02%
    Zhibin Lai Vice President Common Stock $0.001 par value 634,378 2.51%
    Zhiping Zhang Vice President of Research and Development Common Stock $0.001 par value 628,088 2.49%
    Shan Qu Vice President Common Stock $0.001 par value 0 *
    Jay Trien Director Common Stock $0.001 par value 30,000 *
    Zhongsu Chen Director Common Stock $0.001 par value 30,000 *
    Dan Liu Director Common Stock $0.001 par value 0 *

    65



    Brandon Ho-Ping Lin
    Director
    Common Stock $0.001
    par value
    25,000
    *
    Xingming Zhang
    Director
    Common Stock $0.001
    par value
    7,500
    *
    All officers and directors as a group (11 persons named above) Common Stock $0.001 par value 8,110,104 32.9%
    5% Securities Holder
    Leguna Verde Investments, Ltd.
    P.O. Box 3444
    Road Town, Tortola
    British Virgin Islands




    Common Stock $0.001
    par value


    1,275,218(4)



    5.05%



    Karmen Investment Holdings,
    Ltd
    P.O. Box 3444
    Road Town, Tortola
    British Virgin Islands





    Common Stock $0.001
    par value



    6,005,242(3)




    23.76%




    SAIF Partners III L.P.
    #2115, Two Pacific Place,
    88 Queensway, Admiralty,
    Hong Kong




    Common Stock $0.001
    par value


    4,151,152(5)



    16.43%



    Andrew Y. Yan
    #2115, Two Pacific Place,
    88 Queensway, Admiralty,
    Hong Kong




    Common Stock $0.001
    par value


    4,151,152(5)



    16.43%



    Total Shares Owned by Persons Named above: Common Stock $0.001 par value 13,536,474 53.57%

    * Less than 1%.

    (1)

    Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the ordinary shares.

     

     

    (2)

    A total of 25,270,069 shares of Common Stock as of March 28 2011 are considered to be outstanding pursuant to SEC Rule 13d-3(d)(1). For each beneficial owner above, any options exercisable within 60 days have been included in the denominator.

     

     

    (3)

    Includes 23.76% shares of Common Stock owned by Karmen Investment Holdings Ltd., which is wholly-owned by East Action Investment Holdings Ltd. of which Shudong Xia is a 68% shareholder. Mr. Xia may be deemed to be a beneficial owner of the shares held by Karmen Investment Holdings Ltd.

     

     

    (4)

    Chuang Yang is the owner of Leguna Verde Investments, Ltd. and exercises voting and investment power over the shares owned by Leguna Verde Investments, Ltd. Mr. Yang may be deemed to be a beneficial owner of the shares held by Leguna Verde Investments, Ltd.

     

     

    (5)

    Andrew Y. Yan is the sole shareholder and sole director of SAIF III GP Capital Ltd., a limited liability entity formed under the laws of the Cayman Islands, the sole general partner of SAIF III GP, L.P., a limited partnership formed under the laws of the Cayman Islands, which in turn is the sole general partner of SAIF Partners III L.P., a limited partnership formed under the laws of the Cayman Islands. Mr. Yan is deemed to have sole voting and dispositive powers with respect to the securities held by SAIF Partners III L.P.

    Changes in Control

    There are no arrangements known to us, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in control of the Company.

    66


    Securities Authorized for Issuance Under Equity Compensation Plans

    On May 29, 2009, our stockholders approved China TransInfo Technology Corp. 2009 Equity Incentive Plan (the "Plan") at the Company’s 2009 Annual Meeting of Stockholders, whereby we are authorized to issue shares of our common stock to certain employees, consultants and directors. The maximum aggregate number of shares of our common stock that may be issued under the Plan is 3,000,000 shares. The following table includes the information as of the end of fiscal year 2010 for each category of our equity compensation plan:






    Plan category
    Number of securities to
    be issued upon exercise
    of outstanding options,
    restricted stock,
    warrants and rights
    (a)
    Weighted-average
    exercise price of
    outstanding options,
    restricted stock,
    warrants and rights
    (b)
    Number of securities remaining
    available for future issuance
    under equity compensation
    plans (excluding securities
    reflected in column (a))
    (c)
    Equity compensation plans approved by security holders 1,230,900(1) 7.40 1,619,100
    Equity compensation plans not approved by security holders - - -
    Total 1,230,900(1) 7.40 1,619,100

    (1)

    Pursuant to a stock option repricing under the Plan, on June 1, 2009, we cancelled all of the outstanding stock options with an exercise price of $6.5 that the Company granted to certain of its directors to purchase 90,000 shares of our common stock and replaced with the same amount of stock options with an exercise price of $5.09. We also granted to our employee, Fan Zhou a stock option with an exercise of $5.09 to purchase 30,000 shares of our commons stock pursuant to the Plan. On November, 2009, pursuant to the Plan, we granted to our certain employees stock options with an exercise of $7.69 to purchase an aggregate of 1,791,600 shares of our common stock. On June 14, 2010, pursuant to the Plan, we granted to Xingming Zhang stock options with an exercise of $6.03 to purchase an aggregate of 30,000 shares of our common stock.

    ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

    Transactions with Related Persons

    The following includes a summary of transactions since the beginning of the 2010 fiscal year, or any currently proposed transaction, in which we were or are to be a participant and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years, and in which any related person had or will have a direct or indirect material interest (other than compensation described under Item 11, “Executive Compensation”). We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions.

    On September 8, 2009, our CEO and Chairman, Shudong Xia, entered into an equity transfer agreement with Unisplendour Corporation Limited ("Unisplendour"), pursuant to which Mr. Xia acquired 35.17% of the equity interest in UNISITS from Unisplendour for a cash price of RMB 44.4 million (approximately $6.53 million). Pursuant to the equity transfer agreement, Mr. Xia pay 50% of the purchase price to Unisplendour within five (5) business days after the agreement became effective. The rest 50% of the purchase price was paid by Mr. Xia within forty-five (45) days after the completion of registration of Mr. Xia as a shareholder of UNISITS with the relevant governmental authority in China.

    On the same day, Mr. Xia entered into an option agreement with the Group Company, pursuant to which, Mr. Xia granted to the Group Company a perpetual option to purchase all or a part of his equity interests in UNISITS at an exercise price (the "Exercise Price") of RMB 44.4 million (approximately $6.53 million). In exchange, the Group Company agreed to pre-pay to Mr. Xia the Exercise Price within 45 business days following the date of this option agreement. In addition, in order to ensure its fulfillment of the obligations under the option agreement, Mr. Xia pledged all of his equity interests in UNISITS to the Group Company for five years (the "Term of Pledge"). The Group Company may exercise the option at any time commencing on the day following of the expiration of the Term of Pledge. Under the option agreement, Mr. Xia also agreed to grant the Group Company a right to collect the dividends from his equity interests in UNISITS and any dividends paid upon such equity interests will be immediately delivered by Mr. Xia to the Group Company.

    67


    On March 22, 2010, we and the Group Company entered into several certain equity transfer agreements with several individual shareholders of UNISITS, pursuant to which the Group Company acquired 30.85% equity interest in UNISITS. According to the equity transfer agreements, the Group Company purchased approximately 16.23 million shares of UNISITS in exchange for RMB 4.41 million (approximately US$0.65 million), 40% of which was paid within seven days after the effective date of the equity transfer agreements, and approximately 1.16 million shares of our Common Stock, which were issued within 30 days of the effective date of the equity transfer agreements.

    On February 21, 2010, we entered into a securities purchase agreement with our ten percent shareholder, SAIF Partners, pursuant to which we sold a total of 1,564,945 shares of common stock for an aggregate purchase price of $10,000,000. The shares were priced at $6.39 per share.

    Except as set forth in our discussion above, none of our directors, director nominees or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.

    Promoters and Certain Control Persons

    We did not have any promoters at any time during the past five fiscal years.

    Parents of the Company

    Karmen Investment Holdings Ltd. currently owns 23.76% of China TransInfo Technology Corp.

    Director Independence

    Jay Trien, Zhongsu Chen, Dan Liu, Brandon Ho-Ping Lin and Xingming Zhang each serves on our board of directors as an “independent director” as defined by Rule 5605(a)(2) of Listing Rules of The Nasdaq Stock Market, Inc.. Our board of directors currently has three standing committees which perform various duties on behalf of and report to the board of directors: (i) Audit Committee, (ii) Compensation Committee and (iii) Governance and Nominating Committee. Each of the three standing committees is solely comprised of independent directors.

    ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

    Independent Auditors’ Fees

    The following table sets forth the aggregate fees billed to us by BDO China Li Xin Da Hua CPA Co., Ltd. (formerly known as Dahua Delu) (“BDO China Li Xin”) for fiscal years 2010 and 2009:

        2010     2009  
                 
    Audit fees(1) $  $250,000   $  130,000  
    Audit-related fees(2)   31,277     -  
    Tax fees(3)   -     -  
    All other fees(4)   -     -  
    Total   281,277     130,000  

    The following table sets forth the aggregate fees billed to us by Simon & Edward, LLP for fiscal years 2010 and 2009:

        2010     2009  
                 
    Audit fees(1) $  -   $  110,000  
    Audit-related fees(2)   -     28,948  
    Tax fees(3)   -     -  
    All other fees(4)   -     -  
    Total   -     138,948  

    68



    (1)

    “Audit Fees” consisted of the aggregate fees billed for professional services rendered for the audit of our annual financial statements and the reviews of the financial statements included in our Forms 10-Q and for any other services that were normally provided in connection with our statutory and regulatory filings or engagements.

     

     

    (2)

    “Audit Related Fees” consisted of the aggregate fees billed for professional services rendered for assurance and related services that were reasonably related to the performance of the audit or review of our financial statements and were not otherwise included in Audit Fees.

     

     

    (3)

    “Tax Fees” consisted of the aggregate fees billed for professional services rendered for tax compliance, tax advice and tax planning. Included in such Tax Fees were fees for preparation of our tax returns and consultancy and advice on other tax planning matters.

     

     

    (4)

    “All Other Fees” consisted of the aggregate fees billed for products and services provided and not otherwise included in Audit Fees, Audit Related Fees or Tax Fees.

    On November 23, 2009 we dismissed Simon & Edward, LLP as its independent registered public accounting firm. The decision to change our principal accountants was made by the Audit Committee. On November 23, 2009, the Audit Committee engaged BDO China Li Xin as our new independent registered public accounting firm.

    Simon & Edward, LLP’s reports on the Company’s financial statements as of and for the fiscal years ended December 31, 2008 and 2007 did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles.

    During the Company’s fiscal years ended December 31, 2008 and 2007 and during the subsequent interim period through November 23, 2009, there were (1) no disagreements with Simon & Edward, LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of Simon & Edward, LLP, would have caused Simon & Edward, LLP to make reference to the subject matter of the disagreements in connection with its reports, and (2) no events of the type listed in paragraphs (A) through (D) of Item 304(a)(1)(v) of Regulation S-K.

    We have requested and received from Simon & Edward, LLP a letter, dated November 30, 2009, addressed to the Securities and Exchange Commission stating whether or not Simon & Edward, LLP agrees with the above statements. A copy of this letter was attached as Exhibit 16.1 to the Company’s Form 8-K filed on November 30, 2009.

    During the Company’s fiscal years ended December 31, 2008 and 2007 and through the subsequent interim period to November 23, 2009, the Company did not consult BDO China Li Xin with respect to (a) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, and neither a written report was provided to the Company or oral advice was provided that BDO China Li Xin concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (b) any matter that was the subject of either a disagreement as defined in Item 304(a)(1)(iv) of Regulation S-K or a reportable event as described in Item 304(a)(1)(v) of Regulation S-K.

    Pre-Approval Policies and Procedures

    Under the Sarbanes-Oxley Act of 2002, all audit and non-audit services performed by our auditors must be approved in advance by our Audit Committee to assure that such services do not impair the auditors’ independence from us. In accordance with its policies and procedures, our Audit Committee pre-approved the audit services performed by BDO China Li Xin for our consolidated financial statements as of and for the year ended December 31, 2010. Our Audit Committee delegated its pre-approval authority regarding the non-audited services to its Chair. There were no non-audit services performed by BDO China Li Xin for the year ended December 31, 2010.

