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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10−Q

(Mark One)

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

For the quarterly period ended: June 30, 2011

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

For the transition period from ____________ to _____________

Commission File Number: 001-34134

CHINA TRANSINFO TECHNOLOGY CORP.
(Exact Name of Registrant as Specified in Its Charter)

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]      No [_]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 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 [X]      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. (Check one):

Large accelerated filer [_] Accelerated filer [_]
Non-accelerated filer [_] Smaller reporting company [X]
(Do not check if a smaller reporting company)  

 

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

Yes[_]      No [X]

The number of shares outstanding of each of the issuer’s classes of common equity, as of August 10, 2011 is as follows:

Class of Securities Shares Outstanding
Common Stock, $0.001 par value 25,270,069


TABLE OF CONTENTS

  PART I – Financial Information Page
     
Item 1. Financial Statements 1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23
Item 4. Controls and Procedures 23
     
  PART II – Other Information  
     
Item 1. Legal Proceedings 24
Item 1A. Risk Factors 24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 24
Item 3. Defaults Upon Senior Securities 24
Item 4. [Removed and Reserved] 24
Item 5. Other Information 24
Item 6. Exhibits 24


PART I.
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets

    June 30, 2011        
    (Unaudited)     December 31, 2010  

ASSETS

           

Cash and cash equivalents

$  29,949,821   $  43,916,597  

Restricted cash

  1,970,367     3,131,660  

 

           

Accounts receivable, net of allowance for doubtful accounts of $94,583 and $92,794, respectively

  35,771,781     26,881,280  

Inventories

  2,856,925     1,079,221  

Costs and estimated earnings in excess of billings on uncompleted contracts

  43,372,915     38,626,089  

Prepaid expenses and other current assets

  18,177,573     18,551,801  

Other receivables

  13,178,290     10,632,452  

Deferred income tax assets

  26,013     25,508  

Total current assets

  145,303,685     142,844,608  

Property and equipment, net

  10,818,069     10,878,276  

Long-term prepayment for land use right

  3,631,118     -  

Long-term investments

  9,609,218     8,760,692  

Intangible assets, net

  14,803,149     7,402,829  

Goodwill

  10,523,851     10,319,768  

Other assets

  383,086     319,679  

 

           

Total assets

$  195,072,176   $  180,525,852  

 

           

LIABILITIES AND STOCKHOLDERS’ EQUITY

           

Accounts payable

$  29,871,286   $  32,296,459  

Short-term borrowings from banks

  11,602,500     13,728,850  

Billings in excess of costs and estimated earnings on uncompleted contracts

  9,851,088     14,080,475  

Accrued expenses and other current liabilities

  9,996,704     8,988,180  

Total current liabilities

  61,321,578     69,093,964  

Other long-term liabilities

  15,470     200,699  

 

           

Total liabilities

  61,337,048     69,294,663  

 

           

Commitments and contingencies

  -     -  
             
Stockholders’ equity            

Preferred stock, $0.001 par value per share, authorized 10,000,000 shares, no shares issued and outstanding at June 30, 2011 and December 31, 2010

- -

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

25,270 25,270

Additional paid-in capital

  49,237,751     42,887,452  

Retained earnings

  53,174,153     47,417,481  

Non-controlling interests

  24,152,715     15,873,242  

Accumulated other comprehensive income

  7,145,239     5,027,744  
             

Total stockholders’ equity

  133,735,128     111,231,189  
             

Total liabilities and stockholders’ equity

$  195,072,176   $  180,525,852  

See notes to unaudited condensed consolidated financial statements.

1


CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited)

    Six Months Ended June 30,     Three Months Ended June 30,  
    2011     2010     2011     2010  
                         

Net sales

$  73,373,897   $  48,933,381   $  36,874,738   $  24,045,906  

Cost of sales

  52,404,305     30,818,236     26,298,267     14,463,937  

Gross profit

  20,969,592     18,115,145     10,576,471     9,581,969  

Total operating expenses

  13,718,623     9,867,176     7,397,564     4,999,719  

Income from operations

  7,250,969     8,247,969     3,178,907     4,582,250  

Non-operating income (expense):

                       

Interest income

  86,343     76,928     46,617     46,442  

Interest expense

  (487,329 )   (203,311 )   (236,756 )   (105,457 )

Subsidy income

  260,962     754,024     65,336     727,581  

Other expense, net

  113,881     (74,829 )   38,405     (17,918 )

Total non-operating income (expense)

  (26,143 )   552,812     (86,398 )   650,648  

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

7,224,826 8,800,781 3,092,509 5,232,898

Income taxes

  862,935     839,823     361,810     464,027  

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

6,361,891 7,960,958 2,730,699 4,768,871

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

1,355,985 (301,589 ) 1,023,349 57,206

Net income before non-controlling interests

  7,717,876     7,659,369     3,754,048     4,826,077  

Non-controlling interests in net income of subsidiary

  1,961,204     2,290,413     964,652     1,216,160  

Net income

$  5,756,672   $  5,368,956     2,789,396     3,609,917  

Weighted average number of shares of outstanding:

                       

Basic

  25,270,069     24,031,595     25,270,069     25,051,414  

Diluted

  25,273,317     24,088,927     25,273,195     25,096,523  

Earnings per share:

                       

Basic

$  0.23   $  0.22     0.11   $  0.14  

Diluted

$  0.23   $  0.22     0.11   $  0.14  

Comprehensive income

                       

Net income including noncontrolling interest

$  7,717,876   $  7,659,369   $  3,754,048   $  4,826,077  

Translation adjustments

  2,117,495     341,398     1,483,308     340,372  

Comprehensive income

$  9,835,371   $  8,000,767   $  5,237,356   $  5,166,449  

Comprehensive income attributable to noncontrolling interest

$  1,961,204   $  2,290,413   $  964,652   $  1,216,160  

Comprehensive income attributable to CTFO

$  7,874,167   $  5,710,354   $  4,272,704   $  3,950,289  

See notes to unaudited condensed consolidated financial statements.

