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

FORM 10-K

(Mark One)

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

For the fiscal year ended: December 31, ~~2010~~ 2011

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

For the transition period from ~~____________~~____________to ~~to ____________~~_____________

Commission File No. 001-34076

CHINA INFORMATION TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)

Nevada	98-0575209
(State or other jurisdiction of incorporation or	(I.R.S. Employer Identification No.)
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
organization)
incorporation or organization)

21^st Floor, Everbright Bank Building
Zhuzilin, Futian District
Shenzhen, Guangdong, 518040
People’s Republic of China
(Address of principal executive offices)

(+86) 755-8370-8333
(Registrant’s telephone number, including area code)

_________________________________________(Former name: China Information Security Technology, Inc.)

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

Title of each class	Name of each exchange on which registered
Common Stock, par value $0.01 per share	The NASDAQ ~~Global~~Stock ~~Select~~ Market LLC
	(NASDAQ Global Select Market)

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes [ ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)

Yes [ X] No [ ]

- 1 -

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

[X ]

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

Large Accelerated Filer [ ] Accelerated Filer [Xx] Non-Accelerated Filer [ ] (Do not check if a smaller reporting company) Smaller reporting company [ ]

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

Yes [ ] No [X]

As of June 30, ~~2010~~2011 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of the shares of the registrant’s common stock held by non-affiliates (based upon the closing sale price of such shares as reported on the NASDAQ Global Select Market) was approximately $~~164~~67.13 million ~~[$5~~.20 ~~x 31,555,707 (51,805,787 outstanding-20,250,080 held by affiliates].~~ Shares of the registrant’s common ~~stock~~ stock held by each executive officer, ~~and~~ director and ~~each by each~~ person who owns 10% or more of the outstanding common stock have been excluded from the calculation in that such persons may be deemed to be affiliates of the registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

There were a total of 5255, ~~305~~182,~~787~~924 shares of the registrant’s common stock outstanding as of ~~March~~February 829, ~~2011~~2012.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement for its Annual Meeting of Shareholders to be filed with the Commission within 120 days after the close of the Registrant’s fiscal year are incorporated by reference into Part III of this Annual Report on Form 10-KNone.

-Annual 2Report on Form 10-K

Annual Report on FORM 10-K For the Fiscal Year Ended December 31, 2010

TABLE OF CONTENTS

PART I
Item 1.	Business.	~~- 5 -~~2
Item 1A.	Risk Factors.	~~- 18 -~~17
Item 1B.	Unresolved Staff Comments.	~~- 30 -~~32
Item 2.	Properties.	~~- 30 -~~32
Item 3.	Legal Proceedings.	~~- 31 -~~33
Item 4.	~~(Removed~~Mine ~~and~~Safety ~~Reserved)~~Disclosures.	~~- 31 -~~33
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	~~- 31 -~~33
Item 6.	Selected Financial Data	~~- 32 -~~34
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	~~- 33 -~~35
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	~~- 45 -~~49
Item 8.	Financial Statements and Supplementary Data.	~~- 46 -~~50
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.	~~- 46 -~~50
Item 9A.	Controls and Procedures.	~~- 47 -~~50
Item 9B.	Other Information.	~~- 48 -~~51
PART III
Item 10.	Directors, Executive Officers and Corporate Governance.	~~- 48 -~~52
Item 11.	Executive Compensation.	~~- 48 -~~58
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	~~- 48 -~~63
Item 13.	Certain Relationships and Related Transactions, and Director Independence.	~~- 48 -~~63
Item 14.	Principal Accounting Fees and Services	~~- 48 -~~68
PART IV
Item 15.	Exhibits, Financial Statement Schedules.	~~- 48 -~~69

- 3 -

Special Note Regarding Forward Looking Statements

In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We use words such as “believe,” “expect,” “anticipate,” “project,” “target,” “plan,” “optimistic,” “intend,” “aim,” “will” or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; and any statements regarding future economic conditions or performance, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements. Potential risks and uncertainties include, among other things, the possibility that third parties hold proprietary rights that preclude us from marketing our products, the emergence of additional competing technologies, changes in domestic and foreign laws, regulations and taxes, changes in economic conditions, uncertainties related to China’s legal system and economic, political and social events in China, a general economic downturn, a downturn in the securities markets, and other risks and uncertainties.

Additional disclosures regarding factors that could cause our results and performance to differ from results or anticipated performance are discussed in Item 1A, “Risk Factors” included herein. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. We assume no obligation and do not intend to update these forward-looking statements, except as required by law.

Use of Terms

Except as otherwise indicated by the context and for the purposes of this report only, references in this report to:

“CNIT,” “we,” “us,” or “our” and the “Company” are to the combined business of China Information Technology, Inc. and its consolidated subsidiaries, Bocom, CITH, ~~IST~~HPC, ~~ISSI~~Huipu, ISS, ~~ISIID~~ISSI, ~~Bocom~~ISIID, ~~Kwong Tai~~IST, ~~Zhongtian, HPC, Huipu, HPC Intl;~~ and iASPEC, to whose operations we succeeded on October 9, 2006 and ~~who~~which became our variable interest entity effective July 1, 2007, and its 52.54% majority-owned subsidiary, Geo and 81.65% majority-owned subsidiary, ~~Geo~~Zhongtian;

“CITH” are to China Information Technology Holdings Limited (formerly “China Public Security Holdings Limited”), a British Virgin Islands company;

“IST” are to Information Security Technology (China) Co., Ltd., a PRC company;

“ISSI” are to Information Security Software Investment Limited, a Hong Kong company;

“ISS” are to Information Security Software (China) Co., Ltd., a PRC company;

“ISIID” are to Information Security International Investment and Development Limited, a Hong Kong company;

“Bocom” are to Shenzhen Bocom Multimedia Display Technology Co., Ltd., a PRC company;
“~~Kwong Tai~~CITH” are to ~~Kwong~~China ~~Tai~~Information ~~International~~ Technology Holdings Limited, a ~~Hong Kong~~British Virgin Islands company;
“~~Zhongtian~~Geo,” are to ~~Shenzhen~~Wuda ~~Zhongtian~~Geoinformatics ~~Technology~~Co., ~~Development Company~~ Ltd., a PRC company;
“HPC” are to HPC Electronics (China) Company Limited (formerly Topwell Treasure Ltd.), a Hong Kong company;
“Huipu” are to Huipu Electronics (Shenzhen) Co., Ltd., a PRC company;

“HPC Intl” are to Huipu Electronics (International) Co., Ltd, a British Virgin Islands company;

“iASPEC” are to iASPEC Software Co., Ltd., a PRC company;
“~~Geo,~~ISSI” are to ~~Wuda~~Information ~~Geoinformatics~~Security ~~Co.,~~Software ~~Ltd.~~Investment Limited, a ~~PRC~~Hong Kong company;
“IST” are to Information Security Technology (China) Co., Ltd., a PRC company;
“ISIID” are to Information Security International Investment and Development Limited, a Hong Kong company;
“ISS” are to Information Security Software (China) Co., Ltd., a PRC company;
“Zhongtian,” are to Shenzhen Zhongtian Technology Development Company Ltd., a PRC company;
“Hong Kong” are to the Hong Kong Special Administrative Region of the People’s Republic of China;
“PRC,” ~~“China,”~~ and “~~Chinese,~~China” are to the People’s Republic of China;
“SEC” are to the Securities and Exchange Commission;

“Securities Act” are to the Securities Act of 1933, as amended;

“Exchange Act” are to the Securities Exchange Act of 1934, as amended;
“Securities Act” are to the Securities Act of 1933, as amended;
“Renminbi” and “RMB” are to the legal currency of China; and
“U.S. dollars,” “dollars” and “$” are to the legal currency of the United States.

-1 ~~4 -~~

We completed a reverse stock split on March 1, 2012, pursuant to which every two shares of our common stock were combined into one share of common stock. Except for the number of shares outstanding stated on the cover page of this report, all references in this report to share and per share data have been adjusted, including historical data which have been retroactively adjusted, to give effect to the reverse stock split unless specified otherwise.

PART I

ITEM 1.

BUSINESS.

Overview of Our Business

We are a leading provider of information and display technologies in the PRC. We provide a broad portfolio of software, hardware and fully integrated solutions ~~for~~to ~~the~~customers in a variety of technology sectors including Geographic Information Systems, or GIS, Digital Public Security ~~Technology~~ Technologies, or DPST, ~~and the~~ Digital Hospital Information Systems, or DHIS ~~markets~~, ~~in the PRC. We provide a broad portfolio of fully integrated solutions and services~~education, ~~encompassing~~media, ~~both software development~~ and ~~display~~consumer ~~technologies~~products.

We were founded in 1993 and are headquartered in Shenzhen, China. As of December 31, ~~2010~~2011, we had approximately 1,~~453~~540 employees and 27 23 sales offices nationwide.

Our customers are mostly public sector entities that use our products and services to improve the service quality and management level and efficiency of public security, traffic control, fire control, medical rescue, border control, and surveying and mapping ~~as well as healthcare management~~. Our typical customers include some of the most important governmental departments in China, including the Ministry of Public Security, the ~~State Bureau of Surveying and Mapping, the State Grid Corporation, the~~ public security, fire fighting, traffic and police departments of several provinces, the Shenzhen General Station of Exit and Entry Frontier Inspection, and several provincial personnel, urban planning, civil administration, land resource, and mapping and surveying bureaus. Over the past several years, we have diversified our customer base beyond our local reach. In the future, we expect to continually expand our market and product offerings in the public and ~~private~~other sectors, through geographic expansion and enhancement of our technical capabilities.

We generate revenues through the sale of our ~~integrated~~software and hardware ~~and~~products, ~~software~~through ~~products~~our fully integrated total solutions, and through the provision of related support services. A significant portion of our operations are conducted through iASPEC , our variable interest entity. iASPEC is a PRC domestic company owned by Mr. Jiang Huai Lin, our Chairman and Chief Executive Officer, who is a PRC citizen and resident. iASPEC is able to obtain governmental licenses that are restricted to PRC entities that have no foreign ownership. These licenses allow iASPEC to perform Police-use Geographic Information Systems, or PGIS, services for PRC governmental customers. Under our Amended and Restated Management Services Agreement among our subsidiary, IST, iASPEC and Mr. Lin, or the MSA, IST is entitled to receive 95% of the net received profit of iASPEC during the term of the ~~Agreement~~ agreement, less costs and expenses related to sales and operations, and accrued but uncollected accounts receivable. In fiscal years ~~2010~~2011, ~~2009~~2010 and ~~2008~~2009, 3947.1%, 48 39.61% and 48.6% of our revenues, respectively, were generated under this exclusive ~~commercial~~ commercial arrangement with iASPEC.

~~Our~~We ~~History~~report financial and ~~Background~~operating information in the following two segments:

We were originally organized under the laws of the State of Florida on September 19, 1979 under the name Mark Thomas Publishing Inc. and on April 29, 2003 we changed our name to Irish Mag, Inc. From our inception through October 8, 2006, we provided consulting services in the offset printing industry, targeting individual retail consumers as well as small to mid-size companies. However, as a result of the reverse merger transaction described below, our business operations changed to the provision of integrated GIS services. On January 26, 2007, we changed our name to China Public Security Technology, Inc. to more accurately reflect our new business and commercial objectives.

(1)	Information Technology, or IT, segment: IT includes revenues from products and services surrounding our variety of software core competencies, currently primarily in GIS, DPST and DHIS. IT segment revenues are generated from the sales of software and system integration services, as well as hardware other than display products.

(2)	Digital Technology, or DT, segment: DT includes revenues from products and services surrounding our display technology core competencies, currently primarily in GIS, DPST, education, media, and consumer products. DT segment revenues are generated from sales of hardware and total solutions of hardware integrated with proprietary software and content, as well as services.

OnOur ~~April~~History 7, 2008, we reincorporated to the State of Nevada by merging into China Information Security Technology, Inc., a subsidiary that we established in Nevada to effect the reincorporation. As a result, our name changed to China Information Security Technology, Inc. and weBackground ~~became a Nevada corporation.~~

OnWe ~~August~~were 26originally organized under the laws of the State of Florida on September 19, ~~2010~~1979 under the name Mark Thomas Publishing Inc. and on April 29, 2003 we changed our name to ~~China~~Irish ~~Information Technology~~Mag, Inc. From our inception through October 8, 2006, we provided consulting services in the offset printing industry, targeting individual retail consumers as well as small to bemid-size companies. ~~aligned~~However, ~~with~~as ~~our~~a ~~strategic~~result ~~direction~~of the reverse merger transaction described below, our ~~ticker~~business ~~symbol~~operations ~~and~~changed to the provision of integrated GIS services. On January 26, 2007, we changed our ~~trade~~name ~~mark~~to China Public Security Technology, Inc. to more accurately reflect our new business and commercial objectives.

~~Reverse~~2 ~~Merger Transaction~~

~~Between~~ On ~~October~~April 67, ~~2006 and January 31~~2008, ~~2007, our shareholders approved a series of transactions whereby~~ we ~~purchased~~reincorporated ~~all~~to the ~~issued~~State ~~and outstanding stock~~ of ~~CPSH~~Nevada ~~from~~by ~~our~~merging ~~current~~into ~~Chairman~~China ~~and~~Information ~~Chief~~Security ~~Executive Officer Jiang Huai Lin~~Technology, ~~for 25~~Inc.,~~500,000~~ ~~shares of our common stock. As~~ a ~~result of these transactions, CPSH and its wholly-owned~~ subsidiary, ~~IST,~~that ~~became~~we ~~our~~established ~~wholly-owned subsidiaries,~~in ~~and~~Nevada ~~Mr.~~to ~~Lin~~effect ~~became~~ the ~~beneficial~~reincorporation. ~~owner~~As ofa 25result,~~500,000~~ ~~shares of~~ our ~~common~~name ~~stock,~~changed ~~which,~~to atChina ~~January~~Information Security 31Technology, ~~2007, constituted 80~~Inc.8% ofand ~~our~~we ~~issued and~~became ~~outstanding~~a ~~common~~Nevada ~~stock~~corporation.

- On 5August -26, 2010, we changed our name to China Information Technology, Inc.

~~Management~~ Share ~~Service~~information ~~Agreement~~included in this section does not give retroactive effect to our one-for-two reverse stock split effected on March 1, 2012.

~~From October 9, 2006 through June 30, 2007, we operated under a~~ ~~Business~~Reverse ~~Turnkey~~Merger ~~Agreement,~~Transaction or Turnkey Agreement, with iASPEC, pursuant to which iASPEC exclusively engaged IST as its subcontractor to provide iASPEC with outsourcing services (to the extent that those services do not violate any special governmental permits held by iASPEC and do not involve the improper transfer of any sensitive confidential governmental or other data).

~~Effective July 1, 2007, iASPEC and iASPEC’s shareholders, Mr.~~ ~~Lin~~Between ~~and~~October ~~Mr. Jin Zhu Cai agreed to terminate the Turnkey Agreement and replaced it on the same day with a Management Service Agreement. Pursuant to the terms of the Management Service Agreement~~6, ~~iASPEC~~2006 ~~granted IST an exclusive, royalty-free, transferable, worldwide, license to use~~ and ~~install~~January ~~for a ten-year term~~31, ~~certain iASPEC software~~2007, ~~along~~our ~~with~~shareholders ~~copies~~approved ~~of source and object code relating to such software, in any manner permitted by applicable laws, and IST licensed back to iASPEC~~ a ~~royalty-free,~~series ~~limited, non-exclusive license to the software, without right~~ of ~~sub-license,~~transactions ~~for~~whereby ~~the~~we ~~sole~~purchased ~~purpose~~all ~~of permitting iASPEC to carry out its business as presently conducted. IST will also have~~ the ~~right~~issued ~~to designate two Chinese citizens to serve as senior managers of iASPEC, to serve on iASPEC’s Board of Directors~~ and ~~assist~~outstanding instock ~~managing the business and operations~~ of ~~iASPEC. In~~CITH ~~addition,~~from ~~both iASPEC and IST will require the affirmative vote of the majority of~~ our ~~Board~~current ofChairman ~~Directors,~~and asChief ~~well~~Executive asOfficer atJiang ~~least~~Huai ~~one non-insider director~~Lin, for ~~certain material actions with respect to iASPEC~~25, ~~including~~500, ~~but~~000 ~~not~~shares ~~limited to: (a) the nomination, appointment, election or replacement~~ of ~~any board~~our ~~members;~~common ~~(b)~~stock. ~~the~~As ~~distribution~~a ofresult ~~any dividend or profits; (c) any merger, division, change~~ of ~~corporate~~these ~~form~~transactions, ~~dissolution~~CITH orand ~~liquidation;~~its ~~(d)~~wholly-owned ~~any reimbursement of net losses or other payments or transfers of funds from IST to iASPEC; (e) the formation or disposition of a~~ subsidiary, ~~or the acquisition or disposition of any interest in any other entity; and (f) the encumbrance of any assets under any lien not in the ordinary course of business. Furthermore~~IST, ~~under the~~became ~~Management~~our ~~Service~~wholly-owned ~~Agreement~~subsidiaries, ~~IST will receive 100% of the net received profit of iASPEC~~ and ~~will reimburse iASPEC for all net losses incurred by iASPEC~~Mr. ~~The~~Lin ~~net~~became ~~profit of iASPEC will be paid to IST, and~~ the ~~net~~beneficial ~~losses~~owner of ~~iASPEC~~ ~~will be reimbursed by IST~~25, ~~no later than the last day of the month following the end of each calendar quarter~~500, ~~commencing on July 1, 2007. IST is also obligated to pay iASPEC $180,~~000 ~~per~~shares ~~year, no later than the last day~~ of ~~the~~ ~~month~~our ~~following~~common ~~the end of each calendar year~~stock, ~~commencing on July 1~~which, ~~2007, and this amount may be retained by iASPEC out of any net received profit due and payable to IST as of such payment date. IST may also advance to iASPEC,~~ at ~~IST’s sole~~January ~~discretion~~31, ~~amounts to be credited against IST’s future obligations to~~ ~~iASPEC~~2007, ~~but~~constituted ~~any such advances will be treated as prepayments and not as loans~~80. ~~iASPEC~~8% ~~will have no obligation to repay any such advances except by crediting the amount~~ of ~~such~~our ~~advances~~issued ~~against IST’s obligation to reimburse net losses, or by adding the amount thereof to net profit when~~ and asoutstanding ~~requested~~common ~~by IST~~stock. If iASPEC or any of the iASPEC shareholders materially breaches the Management Service Agreement and fails to remedy the breach within 60 days after notice from IST of such breach, they will be jointly and severally obligated to pay to IST liquidated damages in an amount equal to the higher of (a) eight times the annualized revenues of IST for the last completed fiscal quarter, or (b) US$50 million.

~~In connection with the~~ Management ~~Service~~Services Agreement, IST also entered into a purchase option agreement, or Option Agreement, with iASPEC and its shareholders, effective as of July 1, 2007, pursuant to which the iASPEC shareholders granted IST, or its designee(sMSA), an exclusive, irrevocable option to purchase from the iASPEC shareholders, from time to time, all or a part of iASPEC’s shares, pursuant to an equity transfer agreement, or all or a part of iASPEC’s assets, pursuant to an asset purchase and transfer agreement. However, according to the Option Agreement, the option may not be exercised by IST if the exercise would violate any applicable laws and regulations in China or cause any license or permit held by, and necessary for the operation of iASPEC, to be cancelled or invalidated. Under the terms of the Option Agreement, the option is immediately exercisable at an exercise price of $1,800,000, in the aggregate, subject to regulatory approval. In addition, iASPEC and the iASPEC shareholders agreed to use their best efforts to acquire all necessary government approvals and other consents to complete a share purchase under the Option Agreement. The Option Agreement may be rescinded by IST upon 30 days’ notice and will terminate on the date that we purchase all remaining shares or assets of iASPEC pursuant to the terms of the Option Agreement. If any of the parties breaches the Option Agreement and fails to remedy the breach, the breaching party will pay a penalty of RMB5,000,000 (approximately $683,600) to the non-breaching party or parties, and compensate the non-breaching party or parties for any losses caused by the breach.