    69


    PART IV

    ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES. Financial Statements and Schedules

    The financial statements are set forth under Item 8 of this annual report on Form 10-K. Financial statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise included.

    Exhibit List

    The following exhibits are filed as part of this report or incorporated by reference:

    Exhibit No.   Description
         
    2.1

    Share Exchange Agreement, dated May 14, 2007, among the registrant, Cabowise International Ltd., its shareholders, Weicheng International Inc. and Foster Growth Ltd [Incorporated by reference to Exhibit 2.1 to the registrant’s current report on Form 8-K filed on May 14, 2007]

       

    3.1

    Amended and Restated Articles of Incorporation of the registrant as filed with the Secretary of State of Nevada on December 19, 2003. [Incorporated by reference to Exhibit 3.1 to the registrant’s current report on Form 10-KSB filed on March 31, 2005]

       

    3.2

    Certificate of Amendment to Articles of Incorporation filed with the Secretary of State of the State of Nevada on August 20, 2007. [Incorporated by reference to Exhibit 3.1 to the registrant’s current report on Form 8-K filed on August 23, 2007]

       

    3.3

    Amended and Restated Bylaws of China TransInfo Technology Corp., adopted May 1, 2008. [Incorporated by reference to Exhibit 3.1 to the registrant’s current report on Form 8-K filed on May 6, 2008]

       

    4.1

    Registration Rights Agreement, by and between China TransInfo Technology Corp. and SAIF Partners III L.P., dated July 17, 2008. [Incorporated by reference to Exhibit 4.1 to the registrant’s current report on Form 8-K filed on July 18, 2008]

       

    4.2

    Common Stock Purchase Warrant issued to Antaeus Capital, Inc., dated May 14, 2007. [Incorporated by reference to Exhibit 4.6 to the Company’s Current Report on Form 8-K filed on May 14, 2007]

       

    10.1

    Standard Contracts with Employees - Labor Contract between employees and Beijing Jinzhengdong Human Resources Consultant Co., Ltd [Incorporated by reference to Exhibit 10.20 to the registrant’s current report on Form 8-K filed on May 14, 2007]

       

    10.2

    Labor Contract between Xia Shudong and Beijing PKU Chinafront Technology Co., Ltd [Incorporated by reference to Exhibit 10.21 to the registrant’s current report on Form 8-K filed on May 14, 2007]

       

    10.3

    Labor Contract between Huang Danxia and Beijing PKU Chinafront Technology Co., Ltd. .[Incorporated by reference to Exhibit 10.22 to the registrant’s current report on Form 8-K filed on May 14, 2007]+

       

    10.4

    Labor Contract between Lai Zhibin and Beijing PKU Chinafront Technology Co., Ltd. .[Incorporated by reference to Exhibit 10.23 to the registrant’s current report on Form 8-K filed on May 14, 2007]+

       

    10.5

    Labor Contract between Zhang Zhiping and Beijing PKU Chinafront Technology Co., Ltd. .[Incorporated by reference to Exhibit 10.24 to the registrant’s current report on Form 8-K filed on May 14, 2007]+

       

    10.6

    China TransInfo Technology Corp. Independent Director’s Contract, dated as of May 1, 2008, by and between China TransInfo Technology Corp. and Jay Trien. [Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on May 6, 2008]+

    70



    10.7

    China TransInfo Technology Corp. Independent Director’s Contract, dated as of May 1, 2008, by and between China TransInfo Technology Corp. and Zhongsu Chen. [Incorporated by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K filed on May 6, 2008]+

       

     

    10.8

    China TransInfo Technology Corp. Independent Director’s Contract, dated as of May 1, 2008, by and between China TransInfo Technology Corp. and Dan Liu. [Incorporated by reference to Exhibit 10.3 to the registrant’s current report on Form 8-K filed on May 6, 2008]+

       

    10.9

    Indemnification Agreement, dated as of May 1, 2008, by and between China TransInfo Technology Corp. and Jay Trien. [Incorporated by reference to Exhibit 10.4 to the registrant’s current report on Form 8-K filed on May 6, 2008]+

       

    10.10

    Indemnification Agreement, dated as of May 1, 2008, by and between China TransInfo Technology Corp. and Zhongsu Chen. [Incorporated by reference to Exhibit 10.5 to the registrant’s current report on Form 8-K filed on May 6, 2008]+

       

    10.11

    Indemnification Agreement, dated as of May 1, 2008, by and between China TransInfo Technology Corp. and Dan Liu. [Incorporated by reference to Exhibit 10.6 to the registrant’s current report on Form 8-K filed on May 6, 2008]+

       

    10.12

    Equity Transfer Agreement, dated May 9, 2008, by and among Xu Wang, Tieying Zhao and PKU. [Incorporated by reference to Exhibit 10.1 to the registrant’s quarterly report on Form 10-Q filed on May 13, 2008]

       

    10.13

    Equity Transfer Agreement, dated May 22, 2008, by and among Beijing Marine Communication & Navigation Company, China TranWiseway Information Technology Co., Ltd. and Beijing PKU Chinafront High Technology Co., Ltd [Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on May 29, 2008]

       

    10.14

    Securities Purchase Agreement, by and among China TransInfo Technology Corp., Beijing PKU Chinafront High Technology Co., Ltd. and SAIF Partners III L.P., dated July 17, 2008. [Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on July 18, 2008]

       

    10.15

    Voting Agreement, by among China TransInfo Technology Corp., Karmen Investment Holdings Limited, Leguna Verde Investments Limited and SAIF Partners III L.P., dated July 17, 2008. [Incorporated by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K filed on July 18, 2008]

       

    10.16

    Cooperation Agreement, dated August 6, 2006, between Beijing PKU Chinafront Technology Co., Ltd. and Earth and Space College, Peking University. [Incorporated by reference to Exhibit 10.18 to the registrant’s current report on Form 8-K filed on May 14, 2007]

       

    10.17

    Loan Agreement, dated June 17, 2008, by and between China TransInfo Technology Corp. and Beijing Bank, Youyi Branch. [Incorporated by reference to Exhibit 10.1 to the registrant’s quarterly report on Form 10-Q filed on August 14, 2008]

       

    10.18

    Equity Transfer Agreement, dated September 16, 2008, by and among Beijing Zhangcheng Culture and Media Co., Ltd., Sun Jian, Xin Yibo and Zhu Juntao. [Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on September 19, 2008]

       

    10.19

    China TransInfo Technology Corp. Director Agreement, dated as of September 28, 2008, by and between China TransInfo Technology Corp. and Brandon Ho-Ping Lin. [Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on October 2, 2008]+

       

    10.20

    China TransInfo Technology Corp. Director Agreement, dated as of September 28, 2008, by and between China TransInfo Technology Corp. and Dongyuan Yang. [Incorporated by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K filed on October 2, 2008]+

    71



    10.21  

    Indemnification Agreement, dated as of September 28, 2008, by and between China TransInfo Technology Corp. and Brandon Ho-Ping Lin. [Incorporated by reference to Exhibit 10.3 to the registrant’s current report on Form 8-K filed on October 2, 2008]+

       

    10.22  

    Indemnification Agreement, dated as of September 28, 2008, by and between China TransInfo Technology Corp. and Dongyuan Yang. [Incorporated by reference to Exhibit 10.4 to the registrant’s current report on Form 8-K filed on October 2, 2008]+

       

    10.23  

    Equity Transfer Agreement, dated October 1, 2008, by and among Beijing PKU Chinafront High Technology Co., Ltd. and Qing Lu, Xiaohong Chen, Hangfei Lin, Gang Li, Jianzhong Zhang and Jieqing Guo. [Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on October 7, 2008]

       

     

    10.24  

    Equity Transfer Agreement, by and between Oriental Intra-Asia Entertainment (China) Limited and China TransInfo Technology Group Co., Ltd., dated February 3, 2009. [Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on February 6, 2009]

       

    10.25  

    Equity Transfer Agreement, by and between Beijing PKU Chinafront High Technology Co., Ltd. and China TransInfo Technology Group Co., Ltd., dated February 3, 2009. [Incorporated by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K filed on February 6, 2009]

       

    10.26  

    Equity Transfer Agreement, by and between Beijing PKU Chinafront High Technology Co., Ltd. and China TransInfo Technology Group Co., Ltd., dated February 3, 2009. [Incorporated by reference to Exhibit 10.3 to the registrant’s current report on Form 8-K filed on February 6, 2009]

       

    10.27  

    Equity Transfer Agreement, by and between Beijing PKU Chinafront High Technology Co., Ltd. and China TransInfo Technology Group Co., Ltd., dated February 3, 2009. [Incorporated by reference to Exhibit 10.4 to the registrant’s current report on Form 8-K filed on February 6, 2009]

       

    10.28  

    Equity Transfer Agreement, by and between Beijing PKU Chinafront High Technology Co., Ltd. and China TransInfo Technology Group Co., Ltd., dated February 3, 2009. [Incorporated by reference to Exhibit 10.5 to the registrant’s current report on Form 8-K filed on February 6, 2009]

       

    10.29  

    Equity Transfer Agreement, by and between Beijing PKU Chinafront High Technology Co., Ltd. and China TransInfo Technology Group Co., Ltd., dated February 3, 2009. [Incorporated by reference to Exhibit 10.6 to the registrant’s current report on Form 8-K filed on February 6, 2009]

       

    10.30  

    Exclusive Technical Development and Consulting Agreement, by and among Oriental Intra-Asia Entertainment (China) Limited, China TransInfo Technology Group Co., Ltd., Beijing PKU Chinafront High Technology Co., Ltd., Beijing Tian Hao Ding Xin Science and Technology Co., Ltd., Beijing Zhangcheng Culture and Media Co., Ltd., Beijing Zhangcheng Science and Technology Co., Ltd., China TranWiseway Information Technology Co., Ltd., Shanghai Yootu Information Technology Co., Ltd., Xinjiang Zhangcheng Science and Technology Co., Ltd., and Dalian Dajian Zhitong Information Service Co., Ltd., dated February 3, 2009. [Incorporated by reference to Exhibit 10.7 to the registrant’s current report on Form 8-K filed on February 6, 2009]

       

    10.31  

    Equity Pledge Agreement, by and among Oriental Intra-Asia Entertainment (China) Limited, Shudong Xia, Zhiping Zhang, Zhibin Lai and Wei Gao, dated February 3, 2009. [Incorporated by reference to Exhibit 10.8 to the registrant’s current report on Form 8-K filed on February 6, 2009]

       

    10.32  

    Option Agreement, by and among Oriental Intra-Asia Entertainment (China) Limited, Shudong Xia, Zhiping Zhang, Zhibin Lai and Wei Gao, dated February 3, 2009. [Incorporated by reference to Exhibit 10.9 to the registrant’s current report on Form 8-K filed on February 6, 2009]

       

    10.33  

    Power of Attorney, signed by Shudong Xia, dated February 3, 2009. [Incorporated by reference to Exhibit 10.10 to the registrant’s current report on Form 8-K filed on February 6, 2009]

       

    10.34  

    Power of Attorney, signed by Zhiping Zhang, dated February 3, 2009. [Incorporated by reference to Exhibit 10.11 to the registrant’s current report on Form 8-K filed on February 6, 2009]  

    72



    10.35

    Power of Attorney, signed by Zhibin Lai, dated February 3, 2009. [Incorporated by reference to Exhibit 10.12 to the registrant’s current report on Form 8-K filed on February 6, 2009]

       

    10.36

    Power of Attorney, signed by Wei Gao, dated February 3, 2009. [Incorporated by reference to Exhibit 10.13 to the registrant’s current report on Form 8-K filed on February 6, 2009]

       

    10.37

    Operating Agreement, by and among Oriental Intra-Asia Entertainment (China) Limited, China TransInfo Technology Group Co., Ltd., Beijing PKU Chinafront High Technology Co., Ltd., Beijing Tian Hao Ding Xin Science and Technology Co., Ltd., Beijing Zhangcheng Culture and Media Co., Ltd., Beijing Zhangcheng Science and Technology Co., Ltd., China TranWiseway Information Technology Co., Ltd., Shanghai Yootu Information Technology Co., Ltd., Xinjiang Zhangcheng Science and Technology Co., Ltd., and Dalian Dajian Zhitong Information Service Co., Ltd., Shudong Xia, Zhiping Zhang, Zhibin Lai and Wei Gao, dated February 3, 2009. [Incorporated by reference to Exhibit 10.14 to the registrant’s current report on Form 8-K filed on February 6, 2009].