2


CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (unaudited)

    Six Months Ended June 30,  
             
    2011     2010  

CASH FLOWS FROM OPERATING ACTIVITIES:

           

Net income

$  5,756,672   $  5,368,956  

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

           

Non-controlling interests

  1,961,204     2,290,413  

Depreciation and amortization expense

  1,350,497     1,021,829  

Stock-based compensation

  634,040     843,481  

 

           

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

  (1,355,985 )   301,589  

Gain on disposal of portion equity of subsidiary to noncontroling interest

  (40,479 )   -  

Dividends income

  (14,782 )   -  

Loss on disposal of property and equipment

  20,283     6,370  

Bad debt expense

  -     6,677  

(Increase) Decrease in assets:

           

Restricted cash

  1,210,652     (1,328,611 )

Accounts receivable

  (8,272,988 )   (7,277,274 )

Inventories

  (1,738,309 )   (55,123 )

Prepaid expenses and other current assets

  731,880     (3,950,462 )

Other receivables

  (1,720,024 )   (1,596,043 )

Cost of estimated earnings in excess of billings on uncompleted contracts

  (3,942,025 )   (1,673,328 )

Other assets

  (56,498 )   (2,451,029 )

(Decrease )Increase in liabilities:

           

Accounts payable

  (2,270,555 )   2,824,509  

Billings in excess of costs and estimated on uncompleted contracts

  (4,461,510 )   (5,966,489 )

Accrued expenses and other current liabilities

  (794,710 )   77,457  

Other long-term liabilities

  15,311     -  

Net cash used in operating activities

  (12,987,326 )   (11,557,078 )
             

CASH FLOWS FROM INVESTING ACTIVITIES:

           

Proceeds from disposal of property and equipment

  19,114     17,409  

Purchases of property and equipment

  (1,597,311 )   (420,344 )

Payments for acquisition of companies

  (202,565 )   (258,761 )

Purchases of intangible assets

  (651,593 )   (888,986 )

Payments for land use right

  (3,593,798 )   -  

Dividends from equity or cost investees

  14,782     50,973  

Net cash used in investing activities

  (6,011,371 )   (1,499,709 )
             

CASH FLOWS FROM FINANCING ACTIVITIES:

           

Proceeds from short-term borrowings

  6,889,950     4,474,045  

Payments of short-term borrowings

  (9,263,155 )   (3,080,490 )

Non-controlling interest shareholders’ capital contribution

  6,698,563     -  

Proceeds from issuing common stocks

  -     10,000,000  

Payments of transaction costs related to stock issuance

  -     (610,439 )

Net cash provided by financing activities

  4,325,358     10,783,116  
             

Effect of foreign currency translation

  706,563     98,088  

 

           

Net decrease in cash and cash equivalents

  (13,966,776 )   (2,175,583 )

Cash and cash equivalents – beginning of period

  43,916,597     27,400,420  

Cash and cash equivalents – end of period

$  29,949,821   $  25,224,837  

Supplemental disclosures of cash flow information:

           

Interest paid

$  390,693   $  90,874  

Income taxes paid

$  1,103,885   $  447,795  
             

Supplemental disclosures of cash flow for non-cash transaction:

           

Dividends receivable from equity or cost investees

$  694,791   $  -  

Non-controlling interest shareholders’ capital contribution

$  114,833   $  -  

See notes to unaudited condensed consolidated financial statements.

3


CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

1.

ORGANIZATION AND BUSINESS OPERATIONS

   

China TransInfo Technology Corp. is 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 Variable Interest Entities (“VIE”) that are PRC domestic companies owned principally or entirely by our PRC affiliates. Through our VIE, we are involved in developing multiple applications in highway ITS, urban ITS, commercial vehicles ITS plus LBS, and to 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.

   

China TransInfo Technology Corp., its subsidiaries and its VIE hereinafter are collectively referred as the “Company.”

The Company’s primary focus is on providing end-to-end ITS solutions and related services to the transportation industry. Our major products and services 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 Lighting 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

4


CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

Other Vehicle and Consumer ITS Applications

  • Palmcity Telematics Service Platform

  • Palmcity Real-time Traffic Information Terminal Software

  • Plamcity 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.

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   

Principles of Consolidation

   

The condensed 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, and the VIE’s respective subsidiaries, including the Group Company, PKU Chinafront, Beijing Tian Hao, Beijing Zhangcheng, Xinjiang Zhangcheng, Zhangcheng Media, Beijing Transwiseway, Hunan Transwiseway, Hebei Transwiseway, Guizhou Transwiseway, Anhui Transwiseway, Dajian Zhitong, Shanghai Yootu, Beijing UNISITS Technology Co. Ltd. (“UNISITS”), Hangzhou Ziguang Jietong Technology Co., Ltd.,(“Hangzhou UNISITS”), Henan Ziguang Jietong Technology Co., Ltd. (“Henan UNISITS”), Jiangsu UNISITS Information System Co., Ltd. (“Jiangsu 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 are approximately 3% to 70% owned by noncontrolling interests.

   

The accompanying interim unaudited condensed consolidated financial statements (“Interim Financial Statements”) of the Company and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and are presented in accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these Interim Financial Statements do not include all of the information and notes required by GAAP for complete financial statements. These Interim Financial Statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended December 31, 2010 included in the Company’s Form 10-K. In the opinion of management, the Interim Financial Statements included herein contain all adjustments, including normal recurring adjustments considered necessary to present fairly the Company’s financial position, the results of operations and cash flows for the periods presented. The operating results and cash flows for the interim periods presented herein are not necessarily indicative of the results to be expected for any other interim period or the full year.

   

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. Actual results could materially differ from those estimates.

   

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 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 June 30, 2011 and December 31, 2010, research and development expenses were capitalized in the amount of $5,357,423 and $4,776,643, respectively, and were included in intangible assets in the Company's condensed consolidated balance sheet.

5


CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

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. Profits in a given period are 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 profits on these contracts. The company did not incur any deferred costs for the three months ended March 31, 2011. 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 uncompleted contracts.

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 that 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.

Fair Value Measurements

The carrying value of cash, accounts receivable, other current liabilities, accounts payable, accrued expenses and other current liabilities approximate the fair values of these instruments due to their short-term nature.

Income Taxes

The Company adopted ASC 740-10-25 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.

Recently Issued Accounting Guidance

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-05, “Comprehensive Income (Topic 220)”, which gives an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This Update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments in this Update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. For public entities, ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

6


CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04, “Fair Value Measurement (Topic 820)”, which provided clarifications for Topic 820 and also included instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurement has changed. This Update results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and IFRSs, and is effective during interim and annual periods beginning after December 15, 2011 for public entities. Early application by public entities is not permitted, and the adoption of ASU 2011-04 is not expected to have a material impact on the Company’s consolidated financial position and results of operations.

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 adoption of the guidance did not have a significant impact on our 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 adoption of the guidance did not have a significant impact on our 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 our financial position or results of operations.

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 adoption of the guidance did not have a significant impact on our consolidated financial statements.

The Company has considered all new accounting pronouncements and has concluded that there are no new pronouncements that may have a material impact on results of operations, financial condition, or cash flows, based on current information.

3.

RESTRICTED CASH

   

The Company’s restricted cash balance on June 30, 2011 was $1,970,367. 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. The restrictions expire when the related obligations are fulfilled.


4.

COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

   

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


      June 30, 2011     December 31,  
      (Unaudited)     2010  
               
 

Costs incurred on uncompleted contracts

$  173,852,165   $  $142,198,373  
 

Estimated earnings on uncompleted contracts

  71,101,717     63,591,599  
 

Total

  244,953,882     205,789,972  
 

Less – billings to date

  (211,432,055 )   (181,244,358 )
 

 

           
 

Costs and estimated earnings on uncompleted contracts, net of billings in excess of costs and estimated earnings on uncompleted contracts

$ 33,521,827 $ 24,545,614

7


CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

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

      June 30, 2011     December 31,  
      (Unaudited)     2010  
               
 

Costs incurred on estimated earnings in excess of billings on uncompleted contracts

$ 43,372,915 $ 38,626,089
 

Billings in excess of costs and estimated earnings on uncompleted contracts

(9,851,088 ) (14,080,475 )
 

 

           
 

Total

$  33,521,827   $  24,545,614  

5.

NON-CONTROLLING INTERESTS

Non-controlling interests consisted of the following:

                  2010                    
                  Acquisition and     Adjustments/Net              
      % of Non-     As of     Increase in     Income           As of  
      controlling     December 31,     Investment     of Non-controlling           December 31,  
  Name of Affiliate   Interest     2009     (Fair Value)     Interest     Dividends     2010  
                                       
  PKU Chinafront   3%   $  1,436,187   $  113,016 $     105,346   $  -   $  1,654,549  
  Beijing Transwiseway   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  

                  2011                    
                  Acquisition and     Adjustments/Net              
      % of Non-     As of     Increase in     Income              
      controlling     December 31,     Investment     of Non-controlling           As of June 30,  
  Name of Affiliate   Interest     2010     (Fair Value)     Interest     Dividends     2011  
                                       
  PKU Chinafront   3%   $  1,654,549   $  190,875   $  1,384   $  -   $  1,846,808  
  Beijing Transwiseway   45%     519,999     2,847,250     (426,675 )   -     2,940,574  
  Dajian Zhitong   15%     (5,222 )   -     (18,264 )   -     (23,486 )
  UNISITS   33.98%     13,703,916     309,400     2,417,997     (1,541,230 )   14,890,083  
  Beijing Zhangcheng   49%     -     4,511,974     (13,238 )   -     4,498,736  
  Total       $  15,873,242   $  7,859,499   $  1,961,204   $  (1,541,230 ) $  24,152,715  

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. Following this transaction, the Group Company will retain a 51% majority ownership of Beijing Zhangcheng while Shiji Yingli will own the remaining 49% equity interest. The capital increase was completed by the end of March 2011.

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, Beijing Transwiseway in exchange for a 30% equity interest in Beijing Transwiseway. Following this transaction, the Group Company acquired a 55% majority ownership of Beijing Transwiseway while Beijing Marine and Zhongyuan Credit own 15% and 30% equity interest in Beijing Transwiseway, respectively. The capital increase was completed by the end of March 2011.

8


CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

Effect of subsidiary equity transaction was calculated under the provision of the ASC 810-10-45 that relates to the issuance of securities of a non-wholly owned subsidiary. Therefore, the Company recognized $2,632,894 and $4,511,974, respectively, increase in non-controlling interest in subsidiaries Beijing Transwiseway and Beijing Zhangcheng and corresponding increase in additional paid-in capital for the six months ended June 30, 2011.

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 US$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 were issued within 30 days of the effective date of the Equity Transfer Agreements. The Equity Transfer Agreements contain “make good” provisions, under which the Transferors agreed to deposit 697,162 shares (60% of total common stock consideration) of the Company’s common stock with an escrow agent designated by the Group 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), 50% of the shares of the Company’s 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 Group 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. On January 16, 2011, a PRC statutory audit report for UNISITS for the years ended December 31, 2010 and 2009 was issued by UNISITS’s local accounting firm with an unqualified opinion, in which the net income of UNISITS for the year ended December 31, 2010 exceeded the RMB 37.5 million performance target set forth in the Equity Transfer Agreements. A cash balance of RMB 1.323 million was paid on March 29, 2011 and 348,519 shares of the Company’s common stock were released.

The Group Company’s additional 30.85% equity interest purchase has been accounted in accordance with ASC 810-10-45-23. Accordingly, the Group Company’s purchase of additional equity interest ownership in UNISITS’ interest while the Group Company retains its controlling financial interest in UNISITS has been accounted for as equity transactions (investments by owners and distributions to owners acting in their capacity as owners). Therefore, no gain or loss has been recognized in consolidated net income or comprehensive income. The carrying amount of the non-controlling interest has been adjusted to reflect the change in its ownership interest in the subsidiary (UNISITS), which includes the total cash consideration of RMB 4.41 million (approximately US$0.65 million) and the total stock consideration of approximately 1.16 million shares of the Company common stock as the management believes that the “make good” provision in making the contingent payment is very likely.

6.

LONG-TERM INVESTMENTS

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

    June 30, 2011
    Equity
  Equity Investment
Type Investee Ownership
Equity GanSu Ziguang Intelligent Transportation and Control Co., Ltd.(“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%

9


CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

Equity and cost investments in affiliates as of June 30, 2011 consisted of the following:

Type   Equity     Beginning Equity     Proportional Share of     Dividends     Foreign     Ending Equity  
    Investee     Investment Basis     the Equity-Accounted           Currency     Investment  
          12/31/10     Affiliate’s Net Income           Translation     Basis 06/30/11  
                            Adjustment        
Equity   Gansu   $  7,878,721   $  1,385,322   $  (694,791 ) $  170,195   $  8,739,447  
Equity   Shanxi     341,052     (27,387 )         6,460     320,125  
Equity   ZJUNIS     147,960     (43,326 )         2,476     107,110  
Equity   BOTTC     256,429     41,376           5,501     303,306  
Cost   Shandong     113,775     -           2,250     116,025  
Cost   ZGYM     22,755     -           450     23,205  
Total       $  8,760,692   $  1,355,985   $  (694,791 ) $  187,332   $  9,609,218  

Gansu is a “significant equity investee” of the Company per SEC Regulation S-X Rule 8-03 (c)(3), its key financial information for the quarter ended June 30, 2011 is as follows:

June 30, 2011   Gansu           Gansu  
Total current assets $  53,655,563     Net sales   $  15,734,001  
Total assets   56,960,704     Gross Profit     6,340,969  
Total current liabilities   28,423,817     Income from operations     4,885,897  
Total liabilities $  28,655,867     Net income   $  4,152,203  

7.

INTANGIBLE ASSETS

Intangible assets consisted of the following:

    June 30, 2011     December 31, 2010  
Intangible assets $  15,409,157   $  7,718,124  
Less: accumulated amortization   (606,008 )   (315,295 )
Intangible assets, net   14,803,149     7,402,829  

The increase of intangible assets was mainly due to the registered capital contribution of RMB 44.6 million (approximately $6.9 million) in Beijing Zhangcheng at the end of March of 2011.

Estimated future intangible amortization as of June 30, 2011 for each of the next five years is as follows:

Years ending December 31,   Amount  
2011 $  261,723  
2012   418,565  
2013   418,565  
2014   418,463  
2015   418,463  
Thereafter   12,867,370  
Total $  14,803,149  

8.