As From aOctober ~~result~~9, of2006 ~~the~~through ~~restructuring~~June of30, ~~its relationship with iASPEC~~2007, ~~iASPEC~~we ~~became~~operated under a ~~variable~~Business ~~interest~~Turnkey ~~entity~~Agreement, ~~of our Company. A variable interest represents a contractual~~ or ~~ownership~~Turnkey ~~interest~~Agreement, inwith ~~another~~iASPEC, ~~entity~~pursuant ~~that causes the holder~~ to ~~absorb~~which ~~the~~iASPEC ~~changes~~exclusively inengaged ~~fair~~IST ~~value~~as ofits ~~the~~subcontractor ~~other entity’s net assets. Potential variable interests include: holding economic interests, voting rights, or obligations~~ to anprovide ~~entity;~~iASPEC ~~issuing~~with ~~guarantees~~outsourcing onservices ~~behalf of an entity; transferring assets~~ (to ~~an entity; managing~~ the ~~assets of an entity; leasing~~ ~~assets~~extent ~~from an entity; and providing financing to an entity. In such cases consolidation of the variable interest entity is required by the enterprise~~ that ~~controls~~ ~~the~~those ~~economic~~services ~~risks~~do ~~and~~not ~~rewards~~violate ofany ~~the~~special ~~entity,~~governmental ~~regardless~~permits ~~of ownership. While we have~~ held anby ~~economic interest in~~ iASPEC ~~since October 9, 2006, the Management Service Agreement~~ and ~~the~~do ~~Option~~not ~~Agreement~~involve ~~have now given us control over~~ the ~~business~~improper ~~and~~transfer ~~operations~~ of ~~iASPEC.~~any Assensitive aconfidential ~~result,~~governmental ~~iASPEC’s~~or ~~financial~~other data ~~is subject to consolidation with our financial data, commencing July 1, 2007~~).

Effective July 1, 2007, iASPEC and iASPEC’s shareholders, Mr. Lin and Mr. Jin Zhu Cai agreed to terminate the Turnkey Agreement and replaced it on the same day with a Management Service Agreement. Pursuant to the terms of the Management Service Agreement, iASPEC granted IST an exclusive, royalty-free, 6transferable, worldwide, license to use and install for a ten-year term, certain iASPEC software, along with copies of source and object code relating to such software, in any manner permitted by applicable laws, and IST licensed back to iASPEC a royalty-free, limited, non-exclusive license to the software, without right of sub-license, for the sole purpose of permitting iASPEC to carry out its business as presently conducted. IST will also have the right to designate two Chinese citizens to serve as senior managers of iASPEC, to serve on iASPEC’s Board of Directors and assist in managing the business and operations of iASPEC. In addition, both iASPEC and IST will require the affirmative vote of the majority of our Board of Directors, as well as at least one non-insider director, for certain material actions with respect to iASPEC, including, but not limited to: (a) the nomination, appointment, election or replacement of any board members; (b) the distribution of any dividend or profits; (c) any merger, division, change of corporate form, dissolution or liquidation; (d) any reimbursement of net losses or other payments or transfers of funds from IST to iASPEC; (e) the formation or disposition of a subsidiary or the acquisition or disposition of any interest in any other entity; and (f) the encumbrance of any assets under any lien not in the ordinary course of business. Furthermore, under the Management Service Agreement, IST will receive 100% of the net received profit of iASPEC and will reimburse iASPEC for all net losses incurred by iASPEC. The net profit of iASPEC will be paid to IST, and the net losses of iASPEC will be reimbursed by IST, no later than the last day of the month following the end of each calendar quarter, commencing on July 1, 2007. IST is also obligated to pay iASPEC $180,000 per year, no later than the last day of the month following the end of each calendar year, commencing on July 1, 2007, and this amount may be retained by iASPEC out of any net received profit due and payable to IST as of such payment date. IST may also advance to iASPEC, at IST’s sole discretion, amounts to be credited against IST’s future obligations to iASPEC, but any such advances will be treated as prepayments and not as loans. iASPEC will have no obligation to repay any such advances except by crediting the amount of such advances against IST’s obligation to reimburse net losses, or by adding the amount thereof to net profit when and as requested by IST. If iASPEC or any of the iASPEC shareholders materially breaches the Management Service Agreement and fails to remedy the breach within 60 days after notice from IST of such breach, they will be jointly and severally obligated to pay to IST liquidated damages in an amount equal to the higher of (a) eight times the annualized revenues of IST for the last completed fiscal quarter, or (b) US$50 million.

~~On July 1, 2008, our Chairman and Chief Executive Officer, Mr.~~ ~~Jiang~~3 Huai Lin, entered into an Equity Transfer Agreement with Mr. Jin Zhu Cai, the owner of a 24% minority interest in iASPEC, pursuant to which Mr. Lin purchased Mr. Cai’s minority interest for a total consideration of RMB60 million (approximately $8.72 million). As a result of the Equity Transfer Agreement, Mr. Lin holds 100% of the equity interests of iASPEC.

On In ~~December~~connection ~~13,~~with ~~2009~~the Management Service Agreement, IST also entered into a purchase option agreement, or Option Agreement, with iASPEC and ~~Mr.~~its ~~Lin~~shareholders, effective as of July 1, 2007, pursuant to which the ~~sole~~iASPEC shareholders granted IST, or ~~shareholder~~its designee(s), an exclusive, irrevocable option to purchase from the iASPEC shareholders, from time to time, all or a part of iASPEC’s shares, ~~amended~~pursuant to an equity transfer agreement, or all or a part of iASPEC’s assets, pursuant to an asset purchase and ~~restated~~transfer agreement. However, according to the ~~Management~~Option ~~Service~~Agreement, the option may not be exercised by IST if the exercise would violate any applicable laws and regulations in China or cause any license or permit held by, and necessary for the operation of iASPEC, to be cancelled or invalidated. Under the terms of the Option Agreement, the option is immediately exercisable at an exercise price of $1,800,000, in the aggregate, subject to regulatory approval. In ~~pursuant~~addition, iASPEC and the iASPEC shareholders agreed to ~~which~~use their best efforts to acquire all necessary government approvals and other consents to complete a share purchase under the Option Agreement. The Option Agreement may be rescinded by IST upon 30 days’ notice and will ~~continue~~terminate on the date that we purchase all remaining shares or assets of iASPEC pursuant to ~~provide~~the ~~management~~terms of the Option Agreement. If any of the parties breaches the Option Agreement and ~~consulting services~~fails to ~~iASPEC~~remedy the breach, ~~subject~~the breaching party will pay a penalty of RMB5,000,000 (approximately $683,600) to the ~~following~~non-breaching ~~changes:~~party or parties, and compensate the non-breaching party or parties for any losses caused by the breach.

As a result of the restructuring of its relationship with iASPEC, ~~agreed~~iASPEC ~~that~~became ~~IST~~a ~~will~~variable beinterest ~~entitled~~entity toof ~~receive~~our ~~ninety~~Company. ~~five~~A ~~percent~~variable interest represents a contractual or ownership interest in another entity that causes the holder to absorb the ~~(95%)~~changes in fair value of the other entity’s net ~~received~~assets. ~~profit~~Potential ofvariable ~~iASPEC~~interests ~~during~~include: ~~the~~holding ~~term~~economic ofinterests, ~~the~~voting ~~agreement~~rights, or obligations to bean ~~calculated~~entity; asissuing ~~follows:~~guarantees ~~accrued~~on ~~accounts~~behalf ~~receivable~~of ~~plus~~an ~~net~~entity; ~~turnover~~transferring assets to an entity; ~~(revenue),~~managing ~~minus~~the ~~cost~~assets of ~~sales,~~an ~~minus~~entity; ~~operating~~leasing ~~expenses,~~assets from an entity; and ~~minus~~providing ~~accrued but~~financing ~~not~~to ~~collected~~an ~~accounts~~entity. ~~receivable,~~In ~~but~~such ~~only~~cases ifconsolidation of the ~~result~~variable interest entity is arequired ~~positive number.~~by ~~iASPEC~~the isenterprise ~~obligated~~that tocontrols ~~calculate~~the economic risks and ~~pay~~rewards of the entity, ~~net~~regardless ~~received~~of ~~profit~~ownership. ~~due to~~While ~~IST~~we nohave ~~later~~held ~~than~~an economic interest in iASPEC since October 9, 2006, the ~~last~~Management ~~day~~Service ofAgreement and the ~~first~~Option ~~month~~Agreement ~~following~~have now given us control over the ~~end~~business and operations of ~~each~~iASPEC. As a result, ~~fiscal~~iASPEC’s ~~quarter;~~financial data is subject to consolidation with our financial data, commencing July 1, 2007.

On July 1, 2008, our Chairman and Chief Executive Officer, Mr. ~~Lin~~Jiang ~~agreed~~Huai toLin, ~~enter~~entered into aan ~~pledge~~Equity ~~agreement~~Transfer Agreement with ~~IST~~Mr. toJin ~~pledge~~Zhu ~~all~~Cai, ~~his equity~~the ~~interests~~owner of a 24% minority interest in iASPEC, aspursuant ~~security~~to ~~for~~which ~~his~~Mr. ~~and~~Lin ~~iASPEC'~~purchased Mr. Cai’s minority ~~fulfillment~~interest for a total consideration of ~~their~~ ~~respective~~RMB60 ~~obligations~~million ~~under~~(approximately $8.72 million). As a result of the ~~Management~~Equity ~~Service~~Transfer Agreement, ~~and~~Mr. ~~to register~~Lin ~~the~~holds ~~pledge~~100% ~~agreement~~of ~~with~~ the ~~local~~equity ~~Administration~~interests ~~for~~of ~~Industry and~~ iASPEC. ~~Commerce;~~

~~Mr.~~ On ~~Lin~~December ~~confirmed~~13, ~~his~~2009, ~~status~~IST, iASPEC and Mr. Lin, as the sole shareholder of iASPEC, amended and ~~his assumption~~restated ~~of all~~ the ~~obligations~~Management ofService ~~the iASPEC shareholder under the agreement~~Agreement, ~~including~~pursuant ato ~~confirmation~~which ofIST ~~his~~will ~~continuing~~continue ~~obligation~~to ~~under~~provide ~~a written~~management ~~guaranty,~~and ~~dated~~consulting ~~August~~services 1,to ~~2007~~iASPEC, ~~executed~~subject byto the ~~iASPEC shareholders in~~ ~~connection~~following ~~with~~changes: ~~the Management Service Agreement;~~

~~Based~~iASPEC onagreed ~~iASPEC’s~~that ~~needs~~IST ~~for~~will ~~its~~be ~~development~~entitled ~~and~~to ~~operation,~~receive ~~IST~~ninety ~~has~~five percent (95%) of the ~~right,~~ ~~from~~net ~~time~~received toprofit ~~time,~~of atiASPEC ~~its~~during ~~sole~~the ~~discretion,~~term toof ~~provide~~the ~~iASPEC~~agreement, ~~with capital~~to ~~support~~be ~~either~~calculated as anfollows: ~~entrustment~~accrued ofaccounts ~~funds~~receivable toplus ~~iASPEC,~~net orturnover as(revenue), anminus ~~advance to~~cost ~~Mr. Lin~~of sales, asminus ~~iASPEC’s~~operating ~~shareholder~~expenses, ~~for~~and ~~the~~minus ~~sole~~accrued ~~purpose~~but ofnot ~~making~~collected aaccounts ~~capital contribution~~receivable, tobut ~~iASPEC~~only ~~for~~if ~~use~~the inresult ~~the~~is ~~business~~a ofpositive number. iASPEC; ~~provided~~is ~~that,~~obligated ~~any such~~to ~~advance~~calculate ~~for~~and ~~capital~~pay ~~contribution~~the ~~will~~net bereceived ~~evidenced~~profit bydue anto ~~“advance agreement”~~IST inno later than the ~~form~~last ~~attached~~day toof the first ~~Amended~~month ~~and~~following ~~Restated~~the ~~Management~~end ~~Service Agreement;~~of ~~and~~each fiscal quarter;
~~IST~~Mr. Lin agreed ~~that~~to itenter ~~will~~into ~~not~~a ~~interfere~~pledge inagreement ~~any~~with ~~business~~IST ofto ~~iASPEC~~pledge ~~covered~~all ~~by iASPEC’s~~his ~~State~~equity ~~Secret~~interests ~~related~~in ~~Computer~~iASPEC ~~Information~~as ~~System~~security ~~Integration Certificate,~~for ~~including~~his ~~but~~and ~~not~~iASPEC’s ~~limited~~fulfillment ~~to,~~of ~~seeking~~their ~~access~~respective toobligations ~~relevant documents~~under ~~regarding~~the ~~such~~Management ~~business;~~Service ~~provided~~Agreement, ~~however,~~and ~~that~~to ~~iASPEC~~register ~~agreed~~the ~~that~~pledge itagreement ~~will cooperate~~ with the ~~requests~~local ofAdministration ~~the~~for ~~Company~~Industry asand ~~necessary to comply with the Company’s reporting obligations to the SEC.~~ Commerce;
~~Acquisitions~~Mr. Lin confirmed his status as the sole shareholder of iASPEC and his assumption of all the obligations of the iASPEC shareholder under the agreement, including a confirmation of his continuing obligation under a written guaranty, dated August 1, 2007, executed by the iASPEC shareholders in connection with the Management Service Agreement;
OnBased ~~November~~on 7iASPEC’s needs for its development and operation, ~~2007~~IST has the right, wefrom ~~acquired~~time ~~100%~~to oftime, ~~the~~at ~~equity~~its ~~interests~~ sole discretion, to provide iASPEC with capital support either as an entrustment of ~~ISSI~~funds to iASPEC, ~~and~~or ~~its~~as ~~PRC~~an ~~operating~~advance ~~subsidiary~~to Mr. Lin, ~~ISS~~as iASPEC’s shareholder, for ~~which~~the wesole ~~paid~~purpose ~~approximately $7.1~~of ~~million~~making a capital contribution to iASPEC for use in ~~cash~~the ~~and~~business ~~issued~~of ~~883~~iASPEC; provided that,~~333~~ ~~shares~~any ofsuch ~~our~~advance ~~common~~for ~~stock.~~capital contribution will be evidenced by an “advance agreement” in the form attached to the Amended and Restated Management Services Agreement; and
OnIST ~~February~~agreed 1,that ~~2008,~~it wewill ~~acquired~~not ~~100%~~interfere ofin ~~the~~any ~~equity~~business ~~interests~~ of ~~ISIID,~~iASPEC ~~and~~covered ~~its~~by ~~PRC~~iASPEC’s ~~operating~~State ~~subsidiary,~~Secret ~~Bocom~~related Computer Information System Integration Certificate, ~~for~~including abut ~~purchase~~not ~~price~~limited ofto, seeking access to relevantn ~~approximately~~documents ~~$18~~regarding such business; provided,~~000~~ however,~~000.~~ Wethat ~~paid~~iASPEC ~~approximately~~agreed ~~$9,000,000~~that ofit ~~the~~will ~~purchase price~~cooperate inwith ~~cash~~the ~~and~~requests of the ~~remaining~~Company ~~$9,000,000~~as ~~was~~necessary ~~paid~~to incomply ~~1,125,000~~with ~~shares~~the ofCompany’s ~~our common~~reporting ~~stock~~obligations to the SEC.

~~On April 7, 2008, iASPEC acquired Geo, pursuant to (1) a share~~ purchase and increased capital agreement, dated as of February 16, 2008, by and among iASPEC, Wuhan Wuda Venture Capital Co., Ltd., Song Ai Hong and Geo, for the purchase of 46% of Geo for a purchase price of approximately $4~~,819,000,~~ and (2) a share purchase agreement, dated as of February 16, 2008, between iASPEC and Li Wei, for the purchase of 2.4% of Geo for a purchase price of approximately $666,700. On September 3, 2010, Geo increased its registered capital from RMB 60,000,000 (approximately $8,849,680) to RMB 79,200,000 (approximately $11,681,588). The RMB 19,200,000 (approximately $2,831,900) increase was contributed by iASPEC and a group of new shareholders, comprising of the management teams of both GEO and iASPEC, including Mr. Jianghuai Lin, the Company’s chief executive officer. As a result of the capital increase, the equity interest owned by iASPEC in Geo was reduced from 57% to 52.54%, and the management teams of Geo and iASPEC now hold 11.02% of the equity interest in Geo.

On In ~~October 31~~addition, ~~2008~~during the term of the amended MSA, wecertain ~~completed~~material actions with respect to iASPEC will require the ~~acquisition~~affirmative vote of ~~Kwong~~the ~~Tai and~~majority ~~its~~of ~~PRC~~the ~~operating~~Board ~~subsidiary,~~of ~~Zhongtian~~Directors of the Company, ~~from~~including ~~Wide~~the ~~Peace~~affirmative ~~International~~vote of at least one member of ~~Investments~~which ~~Limited~~who is not employed by IST, iASPEC, or ~~Wide~~any ~~Peace~~affiliate of either of them. Such material actions include: (a) the nomination, ~~for~~appointment, election or replacement of any members of any Board of Directors of iASPEC (who must be a ~~purchase~~citizen ~~price~~of the PRC); (b) the approval of ~~$16~~any profit distribution plan and loss compensation plan; (c) any merger,~~500~~ division,~~000.~~ Wechange ~~paid $9~~of corporate form,~~900,000~~ dissolution or liquidation of iASPEC; (~~approximately~~d) ~~RMB67,617,000~~any loan or advance or other payments or transfers of funds from IST to iASPEC; (e) any declaration of any dividend or any distribution of profits by iASPEC; (f) the formation or disposition of any subsidiary by iASPEC, or the acquisition or disposition of any equity interest or other interest in ~~cash~~any ~~and~~other entity by iASPEC; (g) any corporate borrowing or lending by iASPEC except for routine extension of terms to trade creditors; (h) the ~~remaining~~encumbrance $6of any of the assets of iASPEC under any lien,~~600,000~~ except in the ordinary course of business; (i) any change in the ~~was~~methods ~~paid~~of accounting or accounting practices of iASPEC; (j) any change in 1the scope of business of iASPEC,~~280,807~~ ~~shares~~or any decision to engage in any type of ~~our~~business ~~common~~other ~~stock.~~than those engaged in by iASPEC as of the date of the agreement or (k) any agreement to do any of the foregoing.