       

    10.38

    English Translation of Equity Transfer Agreement, by and between Shudong Xia and Unisplendour Corporation Limited, dated September 8, 2009. [Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on September 14, 2009]

       

    10.39

    Option Agreement, by and between Shudong Xia and China TransInfo Technology Group Co., Ltd., dated September 8, 2009. [Incorporated by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K filed on September 14, 2009]

       

    10.40

    English Translation of the Short-term Loan Agreement, by and between Beijing PKU Chinafront High Technology Co., Ltd. and Huaxia Bank, Zhichunlu Branch, dated September 29, 2009. [Incorporated by reference to Exhibit 10.1 to the registrant’s quarterly report on Form 10-Q filed on November 13, 2009]

       

    10.41

    English Translation of Lease Agreement, by and between China TransInfo Technology Group Co., Ltd. and Beijing Weishi Hotel Management Co. Ltd., dated August 18, 2009. [Incorporated by reference to Exhibit 10.2 to the registrant’s quarterly report on Form 10-Q filed on November 13, 2009]

       

    10.42

    English Translation of Acting in Concert Agreement, by and among China TransInfo Technology Group Co., Ltd. and four individual directors of Beijing UNISITS Technology Co., Ltd. dated September 2009. [Incorporated by reference to Exhibit 10.3 to the registrant’s quarterly report on Form 10-Q filed on November 13, 2009]

       

    10.43

    Securities Purchase Agreement, dated February 21, 2010, by and between the Company and SAIF Partners III L.P [Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on February 23, 2010]

       

    10.44

    English Translation of Equity Transfer Agreement, by and among the Group Company and certain individual shareholders of UNISITS, dated March 22, 2010. [Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on March 26, 2010]

       

    10.45

    English Translation of Equity Transfer Agreement, by and among the Company, the Group Company, Shih Ming Holdings Limited and certain individual shareholders of UNISITS, dated March 22, 2010. [Incorporated by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K filed on March 26, 2010]

       

    10.46

    English Translation of Equity Transfer Agreement, by and among the Company, the Group Company, Large Crown Holdings Limited and certain individual shareholders of UNISITS, dated March 22, 2010. [Incorporated by reference to Exhibit 10.3 to the registrant’s current report on Form 8-K filed on March 26, 2010]

       

    10.47

    China TransInfo Technology Corp. Independent Director Contract, dated as of June 14, 2010, by and between China TransInfo Technology Corp. and Xingming Zhang. [Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on June 17, 2010]+  

    73



    10.48

    Indemnification Agreement, dated as of June 14, 2010, by and between China TransInfo Technology Corp. and Xingming Zhang. [Incorporated by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K filed on June 17, 2010]+

       

    10.49

    China TransInfo Technology Corp. Stock Option Agreement, dated as of June 14, 2010, by and between China TransInfo Technology Corp. and Xingming Zhang. [Incorporated by reference to Exhibit 10.3 to the registrant’s current report on Form 8-K filed on June 17, 2010]+

       

    10.50

    Loan Agreement, dated June 21, 2010, by and between Beijing PKU Chinafront High Technology Co.,Ltd. and Bank of Beijing, Zhongguancun Branch. [Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on June 25, 2010]

       

    10.51

    English Translation of Loan Agreement, dated November 29, 2010, by and between China TranWiseway Technology Co., Ltd. and Zhongguancun Haidianyuan Branch of Bank of Beijing Co., Ltd [Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on December 3, 2010]

       

    10.52

    Employment Agreement by and between China TransInfo Technology Corp. and Roger (Rong) Zhang, dated December 21, 2010. [Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on December 28, 2010]+

       

    10.53

    Stock Option Agreement by and between China TransInfo Technology Corp. and Rong Zhang, dated January 3, 2011. [Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on January 7, 2011]+

       

    10.54

    Employment Agreement by and between China TransInfo Technology Corp. and Shan Qu, dated January 26, 2011.*+

       

    10.55

    Stock Option Agreement by and between China TransInfo Technology Corp. and Shan Qu, dated January 26, 2011.*+

       

    21  

    Subsidiaries of the Company.*

       

    23.1

    Consent of BDO China Li Xin Da Hua CPA Co., Ltd., Independent Registered Public Accounting Firm.*

       

    31.1  

    Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

       

    31.2  

    Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

       

    32.1  

    Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

       

    32.2  

    Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

    *Filed herewith.

    + Represents management contract or compensatory plan or arrangement.

    74


    SIGNATURES

    In accordance with section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this Report on Form 10-K to be signed on its behalf by the undersigned, thereto duly authorized individual.

    Date: March 29, 2011

    CHINA TRANSINFO TECHNOLOGY CORP.
       
    By: /s/ Shudong Xia                                            
      Shudong Xia
      Chief Executive Officer
       
    By: /s/ Rong Zhang                                               
      Rong Zhang
      Chief Financial Officer

    In accordance with 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.

    Each person whose signature appears below hereby authorizes Shudong Xia and Rong Zhang, and each or any of them, as attorneys-in-fact to sign on his or her behalf, individually, and in each capacity stated below, and to file all amendments and/or supplements to this annual report on Form 10-K.

    Signature   Title Date
           
    /s/ Shudong Xia   Chairperson, Chief Executive Officer, President and Secretary March 29, 2011
    Shudong Xia   (Principal Executive Officer)  
           
    /s/ Rong Zhang   Chief Financial Officer March 29, 2011
    Rong Zhang   (Principal Financial and Accounting Officer)  
           
    /s/ Danxia Huang   Vice President of Operations, Treasurer and Director March 29, 2011
    Danxia Huang      
           
    /s/ Zhibin Lai   Vice President March 29, 2011
    Zhibin Lai      
           
    /s/ Zhiping Zhang   Vice President of Research and Development March 29, 2011
    Zhiping Zhang      
           
    /s/ Shan Qu
      Vice President March 29, 2011
    Shan Qu      
           
    /s/ Jay Trien   Director March 29, 2011
    Jay Trien      
           
    /s/ Zhongsu Chen   Director March 29, 2011
    Zhongsu Chen      
           
    /s/ Dan Liu   Director March 29, 2011
    Dan Liu      

    75



    /s/ Brandon Ho-Ping Lin   Director March 29, 2011
    Brandon Ho-Ping Lin      
           
           
    /s/ Xingming Zhang   Director March 29, 2011
    Xingming Zhang      

    76


    Report of Independent Registered Public Accounting Firm

    Board of Directors and Stockholders
    China TransInfo Technology Corp.
    Beijing, China

    We have audited the accompanying consolidated balance sheets of China TransInfo Technology Corp. as of December 31, 2010 and 2009 and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2010. These 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 audit 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 included 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 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 China TransInfo Technology Corp. at December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

    BDO China Li Xin Da Hua CPA Co., Ltd.
    Shenzhen, P.R.C.
    March 29, 2011

    77


    CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
    CONSOLIDATED BALANCE SHEETS

        December 31,     December 31,  
        2010     2009  

    ASSETS

               

    Current Assets:

               

    Cash and cash equivalents

    $  43,916,597   $  27,400,420  

    Restricted cash

      3,131,660     1,591,076  

    Accounts receivable, net of allowance for doubtful accounts of $92,749 and $38,209, respectively

    26,881,280 14,968,778

    Inventory

      1,079,221     482,286  

    Cost and estimated earnings in excess of billings on uncompleted contracts

    38,626,089 33,853,708

    Prepayments

      18,551,801     5,871,997  

    Other receivables

      10,632,452     8,416,096  

    Deferred tax assets

      25,508     28,715  

    Total current assets

      142,844,608     92,613,076  
                 

    Long-term investments

      8,760,692     8,027,122  

    Property and equipment, net

      10,878,276     10,541,486  

    Intangible assets, net

      7,402,829     4,494,781  

    Goodwill

      10,319,768     9,979,631  

    Other assets

      319,679     826,671  

     

               

    Total assets

    $  180,525,852   $  126,482,767  

     

               

    LIABILITIES AND SHAREHOLDERS' EQUITY

               

    Current Liabilities:

               

    Accounts payable

    $  32,296,459   $  20,728,539  

    Short-term borrowings from banks

      13,728,850     7,481,700  

    Loans payable to related parties

      -     -  

    Billings in excess of costs and estimated earnings on uncompleted contracts

    14,080,475 17,021,936

    Accrued liabilities and other current liabilities

      8,988,180     3,022,140  

    Total current liabilities

      69,093,964     48,254,315  
                 

    Other long-term liability

      200,699     389,489  

    Total liabilities

      69,294,663     48,643,804  

    Commitments and contingencies

               

    Stockholders' equity :

               

    Preferred stock, par value $0.001 per share, 10,000,000 shares authorized and 0 shares issued and outstanding

    - -

    Common stock, par value $0.001 per share, 150,000,000 shares authorized , 25,270,069 and 22,452,745 issued and outstanding, respectively

    25,270 22,453

    Additional paid-in capital

      42,887,452     25,253,666  

    Retained earnings

      47,417,481     31,948,323  

    Noncontrolling interests

      15,873,242     18,499,475  

    Accumulated other comprehensive income

      5,027,744     2,115,046  
                 

    Total stockholders' equity

      111,231,189     77,838,963  
                 

    Total liabilities and stockholders' equity

    $  180,525,852   $  126,482,767  

    The accompanying notes are an integral part of the financial statements.

    F-1


    CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF INCOME

        Years Ended December 31,  
        2010     2009  

    Revenues

    $  122,727,958   $  63,686,121  

    Cost of sales

      80,279,465     38,310,183  

    Gross profit

      42,448,493     25,375,938  

    Selling, general and administrative expenses

      22,481,758     11,667,895  

    Income from operations

      19,966,735     13,708,043  

    Other income (expense):

               

    Interest income

      127,468     109,744  

    Interest expense

      (470,711 )   (244,574 )

    Subsidy income

      1,574,928     1,730,291  

    Other income (expense), net

      (54,443 )   91,439  

    Total other income

      1,177,242     1,686,900  

    Income before income taxes, non-controlling interests, and gain on equity investments in affiliates

    21,143,977 15,394,943

    Income tax expense provision

      2,074,187     677,355  

    Net income before non-controlling interests and gain on equity investments in affiliates

    19,069,790 14,717,588

    Gain on equity investments in affiliates due to proportional shares of the affiliates net income

    1,307,679 1,793,387

    Net income before non-controlling interests

      20,377,469     16,510,975  

    Non-controlling interests in net income of subsidiaries

      4,908,311     3,536,876  

    Net income - controlling interests

    $  15,469,158   $  12,974,099  

    Weighted average number of common shares of outstanding

               

    Basic

      24,647,707     22,333,765  

    Diluted

      24,683,208     22,505,641  

    Earnings per share -

               

    Basic

    $  0.63   $  0.58  

    Diluted

    $  0.63   $  0.58  

    The accompanying notes are an integral part of the financial statements.

    F-2


    CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF CASH FLOWS

        Years Ended December 31,  
        2010     2009  

    Cash flows from operating activities:

               

    Net income, including non-controlling interest

    $  15,469,158   $  12,974,099  

    Adjustments to reconcile net income to net cash provided by operating activities:

    Non-controlling interests

      4,908,311     3,536,876  

    Depreciation and amortization expenses

      2,007,246     1,320,031  

    Stock-based compensation

      1,160,016     505,464  

    Gain on equity investments in affiliates due to proportional shares of the affiliates net income

    (1,307,679 ) (1,793,387 )

    Loss on disposal of property and equipment

      (1,615 )   9,164  

    Allowance for doubtful accounts

      51,918     5,767  

    Deferred income tax

      4,081     189,586  

    (Increase) Decrease in assets:

               

    Restricted cash

      (1,449,515 )   634,402  

    Accounts receivable

      (11,171,621 )   (1,793,525 )

    Inventory

      (566,109 )   (414,369 )

    Prepayments

      (12,215,219 )   3,944,172  

    Other receivables

      (3,224,644 )   (1,169,751 )

    Cost and estimated earnings in excess of billings on uncompleted contracts

    (3,528,851 ) (16,350,203 )

    Other assets

      564,805     (678,646 )

    Decrease (Increase) in liabilities:

               

    Accounts payable

      10,592,767     3,687,044  

    Billings in excess of costs and estimated earnings on uncompleted contracts

    (3,434,336 ) 3,974,128

    Accrued liabilities and other current liabilities

      6,007,590     242,993  

    Net cash provided by operating activities

      3,866,303     8,823,845  

    The accompanying notes are an integral part of the financial statements.