STOCK-BASED COMPENSATION

Stock Warrants

10


CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

The Company recognized the share-based compensation cost based on the grant-date fair value estimated in accordance with ASC 718, Compensation- Stock Compensation. The Company issued warrants to Anteaus Capital, Inc., in aggregate, to purchase 277,778 shares of the Company’s common stock in connection with merger related services on May 14, 2007, with an exercise price of $1.80 per share. These warrants will expire on May 13, 2014 pursuant to the common stock purchase warrant.

A summary of stock warrants for the six months ended June 30, 2011 is as follows:

                Weighted-Average        
          Weighted-     Remaining     Aggregate  
          Average     Contractual Term     Intrinsic  
Stock Warrants   Shares     Exercise Price     (Months)     Value  
Outstanding at December 31, 2009   55,555     1.80     52   $  353,885  
Granted   -     -     -        
Exercised or converted   50,000     1.80     -        
Forfeited or expired   -     -     -        
Outstanding at December 31, 2010   5,555   $  1.80     40   $  16,332  
Exercisable at December 31, 2010   5,555   $  1.80     40   $  16,332  
                         
Granted   -     -     -        
Exercised or converted   -     -     -        
Forfeited or expired   -     -     -        
Outstanding at June 30, 2011   5,555   $  1.80     34   $  10,555  
Exercisable at June 30, 2011   5,555   $  1.80     34   $  10,555  

Stock Options

The Company granted the following stock options during the six-month ended June 30, 2011:

On January 3, 2011, the Company entered into a stock option agreement with the CFO, Mr. Rong Zhang. Under the terms of the stock option agreement, the Company granted the options to Mr. Zhang 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 on such date. The option has a term of five years and expires on January 3, 2016. The options vest in equal installments on a quarterly basis over a four-year period beginning on January 3, 2011.

On January 26, 2011, the Company entered into a stock option agreement with Mr. Shan Qu. Under the terms of the stock option agreement, the Company agreed to grant a stock option to Mr. Qu for the purchase of 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 on such date. The option has a term of five years and expires on January 26, 2016. The option will vest in four equal installments on each anniversary of the vesting commencement date and will only vest if Mr. Qu achieves above 80% performance goals determined by the Company at the beginning of each fiscal year.

The Company recorded compensation expense of $634,040 and $843,481 during the six months ended June 30, 2011 and 2010, respectively, in connection with the stock options disclosed above.

The Company estimated fair value of the stock options using a Black-Scholes option pricing valuation model, consistent with the provisions of ASC 718, Compensation- Stock Compensation. Key inputs and assumptions used to estimate the fair value of stock options include the grant price of the award, the expected option term, volatility of the Company’s stock, the risk-free rate and the Company’s dividend yield. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by grantees, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by the Company.

The fair value of each stock option is estimated on the date of the grant using the Black-Scholes option pricing model. No dividends were assumed due to the nature of the Company’s current business strategy. The following table presents the assumptions used for options granted: 

11


CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

  Six months ended Year ended
  June 30, 2011 December 31, 2010
Risk-free interest rate 1.28%-1.30% 1.44%
Expected life (year) 3.5 3.5
Expected volatility 37.61%-44.90% 49%
Weighted average fair value per option $1.41- $1.65 $2.24

A summary of stock options transactions during the six months ended June 30, 2011 is as follows:

                Weighted-Average        
          Weighted-     Remaining     Aggregate  
          Average     Contractual Term     Intrinsic  
Stock Options   Shares     Exercise Price     (Months)     Value  
Outstanding at January 1, 2011   1,368,400   $  7.2           -  
Granted   804,901     4.84     -        
Exercised or converted   -     -     -        
Forfeited or expired   (259,000 )   7.69     -     -  
Outstanding at June 30, 2011   1,914,301   $  6.3     45   $  -  
                         
Non-vested at June 30, 2011   1,533,645   $  6.21     47   $  -  
Exercisable at June 30, 2011   380,656   $  6.68     37   $  -  

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based upon the Company’s closing stock price of $3.70 and $4.74 as of June 30, 2011 and December 31, 2010, respectively. No options were exercised during the six months ended June 30, 2011.

Unvested share awards

The following table sets forth the details of the Company’s unvested share awards activity for the six months ended June 30, 2011:

          Weighted-  
          Average Grant-  
    Shares     Date Fair Value  
             
Balance at January 1, 2011   890,800   $  3.9  
Granted   804,901     1.56  
Replaced   -     -  
Vested   (54,056 )   2.06  
Cancelled or Forfeited   (108,000 )   4.02  
Balance at June 30, 2011   1,533,645   $  2.74  

As of June 30, 2011, total unrecognized compensation costs related to unvested stock options were approximately $3,300,000. Unvested stock options are expected to be recognized over a weighted average period of 2.93 years.

   
9.

INCOME TAXES

   

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007. As a result of the implementation of Interpretation 48, the Company recognized no increases or decreases in the total amounts of previously unrecognized tax benefits. The Company had no unrecognized tax benefits as of June 30, 2011 and 2010. The Company did not incur any interest and penalties related to potential underpaid income tax expenses and also believed that the adoption of FIN 48 does not have a significant impact on the unrecognized tax benefits during the three months ended June 30, 2011.

   

The Company, through its subsidiaries, is governed by the Income Tax Laws of the PRC. Operations in the United States of America have incurred net accumulated operating losses of approximately $15,000,000 as of June 30, 2011 for income tax purposes. However, a hundred percent allowance has been created on the deferred tax asset of approximately $4,600,000 due to uncertainty of its realization.

12


CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

For the six months ended June 30, 2011 and 2010, income tax expenses were as follows:

    Six Months Ended June 30,  
    2011     2010  
    Domestic     Foreign     Domestic     Foreign  
    Federal     State     China     Federal     State     China  
Current $  -   $  -   $  862,935   $  -   $  -   $  835,776  
Deferred   -     -           -     -     4,047  
  $  -   $  -   $  862,935   $  -   $  -     839,823  

Each of Hebei Transwiseway, Hunan Transwiseway, Guizhou Transwiseway, Anhui Transwiseway, Jiangsu UNISITS, PKU Chinafront Chengdu Branch, PKU Chinafront Shanxi Branch, Chongqing PKU Chinafront, Shanghai PKU Chinafront, Chongqing Jiaokai, Qianfang Hongxin, Xinjiang Zhangcheng, and Dajian Zhitong is subject to a tax rate of 25% on the taxable income for PRC income tax purposes under the new EIT Law in 2011. Each of PKU Chianfront, Beijing Transwiseway, UNISITS, Beijing UNISITS, and Hangzhou UNISITS qualifies as a “new or high-technology enterprise” and is subject to a tax rate of 15% on the taxable income for PRC income tax purposes in 2011. Each of Beijing Tian Hao, Beijing Zhangcheng and Shanghai Yootu, Beijing Zhangcheng Media and the Group Company qualifies as a “software enterprise” located in Beijing and Shanghai, and is entitled to tax exemptions or preferential tax rates on the taxable income for PRC income tax purposes in 2011. Henan UNISITS is subject to a special rate of 2.5% for its taxable revenue in 2011.

The Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting and tax bases of its assets and liabilities. Deferred assets are reduced by a valuation allowance when deemed appropriate.

The tax effects of existing temporary differences that give rise to significant portions of deferred tax assets at June 30, 2011 and December 31, 2010 were as follows:

    Deferred Tax Assets  
                   
    Net operating loss     Valuation     Net deferred tax  
    carryforwards     allowance     assets  
June 30, 2011:                  
 Foreign:                  
     In RMB ¥  168,151   ¥  -   ¥  168,151  
     Exchange rate   0.1547     0.1547        
     In USD $  26,013   $  -   $  26,013  
 Domestic :                  
     In USD $  4,600,000   $  (4,600,000 ) $  -  
December 31, 2010:                  
 Foreign:                  
     In RMB ¥  168,151   ¥  -   ¥  168,151  
     Exchange rate   0.1517     0.1517        
     In USD $  25,508   $  -   $  25,508  
 Domestic :                  
     In USD $  4,600,000   $  (4,600,000 ) $  -  

13


CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

10.

EARNINGS PER SHARE

   

The Company calculates its basic and diluted earnings per share in accordance with ASC 260, Earnings per Share. Basic earnings per share are calculated by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share are calculated by adjusting the weighted average outstanding shares to assume conversion of all potentially dilutive warrants and stock options include non-vested stock granted to employees.


    Three Months Ended June 30,     Six Months Ended June 30,  
    2011     2010     2011     2010  
Net income attributable to CTFO $  2,789,396   $  3,609,917   $  5,756,672   $  5,368,956  
Basic earnings per share:                        
                         
Basic weighted average share outstanding   25,270,069     25,051,414     25,270,069     24,031,595  
Basic earnings per common share $  0.11   $  0.14   $  0.23   $  0.22  
Diluted earnings per share:                        
                         
Basic weighted average share outstanding   25,270,069     25,051,414     25,270,069     24,031,595  
Effect of dilutive stock options and warrants 3,126 45,109 3,248 57,332
Diluted weighted average shares outstanding 25,273,195 25,096,523 25,273,317 24,088,927
Diluted earnings per common share $  0.11   $  0.14   $  0.23   $  0.22  

11.

CONCENTRATION OF RISK

   

Cash

   

All funds in a noninterest-bearing transaction account are insured in full by the Federal Deposit Insurance Corporation (“FDIC”) from December 31, 2010 through December 31, 2012. This temporary unlimited coverage is in addition to, and separate from, the coverage of at least $250,000 available to depositors under the FDIC's general deposit insurance rules. As of June 30, 2011 and December 31, 2010, uninsured balances totaled zero and $497,777, respectively.

   

Major Customers

   

The Company had one and two major customers that individually represented 10% or more of the Company’s total net sales during the six months ended June 30, 2011 and 2010, respectively. Total net sales from those customers was $7,677,266 and $10,400,274 for the six months ended June 30, 2011 and 2010, respectively, and related accounts receivable balance was zero and $1,785,036 as of June 30, 2011 and 2010, respectively.

   
12.

Contractual Obligation and Capital Commitments

   

On April 15, 2011, the Group Company entered into a Land Development Compensation Framework Agreement (the “Framework Agreement”) with Beijing Strong Science Park Development Co., Ltd. ("Beijing Strong"), pursuant to which Beijing Strong agreed to complete the development of the land block with a site area of 48,900 square meters, located at Zhongguancun Innovation Park (the “C6-04 Land”) within one year after the date of the Framework Agreement. In exchange, the Group Company agreed to pay an aggregate of RMB 117,360,000 (approximately $17,984,553) to Beijing Strong, among which RMB 23,472,000 (approximately $3,596,911) must be paid on or before April 25, 2011. The Group Company intends to construct office buildings on the C6-04 Land for its own and its subsidiaries’ use to reduce its rental expenses over the long term. As of June 30, 2011, the company has paid RMB 23,472,000 (approximately$3,631,118).

   

The Group Company has 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. The 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, 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 starting 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 two free month rentals of RMB 228,776 (approximately $33,496) for the first two months. This lease expires on February 28, 2013.

14


CHINA TRANSINFO TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

At the years ending December 31 of 2011, 2012, and 2013, the aggregate future minimum payments under these lease agreements are as follows:

Years ending December 31,   Amount  
2011 $  749,588  
2012   1,216,840  
2013   149,342  
Total $  2,115,770  

13.

SUBSEQUENT EVENTS

   

On July 12, 2011, the Group Company entered into a government investment agreement (the “Investment Agreement”) with Zhongguancun Development Group (“Zhongguancun”), whereby Zhongguancun agreed, on behalf of Beijing Municipal Government, within a specified period of time, to contribute RMB 50 million (approximately $7.69 million) in cash to Beijing Transwiseway in exchange for a 10% equity interest of Beijing Transwiseway. Following the first installment of capital contribution by Zhongguancun of RMB 10 million (approximately $1.54 million), the Group Company will retain a 53.80% ownership of Beijing Transwiseway while Beijing Marine, Zhongyuan Credit and Zhongguancun will own 14.68%, 29.35% and 2.17% equity interest of Beijing Transwiseway, respectively. By the end of June 2011, the first installment of capital contribution has not been paid.

   

The Company has evaluated subsequent events through the date the financial statements were issued. Management does not believe any other subsequent events have occurred that would require further disclosure or adjustment to the financial statements.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Special Note Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q, including the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements that are based on the beliefs of our management, and involve risks and uncertainties, as well as assumptions, that, if they ever materialize or prove incorrect, could cause actual results to differ materially from those expressed or implied by such forward-looking statements. The words “believe,” “expect,” “anticipate,” “project,” “targets,” “optimistic,” “intend,” “aim,” “will” or similar expressions are intended to identify forward-looking statements. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including statements regarding new and existing products, technologies and opportunities; statements regarding 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; and any statements of belief or intention. As such, they are subject to risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward looking statements. Such risks and uncertainties include any of the factors and risks mentioned in the “Risk Factors” sections of our Annual Report on Form 10-K for the year ended December 31, 2010 and subsequent SEC filings, and any statements of assumptions underlying any of the foregoing. All forward-looking statements included in this report are based on information available to us on the date of this report. We assume no obligation and do not intend to update these forward-looking statements, except as required by law.

Certain Terms

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

  • “BVI” refers to the British Virgin Islands;
  • “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;
  • “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;
  • “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” means our consolidated variable interest entities, including China TransInfo Technology Group Co., Ltd. and its subsidiaries as depicted in our organization chart included in our Annual Report on Form 10-K for the year ended December 31, 2010.