- Acquisitions ~~7 -~~

~~Wide~~ On ~~Peace~~November is7, ~~obligated~~2007, towe ~~return~~acquired ~~355,164~~100% of the ~~purchased shares~~equity tointerests usof ifISSI, ~~Zhongtian~~and ~~does~~its ~~not~~PRC ~~attain~~operating ansubsidiary, ~~audited~~ISS, ~~minimum~~for ~~after~~which ~~tax~~we ~~net income,~~paid orapproximately ~~ATNI, of~~ $~~2,200,000~~7.1 ~~for~~million ~~fiscal~~in ~~year~~cash ~~2009,~~ and anissued ~~additional 355~~883,~~164 of~~333 ~~the~~ shares ~~if Zhongtian does not attain an audited minimum ATNI~~ of ~~$2,860,000 for~~our ~~fiscal~~common ~~year 2010~~stock. ~~The 2009 and 2010 targets were met by Zhongtian.~~

On ~~October~~February 1, ~~2009~~2008, we ~~completed~~acquired 100% of the ~~acquisition~~equity interests of ~~HPC~~ISIID, and its PRC operating subsidiary, ~~Huipu~~Bocom, ~~from Ms. Rita Kwai Fong Leung~~ for a purchase price of approximately $1618,000,000. We paid approximately $89,000,000 ~~(approximately RMB54,640,000)~~ of the purchase price in cash and the remaining $49,000,000 inwas ~~1,101,930~~paid ~~shares~~in ~~of our common stock. We are also obligated to issue and deliver to Ms. Leung an additional~~ 1,~~101~~125,~~930~~000 shares of our common stock. ~~in accordance with certain make good provisions agreed to between the parties if HCP attains certain audited consolidated ATNI thresholds for fiscal years 2010 through 2012, as follows:~~

Year Ending December 31,	ATNI Thresholds (in USD)	Common Stock Issuable
2010	Equal to or greater than $4,000,000	413,223
	Equal to or greater than 3,600,000 but less than $4,000,000	371,900
	Equal to or greater than $3,200,000 but less than $3,600,000	330,578
	Less than $3,200,000	- 0 -
2011	Equal to or greater than $5,200,000	413,223
	Equal to or greater than $4,680,000 but less than $5,200,000	371,900
	Equal to or greater than $4,160,000 but less than $4,680,000	330,578
	Less than $4,160,000	- 0 -
2012	Equal to or greater than $6,760,000	275,484
	Equal to or greater than $6,084,000 but less than $6,760,000	247,936
	Equal to or greater than $5,408,000 but less than $6,084,000	220,387
	Less than $5,408,000	- 0 -

On April 7, 2008, iASPEC acquired Geo, pursuant to (1) a share purchase and increased capital agreement, dated as of February 16, 2008, by and among iASPEC, Wuhan Wuda Venture Capital Co., Ltd., Song Ai Hong and Geo, for the purchase of 46% of Geo for a purchase price of approximately $4,819,000, and (2) a share purchase agreement, dated as of February 16, 2008, between iASPEC and Li Wei, for the purchase of 2.4% of Geo for a purchase price of approximately $666,700. On September 3, 2010, Geo increased its registered capital from RMB 60,000,000 (approximately $8,849,680) to RMB 79,200,000 (approximately $11,681,588). The RMB 19,200,000 (approximately $2,831,900) increase was contributed by iASPEC and a group of new shareholders, consisting of the management teams of both GEO and iASPEC, including Mr. Jiang Huai Lin, the Company’s chief executive officer. As a result of the capital increase, the equity interest owned by iASPEC in Geo was reduced from 57% to 52.54%, and the management teams of Geo and iASPEC now hold 11.02% of the equity interest in Geo.

~~Corporate~~ On ~~Structure~~October 31, 2008, we completed the acquisition of Kwong Tai International Technology Limited, a Hong Kong company, or Kwong Tai, and its PRC operating subsidiary, Zhongtian, from Wide Peace International Investments Limited, or Wide Peace, for a purchase price of $16,500,000. We paid $9,900,000 (approximately RMB 67,617,000) in cash and the remaining $6,600,000 was paid in 1,280,807 shares of our common stock.

Wide Peace was obligated to return 355,164 of the purchased shares to us if Zhongtian did not attain an audited minimum after tax net income, or ATNI, of $2,200,000 for fiscal year 2009, and an additional 355,164 of the shares if Zhongtian did not attain an audited minimum ATNI of $2,860,000 for fiscal year 2010. The ~~following~~2009 ~~chart~~and ~~reflects~~2010 ~~our~~targets ~~current~~were ~~corporate~~met by Zhongtian. On May 5, 2011, Kwong Tai and iASPEC entered into an equity transfer agreement, pursuant to which Kwong Tai agreed to ~~organizational~~transfer ~~structure:~~100% of its equity interest in Zhongtian to iASPEC for a purchase price of RMB 20,240,650 (approximately $3,113,946). On December 29, 2011, Zhongtian’s registered capital was increased by RMB 7,470,000 (approximately $1,175,778) from RMB 33,240,650 (approximately $5,232,078) to RMB 40,710,650 (approximately $6,407,856). This contribution was made by members of the management of Zhongtian, including Mr. Jiang Huai Lin, the Company’s chief executive officer. As a result of the capital increase, the equity interest owned by iASPEC in Zhongtian was reduced from 100% to 81.65%, and members of the management of Zhongtian now hold 18.35% of the equity interest in Zhongtian.

~~Industry~~ 5 ~~Overview~~

~~General~~ On October 1, 2009, we completed the acquisition of HPC and its PRC operating subsidiary, Huipu, from Ms. Rita Kwai Fong Leung for a purchase price of $16,000,000. We paid $8,000,000 (approximately RMB54,640,000) of the purchase price in cash and the remaining $4,000,000 in 1,101,930 shares of our common stock. We were also obligated to issue and deliver to Ms. Leung up to an additional 1,101,930 shares of our common stock in accordance with certain make good provisions agreed to between the parties if HCP attained certain audited consolidated ATNI thresholds for fiscal years 2010 through 2012. On August 26, 2011, the parties entered into an amendment to the purchase agreement, pursuant to which we waived the requirement for HPC to attain the ATNI thresholds for fiscal years 2011 and 2012 and we agreed to issue 688,707 shares of our common stock to Ms. Leung in consideration of termination of employment of Ms. Leung and certain other members of HPC’s management with immediate effect and a release of all claims Ms. Leung and the related members of HPC’s management have or may have against us. The parties agreed that the termination of the relationship will put us in a better position to execute our management strategies related to HPC.

~~Over the past two decades, the PRC government has encouraged~~ ~~the~~Corporate ~~development~~Structure ~~and use of new technologies for information and communication, or ICTs, and their application in all spheres of government, industry, education and culture.~~

- The 8following -chart reflects our current corporate organizational structure:

~~The term “Informatization” or “xinxihua” has been coined in~~ ~~China~~Industry toOverview ~~describe the overall process of ICT application in China and has in recent years become a linchpin of central and many local economic development strategies.~~

~~As a part of the Informatization process, the PRC government~~ ~~has~~General launched a series of online programs to accelerate its pace of implementing and using information technology. For example, the Golden Shield Program promotes the use of information technology for public security services. The Public GIS platform aims to integrate the functions of multiple government departments by using the GIS technology. The Golden Health Program strives to improve the efficiency of public health management by using digital hospital technologies. All these initiatives are of top priority to the Chinese government and are driving the demand for our product offerings.

~~Global~~ Over ~~GIS~~the ~~Industry~~past two decades, the PRC government has encouraged the development and use of new technologies for information and communication, or ICTs, and their application in all spheres of government, industry, education and culture. The term “Informatization” or “xinxihua” has been coined in China to describe the overall process of ICT application in China and has in recent years become a linchpin of central and many local economic development strategies.

~~The GIS field is a rapidly growing field that identifies data~~ ~~according~~6 to location. GIS incorporates geographical features with data in order to assess real world problems. In the strictest sense, a GIS is a computer system capable of capturing, storing, analyzing, and displaying geographically referenced information. The term GIS also includes the procedures, operating personnel, and spatial data that go into the system.

~~The~~ As ~~power of~~ a ~~GIS~~part ~~comes~~of ~~from~~ the ~~ability~~Informatization toprocess, ~~relate~~the ~~different information~~PRC ingovernment ahas ~~spatial~~launched ~~context and reach~~ a ~~conclusion~~series ~~about this relationship. Most~~ of ~~the~~online ~~information~~programs weto ~~have~~accelerate ~~about~~its ~~our~~pace ~~world~~of ~~contains~~implementing aand ~~location~~using ~~reference, placing that~~ information ~~at some point on the globe~~technology. ~~However,~~For ~~GIS can be used to emphasize objects on a map~~example, ~~their absolute location on~~ the ~~Earth's~~Golden ~~surface~~Shield ~~and their~~Program ~~spatial~~promotes ~~relationships,~~the inuse ~~a series~~ of ~~attribute tables—the “~~information” ~~part~~technology offor apublic ~~GIS~~security services. ~~For~~The ~~example,~~Public ~~while~~GIS aplatform ~~computer-aided~~aims ~~mapping~~to ~~system~~integrate ~~may~~the ~~represent a~~functions ~~road~~of ~~simply~~multiple asgovernment adepartments ~~line,~~by ausing the GIS ~~may~~technology. ~~also~~The ~~recognize~~Golden ~~that~~Health ~~road~~Program asstrives ~~the~~to ~~boundary between~~improve ~~wetland~~the ~~and~~efficiency ~~urban~~of ~~development~~public ~~between~~health ~~two~~management by ~~census~~using ~~statistical~~digital ~~areas~~hospital technologies. ~~A GIS,~~All ~~therefore,~~these ~~can~~initiatives ~~reveal~~are ~~important~~of ~~new~~top ~~information~~priority ~~(such~~to asthe ~~whether~~Chinese ~~features intersect~~government orand ~~whether they~~ are ~~adjacent)~~driving ~~that~~the ~~leads~~demand tofor ~~better~~our ~~decision~~product ~~making or solutions~~offerings.

~~Data Capture and Integration – In order to utilize a GIS, data~~ must be directly entered into (or captured by) a GIS in digital form, that is, in a form the computer can recognize. A GIS can also convert existing digital information, which may not yet be in map form, into forms it can recognize and use. Map data may also be created by (1) digitizing maps by hand-tracing with a computer mouse on the screen or on a digitizing tablet to collect the coordinates of features, (2) using electronic scanners to convert maps to digits, or (3) uploading coordinates from Global ~~Positioning System, or GPS, receivers into a~~ GIS. ~~Once~~Industry a time-consuming process, the data capture process is now made easier by the development in the GIS industry of software tools to automatically extract features from satellite images or aerial photographs and create databases in map form for use in a GIS.

~~Information~~ The ~~Retrieval~~GIS ~~and~~field ~~Data~~is ~~Output~~a –rapidly ~~With~~growing afield ~~GIS~~that ~~you~~identifies ~~can “point”~~data ataccording ato location,. ~~object,~~GIS orincorporates ~~area~~geographical onfeatures ~~the~~with ~~screen~~data ~~and~~in ~~retrieve~~order ~~recorded information~~to ~~about~~assess itreal ~~from~~world ~~off-screen files~~problems. ~~For~~In ~~example,~~the ~~using~~strictest ~~scanned~~sense, ~~aerial photographs as~~ a ~~visual~~GIS ~~guide,~~is ~~you can ask~~ a ~~GIS~~computer ~~about~~system ~~the~~capable ~~location~~ of ~~a fire~~capturing, ~~analyze~~storing, ~~the~~analyzing, ~~area~~and ~~around~~displaying ~~the~~geographically ~~fire~~referenced ~~and~~information. ~~determine~~The ~~conditions~~term ofGIS ~~adjacency~~also ~~(what~~includes ~~is next~~the ~~to it)~~procedures, ~~containment~~operating ~~(what~~personnel, ~~is enclosed by it)~~ and ~~proximity~~spatial ~~(how~~data ~~close~~that ~~is something~~go tointo ~~it).~~the system.

~~Another~~ The ~~critical~~power ~~component~~ of a GIS iscomes ~~its~~from the ability to ~~produce graphics~~relate ondifferent ~~the~~information ~~screen~~in ora onspatial ~~paper~~context toand ~~convey~~reach ~~the~~a ~~results~~conclusion ofabout ~~analyses~~this torelationship. Most of the ~~people~~ ~~who~~information ~~make~~we ~~decisions~~have about ~~resources.~~our ~~Wall~~world ~~maps,~~contains ~~Internet-ready~~a ~~maps~~location reference, placing that information at ~~interactive~~some ~~maps~~point ~~and~~on ~~other~~the ~~graphics~~globe. However, GIS can be ~~generated~~used to emphasize objects on a map, ~~allowing~~their ~~decision~~absolute ~~makers to~~location ~~visualize~~on the Earth’s surface and ~~thereby~~their ~~understand~~spatial ~~the~~relationships, ~~results~~in a series of ~~analyses~~attribute ortables—the ~~simulations~~“information” part of a GIS. For ~~potential~~example, ~~events~~while a computer-aided mapping system may represent a road simply as a line, a GIS may also recognize that road as the boundary between wetland and urban development between two census statistical areas. A GIS, therefore, can reveal important new information (such as whether features intersect or whether they are adjacent) that leads to better decision making or solutions.

~~Components~~ Data Capture and Integration – In order to utilize a GIS, data must be directly entered into (or captured by) a GIS in digital form, that is, in a form the computer can recognize. A GIS can also convert existing digital information, which may not yet be in map form, into forms it can recognize and use. Map data may also be created by (1) digitizing maps by hand-tracing with a computer mouse on the screen or on a digitizing tablet to collect the coordinates of features, (2) using electronic scanners to convert maps to digits, or (3) uploading coordinates from Global Positioning System, or GPS, receivers into a GIS. Once a time-consuming process, the data capture process is now made easier by the development in the GIS industry of software tools to automatically extract features from satellite images or aerial photographs and create databases in map form for use in a GIS.

~~Hardware – Hardware comprises the equipment needed to support~~ ~~the~~Information ~~many~~Retrieval ~~activities~~and ~~ranging~~Data ~~from~~Output ~~data~~– ~~collection~~With toa ~~data~~GIS ~~analysis.~~you Acan ~~central piece~~“point” ofat ~~the equipment is~~ a ~~workstation~~location, ~~which~~object, ~~runs~~or ~~the~~area ~~GIS~~on ~~software~~the screen and isretrieve ~~the attachment~~recorded ~~point~~information ~~for~~about ~~the~~it ~~equipment.~~from ~~Data~~off-screen ~~collection~~files. ~~efforts~~For ~~can~~example, ~~also~~using ~~require~~scanned ~~the use~~aerial ofphotographs as a visual ~~digitizer~~guide, ~~for~~you ~~conversion~~can ofask ~~hard~~a ~~copy~~GIS ~~data~~about tothe ~~digital~~location ~~data~~of ~~and~~ a ~~GPS data~~fire, ~~logger~~analyze tothe ~~collect~~area around the ~~field.~~fire ~~The~~and ~~use~~determine conditions of ~~handheld~~adjacency ~~field~~(what ~~technology~~ is ~~also becoming~~next anto ~~important~~it), ~~tool~~containment in(what ~~GIS.~~is ~~With~~enclosed ~~the~~by ~~advent~~it) ofand ~~web-enabled~~proximity ~~GIS,~~(how ~~web servers~~close ~~have~~is ~~become~~something anto ~~important piece of equipment for GIS~~it).

~~Software – Different software packages are important for GIS.~~ ~~Central~~Another tocritical ~~this~~component isof ~~the~~a GIS ~~application package. Such software~~ is ~~essential~~its ~~for creating,~~ability ~~editing and adding spatial and attributed data, therefore these packages contain a myriad of functions inherent~~ to ~~them.~~produce ~~Extensions~~graphics oron ~~add-ons are software that extends capabilities of~~ the ~~GIS~~screen ~~software~~or ~~package.~~on ~~Component GIS~~paper ~~software~~to isconvey the ~~opposite~~results of ~~application~~analyses ~~software. Component GIS seeks~~ to ~~build~~ ~~software~~the ~~applications~~people ~~that~~who ~~meet~~make adecisions ~~specific~~about ~~purpose and thus are limited in their spatial analysis capabilities~~resources. ~~Utilities~~Wall ~~are~~maps, ~~stand~~Internet-~~alone~~ready ~~programs that perform a specific function. For example~~maps, ainteractive ~~file~~maps ~~format~~and ~~utility~~other ~~that converts~~graphics ~~from~~can ~~one~~be ~~type~~generated, ofallowing ~~GIS~~decision ~~file~~makers to ~~another.~~visualize ~~There~~and isthereby ~~also~~understand ~~web-GIS~~the ~~software~~results ~~that~~of ~~helps serve~~analyses ~~data~~or ~~through~~simulations ~~Internet~~of ~~browsers.~~potential events.

- Components 9of -GIS

~~Data~~ Hardware – ~~Data~~Hardware iscomprises the ~~core~~equipment ofneeded ~~any~~to ~~GIS.~~support ~~There~~the ~~are~~many ~~two~~activities ~~primary~~ranging ~~types of~~from data ~~that~~collection ~~are~~to ~~used in GIS,~~ data ~~in geodatabases and attribute data~~analysis. A ~~geodatabase~~ iscentral apiece ~~database~~of ~~that~~the isequipment ~~in some way referenced to locations on earth. Geodatabases are grouped into two different types: vector and raster. A vector image~~ is ~~stored~~a ~~as geometric objects~~workstation, ~~such as lines and arcs,~~ which ~~are~~runs ~~drawn between specific coordinates. If you magnify a vector image you see~~ the ~~lines more~~GIS ~~accurately,~~software and ~~the line edges stay smooth. A raster image~~ is ~~made~~the upattachment ~~from pixels,~~point ~~like~~for the equipment. ~~picture~~Data ~~obtained~~collection ~~from~~efforts acan ~~scanner,~~also orrequire the ~~screen~~use ~~image~~of on a ~~computer~~ ~~monitor,~~digitizer ~~and~~for ~~has~~conversion ~~a finite amount~~ of ~~detail~~hard ~~which~~copy isdata ~~dependent~~to ~~upon~~digital ~~the image~~data ~~size~~ and ~~resolution.~~a ~~However,~~GPS ~~the~~data ~~closer~~logger ~~you~~to ~~look~~collect ~~at a raster image~~ the ~~coarser~~ ~~it appears and you don't see any extra detail~~field. ~~Vector~~The ~~drawings~~use ~~are utilized~~of inhandheld ~~GIS~~field ~~and~~technology ~~other~~is ~~applications~~also ~~where~~becoming ~~accuracy~~an is important. ~~Usually coupled~~tool ~~with~~in ~~this data is data known as attribute data~~GIS. ~~Attribute data are data~~ ~~that~~With ~~relate~~the toadvent aof ~~specific,~~web-enabled ~~precisely defined location. The data are often statistical but may be text~~GIS, ~~images~~web orservers ~~multi-media.~~have ~~These~~become ~~are~~an ~~linked~~important inpiece ~~the~~of ~~GIS to~~equipment ~~spatial~~for ~~data that define the location~~GIS.

~~People~~ Software – ~~Well-trained~~Different ~~people~~software ~~knowledgeable~~packages inare important for GIS. Central to this is the GIS application package. Such software is essential for creating, editing and adding spatial ~~analysis~~ and ~~skilled~~attributed indata, ~~using~~therefore these packages contain a myriad of functions inherent to them. Extensions or add-ons are software that extends capabilities of the GIS software package. Component GIS software is the opposite of application software. Component GIS seeks to build software applications that meet a specific purpose and thus are ~~essential~~limited in their spatial analysis capabilities. Utilities are stand-alone programs that perform a specific function. For example, a file format utility that converts from one type of GIS file to ~~the~~another. There is also web-GIS ~~process~~software that helps serve data through Internet browsers.