    F-3


    CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (CONTINUED)

        Years Ended December 31,  
        2010     2009  

    Cash flows from investing activities:

               

    Cash from acquisitions

    $  73,970   $  12,210,500  

    Proceeds from disposal of property and equipment

      64,861     5,412  

    Refund from prepayment of building

            1,217,457  

    Purchases of property and equipment

      (1,841,087 )   (2,669,035 )

    Payments for acquisition of companies

      (260,966 )   (6,545,403 )

    Purchases of intangible assets

      (2,933,180 )   (2,543,933 )

    Dividends from equity or cost investees

      822,855        

    Net cash provided by (used in) investing activities

      (4,073,547 )   1,674,998  

     

               

    Cash flows from financing activities:

               

    Proceeds from short-term borrowings

      13,388,570     7,330,500  

    Payments of short-term borrowings

      (7,544,940 )   (2,932,200 )

    Minority shareholders' capital contribution

      209,335     87,960  

    Payment of dividends from subsidiaries' and variable interest entity

      (51,779 )   (2,791,434 )

    Proceeds from issuing shares

      10,000,000     -  

    Payments of transaction costs related shares issuance

      (611,601 )   (32,500 )

    Proceeds from (payments to) related parties

            (528,161 )

    Net cash provided by financing activities

      15,389,585     1,134,165  

     

               

    Effect of foreign currency exchange translation

      1,333,836     (355,052 )

     

               

    Net increase in cash

      16,516,177     11,277,956  

     

               

    Cash and cash equivalents – beginning

      27,400,420     16,122,464  

    Cash and cash equivalents – ending

    $  43,916,597   $  27,400,420  

     

               

    Supplemental disclosures:

               

    Interest paid

    $  416,554   $  228,899  

    Income taxes paid

    $  787,449   $  21,819  

    The accompanying notes are an integral part of the financial statements.

    F-4


    CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
    CONSOLIDATED
    STATEMENTS OF CHANGES
    IN STOCKHOLDERS’ EQUITY

        Common Stock  
    Additional
    Paid-In Capital
        Retained
    Earnings
        Accumulated Other
    Comprehensive Gain
        Noncontrolling
    Interest
        Total Stockholders'
    Equity
     
    Shares Amount

    Balance, January 1, 2009

      22,187,314     22,187     24,654,890     18,974,224     2,499,893     1,465,743     47,616,937  

    Reduction of noncontrolling interest due to restructuring

    126,078 (126,078 ) -

    Paid Transaction Cost debit to APIC

                  (32,500 )                     (32,500 )

    Issuance of common stock on cashless exercise of warrants

    177,931 178 (178 ) -

    Issuance of restricted shares

      87,500     88     (88 )                     -  

    Stock-based compensation

                  505,464                       505,464  

    Increase in noncontrolling interest of newly acquired subsidiaries including a subsidiary's subsidiaries

    13,740,228 13,740,228

    Minority shareholder's capital contribution pursuant to capital increase in subsidiaries

    87,960 87,960

    Cash dividends distributed by subsidiary of subsidiary

                                    (205,254 )   (205,254 )

    Translation adjustments

                              (384,847 )         (384,847 )

    Net income for the year

                        12,974,099           3,536,876     16,510,975  

    Balance, January 1, 2010

      22,452,745     22,453     25,253,666     31,948,323     2,115,046     18,499,475     77,838,963  

    Reduction of noncontrolling interest due to restructuring

    -

    Paid Transaction Cost debit to APIC

                  (611,255 )                     (611,255 )

    Issuance of common stock

      1,564,945     1,565     9,998,435                       10,000,000  

    Issuance of common stock on cashless exercise of warrants

    40,448 40 (40 ) -

    Issuance of restricted shares

      50,000     50     (50 )                     -  

    Stock-based compensation

                  1,160,016                       1,160,016  

    Decrease in noncontrolling interest of previously acquired subsidiaries including a subsidiary's subsidiaries

    (7,734,789 ) (7,734,789 )

    Issuance of common stock for contingent payment in previously acquired subsidiaries including a subsidiary's subsidiaries

    1,161,931 1,162 7,086,680 7,087,842 

    Minority shareholder's capital contribution pursuant to capital increase in subsidiaries

    253,339 253,339 

    Cash dividends distributed by subsidiary of subsidiary

                                    (53,094 )   (53,094 )

    Translation adjustments

                              2,912,698           2,912,698  

    Net income for the year

                        15,469,158           4,908,311     20,377,469  

    Balance, December 31, 2010

      25,270,069   $  25,270   $  42,887,452   $  47,417,481   $  5,027,744   $  15,873,242   $  111,231,189  

    F-5


    CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    DECEMBER 31, 2010

    1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    Organization and Description of Business—China TransInfo Technology Corp.(the “Company”), we, or us, was originally incorporated in Nevada on August 3, 1998, under the name R & R Ranching, Inc. to breed bison. At around March 2003, R & R Ranching Inc. sold its bison to Blue Sky Bison Ranch, Ltd.

    The Company has experienced several corporate name changes: GloTech Industries, Inc. in March 2003, Intra-Asia Entertainment Corporation in December 2003, and China TransInfo Technology Corp. in August 2007.

    On May 14, 2007, the Company entered into a share exchange agreement with Cabowise International Ltd. (“Cabowise”), a British Virgin Islands company, the stockholders of Cabowise, Weicheng International Inc. and Foster Growth Ltd. Pursuant to the share exchange agreement, the Company, among other things, agreed to issue to the stockholders of Cabowise an aggregate of 10,841,491 shares of its common stock in exchange for all of the issued and outstanding capital stock of Cabowise. In addition, Cabowise agreed to assign its option to purchase a majority equity interest in Beijing PKU Chinafront High Technology Co., Ltd.(“PKU”), to the Company’s indirect Chinese subsidiary Oriental Intra-Asia Entertainment (China) Limited (“Oriental Intra-Asia”).

    Cabowise does not have any subsidiaries nor is it engaged in any business. Cabowise’s sole asset was its option to purchase an eighty-five percent (85%) interest in PKU (the “PKU Option”). Pursuant to the share exchange agreement, Cabowise agreed to assign the PKU Option to Oriental Intra-Asia. On May 14, 2007, Cabowise, the Company and Oriental Intra-Asia entered into an assignment and assumption agreement whereby Cabowise assigned the PKU Option to Oriental Intra-Asia. On May 14, 2007, Oriental Intra-Asia exercised the PKU Option, and Oriental Intra-Asia became the owner of an eighty-five percent (85%) equity interest in PKU.

    The exchange of shares has been accounted for as a reverse acquisition under the purchase method of accounting since the shareholders of the PKU obtained control of the consolidated entity. Accordingly, the merger of the two companies has been recorded as a recapitalization of PKU, with PKU being treated as the continuing entity. The historical financial statements presented are those of PKU. The continuing company has retained December 31 as its fiscal year end.

    During August 2007, the Company completed a 1-for-7.5 reverse split of all issued and outstanding shares of common stock. The capital stock accounts and all share data in this report give effect to the reverse split, applied retroactively, for all periods presented.

    PKU is in the business of providing Geography Information System (“GIS”), application services to the Chinese governments in the sectors of Transportation, Land and Resources, and Digital City. PKU offers GIS application services that cover GIS system planning, deployment, system construction, data testing, system audit and optimization, user’s manual and customer training, through self-developed GIS platform software products applicable for two-dimension and three-dimension system models. PKU was incorporated in Beijing, China on October 30, 2000.

    In addition to PKU and subsidiaries, the Company has the following operating variable interest entities:

    • Beijing Tian Hao Ding Xin Science and Technology Co., Ltd.(“Beijing Tian Hao”), was established on December 31, 2005 with registered capital of RMB 5 million (approximately $0.73 million). Beijing Tian Hao is engaged in the business of GIS application research and development.

    • Beijing Zhangcheng Science & Technology Co., Ltd.(“Beijing Zhangcheng Science”), was established on October 12, 2007 with registered capital of RMB 10 million (approximately $1.46 million). Beijing Zhangcheng is engaged in the business of GIS application development for real time traffic information reporting.

    • Beijing Zhangcheng Culture and Media Co., Ltd.(“Zhangcheng Media”), was set up on June 8, 2008 with registered capital of RMB 5 million (approximately $0.73 million). Zhangcheng Media is mainly engaged in taxi media advertising business.

    F-6


    CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    DECEMBER 31, 2010

    • Shanghai Yootu Information Technology Co., Ltd.(“Shanghai Yootu”), was established on February 6, 2007 with registered capital of RMB 2 million (approximately $0.29 million). Shanghai Yootu is engaged in the business of real time traffic data application research and development.

    • China TranWiseway Technology Co., Ltd.(“China TranWiseway”), was established on June 28, 2004 with registered capital of RMB 0.5 million (approximately $0.07 million). China TranWiseway is engaged in the business of traffic surveying technology applications.

    On September 8, 2009, Mr. Shudong Xia, Chairman and Chief Executive Officer of the Company, executed agreement to acquire a 35.17% equity interest in Beijing UNISITS Technology Co., Ltd.(“UNISITS”) from Unisplendour Corporation Limited (“Unisplendour”), with a cash payment of RMB 44.4 million (approximately $6.53 million). Subsequently, on September 8, 2009, China TransInfo Technology Group Co., Ltd.(the “Group Company”), a variable interest entity of the Company entered into an option agreement with Mr. Xia, under which Mr. Xia granted to the Group Company a perpetual option to acquire all of Mr. Xia's equity interest in UNISITS for RMB 44.4 million (approximately $6.53 million), which is the exercise price. The exercise price of the option was prepaid upon the granting of the option. Concurrently, the Group Company acquired from Mr. Xia the rights to his share of all future UNISITS dividends or other distributions. Mr. Xia pledged his equity interest in UNISITS to the Group Company for five years. The Group Company expects to exercise the option and take title to the equity interest now held by Mr. Xia upon the expiration of the five-year term of the pledge agreement when the option first becomes exercisable. In September 2009, the Group Company and four of five board directors of UNISITS entered into an Acting in Concert Agreement. The agreement allows the Group Company to govern the financial and operating policies of UNISITS and therefore to obtain the control of UNISITS. As a result, UNISITS became a variable interest entity of the Group Company and its financials has been included in the Company’s consolidated financial statements.

    On March 22, 2010, the Company and the Group Company entered into equity transfer agreements (“Equity Transfer Agreements”) with several individual shareholders (“Transferors”) of UNISITS, pursuant to which the Group Company acquired 30.85% equity interest in UNISITS from the Transferors. Pursuant to the Equity Transfer Agreements, the Group Company purchased approximately 16.23 million shares of UNISITS from the Transferors in exchange for RMB 4.41 million (approximately $0.65 million) in cash (“Cash Consideration”), 40% of which is payable within seven days after the effective date of the Equity Transfer Agreements, and approximately 1.16 million shares of the Company common stock, which are issuable within 30 days of the effective date of the Equity Transfer Agreements. The Equity Transfer Agreements contain “make good” provisions, under which the Transferors agree to deposit a total of 697,162 shares (60% of total common stock consideration) of the Company common stock valued at $8.01 per share, which is the share price on acquisition date, for a total value of $5.58 million, with an escrow agent designated by the Company that the Transferors will receive as partial consideration for the acquisition. Specifically, if UNISITS’s 2010 after-tax net income under Chinese GAAP is less than RMB 37.50 million (approximately US$5.50 million) or its 2011 after-tax net income under Chinese GAAP is less than RMB 46.88 million (approximately US$6.86 million), then 50% of the shares of the Company common stock deposited by the Transferors in escrow will be returned to the Company for cancellation for each applicable year. In addition, for each applicable year as described above, the Company will not be required to pay the remainder of the Cash Consideration, which represents RMB 1.323 million (approximately US$0.19 million), or 30% of the total Cash Consideration, per year if UNISITS fails to meet the respective performance targets. Total consideration for this acquisition, including contingent consideration and stock, amounts to $9.95 million on the acquisition date.