The following discussion and analysis of our financial condition and results of operations includes information with respect to our plans and strategies for our business and should be read in conjunction with our interim unaudited condensed consolidated financial statements and related notes included herein and our consolidated financial statements and related notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Form 10-K for the year ended December 31, 2010.

Overview of Our Business

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 that are PRC domestic companies owned principally or entirely by our PRC affiliates. Through our VIE, we are involved in developing multiple applications in highway ITS, urban ITS, commercial vehicles ITS plus LBS, and to 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 primary focus is on providing end-to-end ITS solutions and related services to the transportation industry. We also offer comprehensive solutions for transportation oriented GIS, encompassing transportation planning, design, construction, maintenance and operation.

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Second Quarter Financial Performance Highlights

We continued to experience strong demand for our products and services during the second quarter of 2011, which resulted in sustained growth in our revenues. The transportation information industry in China is experiencing a rapid and continued development along with a sustained increase in the Chinese government and public demand for advanced transportation information products and services to support more effective and efficient transportation networks within China. This trend is supported by the growing amount of governmental spending in the transportation sector. We believe this trend will continue to result in the growth in sales of our transportation products and services.

The following are some financial highlights for the second quarter of 2011:

  • Net sales – Our net sales were approximately $36.87 million for the second quarter of 2011, an increase of 53.35% for the same quarter of the previous year.

  • Gross Margin – Gross margin was 28.68% for the second quarter of 2011, as compared to 39.85% for the same period in 2010.

  • Operating Profit – Operating profit was approximately $3.18 million for the second quarter of 2011, a decrease of 30.63% from $4.58 million for the same quarter of the previous year.

  • Net Income – Net income was approximately $2.79 million for the second quarter of 2011, a decrease of 22.73% from $3.61 million for the same quarter of the previous year.

Critical Accounting Estimates

As discussed in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report in Form 10-K for the fiscal year ended December 31, 2010, we consider our estimates on revenue recognition, vendor allowances, amortization of intangibles, and inventory valuation to be the most critical in understanding the judgments that are involved in preparing our consolidated financial statements. There have been no significant changes to these estimates in the three months ended June 30, 2011.

Recently Issued Accounting Guidance

See Note 2 to condensed consolidated financial statements included in Item 1, Financial Information, of this Quarterly Report on Form 10-Q.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010

The following table sets forth selected items from our unaudited condensed consolidated statements of income by dollar and as a percentage of our net sales for the periods indicated:

 

  Three Months Ended     Three Months Ended  

 

  June 30, 2011     June 30, 2010  

 

        % of           % of  

 

  Amount     Net Sales     Amount     Net Sales  

Net sales

$ 36,874,738     100.00%   $  24,045,906     100.00%  

Cost of sales

  26,298,267     71.32%     14,463,937     60.15%  

Gross profit

  10,576,471     28.68%     9,581,969     39.85%  

Total operating expenses

  7,397,564     20.06%     4,999,719     20.79%  

Income from operations

  3,178,907     8.62%     4,582,250     19.06%  

Non-operating income (expense)

  (86,398 )   (0.23% )   650,648     2.71%  

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

3,092,509 8.39% 5,232,898 21.76%

Income taxes

  361,810     0.98%     464,027     1.93%  

 

                       

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

2,730,699 7.41% 4,768,871 19.83%

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

1,023,349 2.78% 57,206 0.24%

Net income before non-controlling interests

  3,754,048     10.19%     4,826,077     20.07%  

Non-controlling interests in net income of subsidiary

  964,652     2.62%     1,216,160     5.06%  

Net income

$ 2,789,396     7.57%   $  3,609,917     15.01%  

17



Net Sales – Net sales increased by $12.83 million, or 53.35%, to $36.87 million for the three months ended June 30, 2011, from $24.05 million during the same period of 2010. Approximately 91.64% of this increase is attributable to the increase of our transportation business in the second quarter of 2011, which increased approximately 52.05% in sales for the three months ended June 30, 2011 over the same period of 2010. Such an increase was mainly attributable to the successful execution of the Company’s major businesses following its shift to the transportation business in late 2007 as well as rapidly developing market demand in the transportation information sector in China. 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. We expect that further development of China’s highway and urban transportation infrastructure will continue to impact favorably on the demand for our transportation information products and services.

The following table illustrates the revenues from the major 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.

    Three Months Ended     Three Months Ended  
    June 30, 2011     June 30, 2010  
    Net     % of Net     Net     % of Net  
    Sales     Sales     Sales     Sales  
Transportation $  34,340,629     93.12%   $  22,584,750     93.93%  
Digital City   1,293,403     3.51%     1,015,250     4.22%  
Land and resources   44,010     0.12%     70,038     0.29%  
Other   1,196,696     3.25%     375,868     1.56%  
Net sales $  36,874,738     100.00%   $  24,045,906     100.00%  

Gross Profit – Our gross profit increased approximately $1.00 million, or 10.38%, to approximately $10.58 million for the three months ended June 30, 2011, from approximately $9.58 million during the same period of 2010. Our gross profit increase was mainly attributable to the increase of sales during the three months ended June 30, 2011. However, our gross profit increase underperformed our revenue increase from the same period of 2010 to 2011, and as a result, our gross profit as a percentage of net sales decreased 11.17% from 39.85% during the same period of 2010 to 28.68% for the three months ended June 30, 2011. This decrease was mainly due to our continuous expansion into ITS market since the acquisition of UNISITS, which has resulted in a relatively lower gross margin on average than that of the Company’s in the same period of 2010.

Total Operating 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 through developments of professional contacts with various agencies and municipalities and through participation in industry trade exhibitions.

Our marketing expenses therefore were relatively low in comparison to our competitors who do not have performance record and brand recognition or well-established government contacts. Since 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.

Total operating expenses increased by $2.40 million, or 47.96%, to $7.40 million for the three months ended June 30, 2011, from $5.00 million during the same period of 2010. The increase is due to the following:

  • Our selling expenses including sales representative commissions, promotion fees and marketing expenses, increased approximately $0.50 million to $0.96 million for the three months ended June 30, 2011, from $0.46 million during the same period of 2010. As a percentage of revenues, selling expenses increased to 2.59% for the three months ended June 30, 2011, from 1.90% during the same period of 2010. The increase of selling expenses was mainly attributable to the increase of sales volume which resulted in the increased payment of representative commissions and promotion fees.

  • Our general and administrative expenses were approximately $6.44 million (17.47% of total sales) and approximately $4.54 million (18.89% of total sales) for the three months ended June 30, 2011 and 2010, respectively. The increase of administrative expenses was mainly attributable to the increase of labor costs related to the increase of sales volume as well as the development of the Company’s commercial vehicle ITS plus LBS businesses.