~~Public~~ 7 ~~Sector Use of GIS~~

Data – Data is the core of any GIS. ~~can~~There beare two primary types of data that are used byin GIS, data in geodatabases and attribute data. A geodatabase is a database that is in some way referenced to locations on earth. Geodatabases are grouped into two different types: vector and raster. A vector image is stored as geometric objects, such as lines and arcs, which are drawn between specific coordinates. If you magnify a vector image you see the ~~public~~lines ~~sector~~more accurately, and the line edges stay smooth. A raster image is made up from pixels, like the picture obtained from a scanner, or the screen image on a computer monitor, and has a finite amount of detail which is dependent upon the image size and resolution. However, the closer one looks at a raster image the coarser it appears and one does not see any extra detail. Vector drawings are utilized in GIS and other applications where accuracy is important. Usually coupled with this data is data known as attribute data. Attribute data are data that relate to a specific, precisely defined location. The data are often statistical but may be text, images or multimedia. These are linked in the ~~following~~GIS ~~ways:~~to spatial data that define the location.

~~Pubic~~ People ~~Safety and Emergency Response Planning~~ – ~~GIS technology gives public safety personnel the ability to manage and analyze large amounts of location~~Well-~~based~~trained ~~information.~~people ~~Data~~knowledgeable ~~(including files from legacy systems) can be stored~~ in aspatial ~~geodatabase~~analysis and ~~used~~skilled toin ~~visualize~~using ~~spatial~~GIS ~~relationships~~software ~~and~~are ~~reveal trends~~essential ~~critical~~ to ~~public safety response and planning. Computer-generated maps can be shared across a network or~~ the ~~Internet~~GIS ~~with multiple agencies to coordinate efforts and maximize resources~~process.

~~Law Enforcement – GIS software uses geography and~~ ~~computer-generated~~Public ~~maps~~Sector asUse ~~an interface for integrating and accessing massive amounts~~ of ~~location-based information.~~ GIS allows law enforcement and criminal justice personnel to effectively plan for emergency response, determine mitigation priorities, analyze historical events, and predict future events. GIS can also be used to get critical information to emergency responders upon dispatch or while en route to an incident to assist in tactical planning and response. While law enforcement agencies collect vast amounts of data, only a very small part of this information can be absorbed from spreadsheets and database files. GIS provides a visual, spatial means of displaying data, allowing law enforcement agencies to integrate and leverage their data for more informed decision making.

~~Public Works and Development – Use of GIS software in public~~ ~~works improves efficiency and productivity to better serve citizens. For example,~~ GIS ~~applications~~can ~~are~~be inused ~~demand~~by ~~in connection with~~ the ~~construction of the Pan Asia Railway and development of the Meigong River and Tumen River in the Northwest of China. Such~~ public ~~works~~sector ~~systems could use GIS to connect all divisions~~ in ~~a public works department from engineering to accounting, which streamlines work flows, asset management, operations, and planning. Using a GIS throughout~~ the ~~department~~following ~~allows~~ways: ~~all sections to share and easily access geographic data. GIS promotes data integrity and facilitates better communication and decision making throughout the organization.~~

~~Economic~~ Pubic ~~Development~~Safety and Emergency Response Planning – GIS ~~may~~technology begives ~~used~~public tosafety ~~foster~~personnel ~~economic development.~~the ~~Agencies~~ability ~~could~~to ~~work~~manage toand ~~advance~~analyze ~~the~~large ~~quality~~amounts of ~~life~~location-based ~~and~~information. ~~strengthen the~~Data ~~economic~~(including ~~base~~files offrom ~~their~~legacy ~~region~~systems) bycan ~~retaining~~be stored in a geodatabase and ~~growing~~used ~~existing~~to ~~businesses~~ visualize spatial relationships and ~~attracting~~reveal ~~new~~trends ~~investment~~critical to public safety response and planning. Computer-generated maps can be shared across a network or the Internet with multiple agencies to coordinate efforts and maximize resources.

~~Urban~~ Law ~~Planning~~Enforcement – GIS software uses geography and ~~Site~~computer-generated ~~Selection~~maps –as ~~Information~~an ~~regarding~~interface ~~a proposed~~for ~~site~~integrating and accessing massive amounts of location-based information. GIS allows law enforcement and criminal justice personnel to effectively plan for ~~parcel~~emergency ~~zoning~~response, ~~transportation~~determine ~~planning~~mitigation priorities, ~~waste~~analyze ~~disposal~~historical ~~or other~~events, ~~use~~and ~~may~~predict future events. GIS can also be ~~combined~~used ~~and~~to ~~manipulated~~get incritical ainformation ~~GIS~~to emergency responders upon dispatch or while en route to ~~address~~an incident to assist in tactical planning and ~~natural~~ ~~resource~~response. ~~issues~~While ~~(such~~law asenforcement ~~the~~agencies ~~location~~collect ofvast aamounts ~~water~~of ~~well~~data, ~~near~~only a ~~proposed waste~~very ~~disposal~~small ~~site)~~part toof ~~guarantee~~this ~~the~~information ~~quality~~can ofbe ~~life~~absorbed ~~for~~from ~~everyone~~spreadsheets inand ~~livable communities~~database files. ~~Planning~~GIS ~~agencies~~provides ~~have~~a ~~realized~~visual, ~~the~~spatial ~~power~~means of ~~enterprise~~displaying ~~GIS to~~data, ~~identify~~allowing ~~problems,~~law ~~respond~~enforcement agencies to ~~them~~integrate ~~efficiently,~~ and ~~share~~leverage ~~the~~their ~~results~~data ~~with~~for ~~the public.~~more informed decision-making.

~~Our~~ Public ~~Growth~~Works ~~Strategy~~and Development – Use of GIS software in public works improves efficiency and productivity to better serve citizens. For example, GIS applications are in demand in connection with the construction of the Pan Asia Railway and development of the Meigong River and Tumen River in northwestern China. Such public works systems could use GIS to connect all divisions in a public works department from engineering to accounting, which streamlines work flows, asset management, operations, and planning. Using a GIS throughout the department allows all sections to share and easily access geographic data. GIS promotes data integrity and facilitates better communication and decision-making throughout the organization.

~~Our objective is to be the leading provider of integrated~~ ~~solutions~~Economic ~~for~~Development – GIS, ~~public~~may ~~security~~be ~~information~~used ~~technology,~~to ~~and~~foster ~~digital~~economic ~~hospital systems in China, as well as related software service operations~~development. ~~Our intelligence~~Agencies ~~solutions~~could ~~can~~work ~~help~~to ~~organizations~~advance ~~make~~the ~~more~~quality ~~insightful~~of ~~decisions~~life and ~~improve~~ strengthen the ~~efficiency~~economic base of their ~~internal~~region ~~processes.~~by ~~Our~~retaining ~~strategy~~and ~~for~~growing ~~achieving this~~existing ~~objective~~businesses ~~includes~~and ~~the~~attracting ~~following key elements:~~ new investment.

- Urban 10Planning -and Site Selection – Information regarding a proposed site for parcel zoning, transportation planning, waste disposal or other use may be combined and manipulated in a GIS to address planning and natural resource issues (such as the location of a water well near a proposed waste disposal site) to guarantee the quality of life for everyone in livable communities. Planning agencies have realized the power of enterprise GIS to identify problems, respond to them efficiently, and share the results with the public.

~~Expand geographic footprint to cover all major markets in~~ ~~China.~~GIS WeIndustry ~~intend to leverage our strengths to expand into new geographic markets. For the fiscal year ended December 31, 2010, approximately 64% of our total revenue was generated through our operations~~ in ~~the Guangdong Province. We manage our nationwide operations in the seven strategic development areas in~~ China including the South, the North, the East, the Central, the Southwest, the Northwest China, as well as the Northeast. We have established offices in Guangzhou, Beijing, Wuhan, Hunan and Xinjiang provinces, and work through representatives in Nanning, Guangxi Provinces, in Dongguan, Guangdong Province, in Chongqing Municipality, in Nanjing, Jiangsu Province, in Xi’an, Shanxi Province, in Chengdu, Sichuan Province, in Baotou, Inner Mongolia, in Lanzhou, Gansu Province, etc.. Our nationwide distribution network in China covers 32 provinces and provincial cities throughout China. We believe that expanding our presence in new geographic areas will allow us to increase our cross-selling opportunities for our product and service offerings.

~~Strengthen~~ GIS ~~R&D~~is ~~capability~~becoming toan ~~enhance~~increasingly ~~and~~important ~~expand~~component ~~core~~of ~~products~~business, healthcare, security, government, trade, media, transportation and ~~further~~ ~~penetrate~~tourism ~~customer~~industries ~~base~~and operations in China. GIS Tosoftware ~~provide~~is ~~our~~playing ~~clients~~an ~~with~~increasingly strategic role for the Chinese ~~innovative~~government ~~solutions~~to increase its efficiency and enable the geographic information consolidation for information sharing and exchange, weand ~~expect~~for Chinese companies to ~~offer~~analyze ~~additional~~and ~~value-added~~manage ~~services~~business ~~and add-ins~~operations. GIS has been put to ~~our~~use ~~current~~in ~~platform~~many ~~through~~spheres ~~continuous~~by ~~research~~the Chinese public and ~~development~~private sectors, to ~~enhance~~including ~~our~~land ~~product~~survey, ~~and~~mineral ~~service~~exploitation, ~~offerings~~water conservancy and toenvironmental ~~maintain~~protection. ~~our~~It ~~leadership position~~also has applications in ~~our~~power ~~core~~generation, ~~areas~~mapping, telecommunication, and the management of ~~focus~~public administration and public services.

~~Continue to maintain our leading position in the rapidly growing~~ ~~public~~8 ~~security technology market. We plan to leverage our strong brand recognition to obtain new customers and new projects from existing customers.~~

~~Expand~~ According ~~into~~to the ~~private~~National ~~sector.~~Administration Weof ~~are~~Surveying, ~~witnessing~~Mapping ~~market readiness~~and toGeoinformation ~~adopt~~of ~~our~~China, ITthe ~~solutions~~GIS ~~and~~industry ~~display~~in ~~technologies~~China ~~that~~was ~~used~~valued ~~to serve~~at ~~highly~~RMB ~~specialized~~100 ~~activities~~billion ofin ~~public agencies~~2010. China’s AsGIS ~~private~~software ~~sector grows~~market inby ~~technological~~itself ~~sophistication,~~was wevalued ~~plan~~at toRMB ~~penetrate~~9 ~~into~~billion ~~this~~in ~~new~~ 2010. ~~sector~~It ofwas further ~~the~~expected that this market ~~with~~would ~~both~~grow ~~display~~by ~~technologies~~25% ~~and~~over ~~internet~~the ~~solutions~~next 5 years.

~~We expect to execute these key elements of our growth strategy~~ ~~through~~Our aGrowth ~~combination of investments in internal initiatives. Internal initiatives will focus on expanding capacity and enhancing our technology and services capabilities.~~ Strategy

Our ~~Products~~objective is to be the leading provider of integrated solutions for both of our Information Technology, or IT, business, and ~~Services~~our Display Technology, or DT, business, which provides primarily high-end digital display products, integrated software and related services specialized for GIS, DPST, education, media, and other various industry uses.

~~Through the operations of our China-based subsidiaries and the~~ ~~subcontracting~~Our ~~services~~intelligence ~~provided~~solutions ~~for~~can inhelp ~~our~~organizations ~~Management~~make ~~Service~~more ~~Agreement~~insightful ~~with iASPEC,~~decisions weand ~~are~~improve athe ~~provider~~efficiency of ~~integrated~~their ~~solutions~~internal ~~for the GIS, digital public security as well as digital hospital information markets in China~~processes. Our ~~products and~~strategy ~~services~~for ~~can~~achieving bethis ~~separated~~objective ~~into~~includes ~~four~~the ~~categories:~~following ~~(1)~~key ~~GIS applications and services; (2) Digital Public Security Technology, or DPST; (3) Digital Hospital Information Systems, or DHIS and (4) Other Products and Services or OTHER.~~ elements:

~~GIS~~ Expand ~~Software~~geographic ~~Services~~footprint to cover all major markets in China. We intend to leverage our strengths to expand into new geographic markets. For the fiscal year ended December 31, 2011, approximately 44% of our total revenue was generated through our operations in Guangdong Province. We manage our nationwide operations in strategic development areas in China’s south, north, east, center, southwest, northwest, and ~~Operations~~northeast. We have established offices in Guangzhou, Beijing, Wuhan, and Hunan Province, and Xinjiang Uyghur Autonomous Region, and work through representatives in Nanning (Guangxi Province), Dongguan (Guangdong Province), Chongqing Municipality, Nanjing (Jiangsu Province), Harbin (Heilongjiang Province), Shandong Province, and other cities and provinces in China. Our nationwide distribution network in China covers 32 provinces and provincial cities throughout China. We believe that expanding our presence in new geographic areas will allow us to increase our cross-selling opportunities for our product and service offerings.
~~We provide system management and support services in connection~~ ~~with~~Strengthen ~~our~~R&D ~~PGIS~~capability ~~platform.~~to ~~The~~enhance ~~PGIS platform is a set of GIS solutions that was developed by iASPEC~~ and ~~licensed~~expand ~~exclusively~~core toproducts ~~us, for use in creating, editing~~ and ~~adding~~further ~~data~~penetrate tocustomer ~~our customers’ systems~~base. ~~The~~To ~~PGIS platform allows us to~~ provide our ~~law~~clients ~~enforcement customers~~ with ~~different~~innovative ~~services~~solutions, ~~including specialized~~we ~~mapping~~expect ~~services,~~to ~~positioning~~offer ~~services,~~additional ~~messaging~~value-added services and ~~services~~ ~~which~~add-ins ~~monitor access~~ to ~~their~~our ~~GIS by users of different levels. We~~current ~~offer the PGIS~~ platform ~~with~~through acontinuous ~~full~~research ~~complement of services, including providing basic map image data from the GIS~~ and ~~specific data in connection with that map image (such as a bus stop)~~development, ato ~~consolidation~~enhance ofour ~~both~~product ~~basic data~~ and ~~specific~~service ~~data services~~offerings ~~for data inquiry services,~~ and ~~application system services, which is the application of consolidated services~~ to amaintain ~~specific~~our ~~service~~leadership ~~requirement, such as the~~ position ofin aour ~~police~~core ~~officer~~areas inof ~~the field~~focus.
~~We also provide application interface services which ensure~~ ~~that~~Continue ~~our PGIS platform is equipped~~ to ~~interact~~maintain ~~with other programs to the benefit of~~ our ~~customers.~~leading ~~The~~position ~~data~~in from different law enforcement command systems can be integrated with our PGIS platform to provide our law enforcement customers with more robust communication and location information. Typically, our platforms are integrated with the ~~City~~GIS Emergency Commanding System, the Police Resource Consolidated Management System, the Residence Management System, the Internet Surveillance System, the Traffic Commanding System, the Criminal Investigation System and ~~the~~public ~~City~~security ~~Surveillance~~technology ~~System~~market. ~~Our~~We ~~core~~plan ~~PGIS~~to ~~technology has~~leverage ~~been~~our ~~selected~~strong ~~for~~industry ~~use~~reputation ~~in the Ministry of Public Security’s PGIS Project, which when complete, is expected to standardize~~ and ~~interconnect~~brand ~~all~~recognition ~~PGIS systems in China. The MPS plans~~ to ~~standardize~~obtain ~~100~~new ~~largest~~customers ~~cities over the next three years~~ and ~~then~~new ~~subsequently~~projects ~~roll~~from ~~out~~existing ~~these systems nationwide~~customers.
In Expand into the ~~Civil-use~~private ~~GIS~~ sector,. weWe ~~have~~are ~~obtained~~witnessing ~~the~~market ~~highest~~readiness ~~level of~~to ~~qualifications~~adopt ~~(some~~our ofIT ~~them~~and ~~are~~DT ~~mentioned~~solutions inthat ~~the~~used ~~sections under the heading “Competition – High Barriers~~ to ~~Entry”~~serve ~~and~~highly ~~“Regulation”~~specialized ~~below)~~activities ~~with the widest range~~ of ~~applications,~~public ~~through its affiliation with Geo~~agencies. InAs ~~addition,~~the ~~Geo’s copyrighted~~private ~~GIS~~sector ~~software,~~grows ~~“Geostar,” has been widely applied~~ in ~~many~~technological ~~mission-critical projects covering national defense~~sophistication, ~~surveying~~we ~~and~~plan ~~mapping, land resource, city planning and electricity. Management believes that these qualifications and intellectual property have positioned the Company~~ to ~~benefit~~penetrate ~~for~~into ~~the~~this ~~next~~new ~~few~~sector ~~years~~of ~~from~~ the ~~PRC~~market ~~government’s~~with ~~recent~~both ~~emphasis~~IT on and ~~promulgation~~DT ~~of favorable policies to encourage more applications of domestic-grown GIS software~~solutions.
Move up the value-chain. 11As we integrate our core competencies within our software and display technology groups we are creating innovative multifunctional products that can open up whole new markets for us. For example, our industry leading interactive digital education system (IT-Pad) and our multifunctional digital display products (DS-Pad) will help us to transition our DT segment away from low-margin LCD TV products and into the more high value and differentiated product markets.

~~In January 2010, China’s State Bureau of Surveying and Mapping~~ ~~announced~~We ~~its~~expect ~~plan~~ to ~~build~~execute athese ~~National~~key ~~Geographic~~elements ~~Information~~of ~~Public~~our ~~Service Platform.~~growth ~~The~~strategy ~~whole~~through ~~program~~a ~~will~~combination ~~include the construction~~ of ~~one~~investments ~~national~~in ~~level master~~internal ~~node,~~initiatives. 31Internal ~~provincial~~initiatives ~~level nodes, and 333 city level nodes throughout China, and each city level node~~ will ~~centralize~~focus ~~approximately~~on 20expanding ~~local government~~capacity ~~departments’ different applications. This program aims to improve the capability~~ and ~~efficiency~~enhancing ofour ~~geographic~~technology ~~information public service,~~ and ~~optimize the~~services ~~utilization of national geographic information resources in China~~capabilities. ~~The whole program will be completed in 5 years.~~

~~Digital~~ Our ~~Public~~Products ~~Security~~and ~~Technology~~Services

~~First Responder Coordination Platform – The First~~ ~~Responder~~Through ~~Coordination Platform is a software program which integrates~~ the ~~contact~~ ~~numbers~~operations ~~for~~of ~~general~~our ~~police,~~China-based ~~fire,~~subsidiaries ~~traffic~~ and ~~other~~the ~~related~~subcontracting ~~government organizations~~services ~~into~~provided ~~one~~for ~~contact~~under ~~number~~our ~~and enables these agencies to consolidate and improve their public emergency response. Through this platform~~MSA, ~~our~~we ~~public security customers~~ are ~~able~~a toprovider ~~command~~of products and ~~coordinate~~integrated ~~joint~~solutions ~~responses~~for toChina’s ~~provide the~~IT ~~public with immediate, efficient~~ and ~~reliable~~DT ~~assistance.~~markets ~~The~~in ~~PRC government~~GIS, ~~through~~DPST, ~~its~~DHIS, ~~“Police~~education, ~~Force Technology Reinforcement” initiative~~media, ~~has mandated the adoption of the first responder system to consolidate~~ and ~~improve~~ ~~public~~consumer ~~emergency response~~products. ~~Approximately 660 cities across China are expected to initiate the deployment of their coordinated emergency response platforms, creating significant opportunities for us.~~

~~Intelligent Recognition Systems – Our Intelligent~~ ~~Recognition~~9 product is used by the Ministry of Public Security for effective border control management. The Recognition System stores biometric information, such as finger-prints and facial features from passengers in a database and integrates it with infrared and license plate recognition technologies to enable the automation of border control checkpoints for faster and more accurate processing of passengers, while at the same time helping to safeguard borders from stowaways, and greatly improving overall efficiency and the effectiveness of border control management. The rapid development of China in recent years has also led to growing passenger traffic across its borders, which reached 382 million people in 2010. To address the increasing requirement and faster and more accurate checkpoint processing of passenger traffic, Exit and Entry Frontier Stations throughout China are in the process of implementing their own intelligent border control systems. These systems can also be used to strengthen port control and surveillance in China’s 200+ air, sea and land ports and have many alternative private sector applications, including the management and control of stadium attendance, parking lot traffic, work attendance and toll road traffic.