    UNISITS is a company organized on November 8, 2002 under the laws of the People's Republic of China, engaging in the business of providing traffic engineering E&M systems, intelligent transportation products, and intelligent transportation services (ITS) to the domestic expressway, railway, and urban transportation markets.

    F-7


    CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    DECEMBER 31, 2010

    Principles of Consolidation—The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries Oriental Intra-Asia Entertainment (Asia Pacific) Limited, Intra-Asia Entertainment (China) Limited and Cabowise, its indirectly owned subsidiaries Oriental Intra-Asia, and the Company’s variable interest entities, or the VIE Entities, and the VIE Entities’ respective subsidiaries, including the Group Company, PKU, Beijing Tian Hao , Beijing Zhangcheng, Xinjiang Zhangcheng, Zhangcheng Media, China TranWiseway, Hunan Tran Wiseway, Hebei Tran Wiseway, Guizhou TranWiseway, Dajian Zhitong, Shanghai Yootu, UNISITS, Hangzhou Ziguang Jietong Technology Co., Ltd., Hangzhou UNISITS, Henan Ziguang Jietong Technology Co., Ltd.(“Henan UNISITS”), and Beijing Ziguang Jinzhidun Information Technology Co., Ltd. (“Beijing UNISITS”). All material intercompany accounts, transactions, and profits have been eliminated in consolidation.

    The consolidated financial statements include the accounts of VIE and VIE’s majority owned subsidiaries, which approximates 3% to 70% owned by noncontrolling interests. All intercompany accounts, transactions, and profits have been eliminated upon consolidation.

    VIE Restructuring—Current Chinese laws restrict companies with foreign ownership to operate in three business areas that we recently entered into: online services, taxi advertising, and security and surveillance related business. In order to comply with the applicable Chinese laws, we determined to restructure our subsidiaries and entered into a series of commercial arrangements to allow the Company to operate in these restricted business areas (“Restructuring”). On February 3, 2009, as described below, through the Company’s indirect Chinese subsidiary, Oriental Intra-Asia and Oriental Intra-Asia’s former subsidiary, PKU, the Company entered into a series of equity transfer agreements with China TransInfo Technology Group Co., Ltd., a company formed under Chinese law (the “Group Company”), pursuant to which we transferred all of the Company’s indirect equity interests in PKU and PKU’s subsidiaries to the Group Company. Established in China on May 26, 2008, the Group Company is wholly owned by four Chinese affiliates of the Company, Shudong Xia, our Chairman, CEO and President and the beneficial owner of approximately 43% of the Company’s outstanding capital stock, Zhiping Zhang, the Company’s Vice President of Research and Development, Zhibin Lai, the Company’s Vice President and Wei Gao, the designee of SAIF Partners III L.P., a 12% shareholder of the Company (the “Group Company Shareholders”).

    Through Oriental Intra-Asia and PKU, we entered into the following specific agreements to transfer all of its equity interests in its respective Chinese subsidiaries to the Group Company (the “Equity Transfer”):

    • Pursuant to an equity transfer agreement (the “PKU Equity Transfer Agreement”), entered into by and between Oriental Intra-Asia and the Group Company, Oriental Intra-Asia transferred all of its 97% equity interests in PKU to the Group Company;

    • Pursuant to an equity transfer agreement (the “Beijing Tian Hao Equity Transfer Agreement”), entered into by and between PKU and the Group Company, PKU transferred all of its 100% equity interests in Beijing Tian Hao Ding Xin Science and Technology Co., Ltd. to the Group Company;

    • Pursuant to an equity transfer agreement (the “China TranWiseway Equity Transfer Agreement”), entered into by and between PKU and the Group Company, PKU transferred all of its 70% equity interests in China TranWiseway Information Technology Co., Ltd. to the Group Company;

    • Pursuant to an equity transfer agreement (the “Zhangcheng Culture Equity Transfer Agreement”), entered into by and between PKU and the Group Company, PKU transferred all of its 100% equity interests in Zhangcheng Culture and Media Co., Ltd. to the Group Company;

    • Pursuant to an equity transfer agreement (the “Zhangcheng Science Equity Transfer Agreement”), entered into by and between PKU and the Group Company, PKU transferred all of the 100% equity interests in Beijing Zhangcheng Science and Technology Co., Ltd. to the Group Company; and

    • Pursuant to an equity transfer agreement (the “Shanghai Yootu Equity Transfer Agreement”), entered into by and between PKU and the Group Company, PKU transferred all of its 100% equity interests in Shanghai Yootu Information Technology Co., Ltd. to the Group Company.

    F-8


    CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    DECEMBER 31, 2010

    In connection with the Equity Transfer, on February 3, 2009, the following contractual arrangements were also made among relevant parties, which have given us contractual rights to control and manage the business of the Group Company and the Group Company’s subsidiaries (the “Contractual Arrangement” and together with the Equity Transfer, the “Restructuring”):

    • Pursuant to an exclusive technical consulting and services agreement (the “Service Agreement”), entered into by and among Oriental Intra-Asia, the Group Company and the Group Company’s subsidiaries, Oriental Intra-Asia agreed to provide certain technical and consulting services to the Group Company and the Group Company’s subsidiaries (each a “VIE Entity” and collectively, the “VIE Entities”) in exchange for the payment by each VIE Entity of an annual development and consulting services fee that is to be determined solely by Oriental Intra-Asia;

    • Pursuant to an equity pledge agreement (the “Pledge Agreement”), entered into by and among Oriental Intra-Asia and each of the Group Company Shareholders, the Group Company Shareholders agreed to pledge all of their equity interests in the Group Company (the “Equity Interests”), to Oriental Intra-Asia as collateral security for Oriental Intra-Asia’s collection of the fees under the Service Agreement;

    • Pursuant to an option agreement (the “Option Agreement”), entered into by and among Oriental Intra-Asia and each of the Group Company Shareholders, the Group Company Shareholders agreed to grant to Oriental Intra-Asia an option to purchase, from time to time, all or a part of the Equity Interests, at the exercise price equal to the lowest possible price permitted by Chinese laws;

    • Pursuant to separate powers of attorney (the “Powers of Attorney”), each Group Company Shareholder agreed to grant to Oriental Intra-Asia a power to excise on his or her behalf all voting rights as a shareholder at the shareholders’ meetings of the Group Company that have been given to him or her by law and by the Articles of Association of the Group Company; and

    • Pursuant to an operating agreement, entered into by and among Oriental Intra-Asia, the VIE Entities and the Group Company Shareholders, (a) Oriental Intra-Asia agreed to act as the guarantor for the VIE Entities in the contracts, agreements or transactions in connection with the VIE Entities’ operation between the VIE Entities and any other third parties and to provide full guarantee for the VIE Entities in performing such contracts, agreements or transactions, subject to applicable laws, in exchange for which the VIE Entities agreed to mortgage the receivables of their operation and all of their assets which have not been mortgaged to any third parties to Oriental Intra-Asia, and (b) the VIE Entities and the Group Company Shareholders agreed to accept the provision of the corporate policies and guidance by Oriental Intra-Asia at any time in respect of the appointment and dismissal of the VIE Entities’ employees, the VIE Entities’ daily operation and administration as well as financial administrative systems, including the appointment of senior managers recommended by Oriental Intra-Asia (the “Operating Agreement” and together with the Service Agreement, Pledge Agreement, Option Agreement, Powers of Attorney, the PKU Equity Transfer Agreement, the Beijing Tian Hao Equity Transfer Agreement, the China TranWiseway Equity Transfer Agreement, the Zhangcheng Culture Equity Transfer Agreement, the Zhangcheng Science Equity Transfer Agreement, and the Shanghai Yootu Equity Transfer Agreement, the “Restructuring Documents”).

    The main purpose of the Restructuring is to allow the Company to engage in online services, taxi advertising and security and surveillance related business in China in which companies with foreign ownership, like the Company and its subsidiaries, are either prohibited or restricted from operating under the current applicable Chinese laws and regulations. As a result of the Restructuring, the Company transferred all of the Company’s indirect equity interests in PKU and PKU’s subsidiaries to the affiliated Group Company and accordingly, PKU and PKU’s subsidiaries became direct and indirect subsidiaries of the Group Company, which is wholly owned by the Group Company Shareholders who are all Chinese citizens. Through contractual agreement, the Company acts as the primary beneficiary and maintains substantial control over the variable interest entities’ daily operations and financial affairs, election of their senior executives and all matters requiring shareholders approval. Furthermore, as the primary beneficiary of the variable interest entities, the Company , under ASC Topic 810 “Consolidation (formerly FASB Interpretation No. 46 (R) “Consolidation of Variable Interest Entities”), the Company is entitled to consolidate the variable interest entities into the Company’s financial statements because the Contractual Arrangement provides the Company with the risks and rewards associated with equity ownership, even though the Company does not own any of the outstanding equity interests in any of the variable interest entities. As a result the Restructuring, the Company is able to engage in these three business areas through the variable interest entities and derive the economic benefits that the Company would otherwise have as the owner of variable interest entities while still complying with Chinese laws.

    F-9


    CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    DECEMBER 31, 2010

    The following charts reflect our organizational structure as of December 31, 2010 and 2009, respectively:

    F-10


    CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    DECEMBER 31, 2010

    Organizational Structure of the Company, as of December 31, 2010:


    F-11


    CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    DECEMBER 31, 2010

    Organizational Structure of the Company, as of December 31, 2009:


    F-12


    CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    DECEMBER 31, 2010

    On October 19, 2010, the Group Company entered into a registered capital contribution agreement with Beijing Shiji Yingli Science and Technology Co., Ltd. (“Shiji Yingli”) whereby Shiji Yingli agreed to contribute RMB 9.6 million (approximately $1.4 million) in cash and RMB 44.6 million (approximately $6.6 million) in intangible assets (mostly technology and intellectual property owned by Shiji Yingli) into the Group Company’s wholly owned subsidiary, Beijing Zhangcheng in exchange for a 49% equity interest in Beijing Zhangcheng. Under the procedure of Beijing Administration for Industry & Commerce (BAIC), the transaction is expected to be completed by the end of March, 2011. Following this transaction, the Group Company will retain a 51% majority ownership of Beijing Zhangcheng while Shiji Yingli will own the rest 49% equity interest.

    On October 21, 2010, the Group Company entered into a registered capital contribution agreement with Beijing Marine Communication & Information Co., Ltd. (“Beijing Marine”) and Zhongyuan Credit Guarantee Co., Ltd.(“Zhongyuan Credit”) whereby Zhongyuan Credit agreed, to contribute RMB 30 million (approximately $4.38 million) in cash into the Group Company’s majority-owned subsidiary, China TranWiseway in exchange for a 30% equity interest in China TranWiseway. Under the procedure of Beijing Administration for Industry & Commerce (BAIC), the transaction is expected to be completed by the end of March, 2011. Following this transaction, the Group Company will retain a 55% majority ownership of China TranWiseway while Beijing Marine and Zhongyuan Credit will own 15% and 30% equity interest in China TranWiseway, respectively.

    Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include accrued warranty costs, as well as revenue and costs recorded under the percentage-of-completion method. Actual results could materially differ from those estimates.

    Segment Information—ASC 280 requires companies to report information about operating segment in interim and annual financial statements. It also requires segment disclosures about products and services geographic and major customers. The Company has determined that it does not have any separately reportable operating segments.

    Cash and Cash Equivalents—The Company classifies all highly liquid investments purchased with a maturity of three months or less as cash equivalents.

    Accounts Receivable—Accounts receivable are carried at original invoice amount less the allowance for doubtful accounts based on a review of all outstanding amounts at year end. Management determines the allowance for doubtful accounts by using historical experience applied to an aging of accounts. Trade receivables are written off when deemed uncollectible.