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Income Taxes – For the three months ended June 30, 2011, we recognized income tax expenses of $0.36 million and an effective tax rate of 11.70% while in the same period of 2010, we recognized income tax expenses of $0.46 million and an effective tax rate of 8.87% . The increase in the effective income tax rate mainly resulted from higher profits generated from UNISITS (which has a relatively higher effective tax rate) for the three months ended June 30, 2011.

Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010

The following table sets forth selected items from our unaudited condensed consolidated statements of income by dollar and as a percentage of our net sales for the periods indicated:

 

  Six Months Ended     Six Months Ended  

 

  June 30, 2011     June 30, 2010  

 

        % of           % of  

 

  Amount     Net Sales     Amount     Net Sales  

Net sales

$  73,373,897     100.00%   $  48,933,381     100.00%  

Cost of sales

  52,404,305     71.42%     30,818,236     62.98%  

Gross profit

  20,969,592     28.58%     18,115,145     37.02%  

Total operating expenses

  13,718,623     18.70%     9,867,176     20.16%  

Income from operations

  7,250,969     9.88%     8,247,969     16.86%  

Non-operating income (expense)

  (26,143 )   (0.04% )   552,812     1.13%  

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

7,224,826 9.84% 8,800,781 17.99%

Income taxes

  862,935     1.18%     839,823     1.72%  

 

                       

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

6,361,891 8.66% 7,960,958 16.27%

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

1,355,985 1.85% (301,589 ) (0.62% )

Net income before non-controlling interests

  7,717,876     10.51%     7,659,369     15.65%  

Non-controlling interests in net income of subsidiary

  1,961,204     2.67%     2,290,413     4.68%  

 

                       

Net income

$  5,756,672     7.84%   $  5,368,956     10.97%  

Net Sales – Net sales increased by $24.44 million, or 49.95%, to $73.37 million for the six months ended June 30, 2011, from $48.93 million during the same period of 2010. Approximately 91.76% of this increase is attributable to the increase of our transportation business in the first half of 2011, which increased approximately 47.66% as compared to the same period of 2010. Such an increase was mainly attributable to the successful execution of the Company’s major businesses following its shift to the Transportation business in late 2007, and aided by the rapidly developing market opportunities in the transportation information sector in China.

The following table illustrates the revenues from the major 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.

    Six Months Ended     Six Months Ended  
    June 30, 2011     June 30, 2010  
    Net Sales     % of Net     Net Sales     % of Net  
          Sales           Sales  
Transportation $  69,479,956     94.69%   $  47,053,480     96.16%  
Digital City   1,299,766     1.77%     1,169,884     2.39%  
Land and resources   47,055     0.06%     174,042     0.36%  
Other   2,547,120     3.47%     535,975     1.10%  
Net sales $  73,373,897     100.00%   $  48,933,381     100.00%  

Gross Profit – Our gross profit increased approximately $2.85 million, or 15.76%, to approximately $20.97 million for the six months ended June 30, 2011, from approximately $18.12 million during the same period of 2010. Our gross profit increase was mainly attributable to the increase of sales during the six months ended June 30, 2011. However, our gross profit increase underperformed our revenue increase from the same period of 2010 to 2011 and our gross profit as a percentage of net sales decreased 8.44% from 37.02% during the same period of 2010 to 28.58% for the six months ended June 30, 2011. This decrease was mainly due to our continuous expansion into ITS market since the acquisition of UNISITS, which resulted in a relatively lower gross margin on average than that of the Company’s in the same period of 2010.

19


Total Operating Expenses – Total operating expenses increased by $3.85 million, or 39.03%, to $13.72 million for the six months ended June 30, 2011, from $9.87 million during the same period of 2010. The increase is due to the following:

  • Our selling expenses including sales representative commissions, promotion fees and marketing expenses, increased approximately $0.56 million to $1.78 million for the six months ended June 30, 2011, from $1.22 million during the same period of 2010. As a percentage of revenues, selling expenses decreased to 2.42% for the six months ended June 30, 2011, from 2.49% during the same period of 2010. The increase of selling expenses was mainly attributable to the increase of sales volume which resulted in the increased payment of representative commissions and promotion fees.
  • Our general and administrative expenses were approximately $11.94 million (16.27% of total sales) and approximately $8.65 million (17.68% of total sales) for the six months ended June 30, 2011 and 2010 respectively. The increase of administrative expenses was mainly attributable to the increase of labor costs related to the increase of sales volume as well as the development of the Company’s commercial vehicle ITS plus LBS businesses .

Income Taxes – For the six months ended June 30, 2011, we recognized income tax expense of $0.86 million and effective tax rate of 11.94% while in the same period of 2009, we recognized income tax expense of $0.84 million and effective tax rate of 9.54% . The increase in the effective income tax rate mainly resulted from higher profits generated from UNISITS (which has a relatively higher effective tax rate) for the six months ended June 30, 2011.

Liquidity and Capital Resources

Our principal liquidity requirements are for working capital, capital expenditures and cash dividends to noncontrolling shareholders of subsidiaries. We fund our liquidity requirements primarily through cash on hand, cash flow from operations and borrowings from our revolving credit facility. We believe our cash on hand, future funds generated from operations and borrowings from our revolving credit facility will be sufficient to fund our cash requirements for at least the next twelve months. There is no assurance, however, that we will be able to generate sufficient cash flow or that we will be able to maintain our ability to borrow under our revolving credit facility.

As of June 30, 2011, we had cash and cash equivalents (excluding restricted cash) of approximately $29.95 million and restricted cash of approximately $1.97 million. The following table provides detailed information about our net cash flow for all financial statements periods presented in this report.

Cash Flow

 

  Six Months Ended June 30,  

 

  2011     2010  

Net cash (used in) operating activities

$  (12,987,326 ) $ (11,557,078 )

Net cash (used in) investing activities

  (6,011,371 )   (1,499,709 )

Net cash provided by financing activities

  4,325,358     10,783,116  

Effect of foreign currency translation

  706,563     98,088  

Net (decrease) in cash and cash equivalents

$ (13,966,776 ) $ (2,175,583 )

Operating Activities

Net cash used in operating activities was approximately $12.99 million for the six-month period ended June 30, 2011, while for the same period of 2010, we had approximately $11.56 million net cash used in operating activities. Such a change in net cash used in operating activities was primarily attributable to our increased sales volume and expanded operations, which resulted in the increase in accounts receivables and other receivables of $1.1 million, the decrease of accounts payables of $5.1 million, the increase of inventories of $1.7 million, the decrease in net billings of $0.8 million, 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), offset by a reduction of restricted cash of $2.5 million, a reduction of prepaid expenses and other current assets of $4.7 million for the six months ended June 30, 2011 compared to the same period of 2010 .