~~Residence~~ Geographic ~~Card~~ Information ~~Management~~Systems ~~System – This system is designed to apply the latest information technology to automate the Shenzhen Residence Card System, and will integrate with police~~ (GIS) ~~systems. Through~~Software anServices ~~integrated information transfer platform, the system will facilitate several social programs, including social welfare management, education management,~~ and ~~house~~Operations rental service management. Various government and functional departments can access information regarding the immigrant population in the system to improve work efficiency and increase managing capability. In the near future, the system may be expanded to be compatible with other applications, such as medical, personal credit history, and driving records. If successful, the system may be extended to 660 cities across China. According to national statistics, there are over 210 million internal immigrants in China. In many mid-to-large cities, the population of recent immigrants from rural areas exceeds the resident population. As a key pilot project for the Ministry of China Public Security, our Residence Card information Management System will be deployed in Shenzhen first for evaluation.

~~Digital~~ We ~~Hospital~~provide ~~Information~~system ~~Systems~~management and support services in connection with our PGIS platform. The PGIS platform is a set of GIS solutions that was developed by iASPEC and licensed exclusively to us, for use in creating, editing and adding data to our customers’ systems. The PGIS platform allows us to provide our law enforcement customers with different services, including specialized mapping services, positioning services, messaging services and services which monitor access to their GIS by users of different levels. We offer the PGIS platform with a full complement of services, including providing basic map image data from the GIS and specific data in connection with that map image (such as a bus stop), a consolidation of both basic data and specific data services for data inquiry services, and application system services, which is the application of consolidated services to a specific service requirement, such as the position of a police officer in the field.

We also provide ~~various~~application ~~hospital~~interface ~~information~~services ~~management~~which ~~software~~ensure ~~and~~that our PGIS platform is equipped to interact with other programs to the benefit of our customers. The data from different law enforcement command systems can be integrated with our PGIS ~~solutions,~~platform ~~such~~to asprovide ~~Medical~~our ~~Case~~law ~~Statistics~~enforcement ~~Software~~customers with more robust communication and ~~Electronic~~location ~~Medical~~information. ~~Case~~Typically, our platforms are integrated with the City Emergency Commanding System, the Police Resource Consolidated Management System, the Residence Management System, tothe ~~help~~Internet ~~build~~Surveillance ~~modern~~System, ~~scientific~~the Traffic Commanding System, the Criminal Investigation System and ~~digital~~the ~~hospitals~~City Surveillance System. Our ~~products~~ ~~have~~core PGIS technology has been ~~widely~~selected ~~used~~for touse ~~efficiently~~in ~~manage~~the ~~hospital~~Ministry ~~fiscal~~of Public ~~information,~~Security’s ~~clinic~~PGIS ~~information~~Project, ~~medical~~which ~~technologies~~when complete, ~~equipment~~is expected to standardize and ~~inventory, as~~interconnect ~~well~~all asPGIS ~~comprehensive~~systems ~~hospital~~in ~~information~~China.

~~Medical~~ In ~~Case~~the ~~Statistics~~Civil-use ~~Software~~GIS ~~serves~~sector, we have obtained the ~~growing~~highest ~~demand~~level ~~for digital~~of ~~hospital~~qualifications ~~and~~(some ~~electronic~~of ~~medical~~them ~~record~~are ~~systems~~mentioned in ~~China.~~the ~~Medical records,~~sections ~~including~~under ~~health~~the ~~examinations,~~heading ~~medical~~“Competition ~~care,~~– ~~immunity~~High orBarriers ~~infectious diseases,~~to ~~will~~Entry” beand ~~integrated~~“Regulation” ~~into~~below) ~~one~~with ~~centralized~~the widest ~~system~~range soof ~~that~~applications, ~~doctors~~through ~~within the~~its ~~network~~affiliation ~~can~~with ~~review~~Geo. aIn ~~patient~~addition, Geo’s ~~complete~~copyrighted ~~medical~~GIS ~~history.~~software, ~~Such~~“Geostar,” ~~digital hospital~~has ~~systems~~been ~~are~~widely ~~expected~~applied toin ~~reduce~~many ~~medical~~mission-critical ~~errors~~projects ~~and~~covering ~~improve~~national ~~the efficiency~~defense, ofsurveying ~~delivering~~and ~~healthcare~~mapping, land ~~services~~resource, socity asplanning toand ~~benefit~~electricity. ~~patients,~~Management ~~while helping~~believes tothat ~~minimize~~these ~~medical~~qualifications ~~claims~~and ~~fraud.~~intellectual ~~Our~~property ~~Medical~~have ~~Case~~positioned ~~Statistics~~the ~~Software can~~Company ~~also~~to bebenefit ~~used~~for tothe ~~provide~~next ~~public~~few ~~health~~years ~~authorities~~from ~~with~~the anPRC ~~integrated~~government’s ~~command~~ recent emphasis on and ~~decision~~promulgation of ~~system~~favorable ~~for~~policies ~~public~~to ~~health~~encourage ~~and~~more ~~disease~~applications ~~control.~~of domestic-grown GIS software.

- In 12January -2010, China’s State Bureau of Surveying and Mapping announced its plan to build a National Geographic Information Public Service Platform. The whole program will include the construction of one national level master node, 31 provincial level nodes, and 333 city level nodes throughout China, and each city level node will centralize approximately 20 local government departments’ different applications. This program aims to improve the capability and efficiency of geographic information public service, and optimize the utilization of national geographic information resources in China. The whole program will be completed in 5 years.

~~Our Electronic Medical Case Management System is able to~~ ~~integrate~~Digital ~~Hospital~~Public ~~Information~~Security ~~System,~~Technology ~~Laboratory~~(DPST) Information System, Picture Archiving & Communication System, Radiology Information System and Corporate Identity System, to digitize all clinic information. The System also provides access interfaces with related agencies such as Social Insurance and Bank.

~~Other~~ First ~~Products~~Responder Coordination Platform – The First Responder Coordination Platform is a software program which integrates the contact numbers for general police, fire, traffic and ~~Services~~other related government organizations into one contact number and enables these agencies to consolidate and improve their public emergency response. Through this platform, our public security customers are able to command and coordinate joint responses to provide the public with immediate, efficient and reliable assistance. The PRC government, through its “Police Force Technology Reinforcement” initiative, has mandated the adoption of the first responder system to consolidate and improve public emergency response. Approximately 660 cities across China are expected to initiate the deployment of their coordinated emergency response platforms, creating significant opportunities for us.

In Intelligent ~~addition~~Recognition toSystems ~~providing~~– ~~the~~Our ~~above-mentioned~~Intelligent ~~three~~Recognition ~~main segments~~product is used by the Ministry of ~~offerings,~~Public weSecurity ~~assess~~for ~~new~~effective ~~market~~border ~~opportunities~~control ~~and~~management. ~~develop~~The ~~new solutions~~Recognition System stores biometric information, such as ~~our~~finger-prints ~~display~~and facial ~~technologies~~features from passengers in a database and ~~internet~~integrates ~~solutions~~it with infrared and license plate recognition technologies to enable the automation of border control checkpoints for faster and more accurate processing of passengers, while at the same ~~private~~time ~~sector.~~helping ~~New~~to ~~offerings~~safeguard ~~under~~borders ~~market~~from ~~assessment~~stowaways, orand ~~development~~greatly ~~outside~~improving overall efficiency and the ~~existing~~ ~~main~~effectiveness ~~business~~of ~~segments~~border ~~are~~control ~~aggregated~~management. The rapid development of China in ~~this~~recent ~~category~~years ~~until~~has aalso led to growing passenger traffic across its ~~meaningful~~borders, ~~stand-alone~~which ~~segment~~reached isover ~~formed~~400 million people in 2011. To address the increasing requirement and faster and more accurate checkpoint processing of passenger traffic, atExit ~~which~~and ~~point~~Entry ~~such~~Frontier aStations ~~new~~throughout ~~segment~~China ~~will~~are in the process of implementing their own intelligent border control systems. These systems can also be ~~separated~~used ~~from~~to ~~this~~strengthen ~~category~~port control and surveillance in China’s over 200 air, sea and land ports and have many alternative private sector applications, including the management and control of stadium attendance, parking lot traffic, work attendance and toll road traffic.

~~Product~~ 10 ~~Warranty~~

We Residence ~~usually~~Card ~~offer~~Information aManagement ~~one-year~~System ~~service~~– ~~warranty~~This ~~for~~system ~~our~~is ~~system integration~~designed ~~services~~to apply the latest information technology to automate the Shenzhen Residence Card System, and will integrate with police GIS systems. ~~The~~Through ~~warranty~~an ~~includes~~integrated information ~~support~~transfer ~~services~~platform, ~~minimal~~the ~~updates~~system will facilitate several social programs, including social welfare management, education management, and house rental service management. Various government and functional departments can access information regarding the immigrant population in the system to improve work efficiency and increase managing capability. In the near future, the system ~~maintenance~~may be expanded to be compatible with other applications, such as medical, personal credit history, and driving records. In ~~our~~many ~~experience~~mid-to-large cities, the ~~cost~~population of ~~providing~~recent ~~this~~immigrants ~~warranty has~~from ~~been~~rural ~~immaterial~~areas exceeds the resident population. WeAs ~~also~~a ~~offer~~key ~~warranties~~pilot project for ~~our~~the ~~hardware~~Ministry ~~sales~~of China Public Security, ~~but~~our ~~the suppliers~~Residence ofCard ~~such~~information ~~hardware~~Management ~~provide~~System will ~~the~~be ~~final~~deployed ~~warranty~~in ~~services.~~Shenzhen first for evaluation.

~~Our~~ Digital ~~Intellectual~~Hospital ~~Property~~Information Systems (DHIS)

~~Our~~ We ~~success~~provide ~~depends,~~various inhospital ~~part,~~information onmanagement ~~our~~software ~~ability~~and tosolutions, ~~maintain~~such ~~and protect~~as ~~our~~Medical ~~proprietary~~Case ~~technology~~Statistics Software and toElectronic ~~conduct~~Medical ~~our~~Case ~~business~~Management ~~without infringing~~System, onto ~~the~~help ~~proprietary~~build ~~rights~~modern, ofscientific ~~others~~and digital hospitals. WeOur ~~rely~~products ~~primarily~~have onbeen awidely ~~combination~~used ofto ~~copyrights,~~efficiently ~~patents,~~manage ~~trademarks~~hospital ~~and~~fiscal ~~trade~~information, ~~secrets~~clinic information, asmedical ~~well~~technologies, ~~as employee~~equipment and ~~third-party~~inventory, ~~confidentiality~~as ~~agreements,~~well toas ~~safeguard~~comprehensive ~~our intellectual~~hospital ~~property~~information.

As Medical ofCase ~~December~~Statistics 31Software serves the growing demand for digital hospital and electronic medical record systems in China. Medical records, ~~2010~~including health examinations, wemedical ~~had~~care, 98immunity ~~registered~~or infectious diseases, will be integrated into one centralized system so that doctors within the network can review a patient’s complete medical history. Such digital hospital systems are expected to reduce medical errors and ~~copyrighted~~improve the efficiency of delivering healthcare services, so as ~~software~~to ~~products~~benefit patients, while helping to minimize medical claims fraud. WeOur Medical Case Statistics Software can also ~~held~~be 16used ~~patents~~to provide public health authorities with an integrated command and ~~had~~decision 10system ~~patent~~for ~~applications~~public ~~pending. We~~health ~~had~~and 9disease ~~trademarks~~control.

~~We protect our know-how and technologies through~~ ~~confidentiality~~Our ~~provisions~~Electronic inMedical ~~the~~Case ~~employment~~Management ~~contracts~~System weis ~~enter~~able ~~into~~to ~~with~~integrate ~~our employees.~~Hospital InInformation ~~addition~~System, ~~our~~Laboratory ~~engineers~~Information ~~are~~System, ~~generally~~Picture ~~divided~~Archiving ~~into~~& ~~different project~~Communication ~~groups~~System, ~~each~~Radiology ofInformation ~~which~~System ~~generally~~and ~~handles~~Corporate ~~only~~Identity aSystem, ~~portion~~to ofdigitize ~~the~~all clinic ~~project~~information. As aThe ~~result,~~System noalso ~~one~~provides ~~engineer generally has~~ access tointerfaces ~~the~~with ~~entire~~related ~~design~~agencies ~~process and~~such ~~documentation~~as ~~for~~Social aInsurance ~~particular~~and ~~product~~Bank.

~~Sales~~ Display ~~and~~Technology ~~Marketing~~

~~We develop new business by identifying and contacting potential~~ ~~new~~After ~~customers~~years ~~and~~of ~~through referrals~~effort, orwe ashave adeveloped ~~result~~new ofdigital ~~new~~display ~~customers~~technologies ~~contacting us~~products ~~because~~embedded ofwith our ~~strong~~industry-leading ~~brand~~software ~~recognition~~development and ~~reputation~~customization ~~in the industry~~capabilities. We ~~strengthen~~ ~~our~~have ~~market~~recently ~~presence through various types of marketing campaigns~~introduced, ~~such~~ asor ~~participating~~expect ~~in exhibitions, trade fairs and seminars, and presenting solutions~~ to ~~prospective~~introduce ~~customers. We participate~~ in ~~several domestic and international trade fairs such as the China High-Tech Fair in Shenzhen and the e-Gov China Fair in Beijing. We also participate in seminars held by ESRI~~2012, ~~IBM etc. each year, to raise~~ our ~~recognition and promote our products. These trade~~new ~~fairs~~generation ~~not~~of ~~only~~advanced ~~promote~~digital ~~our~~technology ~~reputation,~~products ~~but also our brand name.~~ including:

~~Our~~ CNIT ~~main~~IT-Pad The ~~marketing~~CNIT ~~and~~IT-Pad ~~business~~is ~~development~~a ~~focus~~display isdevice onwith ~~GIS~~a built-in, ~~public~~ ~~security~~customizable ~~information~~computer, ~~technology~~ and ~~hospital~~a ~~information~~digital ~~system~~high-definition ~~software services~~touch-screen. WeThe ~~have~~CNIT aIT-Pad ~~good~~is ~~reputation~~tailored ~~and~~for ~~brand~~“Interactive ~~recognition~~Teaching” inand ~~this~~is ~~market.~~intended ~~We expect~~ to ~~expand~~provide ininnovative ~~the market~~ and multimedia-rich ~~obtain~~interactive ~~more~~education ~~market~~and ~~shares~~conferencing ~~through~~tools for our ~~mature products and quality services~~customers.

~~Our~~ CNIT ~~Major~~DS-Pad The ~~Customers~~CNIT DS-Pad is a type of multimedia advertising device that can display compelling advertisements by means of video, animation, pictures and text. The CNIT DS-Pad comes in various sizes, with screens ranging from 15 to 82 inches. The product is also customizable to fit different needs, with styles including free-standing or wall-mountable, indoor or outdoor, and with traditional or touch-screen technology.

~~In fiscal years 2010 and 2009, no single customer represented~~ ~~10%~~Product orWarranty ~~more of our total revenue. In fiscal 2008, no single customer other than Huipu represented more than 10% of total revenue.~~

~~The~~ We ~~following~~usually ~~tables~~offer ~~provide~~a ~~revenue~~one-year byservice warranty for our ~~major~~system ~~customers~~integration ~~for the~~services. ~~years~~The ~~ended~~warranty ~~December~~includes ~~31,~~support ~~2010~~services, ~~2009~~minimal updates and ~~2008~~system maintenance. In our experience the cost of providing this warranty has been immaterial. We also offer warranties for our hardware sales, but the suppliers of such hardware provide the final warranty services.

- 11 ~~13 -~~

~~Year~~Our ~~2010~~Intellectual Property

		Revenues	Percentage of
		(Thousands)	Total Sales
Shenzhen Municipal Public Security Bureau Information Office	$	7,017	4%
Shenzhen Municipal Public Security Bureau Residence Card Program Office		6,946	4%
Shenzhen Huipuchaungxin Technology Limited		5,578	3%
Guangzhou Municipal Public Security Bureau ,Guangdong Province		4,955	3%
Changfeng Technology Industrial Group		4,288	3%
TOTAL	$	28,784	17%

Our success depends, in part, on our ability to maintain and protect our proprietary technology and to conduct our business without infringing on the proprietary rights of others. We rely primarily on a combination of copyrights, patents, trademarks and trade secrets, as well as employee and third-party confidentiality agreements, to safeguard our intellectual property.

~~Year~~As ~~2009~~of December 31, 2011, we had 118 registered and copyrighted software products and had 21 applications pending, and held 17 patents.

		Revenues		Percentage of
		(Thousands)		Total Sales
Haikou Boshuntong Software Development Company	$	6,288	$	6%
Shenzhen Longtushenzhou Information Limited		5,204		5%
Shenzhen Municipal Public Security Bureau		4,967		5%
Huipu Electronics (Shenzhen) Co.,ltd (prior to acquisition)		4,566		5%
Shenzhen Tianshengji Technology Limited		4,393		4%
TOTAL	$	25,418	$	25%

We protect our know-how and technologies through confidentiality provisions in the employment contracts we enter into with our employees. In addition, our engineers are generally divided into different project groups, each of which generally handles only a portion of the project. As a result, no one engineer generally has access to the entire design process and documentation for a particular product.

~~Year~~Sales ~~2008~~and Marketing

		Revenues		Percentage of
		(Thousands)		Total Sales
Huipu Electronic (Shenzhen) Limited	$	10,663	$	13%
Shenzhen Dingzhi Information Technology Limited		5,453		6%
Hainan Xin Kerui Software Engineering Limited		5,410		6%
Shenzhen Ai Kemu Computer Technology Limited		4,112		5%
Shenzhen Longtushenzhou Information Limited		3,796		4%
TOTAL	$	29,434	$	34%

We develop new business by identifying and contacting potential new customers and through referrals, or as a result of new customers contacting us because of our strong brand recognition and reputation in the industry. We strengthen our market presence through various types of marketing campaigns, such as participating in exhibitions, trade fairs and seminars, developing distributors and dealers, and presenting solutions to prospective customers. We participate in several domestic and international trade fairs such as the China High-Tech Fair in Shenzhen and the e-Gov China Fair and the China Education Devices Exhibition in Beijing. We also participate in seminars held by Esri, IBM, and other prominent market participants each year, to raise our recognition and promote our products. These trade fairs not only promote our reputation, but also our brand name.