    Long-Term Investments—The Company classifies long-term investments as available-for-sale in accordance with ASC 320, Investments – Debt and Equity Securities, and are reported at fair value. Unrealized gains and losses as a result of changes in the fair value of the available-for-sale investments are recorded as a separate component within accumulated other comprehensive income in the accompanying consolidated balance sheets.

    The Company uses the cost method of accounting for investments in companies that do not have a readily determinable fair value in which it holds an interest of less than 20% and over which it does not have the ability to exercise significant influence. For entities in which the Company holds an interest of greater than 20% or in which the Company does have the ability to exercise significant influence, the Company uses the equity method.

    The Company’s investments also include privately-held companies where quoted market prices are not available and as a result, the cost method, combined with other intrinsic information, is used to assess the fair value of the investment. If the carrying value is above the fair value of an investment at the end of any period, the investment is considered for impairment. Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established.

    F-13


    CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    DECEMBER 31, 2010

    Property and Equipment—Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is provided for using straight-line methods over the estimated useful lives of the respective assets. Amortization of leasehold improvements is over the lesser of the lease term or useful life of the improvement.

      Useful Lives (Years)
    Automobiles 5 -10
    Machinery and equipments 4 -7
    Furniture and fixtures 3 -5

    Amortization of Intangible Assets—Intangible assets primarily include the costs of capitalized R&D costs, costs for purchased intangibles and intangibles result from acquisitions. Purchased intangible costs are amortized on a straight-line basis over the estimated useful lives of the assets, which approximate 10 years. Intangible assets result from acquisitions and include developed technology, customer-related intangibles, trade names and other identifiable intangible assets with finite lives. With the exception of developed technology, these intangible assets are amortized using the straight-line method. Developed technology is amortized over the greater of (1) the amount calculated using the ratio of current quarter revenues to the total of current quarter and anticipated future revenues over the estimated useful life of the developed technology, and (2) the straight-line method over each developed technology’s remaining useful life. Amortization of developed technology is recorded within cost of revenues. Amortization of customer-related intangibles, trade names and other identifiable intangible assets is recorded within operating expenses.

    Intangible asset capitalized
    For the year ended December 31, 2010 and 2009, the intangible asset capitalized but not yet amortized were $1,510,823 and $2,126,399, respectively.

    Purchased assets from third parties for further research and development
    The Company purchased software from third parties for further research and development for total cash consideration of $986,050 and $1,184,057 for the years ended December 31, 2010 and 2009, respectively.

    Intangible asset capitalized through internal R&D or through acquisition and amortized
    For the years ended December 31, 2010 and 2009, the intangible asset capitalized through internal R&D or through acquisition and amortized were $4,000,047 and $711,028, and the amortization expenses for these assets were $211,237 and $74,380, respectively.

    The Company performed an annual impairment testing for indefinite-lived intangible assets during the twelve months ended December 31, 2010 and 2009, and the Company determined that there was no impairment in any of these years. The Company performs its annual impairment test as of the last day of the fiscal year. These impairment tests must be performed more frequently if there are triggering events.

    Revenue Recognition—The Company recognizes revenue in accordance with ASC 605, Revenue Recognition, when persuasive evidence of an arrangement exists, the price is fixed or determinable, collection is reasonably assured and delivery of products has occurred or services have been rendered.

    The Company’s revenue of service fees are primarily fixed price contracts. Revenue on eligible fixed price contracts is recognized on the basis of the estimated percentage-of-completion within the scope of ASC 605 and is consistently applied for all fixed price contracts. Such contracts include services provided for software development projects, IT outsourcing and solutions, system integration, and network integration services at fixed price arrangements with its customers. Progress towards completion is typically measured based on achievement of specified contract milestones, or other measures of progress when available, or based on costs incurred as a proportion of estimated total costs. Profit in a given period is reported at the expected profit margin to be achieved on the overall contract. This method can result in the recognition of unbilled receivables or the deferral of costs or profit on these contracts. The company did not incur any deferred costs for the years ended December 31, 2010 and 2009. Management regularly reviews project profitability and underlying estimates. Revisions to the estimates at completion are reflected in results of operations as a change in accounting estimate in the period in which the facts that give rise to the revision become known by management. Provisions for estimated losses, if any, are recognized in the period in which the loss becomes evident. The provision includes estimated costs in excess of estimated revenue and any profit margin previously recognized. Any advance payments received from its customers prior to recognition of revenue is classified as a current liability as billings in excess of costs and estimated earnings on incompleted contracts.

    F-14


    CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    DECEMBER 31, 2010

    For taxi media advertising revenue, the Company recognizes deferred revenue when cash is received, but the revenue has not yet been earned. The Company recognizes taxi media advertising revenue ratably over the period in which the advertisement is to be published.

    The Company has very limited system maintenance and technology upgrade services for the systems/platforms we have built for clients. In most cases, such service revenue was secured on separate contracts basis. Such service revenues are recognized ratably over the service periods.

    Research and Development—Research and development expenses include payroll, employee benefits, and other headcount-related expenses associated with product development. Such costs related to product development costs are included in research and development expense until the point that technological feasibility is reached, which for the Company's products, is generally shortly before the products are released for the commercial use. Once technological feasibility is reached, such costs are capitalized and amortized to cost of revenue over the estimated lives of the products. As of December 31, 2010 and 2009, research and development expenses were capitalized in the amount of $4,776,643 and $2,126,399, respectively, and were included in intangible assets in the Company's consolidated balance sheet.

    Stock-Based Compensation—The Company accounts for stock-based compensation in accordance with ASC topic 718, Compensation–Stock Compensation (formerly SFAS No. 123 (revised 2004), Share-Based Payment), which requires the application of a fair-value-based measurement method in accounting for share-based payment transactions with employees. During 2010, we granted stock options as part of our key performer stock-based compensation program, as well as stock options or restricted stock units to management and directors. The vesting of stock option grants may be based on time, performance, market conditions, or a combination of performance and market conditions. In the future, we may grant stock awards, options, or other equity-based instruments allowed by our stock-based compensation plans, or a combination thereof, as part of our overall compensation strategy.

    The fair values of restricted stock awards with time-based vesting, including restricted stock and restricted stock units, are generally based on the intrinsic values of the awards at the date of grant. As permitted under ASC topic 718, we use the Black-Scholes option pricing model to estimate the fair value of stock option grants. The Black-Scholes model relies on a number of key assumptions to calculate estimated fair values. Our assumed dividend yield of zero is based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends. Our expected stock-price volatility assumption is based on recent (six to twelve months trailing) implied volatility calculations. These calculations are performed on exchange-traded options of our common stock. We believe that using a forward-looking market-driven volatility assumption will result in the best estimate of expected volatility. The assumed risk-free interest rate is the U.S. Treasury security rate with a term equal to the expected life of the option. The assumed expected life is based on company-specific historical experience. With regard to the estimate of the expected life, we consider the exercise behavior of past grants and model the pattern of aggregate exercises.

    We estimate forfeiture rates at the time awards are made based on historical and estimated future turnover rates and apply these rates in the calculation of estimated compensation cost. The estimation of forfeiture rates includes a quarterly review of historical turnover rates and an update of the estimated forfeiture rates to be applied to employee classes for the calculation of stock-based compensation. During 2010, forfeiture rates for the calculation of stock-based compensation were estimated and applied based on three classes, non-employee directors, executive management staff and other employees. At December 31, 2010, our annualized estimated forfeiture rates were 0% for non-employee director awards and 45-55% for both executive management staff and other employee awards. Then-current estimated forfeiture rates are also applied quarterly to all outstanding stock options and non-vested restricted stock awards, which may result in a revised estimate of compensation costs related to these stock-based grants.

    If factors change and we employ different assumptions for estimating stock-based compensation expense in future periods, or if we decide to use a different valuation model, the stock-based compensation expense we recognize in future periods may differ significantly from what we have recorded in the current period and could materially affect our operating income, net income and earnings per share. It may also result in a lack of comparability with other companies that use different models, methods and assumptions. See Note to our Consolidated Financial Statements in Item 10 for further information regarding stock-based compensation.

    F-15


    CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    DECEMBER 31, 2010

    Income Taxes—The Company accounts for income taxes in accordance with ASC 740, Income Taxes, which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when, in the opinion of management, it is more likely than not that some or all of any deferred tax assets will not be realized.

    The Company adopted ASC 740-10-25, Income Taxes-Overall-Recognition, on January 1, 2007, which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax position. The Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company did not recognize any additional liabilities for uncertain tax positions as a result of the implementation of ASC 740-10-25.

    Goodwill—The Company performs an annual goodwill impairment test on December 31 of each year in accordance with ASC subtopic 350-20, Goodwill (formerly SFAS No. 142), and updates the test between annual tests if events or circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying value. The Company performs the annual review for goodwill impairment at the reporting unit level, which the Company has determined to be an operating segment.

    The annual test of the potential impairment of goodwill requires a two step process. Step one of the impairment test involves comparing the estimated fair values of reporting units with their aggregate carrying values, including goodwill. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, step two must be performed to determine the amount, if any, of the goodwill impairment loss. If the carrying amount is less than fair value, further testing of goodwill impairment is not performed.

    Step two of the goodwill impairment test involves comparing the implied fair value of the reporting unit’s goodwill against the carrying value of the goodwill. Under step two, determining the implied fair value of goodwill requires the valuation of a reporting unit’s identifiable tangible and intangible assets and liabilities as if the reporting unit had been acquired in a business combination on the testing date. The difference between the fair value of the entire reporting unit as determined in step one and the net fair value of all identifiable assets and liabilities represents the implied fair value of goodwill. The goodwill impairment charge, if any, would be the difference between the carrying amount of goodwill and the implied fair value of goodwill upon the completion of step two.

    For purposes of the step one analysis, determination of reporting units’ fair value is typically based on the income approach, which estimates the fair value of the Company’s reporting units based on discounted future cash flows.

    The Company recorded $983,345, $189,748, $1,921,924, and $6,884,614 in goodwill in connection with its acquisitions (see Note 9) of equity of China TranWiseway, Dajian Zhitong, Shanghai Yootu, and UNISITS, respectively. As of December 31, 2010, the Company believed no goodwill was subject to the risk of impairment. In the disclosure of acquisitions, the Company uses the year-end exchange rate of the year when the acquisition occurred.

    Impairment of Long-Lived Assets—The Company accounts for the impairment and disposition of long-lived assets in accordance with ASC 360, Property, Plant and Equipment. The Company periodically evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset were less than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value.

    F-16


    CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    DECEMBER 31, 2010

    The assumptions used by management in determining the future cash flows are critical. In the event these expected cash flows are not realized, future impairment losses may be recorded. Management has determined that no impairments of long-lived assets currently exist.

    Concentrations of Credit Risk—Financial instruments that subject the Company to credit risk consist primarily of accounts receivable, which are concentrated in a small number of customers in the Chinese governments. The Company performs ongoing credit evaluations of its customers. For the years ended December 31, 2010 and 2009, bad debt expenses totaled $54,540 and $5,767, respectively.

    Translation Adjustment—The Company financial statements are presented in the U.S. dollar ($), which is the Company’s reporting currency, while its functional currency is Renminbi (RMB). Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the consolidated statements of income. Monetary assets and liabilities denominated in foreign currency are translated at the functional currency rate of exchange ruling at the balance sheet date. Any differences are taken to profit or loss as a gain or loss on foreign currency translation in the statements of income.

    In accordance with ASC 830, Foreign Currency Matters, the Company translates the assets and liabilities into U.S. dollar ($) using the rate of exchange prevailing at the balance sheet date and the statements of operations and cash flows are translated at an average rate during the reporting period. Adjustments resulting from the translation from RMB into U.S. dollar are recorded in stockholders’ equity as part of accumulated other comprehensive income. The exchange rates used for interim financial statements in accordance with ASC 830, Foreign Currency Matters, are as follows:

        Average Rate for the year  
    December 31,   2010     2009  
    Renminbi (RMB)   1.00     1.00  
    United States dollar ($)   0.1517     0.14661  

        Exchange Rate at  
    December 31,   2010     2009  
    Renminbi (RMB)   1.00     1.00  
    United States dollar ($)   0.14794     0.1467  

    Comprehensive Income—Comprehensive income includes accumulated foreign currency translation gains and losses. The Company has reported the components of comprehensive income on its statements of stockholders’ equity.