20


Investing Activities

Our primary uses of cash in investing activities are payments for the acquisition of property and equipment, land, as well as intangible assets. Net cash used in investing activities for the six-month period ended June 30, 2011 was approximately $6.01 million, which is an increase of approximately $4.51 million from net cash used in investing activities of approximately $1.50 million for the same period of 2010. The increase of the cash used in investing activities was mainly attributable to the cash used for hardware procurement related to the development of the commercial vehicle ITS plus LBS business, as well as a down payment of $3.6 million to Beijing Strong Science Park Development Co., Ltd. for securing the purchase of a parcel of land to be used for the Company’s future office facilities, during the six months ended June 30, 2011.

Financing Activities

Net cash provided by financing activities for the six-month period ended June 30, 2011 was approximately $4.33 million, while for the same period of 2010 we had approximately $10.78 million net cash provided by financing activities. Such a decrease was mainly attributable to the fact that during the six months ended June 30, 2011, we repaid more short term borrowings than the proceeds we received from new short term borrowings. In addition, compared to the proceeds of $10 million we received from a financing activity during the first half of 2010, we received less cash from investment during the six-month period ended June 30, 2011, that is, cash received from non-controlling interest shareholders of $6.7 million.

Financing AgreementsOn September 29, 2009, PKU Chinafront 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 Chinafront 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. Interest is to be paid 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 repayment of the loan may be accelerated and Huaxia Bank may demand immediate repayment of the principal and accrued interest upon the occurrence of an event of default that 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 March 28, 2011, the total amount of the loan was repaid in full.

On June 21, 2010, PKU Chinafront, entered into a short-term loan agreement with Bank of Beijing, Zhongguancun Branch (“Zhongguancun Branch”), pursuant to which Zhongguancun Branch agreed to loan PKU Chinafront the sum of RMB 30 million (approximately $4.58 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, with interest to be paid on a quarterly basis. The loan expires within 12 months of the date of the first withdrawal but may be renewed upon receipt of written consent from Zhongguancun Branch. Under the terms of the loan agreement, PKU Chinafront is subject to customary affirmative and negative covenants. The repayment of the loan may be accelerated and Zhongguancun Branch may demand immediate repayment of the principal and accrued interests upon the occurrence of an event of default that 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 June 30, 2011, the total amount of the loan was repaid in full.

On November 29, 2010, Beijing Transwiseway 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 Beijing Transwiseway the sum of RMB 30 million (approximately $4.64 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, with interest to be paid on a quarterly basis. The loan expires within 12 months after the date of the first withdrawal but may be renewed upon the written consent by Haidianyuan Branch. Under the terms of the loan agreement, Beijing Transwiseway is subject to customary affirmative and negative covenants. The repayment of the loan may be accelerated and Haidianyuan Branch may demand immediate repayment 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 Beijing China Transwiseway, and certain events of liquidation or bankruptcy. As of June 30, 2011, a principal amount of approximately $4.64 million was outstanding.

On January 19, 2011, PKU Chinafront entered into a short-term loan agreement with the Bank of Communications, Jiuxianqiao Branch, pursuant to which the Bank of Communications has agreed to loan PKU Chinafront the sum of RMB 20 million (approximately $3.05 million) for working capital purposes. The loan has an annual interest rate equal to 10% above the benchmark interest rate as of the actual launch day, with interest to be paid on a quarterly basis. The loan expires within 12 months after the date of the first withdrawal. As of June 30, 2011, a principal amount of approximately $3.09 million was outstanding.

21


On May 25, May 30 and June 15, 2011, PKU Chinafront, entered into three short-term loan agreements with Bank of Beijing, Zhongguancun Branch (“Zhongguancun”), pursuant to which Zhongguancun agreed to loan PKU Chinafront an aggregate of RMB 25 million (approximately $3.87 million) as working capital. The loan has an annual interest rate equal to 10% above the benchmark interest rate as of the actual launch day, with interest to be paid on a quarterly basis. The loan expires within 12 months of the date of the first withdrawal but may be renewed upon receipt of written consent from Zhongguancun. Under the terms of the loan agreement, PKU Chinafront is subject to customary affirmative and negative covenants. The repayment of the loan may be accelerated and Zhongguancun may demand immediate repayment of the principal and accrued interests upon the occurrence of an event of default that 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 June 30, 2011, a principal amount of approximately $3.87 million was outstanding.

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 Entertainment (China) Limited, or Oriental Intra-Asia, after it receives payments from our VIE 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 are 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.

Off-Balance Sheet Arrangements and Contractual Obligations – Our material off-balance sheet arrangements are operating lease obligations. We excluded these items from the balance sheet in accordance with generally accepted accounting principles in the United States of America. Operating lease commitments consist principally of leases for our headquarter offices. These leases frequently include options which permit us to extend the terms beyond the initial fixed lease term. With respect to most of those leases, we intend to renegotiate those leases as they expire.

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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

Pursuant to Item 305(e) of Regulation S-K, the Company is not required to provide the information required by this Item as it is a “smaller reporting company.”

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures.

Our management, with the participation of our chief executive officer and chief financial officer, Mr. Shudong Xia and Mr. Rong Zhang, respectively, evaluated the effectiveness of our disclosure controls and procedures. The term “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports, such as this report, that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation, Mr. Shudong Xia and Mr. Rong Zhang concluded that as of June 30, 2011, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures was completed, our disclosure controls and procedures were effective at the reasonable assurance level.

22


Changes in Internal Control over Financial Reporting.

During the fiscal quarter ended June 30, 2011, there were no changes in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

23


PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. We are currently not aware of any legal proceedings or claims that would require disclosure under Item 103 of Regulation S-K. 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.

ITEM 1A. RISK FACTORS

Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

We have not sold any unregistered equity securities during the fiscal quarter ended June 30, 2011 that were not previously disclosed in a current report on Form 8-K that was filed during that period.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. [REMOVED AND RESERVED.]

ITEM 5. OTHER INFORMATION.

None

ITEM 6. EXHIBITS.

EXHIBITS.  
   
31.1

Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2

Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1

Certification of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

32.2

Certification of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101

The following financial information from The China TransInfo Technology Corp.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at June 30, 2011 and December 31, 2010, (ii) Condensed Consolidated Statements of Income for the three and six months ended June 30, 2011 and 2010, (iii) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010, and (iv) the Notes to Unaudited Condensed Consolidated Financial Statements.

24


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DATED: August 15, 2011

CHINA TRANSINFO TECHNOLOGY CORP.

By: /s/ Shudong Xia                
Shudong Xia
Chief Executive Officer
(Principal Executive Officer)

By: /s/ Rong Zhang                 
Rong Zhang
Chief Financial Officer
(Principal Financial Officer)


EXHIBIT INDEX

Exhibit  
Number Description
   
31.1 Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2 Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1 Certification of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
32.2

Certification of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101

The following financial information from The China TransInfo Technology Corp.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at June 30, 2011 and December 31, 2010, (ii) Condensed Consolidated Statements of Income for the three and six months ended June 30, 2011 and 2010, (iii) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010, and (iv) the Notes to Unaudited Condensed Consolidated Financial Statements.