~~Competition~~Our Major Customers

~~The~~In ~~markets~~fiscal ~~for~~years ~~GIS~~2011, ~~digital~~2010 ~~public security~~ and ~~digital hospital~~2009, ~~information~~no ~~system~~single ~~sectors in China have developed in recent years but~~customer ~~are~~represented ~~still~~10% inor anmore ~~emerging stage. There are currently only a few key players engaged in each~~ of ~~these~~our ~~fields~~total revenue. InThe ~~the~~following ~~PGIS~~tables ~~area, Beijing Founder Digital~~provide ~~Company~~revenue ~~Limited~~by ~~and~~our ~~Beijing~~major ~~Easymap~~customers ~~Information~~for ~~Technology Co., Ltd. are two important competitors. In~~ the ~~GIS~~years ~~platform~~ended ~~software~~December ~~business~~31, ~~we consider Environmental Systems Research Institute (“ESRI”)~~2011, ~~Super~~2010 ~~Map Software Co., Ltd. (“SuperMap”)~~ and ~~Zondy Cyber Group Co., Ltd. ("Zondy Cyber”) as meaningful~~ ~~competitors~~2009. ~~In the digital hospital information system sector, our main competitors include Neusoft Corporation or Neusoft Group Ltd.(“Neusoft”) and DHC Software Company Limited (“DHC Software”).~~

We believe that we will be able to effectively compete with these companies in the future. We believe that our pioneering solutions, our ongoing customer relationships and our reputation for success in the industry have enabled us to maintain our competitive advantages.

Year 2011
		Revenues		Percentage of
		(Thousands)		Total Sales
Changfeng Technology Industrial Group	$	7,016	$	6%
Shenzhen Huipuchaungxin Technology Limited		4,142		4%
Shenzhen Huipukaichuang Technology Limited		3,846		3%
Shenzhen Municipal Public Security Bureau Information Office		2,768		2%
Jincheng Municipal Public Security Bureau, Shanxi Province		2,325		2%
TOTAL	$	20,097	$	17%

Year 2010
		Revenues		Percentage of
		(Thousands)		Total Sales
Shenzhen Municipal Public Security Bureau Information Office	$	7,017	$	4%
Shenzhen Municipal Public Security Bureau Residence Card Program Office		6,946		4%
Shenzhen Huipuchaungxin Technology Limited		5,578		3%
Guangzhou Municipal Public Security Bureau ,Guangdong Province		4,955		3%
Changfeng Technology Industrial Group		4,288		3%
TOTAL	$	28,784	$	17%

We12 ~~believe the following are our key competitive strengths.~~

Broad and Growing Portfolio of Software and Services. We offer our customers a growing portfolio of software and services offerings in each of the 4 segments in which we operate. We are therefore able to provide multiple integrated solutions for our clients. Public entities use our core products to incorporate ever-growing data into their decision-making processes to drive more effective results. Through our platforms, our customers can develop customized applications, which can be extended across their agencies to support a variety of needs and generate more valuable insights. As a complement to these offerings, we offer related services, such as application development, software upgrades, follow-on phases, and systems integration, which help our customers quickly implement and customize our solutions.

Year 2009
		Revenues		Percentage of
		(Thousands)		Total Sales
Haikou Boshuntong Software Development Company	$	6,288	$	6%
Shenzhen Longtushenzhou Information Limited		5,204		5%
Shenzhen Municipal Public Security Bureau		4,967		5%
Huipu Electronics (Shenzhen) Co., Ltd. (prior to acquisition)		4,566		5%
Shenzhen Tianshengji Technology Limited		4,393		4%
TOTAL	$	25,418	$	25%

~~Successful~~13 Implementation of High Profile Contracts. Our management team has a proven track record of successful implementation of high profile government contracts in China. This track record has enabled us to expand our customer base, which has grown beyond its historical geographic area in the Guangdong province and now includes customers in over 32 provinces throughout China. During 2010, we completed numerous high-profile mission-critical projects related to our core DPST, GIS and DHIS businesses, including the Police-use GIS for 2010 Shanghai Expo, the security system for the 2011 Shenzhen Summer Universiade, the intelligent traffic management system for the 2010 Guangzhou Asian Games, the Police-use GIS for 12 major cities under China’s National PGIS Standardization Project, the exclusive contract with the Guangdong Department of Health for our patented Medical Case Statistics (MCS) software to be rolled out to 2,000 hospitals within the province. Our major accomplishments in 2010 also include: our proprietary Geoglobe and Geostar was selected by China’s State Grid Corporation as the sole domestic GIS software provider for the build-out of the Smart Grid project; China’s newly released state-sponsored online mapping service “Map World” are entirely run on our GIS platform software; in addition, as of Feb 2011, all of the Company’s operating entities have been awarded the National High-Tech Enterprise Status, which allows us to receive significant benefits including lower income tax rate, government subsidies, etc. We were ranked among Deloitte Technology Fast 500 Asia Pacific for the third consecutive year and named 13th among 2010 Forbes China Best SMEs. During the fourth quarter of 2010, we signed new contracts totaling $39.6 million from 25 provinces and provincial cities throughout China, bringing the total contracts amount signed in 2010 to $151.5 million, an increase of 35.8% compared to the year of 2009.

~~- 14 -~~ Competition

~~High~~ The ~~Barriers~~markets tofor ~~Entry.~~the ~~We believe our qualifications~~GIS, ~~our successful~~DPST ~~contract~~and ~~implementation~~DHIS ~~record,~~sectors ~~and~~in ~~the~~China ~~high~~have ~~cost~~developed ofin ~~switching to~~recent ~~other~~years ~~providers~~but ~~provide~~are usstill ~~with~~in aan ~~“first~~emerging ~~mover”~~stage. ~~advantage~~There ~~in the~~are ~~PRC~~currently ~~market~~only ~~and~~a ~~pose~~few ~~high~~key ~~barriers~~players toengaged ~~entry~~in ~~for~~each ~~our~~of ~~potential~~these ~~competitors~~fields. ~~iASPEC,~~ ~~holds~~In the ~~Computer~~PGIS ~~System~~area, ~~Integration~~Beijing ~~Level~~Founder 1Digital ~~license from the PRC~~Company ~~Ministry~~Limited ofand ~~Information,~~Beijing ~~the~~Easymap Information ~~System~~Technology ~~Security~~Co., ~~Service~~Ltd. ~~qualification from~~are ~~Guangdong~~two ~~Province~~important ~~and~~competitors. aIn ~~State~~the ~~Secret-related~~GIS ~~Computer~~platform ~~Information~~software ~~Integration Certificate~~business, ~~and~~we ~~Geo~~consider ~~holds~~Esri, aSuper ~~Level~~Map ASoftware ~~Certificate~~Co., ~~of Surveying and Mapping~~Ltd. As, ~~discussed~~or ~~above~~SuperMap, weand ~~are~~Zondy ~~gaining~~Cyber ~~wider~~Group ~~market~~Co., ~~recognition~~Ltd., ~~from~~or ~~our~~Zondy ~~successful~~Cyber, as ~~contract~~meaningful ~~execution record~~competitors. In ~~addition,~~the ~~after~~DHIS ~~investing in our systems~~sector, our ~~existing~~ ~~customers~~main ~~have~~competitors ainclude ~~strong~~Neusoft ~~incentive~~Corporation, toor ~~purchase~~Neusoft, ~~follow-on~~and ~~phases~~DHC ~~from us~~Software inCompany ~~order~~Limited, toor ~~expedite~~DHC ~~implementation and save costs~~Software.

~~Regulation~~ In the digital display field, we believe that we have become a leading supplier in China. Only a few major players in this market have comparably strong hardware and software capabilities.

~~Because~~ We ~~all~~believe ofthat ~~our~~we ~~operating~~will ~~entities~~be ~~are~~able ~~located~~to effectively compete with these companies in the ~~PRC, we~~future. ~~are~~We ~~regulated~~believe bythat ~~the~~our ~~national~~pioneering ~~and~~solutions, ~~local~~our ~~laws~~ongoing ofcustomer ~~the~~relationships ~~PRC.~~and ~~This~~our ~~section summarizes~~reputation for success in the ~~major~~industry ~~PRC~~have ~~regulations~~enabled ~~relating~~us to maintain our competitive ~~business~~advantages.

~~Permits~~ We ~~and~~believe ~~Certificates~~the following are our key competitive strengths.

~~Our~~ Broad ~~PRC~~and ~~subsidiary~~Growing ~~IST~~Portfolio isof Software and Services. We offer our customers a ~~Shenzhen~~growing ~~City~~portfolio ~~Software~~of ~~Enterprise~~ software and ~~holds~~services ~~ISO~~offerings ~~9001:2000~~in ~~Certification,~~each ~~Maturity~~of ~~Level~~the 2two ofsegments ~~Capability~~and ~~Maturity~~four categories in which we operate. We are therefore able to provide ~~Model~~multiple ~~Integration~~integrated ~~and~~solutions ~~National~~for ~~High~~our clients. Public entities use our core products to incorporate ever-~~Tech~~growing ~~Enterprise~~data into their decision-making processes to drive more effective results. ~~However~~Through our platforms, ~~fulfillment~~our ofcustomers can develop customized ~~certain~~applications, ~~PGIS~~which ~~contracts~~can ~~with~~be ~~PRC~~extended ~~Government~~across ~~customers~~their isagencies ~~restricted~~to support a variety of needs and generate more valuable insights. As a complement to ~~entities possessing~~these ~~the~~offerings, ~~necessary~~we ~~government~~offer ~~licenses~~related services, such as application development, software upgrades, follow-on phases, and ~~approvals~~systems integration, which ~~IST~~help ~~does~~our ~~not have.~~customers quickly implement and customize our solutions.
~~Through~~ Successful Implementation of High Profile Contracts. Our management team has a proven track record of successful implementation of high profile government contracts in China. This track record has enabled us to expand our ~~exclusive~~customer base, ~~commercial~~which ~~arrangements~~has ~~with~~grown ~~iASPEC~~beyond its historical geographic area in the Guangdong province and now includes customers in over 32 provinces throughout China. We have completed numerous high-profile mission-critical projects related to our core DPST, weGIS ~~benefit~~and ~~from~~DHIS businesses, including the ~~following~~Police-use ~~governmental~~GIS ~~licenses~~for the 2010 Shanghai Expo, the security system for the 2011 Shenzhen Summer Universiade, the intelligent traffic management system for the 2010 Guangzhou Asian Games, the Police-use GIS for 15 major cities under China’s National PGIS Standardization Project, and ~~permits~~the ~~previously~~exclusive ~~awarded~~contract with the Guangdong Department of Health for our patented Medical Case Statistics (MCS) software to be rolled out to 2,000 hospitals within the province. In 2010, our proprietary Geoglobe and ~~currently~~Geostar ~~held~~was selected by ~~iASPEC:~~China’s State Grid Corporation as the sole domestic GIS software provider for the build-out of the Smart Grid project; China’s newly released state-sponsored online mapping service “Map World” are entirely run on our GIS platform software. In addition, as of March 2012, all of the Company’s operating entities have been awarded the National High-Tech Enterprise Status, which allows us to receive significant benefits including lower income tax rate, government subsidies, etc. In 2011, we were ranked among Deloitte Technology Fast 500 Asia Pacific for the fourth consecutive year and were named 13th among 2010 Forbes China Best SMEs.

Name		Grant Date and Duration
Computer System Integration Level II Qualification from PRC Ministry of Information		June 11, 2010 – June 11, 2013
State Secret related Computer Information System Integration Certificate		March 29, 2009 – March 29, 2012
Guangdong Province Computer Information System Security Service Level II Qualification		July 29, 2010 – July 29, 2014
Shenzhen City Key Software Enterprise Certification		June 13, 2010 – June 13, 2011 (subject to annual renewal)
Guangdong Province Security Technology Surveillance System Design, Implementation and Repair Level I Qualification		December 10, 2009 – December 10, 2011
Maturity Level 3 of Capability Maturity Model Integration		September 2007
ISO 9001:2000 Certification		May 30, 2008 – May 29, 2011
Honor the Contract and Keep the Promise Enterprise		June 15, 2009
Level II of Construction Certificate for Intelligent Project Design & Implementation		December 1, 2008 – December 1, 2011
National High-Tech Enterprise 2010 China Top SMEs		June 27, 2009 – June 27, 2012 November 28, 2010

High Barriers to Entry. We believe our qualifications, our successful contract implementation record, and the high cost of switching to other providers provide us with a “first mover” advantage in the PRC market and pose high barriers to entry for our potential competitors. Examples of our unique position in our industry, particularly the PGIS sector, include our government-sponsored Internet-based global mapping project, Map World Platform, and essential permits and qualifications in China, including iASPEC’s Computer System Integration Level 2 license from the PRC Ministry of Information, the Information System Security Service qualification from Guangdong Province, and a State Secret-related Computer Information Integration Certificate, and Geo’s Level A Certificate of Surveying and Mapping. As discussed above, we are gaining wider market recognition from our successful contract execution record. In addition, after investing in our systems, our existing customers have a strong incentive to purchase follow-on phases from us in order to expedite implementation and save costs.

- Regulation ~~15 -~~

In Because ~~addition,~~all of our ~~PRC~~ operating ~~subsidiaries~~entities ~~hold~~are located in the ~~following~~PRC, ~~certifications~~we are regulated by the national and ~~qualifications:~~local laws of the PRC. This section summarizes the major PRC regulations relating to our business.

Name	Grant Date and Duration	Company
Maturity Level 3 of Capability Maturity Model Integration	December 29, 2007	IST
ISO 9001:2000 Certification	June 5, 2008 – June 5, 2011	IST
National High-tech Enterprise	June 27, 2009 – June 27, 2012	IST
Guangdong Province Security Technology Surveillance System Design, Implementation and Repair Qualification	July 18, 2008 – July 18, 2011	ISS
Guangdong Province Computer Information System Security Service Qualification	July 29, 2010 – July 29, 2014	ISS
Maturity Level 3 of Capability Maturity Model Integration	April 2008	ISS
Computer System Integration Level III Qualification from PRC Ministry August 15, 2008 – August 15, 2011 of Information		ISS
National High-tech Enterprise	September 6, 2010 – September 6, 2013	ISS
Certificate for China Compulsory Product Certification	June 4, 2009	Bocom
National High-Tech Enterprise	December 29, 2009	Bocom
Shenzhen Software Enterprise Certification	October 30, 2010 (subject to annual renewal)	Bocom
National High-tech Enterprise	September 6, 2010 – September 6, 2013	Zhongtian
Computer System Integration Level IV Qualification from PRC MinistryNovember 17, 2008 – November 17, of Information	2011	Zhongtian
National High-tech Enterprise	Approved, certificate to be received	Huipu

~~Taxation~~Permits and Certificates

OnOur ~~March~~PRC ~~16,~~subsidiary ~~2007,~~IST ~~the~~is ~~National People's Congress of China passed~~ a ~~new~~Shenzhen ~~Enterprise~~City ~~Income~~Software ~~Tax Law, or EIT Law,~~ Enterprise and onholds ~~November~~ISO ~~28,~~9001:2000 ~~2007~~Certification, ~~the~~ ~~State~~Maturity ~~Council~~Level of2 ~~China passed its implementing rules, which took effect on January 1, 2008. Before the implementation~~ of ~~the~~Capability ~~EIT Law, foreign invested~~Maturity ~~enterprises,~~Model orIntegration FIEs, established in the PRC, unless granted preferential tax treatments by the PRC government, were generally subject to an earned income tax, or EIT, rate of 33.0%, which included a 30.0% state income tax and aNational ~~3.0% local income tax. The EIT Law and its implementing rules impose a unified EIT of 25.0% on all domestic~~High-~~invested~~Tech ~~enterprises and FIEs, unless they qualify under certain limited exceptions~~Enterprise. However, ~~the~~fulfillment ~~EIT Law gives FIEs established before~~of ~~March~~certain ~~16,~~PGIS ~~2007,~~contracts orwith ~~Old~~PRC ~~FIEs,~~Government acustomers ~~five-year~~is ~~grandfather~~restricted ~~period during which they can continue~~ to ~~enjoy their existing preferential tax treatments. During this~~entities ~~five-year~~possessing ~~grandfather period, Old FIEs that enjoyed tax rates lower than 25% under~~ the ~~original~~necessary ~~EIT~~government ~~Law~~licenses ~~can gradually increase their EIT rate by 2% per year until their tax rate reaches 25%. In addition, the Old FIEs that are eligible for the “two-year exemption~~ and ~~three-year~~approvals ~~half~~which ~~reduction”~~IST ordoes ~~“five-year~~not ~~exemption and five-year half-reduction” under the original EIT law, are allowed to continue enjoying their preference until these holidays expire~~have.

InThrough ~~addition~~our toexclusive ~~the~~commercial ~~changes~~arrangements ~~to the current tax structure, under the EIT Law, an enterprise established outside of China~~ with “de facto management bodies” within China is considered a resident enterprise and will normally be subject to an EIT of 25% on its global income. The implementing rules define the term “de facto management bodies” as “an establishment that exercisesiASPEC, ~~in substance, overall management and control over the production, business, personnel, accounting, etc., of a Chinese enterprise.” If the PRC tax authorities subsequently determine that~~ we ~~should be classified as a resident~~ ~~enterprise,~~benefit ~~then~~from our organization’s global income will be subject to PRC income tax of 25%. For detailed discussion of PRC tax issues related to resident enterprise status, see Item 1A, “Risk Factors – Risks Related to Doing Business in China – Under the ~~New~~following ~~Enterprise~~governmental ~~Income~~licenses ~~Tax~~and ~~Law,~~permits wepreviously ~~may be classified as a~~awarded ~~‘resident enterprise’ of China. Such classification will likely result in unfavorable tax consequences to us~~ and ~~our~~currently ~~non-PRC~~held ~~stockholders.”~~by iASPEC:

Foreign Currency Exchange

Name	Grant Date and Duration
Computer System Integration Level II Qualification from PRC Ministry of Information	June 11, 2010 – June 10, 2013
State Secret related Computer Information System Integration Certificate	March 29, 2009 – March 28, 2012 (subject to renewal)
Guangdong Province Computer Information System Security Service Level II Qualification	July 29, 2010 – July 28, 2014
Shenzhen City Key Software Enterprise Certification	August 17, 2011 – August 16, 2012 (subject to annual renewal)
Guangdong Province Security Technology Surveillance System Design, Implementation and Repair Level I Qualification	December 10, 2011 – December 9, 2013
ISO 9001:2000 Certification	April 14, 2011 – April 13, 2012 (subject to annual renewal)
Honor the Contract and Keep the Promise Enterprise	June 1, 2011 – May 31, 2012 (subject to annual renewal)
National High-Tech Enterprise	June 27, 2009 – June 26, 2012

~~The~~In ~~principal~~addition, ~~regulation~~our ~~governing~~PRC ~~foreign~~operating ~~currency~~subsidiaries ~~exchange~~hold ~~in China is~~ the ~~Foreign Currency Administration Rules (1996), as amended (2008).~~following ~~Under~~certifications ~~these Rules, RMB is freely convertible for current account items, such as trade~~ and ~~service-related~~qualifications: foreign exchange transactions, but not for capital account items, such as direct investment, loan or investment in securities outside China unless the prior approval of, and/or registration with, the State Administration of Foreign Exchange of the People’s Republic of China, or SAFE, or its local counterparts (as the case may be) is obtained.