    Fair Value Measurements—Effective January 1, 2008, the Company adopted ASC 820, Fair Value Measurement and Disclosures, for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. The adoption of ASC 820, Fair Value Measurements and Disclosures, to the Company’s financial assets and liabilities and non-financial assets and liabilities that are re-measured and reported at fair value at least annually did not have an impact on the Company’s financial results. The following table presents information about the Company’s assets and liabilities that are measure at fair value on recurring basis as of December 31, 2010, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (adjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices in markets that are not active, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and includes situations where there is little, if any, market activity for the asset or liability:

    F-17


    CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    DECEMBER 31, 2010

    Financial assets at fair value as of December 31, 2010:

                    Significant        
                    Other     Significant  
              Quoted Prices in     Observable     Unobservable  
        December 31,     Active Markets     Inputs     Inputs  
    Description   2010     (Level 1)   (Level 2)   (Level 3)
    Cash and cash equivalents $  43,916,597   $  43,916,597   $  -   $  -  
    Restricted cash   3,131,660     3,131,660     -     -  
    Total $  47,408,257   $  47,048,257   $  -   $  -  

    Financial assets at fair value as of December 31, 2009:

                    Significant        
                    Other     Significant  
              Quoted Prices in     Observable     Unobservable  
        December 31,     Active Markets     Inputs     Inputs  
    Description   2009     (Level 1)   (Level 2)     (Level 3)  
    Cash and cash equivalents $  27,400,420   $  27,400,420   $  -   $  -  
    Restricted cash   1,591,076     1,591,076     -     -  
    Total $  28,991,496   $  28,991,496   $  -   $  -  

    The fair values of the Company’s cash and cash equivalents and restricted cash are determined through market, observable and corroborated sources. The fair values of the Company’s long-term investments are unobservable data points and include situations where there is little, if any, market activity. The carrying amounts reflected in the consolidated balance sheets for other current assets, accounts payable, accrued expenses, long-term debt approximate fair value due to their short-term maturities.

    New Accounting Pronouncements

    In December 2010, the FASB amended the guidance related to application of the goodwill impairment model when a reporting unit has a carrying amount that is zero or a negative value. The guidance clarifies that when this is the case, a goodwill impairment test should be performed if qualitative factors indicate that it is more likely than not that goodwill impairment exists. The Company does not expect the adoption of this guidance to have a material effect on its consolidated financial statements.

    In April 2010 the FASB reached a consensus on the Milestone Method of Revenue Recognition which provides guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor can recognize consideration that is contingent upon the achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. The updated guidance is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years beginning on or after June 15, 2010, with early adoption permitted. The Company is currently evaluating the potential impact, if any, of the new accounting guidance on its consolidated financial statements.

    In January 2010, the FASB amended the guidance related to fair value disclosures. This amended guidance requires disclosures about inputs and valuation techniques used to measure fair value as well as disclosures about significant transfers, beginning in the first quarter of 2010. Additionally, this guidance requires presentation of disaggregated activity within the reconciliation for fair value measurements using significant unobservable inputs (Level 3), beginning in the first quarter of 2011. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operations and the Company does not believe that it will have subsequent impact after the 2011 adoption of the guidance around fair value measurements using unobservable inputs.

    In October 2009, the FASB updated the guidance related to Multiple Element Arrangements. This guidance relates to the final consensus reached by FASB on a new revenue recognition guidance regarding revenue arrangements with multiple deliverables. The new accounting guidance addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting, and how the arrangement consideration should be allocated among the separate units of accounting. The new accounting guidance is effective for fiscal years beginning after June 15, 2010 and may be applied retrospectively or prospectively for new or materially modified arrangements. In addition, early adoption is permitted. The Company is currently evaluating the potential impact, if any, of the new accounting guidance on its consolidated financial statements.

    F-18


    CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    DECEMBER 31, 2010

    In June 2009, the FASB issued ASC 810-10-30, Variable Interest Entities (formerly FASB 167), regarding when and how to determine, or re-determine, whether an entity is a variable interest entity. In addition, FASB No. 167 replaces FIN 46R’s quantitative approach for determining who has a controlling financial interest in a variable interest entity with a qualitative approach. Furthermore, ASC 810-10-30 requires ongoing assessments of whether an entity is the primary beneficiary of a variable interest entity. ASC 810-10-30 is effective beginning January 1, 2010 and the adoption did not to have a material impact on the Company’s consolidated financial statements.

    2. RESTRICTED CASH

    The Company’s restricted cash balances at December 31, 2010 and 2009 were $3,131,660 and $1,591,076, respectively. Restricted cash normally consists of cash deposited into third party banks with certain period of time restrictions for various business purposes, which may include contract performance bonds, registered capital bonds required by governmental authorities, etc.. The restrictions expire when related obligations are fulfilled.

    3. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

    The costs and estimated earnings on uncompleted contracts were as follows:

        December 31,  
        2010     2009  

    Costs incurred on uncompleted contracts

    $ 142,198,373   $ 85,079,704  

    Estimated earnings on uncompleted contracts

      63,591,599     43,918,724  

     

      205,789,972     128,998,428  

    Less: billings to date

      (181,244,358 )   (112,166,656 )

    Total

    $ 24,545,614   $ 16,831,772  

    The costs and estimated earnings on incomplete contracts are included in the accompanying balance sheets under the following captions:

        December 31,  
        2010     2009  

    Costs and estimated earnings in excess of billings on uncompleted contracts

    $ 38,626,089 $ 33,853,708

    Billings in excess of costs and estimated earnings on uncompleted contracts

    (14,080,475 ) (17,021,936 )

     

               

    Total

    $  24,545,614   $  16,831,772  

    F-19


    CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    DECEMBER 31, 2010

    4. OTHER RECEIVABLES

    Other receivables consisted of the following as of December 31, 2010 and 2009:

       
    December 31,
     
        2010     2009  

    Contract bidding bonds

    $  4,988,371   $  3,596,086  

    Contract performance bonds

      4,819,860     3,454,112  

    Other receivables

      824,221     1,365,898  

    Total

    $  10,632,452   $  8,416,096  

    Other receivables mainly include contract bidding bonds and performance bonds. Contract bidding bonds are the returnable funds deposited to the contract offering parties as required for contract biddings and are normally returned to the Company within half year period after the biddings are completed. Contract performance bonds are the returnable funds deposited to the contract offering parties for contract performance guaranty purposes and are normally returned to the Company once the contracts are completed. The remaining Other Receivable balance mainly consists of miscellaneous receivables such as government subsidies earned but not yet received and office lease deposits for leases expiring within one year.

    5. LONG-TERM INVESTMENTS

    The Company had the following long-term investments accounted under the equity method and cost method:

        December 31, 2010
        Equity
      Equity Investment
    Type Investee Ownership
    Equity GanSu Ziguang Intelligent Transportation and Control (“Gansu”) 33.33%
    Equity ShanXi Ziguang Trans Technology Co., Ltd.(“Shanxi”) 49.00%
    Equity Beijing Chinacommunications UNISPlendour TECHNOLOGY Co. , Ltd. (“ZJUNIS”) 30.00%
    Equity Beijing Optic Times Technology Co., Ltd. (“BOTTC”) 23.17%
    Cost ShanDong Hi-speed Information Engineering Co., Ltd. (“Shandong”) 5.00%
    Cost BeiJing Ziguang Youma Technology Co., Ltd. (“ZGYM”) 15.00%

    Equity and cost investments in affiliates as of December 31, 2010 consisted of the following:

    Type Equity Investee Beginning Equity Investment Basis 12/31/09 Dividends Increase share in Equity Company Proportional Share of the Equity-Accounted Affiliate’s Net Income Foreign Currency Translation Adjustment Ending Equity Investment Basis 12/31/10
    Equity   Gansu   $  7,261,227   $  (707,863 ) $  -   $ 1,051,154   $  274,203   $  7,878,721  
    Equity   Shanxi     204,971     (22,300 )   -     147,642     10,739     341,052  
    Equity   ZJUNIS     207,168     (60,892 )   -     (5,244 )   6,928     147,960  
    Equity   BOTTC     185,784     (52,714 )   -     114,127     9,232     256,429  
    Equity   CQJK     35,942     -     (37,167 )   -     1,225     -  
    Cost   Shandong     110,025     -     -     -     3,750     113,775  
    Cost   ZGYM     22,005     -     -     -     750     22,755  
    Total       $  8,027,122   $  (843,769 ) $  (37,167 ) $ 1,307,679   $  306,827   $  8,760,692  

    F-20


    CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    DECEMBER 31, 2010

    ChongQing JiaoKai Information Technology Co., Ltd (“CQJK”) became an affiliate of the Company after the injection funds by PKU and China TranWiseway on December 23, 2010.

    Critical audited financial information of significant equity investment in affiliates as of and for the year ended December 31, 2010 is as follows:

    December 31, 2010   Gansu           Gansu  

    Total current assets

    $  38,529,364     Net sales   $  26,163,512  

    Total assets

      41,913,249     Gross Profit     2,512,630  

    Total current liabilities

      18,107,854     Income from operations     3,697,036  

    Total liabilities

    $  18,274,724     Net income   $  3,129,426  

    6. PROPERTY AND EQUIPMENT

    Property and equipment consisted of the following:

        December 31,  
        2010     2009  

    Automobiles

    $  1,847,499   $  1,180,013  

    Machinery and equipments

      10,720,910     9,199,526  

    Furniture and fixtures

      317,380     295,548  

    Leasehold improvement

      905,465     835,434  

    Work-in-progress

      474,842     565,373  

    Total

      14,266,096     12,075,894  

    Less: accumulated depreciation

      (3,387,820 )   (1,534,408 )

    Total Property and Equipment, net

    $  10,878,276   $  10,541,486  

    Depreciation expenses during fiscal 2010 and 2009 were $1,799,782 and $1,243,518, respectively.

    7. INTANGIBLE ASSETS

    Intangible assets consisted of the following:

        December 31,  
        2010     2009  

    Intangible assets

    $  7,718,124   $  4,594,168  

    Less: accumulated amortization

      (315,295 )   (99,387 )

    Intangible assets, net

    $  7,402,829   $  4,494,781  

    Amortization expenses during fiscal 2010 and 2009 were $215,908 and $76,513, respectively.

    Estimated future intangible amortization as of December 31, 2010 for each of the next five years is as follows:

    Years ending December 31,   Amount  
    2011 $  523,767  
    2012   425,141  
    2013   425,141  
    2014   425,141  
    2015   425,141  
    Thereafter   5,178,498  
    Total $  7,402,829  

    F-21


    CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    DECEMBER 31, 2010

    8. SHORT-TERM BORROWINGS FROM BANKS

    Short-term borrowings from banks consisted of the following:

    At December 31,   2010     2009  

    On June 22, 2009, the Company renewed the loan agreement in the amount of RMB 20,000,000, or $2,934,000. The loan had an initial annual interest rate of 5.31%, which was floating based on interest rates determined by the People’s Bank of China from time to time and it was matured and paid off.

    - 2,934,000

    On May 27, 2009, UNISITS entered into a loan agreement with a commercial bank in the amount of RMB 1,000,000, or $146,700. Interest rate is variable at 10% above the benchmark interest rate determined by the People’s Bank of China from time to time and it was matured and paid off.

    - 146,700

    On September 29, 2009, the Company entered into a loan agreement with a commercial bank in the amount of RMB 30,000,000, or $4,401,000. The loan had an initial annual interest rate of 5.31%, which was floating based on interest rates determined by the People’s Bank of China from time to time a and it was matured and paid off.

    - 4,401,000

    On September 16, 2010, PKU, entered into a short-term loan agreement with a commercial bank in the amount of RMB 30,000,000, or $4,551,000. The loan had an initial annual interest rate of 5.31%, which was floating based on interest rates determined by the People’s Bank of China from time to time and it matures on March 28, 2011.

    4,551,000 -

    On November 29, 2010, China TranWiseway, entered into a loan agreement with a commercial bank in the amount of RMB 30,000,000, or $4,551,000. The loan is variable at interest rate 10% above the benchmark interest rate as of the date of the first withdrawal of the principal from time to time and the interests must be paid on a quarterly basis. The loan expires within 12 months after the date of the first withdrawal but can be renewed upon the written consent by Bank of Beijing.

    4,551,000 -

    On June 21, 2010, PKU entered into a loan agreement with a commercial bank in the amount of RMB 30,000,000, or $4,551,000. The loan has an annual interest rate based on the benchmark interest rate as of the date of the first withdrawal of the principal. The loan expires within 12 months after the date of the first withdrawal but can be renewed upon the written consent by Bank of Beijing.

    4,551,000 -

    On August 18, 2010, UNISITS entered into a loan agreement with a commercial bank in the amount of RMB 500,000, or $75,850. The loan has an annual interest rate based on the benchmark interest rate as of the date of the first withdrawal of the principal. The loan expires on February 18, 2011.

    75,850 -

    Total

    $ 13,728,850   $ 7,481,700  

    F-22


    CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    DECEMBER 31, 2010

    For the years ended December 31, 2010 and 2009, interest expenses totaled $470,711 and $244,574, respectively. The USD ending balances are calculated based on the average and year-end exchange rates of 0.14794 and 0.1517 for 2010 and 0.14661 and 0.1467 for 2009, respectively.

    9. ACQUISITIONS

    Acquisition of China TranWiseway

    In May 2008, PKU entered into equity transfer agreements with shareholders of China TranWiseway, pursuant to which, PKU acquired 70% ownership of China TranWiseway for a cash price of RMB 6,500,000 (approximately $953,550). China TranWiseway is a high-tech company specializing in transportation information system and application developments. On May 22, 2008, PKU entered into an agreement supplemental to the aforementioned equity transfer agreements. Pursuant to the supplemental agreement, PKU will make an additional capital contribution of RMB 7,000,000 (approximately $1,026,900) to China TranWiseway to increase the total registered capital to RMB 10,000,000 (approximately $1,467,000), and PKU’s ownership remains at 70%. The purchase price of the 70% ownership in China TranWiseway therefore was RMB 8,600,000, or $1,261,620.

    The acquisition was accounted for under the purchase method of accounting. Accordingly, the results of China TranWiseway have been included in the accompanying consolidated financial statements since the date of acquisition. The purchase price has been allocated to the assets acquired and liabilities assumed based upon their estimated fair values and the price were allocated as follows:

        May 31, 2008  

    Current assets

    $  2,006,526  

    Property and equipment

      45,722  

    Intangible assets- existing technology

      174,573  

    Goodwill

      983,345  
    Current liabilities   (1,904,102 )
    Non-controlling interest   (44,444 )
    Total purchase price $  1,261,620  

    F-23


    CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    DECEMBER 31, 2010

    No supplemental pro forma information is presented for the acquisition due to the immaterial effect of the acquisition on the Company’s results of operations.

    Acquisition of Dajian Zhitong

    On September 16, 2008, Zhangcheng Media, the Company’s indirectly-owned subsidiary, entered into equity transfer agreements with shareholders of Dajian Zhitong. Pursuant to the agreements, Zhangcheng Media acquired 85% ownership of Dajian Zhitong from three of the shareholders for a cash price of RMB 1,980,000 (approximately $290,000). Included in the price was assumption of Dajian Zhitong's liabilities totaling RMB 1,639,518.

    On October 13, 2008, a supplemental agreement to the aforementioned agreements was entered between Zhangcheng Media and the three shareholders of Dajian Zhitong. Pursuant to the agreement, Zhangchang Media will not pay the RMB 1,980,000 to the three shareholders nor assume Dajian Zhitong’s liabilities. Instead, it will make a cash contribution of RMB 9,000,000 directly to Dajian Zhitong. Other terms in the original equity transfer agreements were unaffected. Zhangcheng Media’s ownership in Dajian Zhitong remains at 85%. As a result of the supplemental agreement, the actual acquisition price of the 85% ownership of Dalian Zhitong was RMB 1,350,000=RMB 9,000,000 x (1-85%), (approximately $198,045). As of December 31, 2009, RMB 9,000,000 has been remitted to Dajian Zhitong.

    The acquisition was accounted for under the purchase method of accounting. Accordingly, the results of Dajian Zhitong have been included in the accompanying consolidated financial statements since the date of acquisition. The purchase price has been allocated to the assets acquired and liabilities assumed based upon their estimated fair values and the price was allocated as follows:

        September 16, 2008  

    Current assets

    $  172,061  

    Property and equipment

      78,217  

    Goodwill

      189,748  

    Current liabilities

      (240,517 )

    Non-controlling interest

      (1,464 )

    Total purchase price

    $  198,045  

    Acquisition of Shanghai Yootu

    On October 1, 2008, PKU, the Company’s indirectly-owned subsidiary, entered into an equity transfer agreement with shareholders of Shanghai Yootu. Pursuant to the agreement, PKU acquired 100% ownership of Shanghai Yootu from six individual shareholders. Under the terms of the equity transfer agreement, PKU will make the payments in three installments to the transferors. The initial cash payment of RMB 8.8 million (approximately $1,290,960) will be paid to the transferors within five (5) business days after the date of execution of the equity transfer agreement. The remaining two installments will be conditional upon Shanghai Yootu’s results of operations in the next two years. In accordance with ASC 805, Business Combinations, the acquisition was accounted for under the purchase method of accounting. Accordingly, the results of Shanghai Yootu have been included in the accompanying consolidated financial statements since the date of acquisition. The purchase price has been allocated to the assets acquired and liabilities assumed based upon their estimated fair values and the price was allocated as follows:

        October 1, 2008  

    Current assets

    $  28,081  

    Property and equipment

      5,680  

    Goodwill

      1,921,924  

    Other assets

      20,311  

    Current liabilities

      (685,036 )

    Total purchase price

    $  1,290,960  

    F-24


    CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    DECEMBER 31, 2010

    No supplemental pro forma information is presented for the acquisitions due to the immaterial effect of the acquisition on the Company’s results of operations.

    Acquisition of UNISITS

    On September 8, 2009, Shudong Xia, Chairman, CEO and President of the Company, entered into an equity transfer agreement with Unisplendour, pursuant to which Mr. Xia acquired 35.17% of the equity interest in UNISITS from Unisplendour for a cash price of RMB 44.4 million (approximately $6.53 million). UNISITS is a company organized under the laws of the People's Republic of China, engaging in the business of providing traffic engineering E&M systems, intelligent transportation products, and intelligent transportation services (ITS) to the domestic expressway, railway, and urban transportation markets.

    Subsequently, on September 8, 2009, the Group Company entered into an option agreement with Mr. Xia, under which Mr. Xia granted to the Group Company a perpetual option to acquire all of Mr. Xia's equity interest in UNISITS for RMB 44.4 million (approximately $6.53 million), which is the exercise price. Concurrently, the Group Company acquired from Mr. Xia the rights to his share of all potential UNISITS dividends or other distributions. Mr. Xia pledged his equity interest in UNISITS to the Group Company for five years. The Group Company expects to exercise the option and take title to the equity interest now held by Mr. Xia upon the expiration of the five-year term of the pledge agreement when the option will first become exercisable. In September 2009, the Group Company and four of five board directors of UNISITS entered into an Acting in Concert agreement. The agreement allows the Group Company to govern the financial and operating policies of UNISITS and therefore to obtain the control of UNISITS. As a result, UNISITS became a variable interest entity of the Group Company and its financials has been included in the Company’s consolidated financial statements.

    The fair value of UNISITS at the acquisition date is allocated as follows:

     

      September 8, 2009  

    Currents assets

    $  32,442,272  

    Long-term investments

      7,616,433  

    Property and equipment

      230,809  

    Intangible assets:

         

    Highway Monitoring and Control

      242,055  

    Contract Backlogs

      293,400  

    Total intangible assets

      535,455  

    Goodwill

      6,884,614  

    Current liabilities

      (26,935,090 )

    Other long-term liability

      (520,785 )

    Noncontrolling interest

      (13,740,228 )

    Total fair value at date of acquisition

    $  6,513,480  

    The following table summarizes what the results of operations of the Company would have been on a pro forma basis for the year ended December 31, 2009, if the acquisition had occurred prior to the beginning of the year. These results do not purport to represent what the results of operations for the Company would have actually been or to be indicative of the future results of operations of the Company.

        Year Ended   
        December 31, 2009  

    Revenue

    $  84,473,648  

    Net income attributable to common shareholders

    $  13,359,625  

    Net income per share:

         

    Basic

    $  0.60  

    Diluted

    $  0.59  

    F-25


    CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    DECEMBER 31, 2010

    10. NON-CONTROLLING INTERESTS

    Non-controlling interests consisted of the following:

                          Adjustments/        
                          Net Income        
        % of Non-     As of     2009     of     As of  
        controlling     December 31,     Acquisition     Non-controlling     December 31,  
    Name of Affiliate   Interest     2008     (Fair Value)     Interest     2009  
    Beijing PKU   3%   $  1,188,662   $  -   $  247,525   $  1,436,187  
    China TranWiseway   30%     286,224     -     (1,498 )   284,726  
    Dalian Dajian Zhitong   15%     (9,143 )   -     42,419     33,276  
    UNISITS   64.83%     -     13,740,228     3,005,058     16,745,286  
    Total       $  1,465,743   $  13,740,228   $  3,293,504   $  18,499,475  

                    2010                    
                    Acquisition and     Adjustments/Net              
        % of Non-     As of     Increase     Income           As of  
        controlling     December 31,     Investment     of Non-controlling           December 31,  
    Name of Affiliate   Interest     2009     (Fair Value)     Interest     Dividends     2010  
                                         
    PKU   3%   $  1,436,187   $  113,016   $  105,346   $  -   $  1,654,549  
    China TranWiseway   30%     284,726     140,323     94,950     -     519,999  
    Dajian Zhitong   15%     33,276     -     (38,498 )   -     (5,222 )
    UNISITS   33.98%     16,745,286     (7,734,789 )   4,746,513     (53,094 )   13,703,916  
    Total       $  18,499,475   $  (7,481,450 ) $  4,908,311   $  (53,094 ) $  15,873,242  

    On March 22, 2010, the Company and the Group Company entered into the Equity Transfer Agreements with several individual Transferors of UNISITS, pursuant to which the Group Company acquired 30.85% equity interest in UNISITS from the Transferors. Pursuant to the Equity Transfer Agreements, the Group Company purchased approximately 16.23 million shares of UNISITS from the Transferors in exchange for RMB 4.41 million (approximately $0.65 million) in cash (“Cash Consideration”), 40% of which is payable within seven days after the effective date of the Equity Transfer Agreements, and approximately 1.16 million shares of the Company’s common stock. The shares are issuable within 30 days of the effective date of the Equity Transfer Agreements. The Equity Transfer Agreements contain “make good” provisions, under which the Transferors agree to deposit a total of 697,162 shares (60% of total common stock consideration) of the Company common stock valued at $8.01 per share, which is the share price on acquisition date, for a total value of $5.58 million, with an escrow agent designated by the Company that the Transferors will receive as partial consideration for the acquisition. Specifically, if UNISITS’s 2010 after-tax net income under Chinese GAAP is less than RMB 37.50 million (approximately US$5.50 million) or its 2011 after-tax net income under Chinese GAAP is less than RMB 46.88 million (approximately US$6.86 million), then 50% of the shares of the Company common stock deposited by the Transferors in escrow will be returned to the Company for cancellation for each applicable year. In addition, for each applicable year as described above, the Company will not be required to pay the remainder of the Cash Consideration, which represents RMB 1.323 million (approximately US$0.19 million), or 30% of the total Cash Consideration, per year if UNISITS fails to meet the respective performance targets. Total consideration, including contingent consideration and stock, amounts to $9.95 million on acquisition date.

    The Company had previously consolidated the financial statements of UNISITS since September 8, 2009 which Mr. Shudong Xia acquired 35.17% of the equity interest in UNISITS. As part of this acquisition, the Group Company and four of five members of the board of directors of UNISITS entered into an Acting in Concert Agreement, pursuant to which the Group Company has the right to make decisions on the financial and operating policies of UNISITS and therefore to obtain the control of UNISITS. As a result, UNISITS became a variable interest entity of the Group Company and UNISITS’s financial statements have been included in the Company’s consolidated financial statements since September