- 16 -

Name	Grant Date and Duration	Company
ISO 9001:2000 Certification	September 27, 2010 – September 26, 2013	IST
National High-tech Enterprise	June 27, 2009 – June 26, 2012	IST
Guangdong Province Security Technology Surveillance System Design, Implementation and Repair Qualification	August 24, 2011 – August 23, 2013	ISS
Guangdong Province Computer Information System Security Service Qualification	July 29, 2010 – July 28, 2014	ISS
Computer System Integration Level III Qualification from PRC Ministry of Information	August 15, 2011 – August 14, 2014	ISS
National High-tech Enterprise	September 6, 2010 – September 5, 2013	ISS
Certificate for China Compulsory Product Certification	March 15, 2011 – June 21, 2015	Bocom
National High-Tech Enterprise	October 29, 2011 – October 28, 2014	Bocom
Shenzhen Software Enterprise Certification	October 30, 2011 – October 29, 2012 (subject to annual renewal)	Bocom
National High-tech Enterprise	September 6, 2010 – September 5, 2013	Zhongtian
Computer System Integration Level IV Qualification from PRC Ministry of Information	November 18, 2011 – November 17, 2014	Zhongtian
National High-tech Enterprise	Approved, certificate to be received	Huipu

~~Pursuant~~Taxation to the Foreign Currency Administration Rules, FIEs in China may purchase foreign currency without the approval of SAFE for trade and service-related foreign exchange transactions by providing commercial documents evidencing these transactions. They may also retain foreign exchange (subject to a cap approved by SAFE) to satisfy foreign exchange liabilities or to pay dividends. In addition, if a foreign company acquires a company in China, the acquired company will also become an FIE. However, the relevant PRC government authorities may limit or eliminate the ability of FIEs to purchase and retain foreign currencies in the future. In addition, foreign exchange transactions for direct investment, loan and investment in securities outside China are still subject to limitations and require approvals from, and/or registration with, SAFE.

~~Dividend~~On ~~Distributions~~March 16, 2007, the National People’s Congress of China passed a new Enterprise Income Tax Law, or EIT Law, and on November 28, 2007, the State Council of China passed its implementing rules, which took effect on January 1, 2008.

~~Under~~15 applicable PRC regulations, FIEs in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, a FIE in China is required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its general reserves until the accumulative amount of such reserves reach 50% of its registered capital. These reserves are not distributable as cash dividends. The board of directors of a FIE has the discretion to allocate a portion of its after-tax profits to staff welfare and bonus funds, which may not be distributed to equity owners except in the event of liquidation.

In Before ~~addition,~~the ~~under~~implementation of the EIT ~~law~~Law, ~~the~~foreign ~~Notice~~invested ofenterprises, or FIEs, established in the ~~State Administration~~PRC, ofunless ~~Taxation~~granted onpreferential ~~Negotiated~~tax ~~Reduction~~treatments ofby ~~Dividends~~the ~~and~~PRC ~~Interest Rates~~government, ~~which~~were ~~was~~generally ~~issued~~subject onto ~~January~~an 29earned income tax, ~~2008~~or EIT, ~~the~~rate ~~Arrangement~~of ~~between~~33.0%, ~~the~~which ~~PRC~~included ~~and~~a ~~the~~30.0% ~~Hong~~state ~~Kong~~income ~~Special~~tax ~~Administrative~~and ~~Region~~a on3.0% ~~the~~local ~~Avoidance~~income oftax. ~~Double Taxation~~The EIT Law and ~~Prevention~~its ofimplementing ~~Fiscal~~rules ~~Evasion,~~impose ~~which~~a ~~became~~unified ~~effective~~EIT of 25.0% on ~~December~~ 8,all ~~2006,~~domestic-invested enterprises and ~~the~~FIEs, ~~Notice~~unless ofthey ~~the~~qualify ~~State~~under ~~Administration~~certain oflimited ~~Taxation Regarding~~exceptions. ~~Interpretation~~However, ~~and~~the ~~Recognition~~EIT Law ofgives ~~Beneficial~~FIEs ~~Owners~~established ~~under~~before ~~Tax Treaties~~March 16, ~~which~~2007, ~~became~~or ~~effective~~Old onFIEs, ~~October~~a ~~27,~~five-year ~~2009,~~grandfather ~~dividends~~period ~~from~~during ~~our~~which ~~PRC operating~~they ~~subsidiaries~~can ~~paid~~continue to usenjoy ~~through~~their ~~our~~existing ~~Hong~~preferential ~~Kong~~tax ~~subsidiaries~~treatments. ~~may~~During ~~be subject~~this tofive-year agrandfather ~~withholding~~period, Old FIEs that enjoyed tax rates atlower athan 25% under the original EIT Law can gradually increase their EIT rate ofby 102%, orper atyear auntil their tax rate ofreaches 525%. ifIn ~~our~~addition, ~~Hong Kong~~the ~~subsidiaries~~Old FIEs that are ~~considered~~eligible afor the “~~beneficial~~two-year ~~owner”~~exemption ~~that~~and isthree-year ~~generally~~half ~~engaged~~reduction” inor ~~substantial~~“five-year ~~business~~exemption ~~activities~~ and ~~entitled~~five-year half-reduction” under the original EIT law, are allowed to ~~treaty~~continue ~~benefits~~enjoying ~~under~~their ~~the Arrangement~~preference ~~between~~until ~~the~~these ~~PRC~~holidays ~~and~~expire. Companies ~~the~~are ~~Hong~~also ~~Kong~~eligible ~~Special~~for ~~Administrative~~a ~~Region on~~preferential ~~the~~tax ~~Avoidance~~rate of ~~Double~~15% ~~Taxation~~if ~~and~~they ~~Prevention~~are approved ofas ~~Fiscal~~High ~~Evasion~~Technology Enterprises by the PRC government.

~~Our~~ In ~~Employees~~addition to the changes to the current tax structure, under the EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a resident enterprise and will normally be subject to an EIT of 25% on its global income. The implementing rules define the term “de facto management bodies” as “an establishment that exercises, in substance, overall management and control over the production, business, personnel, accounting, etc., of a Chinese enterprise.” If the PRC tax authorities subsequently determine that we should be classified as a resident enterprise, then our public holding company’s global income will be subject to PRC income tax of 25%. For detailed discussion of PRC tax issues related to resident enterprise status, see Item 1A “Risk Factors – Risks Related to Doing Business in China – Under the New Enterprise Income Tax Law, we may be classified as a ‘resident enterprise’ of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC stockholders.”

~~As of December 31, 2010, we had approximately 1,453 full-time~~ ~~employees.~~Foreign ~~The~~Currency ~~following~~Exchange ~~table illustrates the allocation of these employees among the various job functions conducted at our company.~~

Department		Number of Employees
Software Development		471
Sales & Marketing		264
Admin & Human Resources		122
Finance and Accounting		56
Management		31
Production		316
Project Execution		193
TOTAL		1,453

The principal regulation governing foreign currency exchange in China is the Foreign Currency Administration Rules (1996), as amended (2008). Under these Rules, RMB is freely convertible for current account items, such as trade and service-related foreign exchange transactions, but not for capital account items, such as direct investment, loan or investment in securities outside China unless the prior approval of, and/or registration with, the State Administration of Foreign Exchange of the People’s Republic of China, or SAFE, or its local counterparts (as the case may be) is obtained. Pursuant to the Foreign Currency Administration Rules, FIEs in China may purchase foreign currency without the approval of SAFE for trade and service-related foreign exchange transactions by providing commercial documents evidencing these transactions. They may also retain foreign exchange (subject to a cap approved by SAFE) to satisfy foreign exchange liabilities or to pay dividends. In addition, if a foreign company acquires a company in China, the acquired company will also become an FIE. However, the relevant PRC government authorities may limit or eliminate the ability of FIEs to purchase and retain foreign currencies in the future. In addition, foreign exchange transactions for direct investment, loan and investment in securities outside China are still subject to limitations and require approvals from, and/or registration with, SAFE.

~~We believe that our relationship with our employees is good.~~ ~~Our~~Dividend ~~Chinese~~Distributions subsidiaries have trade unions which protect employees’ rights, aim to assist in the fulfillment of our economic objectives, encourage employee participation in management decisions and assist in mediating disputes between us and union members. We have not experienced any significant problems or disruption to our operations due to labor disputes, nor have we experienced any difficulties in recruitment and retention of experienced staff. The remuneration payable to employees includes basic salaries and allowances. We also provide training for our staff from time to time to enhance their technical knowledge.

As Under ~~required~~applicable byPRC ~~applicable~~regulations, ~~Chinese~~FIEs ~~law~~in China may pay dividends only out of their accumulated profits, weif ~~have~~any, ~~entered~~determined ~~into employment~~in ~~contracts~~accordance with ~~all~~PRC ofaccounting ~~our~~standards ~~officers~~and regulations. In addition, ~~managers~~a FIE in China is required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its general reserves until the accumulative amount of such reserves reach 50% of its registered capital. These reserves are not distributable as cash dividends. The board of directors of a FIE has the discretion to allocate a portion of its after-tax profits to staff welfare and ~~employees~~bonus funds, which may not be distributed to equity owners except in the event of liquidation.

~~Our~~ After-tax ~~employees~~profits/losses inwith ~~China~~respect ~~participate~~to inthe apayment ~~state~~of ~~pension~~dividends ~~scheme organized~~out byof ~~Chinese~~accumulated ~~municipal~~profits and ~~provincial~~the ~~governments.~~annual Weappropriation ~~are~~of ~~required~~after-tax ~~to contribute~~profits toas ~~the~~calculated ~~scheme~~pursuant atto ~~rates~~PRC ~~ranging~~accounting ~~from~~standards ~~13%~~and toregulations ~~18%~~do ofnot ~~the~~result ~~average~~in ~~monthly~~significant ~~salary.~~differences Asas ofcompared ~~the~~to ~~date~~after-tax ofearnings ~~this~~as ~~report,~~presented wein ~~have~~our ~~complied~~financial ~~with~~statements. ~~the~~However, ~~regulation~~there ~~and have~~are ~~paid~~certain ~~the~~differences ~~state~~between ~~pension~~PRC ~~plan~~accounting asstandards ~~required~~and byregulations ~~law~~and U.S. Ingenerally ~~addition,~~accepted weaccounting ~~are required~~principles, byarising ~~Chinese~~from ~~law~~different treatment toof ~~cover~~items ~~employees~~such inas ~~China~~amortization ~~with~~of ~~various~~intangible ~~types~~assets ofand ~~social insurance.~~change Wein ~~have~~fair ~~purchased~~value ~~social~~of ~~insurance~~contingent ~~for~~consideration ~~all~~rising offrom ~~our~~business ~~employees~~combinations.

- In 17addition, -under the EIT law, the Notice of the State Administration of Taxation on Negotiated Reduction of Dividends and Interest Rates, which was issued on January 29, 2008, the Arrangement between the PRC and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion, which became effective on December 8, 2006, and the Notice of the State Administration of Taxation Regarding Interpretation and Recognition of Beneficial Owners under Tax Treaties, which became effective on October 27, 2009, dividends from our PRC operating subsidiaries paid to us through our Hong Kong subsidiaries may be subject to a withholding tax at a rate of 10%, or at a rate of 5% if our Hong Kong subsidiaries are considered a “beneficial owner” that is generally engaged in substantial business activities and entitled to treaty benefits under the Arrangement between the PRC and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion.

~~ITEM~~ 16 ~~1A. RISK FACTORS.~~

AnOur ~~investment~~Employees in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this report, before making an investment decision. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. You should read the section entitled “Special Note Regarding Forward Looking Statements” above for a discussion of what types of statements are forward-looking statements, as well as the significance of such statements in the context of this report.

~~RISKS~~As ~~RELATED~~of TODecember ~~OUR~~31, ~~BUSINESS~~2011, we had approximately 1,540 full-time employees. The following table illustrates the allocation of these employees among the various job functions conducted at our company.

Unfavorable economic conditions may affect the level of technology spending by our customers which could cause the demand for our products and services to decrease.

Department			Number of Employees
Software Development			445
Sales & Marketing			329
Administration & Human Resources			165
Finance and Accounting			57
Management			29
Production			361
Project Execution			154
TOTAL			1,540

~~The~~We ~~revenue~~believe ~~growth~~that ~~and~~our ~~profitability~~relationship ofwith our ~~business~~employees ~~depend~~is ongood. ~~the~~Our ~~overall~~Chinese ~~demand~~subsidiaries ~~for~~have ~~software~~trade ~~products~~unions ~~and~~which ~~related~~protect ~~services~~employees’ rights, ~~particularly~~aim ~~within~~to ~~the~~assist ~~private~~in ~~sector.~~the ~~Our~~fulfillment ~~strategy involves a sale~~ of our ~~products~~economic ~~and services~~objectives, ~~primarily~~encourage toemployee participation ~~customers~~ in ~~the~~management ~~private~~decisions ~~sector,~~and soassist ~~our~~in ~~business~~mediating ~~depends~~disputes between onus ~~the~~and ~~overall~~union ~~economy~~members. ~~and~~We ~~the~~have ~~economic~~not ~~and~~experienced ~~business~~any ~~conditions~~significant ~~within~~problems ~~this~~or ~~market.~~disruption ~~The~~to ~~current~~our ~~stock~~operations ~~market~~due ~~decline~~to ~~and~~labor ~~the~~disputes, ~~global~~nor ~~economic~~have ~~slowdown~~we ~~may~~experienced any ~~affect~~difficulties ~~the~~in ~~demand~~recruitment ~~for~~and ~~our~~retention ~~software~~of ~~products~~experienced ~~and~~staff. ~~related~~The ~~services and decrease~~remuneration ~~technology~~payable ~~spending~~to ofemployees ~~many~~includes ofbasic ~~our~~salaries ~~customers~~ and ~~potential customers~~allowances. ~~These events~~We ~~could~~also ~~have~~provide training afor ~~material~~our ~~effect~~staff onfrom ustime into ~~the~~time ~~future,~~to ~~including,~~enhance ~~without limitation,~~their ontechnical ~~our future revenue and earnings~~knowledge.

WeAs ~~are~~required ~~not~~by ~~likely~~applicable toChinese ~~sustain~~law, we have entered into employment contracts with all of our ~~recent~~officers, ~~growth~~managers ~~rate~~and employees.

Our ~~revenues~~employees ~~have~~in ~~grown~~China ~~significantly~~participate in ~~the~~a ~~last~~state ~~few~~pension ~~years,~~scheme ~~primarily~~organized ~~resulting~~by ~~from~~Chinese ~~our~~municipal ~~strategic acquisitions, including our acquisitions of ISS, Bocom~~ and ~~Huipu,~~provincial ~~and the acquisition of Geo by our variable interest entity, iASPEC~~governments. ~~Specifically,~~We ~~our~~are ~~revenue~~required ~~has grown 157% between fiscal years~~to ~~2007~~contribute ~~and~~to ~~2006~~the ~~(including~~scheme ~~revenue~~at ~~earned~~rates byranging ~~our~~from ~~predecessor in fiscal year 2006), 181~~13% ~~between~~to ~~fiscal years 2008 and 2007,~~ 18% ~~between~~of ~~fiscal~~the ~~years~~average ~~2008 and 2009~~monthly ~~and~~salary. ~~62%~~As ~~between~~of ~~fiscal~~the ~~years~~date ~~2009~~of ~~and~~this ~~2010. Additionally~~report, ~~our~~we ~~net~~have ~~income~~complied ~~has grown~~with ~~135%~~the ~~between~~regulation ~~fiscal years 2007~~ and ~~2006 (including revenue earned by our~~ ~~predecessor~~have inpaid ~~fiscal~~the ~~year~~state ~~2006),~~pension ~~78%~~plan ~~between~~as ~~fiscal~~required ~~years~~by ~~2008~~law. ~~and~~In ~~2007~~addition, ~~27% between~~we ~~fiscal years 2008 and 2009 and 20% between fiscal years 2009 and 2010.~~are Werequired ~~are~~by ~~not~~Chinese ~~likely~~law to ~~sustain~~cover ~~similar~~employees ~~growth~~ in ~~revenues~~China orwith ~~net~~various ~~income~~types ~~in future periods due to a number factors, including, among others, the greater difficulty~~ of ~~growing at sustained rates from a larger revenue base and our ability to~~social ~~identify and consummate strategic acquisitions~~insurance. ~~Accordingly,~~We ~~you~~have ~~should~~purchased ~~not~~social ~~rely on~~insurance ~~the~~for ~~results~~all of ~~any prior period as an indication of~~ our ~~future financial and operating performance~~employees.

~~Our~~ITEM ~~quarterly~~1A. ~~operating~~RISK ~~results are difficult to predict and could fall below investor expectations or estimates by securities research analysts, which may cause the trading price of our common stock to decline~~FACTORS.

~~Our~~An ~~revenues~~investment ~~and~~in ~~operating~~our ~~results~~common ~~can~~stock ~~vary~~involves ~~significantly from quarter to quarter due to~~ a ~~number~~high degree of risk. ~~factors,~~You ~~many~~should ofcarefully ~~which~~consider ~~are~~the ~~outside~~risks ofdescribed ~~our control~~below, ~~such~~together aswith ~~variations~~all of in the ~~volume~~other ofinformation ~~business~~included ~~from customers resulting from changes~~ in ~~our~~this ~~customers' operations~~report, ~~the~~before ~~business~~making ~~decisions~~an ~~of our~~investment ~~customers~~decision. ~~regarding~~If ~~the~~any ~~use~~ of ~~our~~the ~~products~~following ~~and~~risks ~~services~~actually occurs, ~~delays or difficulties in expanding~~ our ~~operational facilities and infrastructure~~business, ~~changes to our~~financial ~~pricing~~condition ~~structure~~ or ~~that~~results of ~~our~~operations ~~competitors,~~could ~~inaccurate estimates of resources and time required to complete ongoing projects and currency fluctuations~~suffer. ~~As many~~In ofthat ~~our~~case, ~~employees take long vacations during~~ the ~~Chinese~~trading ~~New Year in the~~price ~~first~~of ~~quarter,~~ our ~~revenues~~common instock ~~that~~could ~~quarter are relatively low compared to the other quarters. Moreover~~decline, ~~our~~and ~~results~~you may ~~vary~~lose ~~depending~~all onor ~~our~~part ~~customers' business needs and spending patterns. Due to the annual budget cycles~~ of ~~most of~~your ~~our~~investment. ~~customers,~~You weshould ~~may~~read ~~not be able to estimate accurately~~ the ~~demand~~section ~~for~~entitled ~~our products~~“Special ~~and~~Note ~~services~~Regarding ~~beyond the immediate calendar year, which could adversely~~Forward ~~affect~~Looking ~~our~~Statements” ~~business~~above ~~planning~~for ~~and may have~~ a ~~material~~discussion ~~adverse effect on our business, results~~ of ~~operations~~what ~~and~~types ~~financial condition. In addition, the volume~~ of ~~work~~statements ~~performed for specific customers is likely to vary from year to year.~~are ~~Thus~~forward-looking statements, aas ~~major~~well ~~customer~~as ~~in one year may not provide~~ the ~~same~~significance ~~amount or percentage~~ of ~~our~~such ~~revenues~~statements in the ~~any~~context ~~subsequent~~of ~~year~~this report.

~~These~~RISKS ~~fluctuations~~RELATED ~~are~~TO ~~likely~~OUR toBUSINESS continue in the future and operating results for any period may not be indicative of our performance in any future period. If our operating results for any quarterly period fall below investor expectations or estimates by securities research analysts, the trading price of our common stock may decline.

WeIf ~~face~~the ~~risks~~trading ~~once~~price aof ~~business~~our iscommon ~~acquired~~shares ~~and~~fails ~~the~~to comply ~~acquired~~with ~~companies~~the ~~may~~continued ~~not~~listing ~~perform~~requirements toof ~~our~~The ~~expectations~~NASDAQ Global Select Market, ~~either~~we would offace possible delisting, which ~~may adversely~~would ~~affect~~result in a limited public market for our ~~results~~common ofstock ~~operations~~and make obtaining future debt or equity financing more difficult for us.

Companies listed on The NASDAQ Stock Market, or NASDAQ, are subject to delisting for, among other things, failure to maintain a minimum closing bid price per share of $1.00 for 30 consecutive business days. On December 23, 2011, we received a letter from NASDAQ indicating that for the last 30 consecutive business days, the bid price of our common stock closed below the minimum $1.00 per share requirement pursuant to NASDAQ Listing Rule 5450(a)(1) for continued inclusion on The NASDAQ Global Select Market. In accordance with NASDAQ Listing Rule 5810(c)(3)(A), we have an initial grace period of 180 calendar days, or until June 20, 2012, to regain compliance with the minimum bid price requirement. We ~~face~~cannot ~~risks~~be ~~when~~sure that our share price will comply with the requirements for continued listing of our common stock on The NASDAQ Global Select Market in the future. If our common stock loses its status on The NASDAQ Global Select Market and we ~~acquire~~are ~~other~~not ~~businesses~~successful in obtaining a listing on The NASDAQ Capital Market, our common stock would likely trade in the over-the-counter market. If our shares were to trade on the over-the-counter market, selling our common stock could be more difficult because smaller quantities of shares would likely be bought and sold, transactions could be delayed, and security analysts’ coverage of us may be reduced. In addition, in the event our common stock is delisted, broker-dealers have certain regulatory burdens imposed upon them, which may discourage broker-dealers from effecting transactions in our common stock, further limiting the liquidity of our common stock. These ~~risks~~factors could result in lower prices and larger spreads in the bid and ask prices for our common stock. Such delisting from The NASDAQ Global Select Market and continued or further declines in our share price ~~include:~~could also greatly impair our ability to raise additional necessary capital through equity or debt financing, and could significantly increase the ownership dilution to shareholders caused by our issuing equity in financing or other transactions.

-17 ~~18 -~~

~~difficulties~~ Unfavorable ineconomic conditions may affect the ~~integration~~level of ~~acquired~~technology ~~operations~~spending by our customers which could cause the demand for our products and ~~retention~~services of to decrease. ~~personnel,~~

~~unforeseen~~ The orrevenue ~~hidden~~growth ~~liabilities~~and profitability of our business depend on the overall demand for software products and related services, particularly within the private sector. Our strategy involves a sale of our products and services primarily to customers in the private sector, so our business depends on the overall economy and the economic and business conditions within this market. The current stock market decline and the global economic slowdown may affect the demand for our software products and related services and decrease technology spending of many of our customers and potential customers. These events could have a material effect on us in the future, including, without limitation, on our future revenue and earnings.

~~tax,~~ Our ~~regulatory~~quarterly operating results are difficult to predict and ~~accounting~~could ~~issues~~fall below investor expectations or estimates by securities research analysts, ~~and~~ which may cause the trading price of our common stock to decline.

~~inability~~ Our revenues and operating results can vary significantly from quarter to ~~generate~~quarter ~~sufficient~~due to a number of factors, many of which are outside of our control, such as variations in the volume of business from customers resulting from changes in our customers’ operations, the business decisions of our customers regarding the use of our products and services, delays or difficulties in expanding our operational facilities and infrastructure, changes to our pricing structure or that of our competitors, inaccurate estimates of resources and time required to complete ongoing projects and currency fluctuations. As many of our employees take long vacations during the Chinese New Year in the first quarter, our revenues in that quarter are relatively low compared to ~~offset~~the ~~acquisition~~other ~~costs~~quarters. Moreover, our results may vary depending on our customers’ business needs and spending patterns. Due to the annual budget cycles of most of our customers, we may not be able to estimate accurately the demand for our products and services beyond the immediate calendar year, which could adversely affect our business planning and may have a material adverse effect on our business, results of operations and financial condition. In addition, the volume of work performed for specific customers is likely to vary from year to year. Thus, a major customer in one year may not provide the same amount or percentage of our revenues in any subsequent year.

~~Acquired~~ These ~~companies~~fluctuations ~~may~~are ~~not~~likely ~~perform~~ to ~~our~~continue ~~expectations~~in ~~for various reasons, including~~ the ~~loss~~future ofand ~~key~~operating ~~personnel~~results ~~or,~~for asany aperiod ~~result, key customers, and our strategic focus~~ may ~~change.~~not Asbe aindicative ~~result,~~of weour ~~may~~performance ~~not~~in ~~realize the~~any ~~benefits~~future ~~we anticipated~~period. If weour ~~fail~~operating toresults ~~integrate~~for ~~acquired~~any ~~businesses~~quarterly ~~or realize~~period ~~the~~fall ~~expected~~below ~~benefits,~~investor weexpectations ~~may~~or estimates ~~lose~~by ~~the~~securities ~~return~~research onanalysts, the ~~investment~~trading inprice ~~these acquisitions,~~of ~~incur transaction costs and~~ our ~~results~~common ofstock ~~operations~~may ~~could be materially and adversely affected as a result~~decline.

If We weface ~~are~~risks ~~unable~~once toa ~~raise~~business ~~additional~~is ~~financing~~acquired ~~or identify~~and ~~suitable~~the ~~merger~~acquired orcompanies ~~acquisition targets, we~~ may benot ~~unable~~perform to ~~implement~~ our ~~long-term business plan~~expectations, ~~develop~~either orof ~~enhance~~which ~~our~~may ~~products~~adversely ~~and~~affect ~~services,~~our ~~take advantage~~results of ~~future opportunities or respond to competitive pressures on a timely basis~~operations.

~~Our long-term business plan includes the identification of~~ ~~suitable~~We ~~targets~~face ~~for~~risks ~~horizontal~~when ~~or vertical mergers or acquisitions, so as to enhance overall productivity and to benefit from economies of scale. Due to the current global financial crisis,~~ we ~~may~~acquire ~~not be able to obtain adequate levels of additional financing, whether through equity financing, debt financing or~~ other ~~sources.~~ To raise funds, we may need to issue new equities or bonds which could result in additional dilution to our shareholders, and additional financings could result in significant dilution to our earnings per share or the issuance of securities with rights superior to our current outstanding securities or contain covenants that would restrict our operations and strategybusinesses. InThese ~~addition, we~~risks ~~may~~include: grant registration rights to investors purchasing our equity or debt securities in the future. If we are unable to raise additional financing, we may be unable to implement our long-term business plan, develop or enhance our products and services, take advantage of future opportunities or respond to competitive pressures on a timely basis, if at all. In addition, a lack of additional financing could force us to substantially curtail or cease operations.

~~We also may not be able to identify merger or acquisition~~ ~~targets~~difficulties ~~or,~~in ~~after a merger or acquisition, may not be able to integrate~~ the ~~target’s~~ ~~business~~integration orof acquired operations ~~successfully~~and ~~with~~retention ~~ours. Such failure to execute our long-term business plan likely will negatively impact our results~~ of ~~operations.~~ personnel,
~~We generally do not have exclusive or long-term~~ ~~agreements~~unforeseen ~~with our customers and we may lose their engagement if they are not satisfied with our products and services~~ or ~~for~~hidden ~~other reasons.~~ liabilities,
~~We generally do not have exclusive or long-term agreements with~~ ~~our customers. As a result~~tax, weregulatory ~~must rely on the quality of our products~~ and ~~services,~~ ~~industry~~accounting ~~reputation and favorable pricing to attract and retain customers. There is no assurance~~issues, ~~however, that we will be able to maintain our relationships with current~~ and/or future customers. Our customers may elect to terminate their relationships with us if they are not satisfied with our services. If a substantial number of our customers choose not to continue to purchase products and services time from us, it would have a material adverse effect on our business and results of operations.
If inability ~~we are unable~~ to ~~develop~~generate ~~competitive~~sufficient ~~new~~revenues ~~products~~to ~~and service~~offset ~~offerings~~acquisition ~~our future results of operations could be adversely affected~~costs.

~~Our future revenue stream depends to a large degree on our~~ ~~ability~~18 to utilize our technology in a way that will allow us to offer new types of software applications and services to a broader client base. We will be required to make investments in research and development in order to continue to develop new software applications and related service offerings, enhance our existing software applications and related service offerings and achieve market acceptance of our software applications and service offerings. We may incur problems in the future in innovating and introducing new software applications and service offerings. Our development-stage software applications may not be successfully completed or, if developed, may not achieve significant customer acceptance. If we are unable to successfully define, develop and introduce competitive new software applications, and enhance existing software applications, our future results of operations would be adversely affected. Development schedules for software applications are difficult to predict. The timely availability of new applications and their acceptance by customers are important to our future success. A delay in new the development of new applications could have a significant impact on its results of operations.

If Acquired wecompanies ~~are~~may ~~unable~~not perform to ~~keep~~our ~~pace~~expectations ~~with~~for various reasons, including the ~~rapid~~loss of key personnel or, as a result, key customers, and our strategic focus may change. As a result, we may not realize the benefits we anticipated. If we ~~technological~~fail ~~changes~~to integrate acquired businesses or realize the expected benefits, we may lose the return on the investment in ~~our~~these ~~industry~~acquisitions, ~~demand~~incur ~~for~~transaction costs and our ~~products~~results ~~and~~of ~~services~~ operations could ~~decline~~be ~~which~~materially ~~would~~and adversely ~~affect~~affected ~~our~~as ~~revenue.~~a result.

~~Our industry is characterized by extremely rapid technological~~ ~~change,~~If ~~evolving~~we ~~industry~~are ~~standards~~unable ~~and~~to ~~changing~~raise ~~customer~~additional ~~demands.~~financing ~~These conditions~~or ~~require~~identify ~~continuous~~suitable ~~expenditures~~merger onor ~~product~~acquisition ~~research and development to enhance existing products~~targets, ~~create~~we ~~new~~may ~~products~~be ~~and~~unable ~~avoid product obsolescence. We believe that the timely development of new products and continuing enhancements~~ to ~~existing~~implement ~~products is essential to maintain~~ our ~~competitive~~ ~~position~~long-term inbusiness ~~the~~plan, ~~marketplace.~~develop ~~Our~~or ~~future~~enhance ~~success depends in part upon customer and market acceptance of~~ our products and ~~initiatives~~services, ~~which~~take ~~is uncertain.~~advantage ~~Any failure to achieve increased acceptance~~ of ~~these~~future ~~and other new~~opportunities ~~product~~or ~~offerings~~respond ~~could~~to ~~have~~competitive apressures ~~material adverse effect~~ on ~~our~~a ~~business~~timely ~~and results of operations~~basis.

Our long-term 19business plan includes the identification of suitable targets for horizontal or vertical mergers or acquisitions, so as to enhance overall productivity and to benefit from economies of scale. Due to the current global financial crisis, we may not be able to obtain adequate levels of additional financing, whether through equity financing, debt financing or other sources. To raise funds, we may need to issue new equities or bonds which could result in additional dilution to our shareholders, and additional financings could result in significant dilution to our earnings per share or the issuance of securities with rights superior to our current outstanding securities or contain covenants that would restrict our operations and strategy. In addition, we may grant registration rights to investors purchasing our equity or debt securities in the future. If we are unable to raise additional financing, we may be unable to implement our long-term business plan, develop or enhance our products and services, take advantage of future opportunities or respond to competitive pressures on a timely basis, if at all. In addition, a lack of additional financing could force us to substantially curtail or cease operations.

~~Our~~ We ~~software~~also ~~products~~ may ~~contain~~not ~~defects~~be able to identify merger or ~~errors~~acquisition targets or, ~~which~~ ~~could~~after ~~decrease~~a ~~sales~~merger or acquisition, ~~injure~~may ~~our~~not ~~reputation~~be able to integrate the target’s business or ~~delay~~operations ~~shipments~~successfully ofwith ours. Such failure to execute our long-term business plan ~~products.~~likely will negatively impact our results of operations.

~~The software products that we develop are complex and must meet~~ ~~the~~We ~~stringent~~generally ~~technical~~do ~~requirements~~not ofhave ~~our~~exclusive ~~customers.~~or Inlong-term ~~addition,~~agreements ~~to keep pace~~ with ~~the rapid technological change in~~ our ~~industry~~customers and ~~to avoid the obsolescence of our software products,~~ we ~~must~~may ~~quickly~~lose ~~develop~~their ~~new~~engagement ~~products~~if ~~and enhancements~~they ~~to existing products. Because of this complexity and rapid development cycle, we cannot assure that our software products~~ are ~~free of errors, especially in newly released software products and new versions of existing software products. If our software is~~ not ~~free~~satisfied ofwith ~~errors, this could result in litigation, fewer sales, increased product returns, damage to~~ our ~~reputation~~ ~~and~~products ~~an increase in service~~ and ~~warranty~~services ~~costs,~~or ~~which~~for ~~would~~other ~~adversely affect our business~~reasons.

~~Our~~ We ~~technology~~generally ~~may~~do ~~become~~not ~~obsolete~~have ~~which~~exclusive ~~could~~or ~~materially~~long-term agreements with our customers. As a result, we must rely on the quality of our products and services, industry reputation and favorable pricing to attract and retain customers. There is no assurance, ~~adversely~~however, ~~affect~~that we will be able to maintain our ~~ability~~relationships with current and/or future customers. Our customers may elect to ~~sell~~terminate their relationships with us if they are not satisfied with our services. If a substantial number of our customers choose not to continue to purchase products and services time from us, it would have a material adverse effect on our business and results of operations.

If ~~our technology, products and services become obsolete, our business operations would be materially adversely affected. The market in which~~ we ~~compete~~are isunable ~~characterized~~to bydevelop ~~rapid~~competitive ~~technological change, evolving industry standards, introductions of~~ new products, and ~~changes~~service inofferings ~~customer demands that can render existing products obsolete and unmarketable. Our current products will require continuous upgrading or~~ our ~~technology will become obsolete. Our~~ future ~~success~~results ~~will depend upon our ability to address the increasingly sophisticated needs~~ of ~~our~~operations ~~customers~~could bybe ~~supporting~~adversely existing and emerging hardware, software, database, and networking platforms and by developing and introducing enhancements to our existing products and new products on a timely basis that keep pace with technological developments, evolving industry standards, and changing customer requirementsaffected. ~~Research and development expenses were $3,016,693 , $2,705,669 and $2,596,430 for the years ended December 31, 2010, 2009 and 2008, respectively.~~

We Our ~~face~~future ~~the~~revenue ~~risk~~stream depends to a large degree on our ability to utilize our technology in a way that will allow us to offer new types of ~~systems~~software ~~interruptions~~applications and ~~capacity~~services to a broader client base. We will be required to make investments in ~~constraints~~research and development in order to continue to develop new software applications and related service offerings, ~~possibly~~enhance ~~resulting~~our existing software applications and related service offerings and achieve market acceptance of our software applications and service offerings. We may incur problems in ~~adverse~~the ~~publicity~~future in innovating and introducing new software applications and service offerings. Our development-stage software applications may not be successfully completed or, ~~revenue~~if ~~loss~~developed, may not achieve significant customer acceptance. If we are unable to successfully define, develop and ~~erosion~~introduce competitive new software applications, and enhance existing software applications, our future results of operations would be adversely affected. Development schedules for software applications are difficult to predict. The timely availability of ~~customer~~new ~~trust~~applications and their acceptance by customers are important to our future success. A delay in new the development of new applications could have a significant impact on its results of operations.

~~The satisfactory performance, reliability and availability of~~ ~~our~~If ~~network~~we ~~infrastructure~~ are ~~critical~~unable to ~~our~~keep ~~reputation~~pace ~~and~~with our ability to attract and retain customers and to maintain adequate customer service levels. We may experience temporary service interruptions for a variety of reasons, including telecommunications or power failures, fire, water damage, vandalism, computer bugs or viruses or hardware failures. We may not be able to correct a problem in a timely manner. Any service interruption that results in the ~~unavailability~~ ofrapid ~~our~~technological ~~system~~changes ~~or reduces its capacity could result~~ in ~~real or perceived public safety issues that may affect customer confidence in~~ our ~~services~~ ~~and~~industry, ~~result~~demand infor ~~negative publicity that could cause us to lose customer accounts or fail to obtain new accounts. Any inability to scale~~ our ~~systems~~products ~~may cause unanticipated system disruptions, slower response times, degradation in levels of customer service, or impaired quality~~ and ~~speed of transaction processing. We are not certain that we will be able to project the rate or timing of increases, if any, in the use of our~~ services tocould ~~permit~~decline uswhich towould ~~upgrade and~~adversely ~~expand~~affect our ~~systems effectively or to integrate smoothly any newly developed or purchased modules with our existing systems~~revenue.

If Our weindustry ~~are~~is ~~not~~characterized ~~able~~by extremely rapid technological change, evolving industry standards and changing customer demands. These conditions require continuous expenditures on product research and development to ~~adequately~~enhance ~~secure~~existing products, create new products and ~~protect~~avoid product obsolescence. We believe that the timely development of new products and continuing enhancements to existing products is essential to maintain our competitive position in the marketplace. Our ~~patent~~future success depends in part upon customer and market acceptance of our products and initiatives, ~~trademark~~which is uncertain. Any failure to achieve increased acceptance of these and other ~~proprietary~~new ~~rights~~product ~~our~~offerings ~~business~~could ~~may~~have bea ~~materially~~material adverse effect on our ~~affected~~business and results of operations.

~~Under the Management Service Agreement, we license 21~~ ~~copyrighted~~19 software applications from iASPEC on an exclusive basis. To protect the intellectual property underlying these applications and our other intellectual property, we rely on a combination of copyright, trademark, and trade secret laws. We also rely on non-disclosure agreements and other confidentiality procedures and contractual provisions to protect our intellectual property rights. Some of these technologies, other than the iASPEC copyrighted software applications, are very important to our business and are not protected by copyrights or patents. It may be possible for unauthorized third parties to copy or reverse engineer our products, or otherwise obtain and use information that we regard as proprietary. Further, third parties could challenge the scope or enforceability of our copyrights. In certain foreign countries, including China where we operate, the laws do not protect our proprietary rights to the same extent as the laws of the United States. Any misappropriation of our intellectual property could have a material adverse effect on our business and results of operations, and we cannot assure you that the measures we take to protect our proprietary rights are adequate.

- Our 20software -products may contain defects or errors, which could decrease sales, injure our reputation or delay shipments of our products.

~~Claims~~ The software products that we ~~infringe~~develop are complex and must meet the ~~proprietary~~stringent ~~rights~~technical requirements of ~~third parties~~our ~~could~~customers. ~~result~~In inaddition, ~~significant~~to ~~expenses~~keep orpace ~~restrictions~~with onthe rapid technological change in our ~~ability~~industry and to avoid the obsolescence of our software ~~sell~~products, we must quickly develop new products and enhancements to existing products. Because of this complexity and rapid development cycle, we cannot assure that our software products are free of errors, especially in newly released software products and ~~services~~new versions of existing software products. If our software is not free of errors, this could result in litigation, fewer sales, increased product returns, damage to our reputation and an increase in service and warranty costs, which would adversely affect our business.

~~Third~~ Our ~~parties~~technology may ~~claim~~become ~~that~~obsolete ~~our~~which ~~products or services infringe their proprietary rights. Any infringement claim, with or without merit, would be time-consuming and expensive to litigate or settle and~~ could ~~divert~~materially ~~our management’s~~adversely ~~attention~~affect ~~from~~ our ~~core~~ability ~~business. In the event of a successful infringement claim against us, we may have~~ to ~~pay~~sell ~~significant~~our ~~damages,~~products ~~incur substantial legal fees, develop costly non-infringing technology, or enter into license agreements that require us to pay substantial royalties~~ and ~~that may not be available on terms acceptable to us, if at all~~services.

A If ~~significant~~our ~~portion~~technology, products and services become obsolete, our business operations would be materially adversely affected. The market in which we compete is characterized by rapid technological change, evolving industry standards, introductions of new products, and changes in customer demands that can render existing products obsolete and unmarketable. Our current products will require continuous upgrading or our ~~sales~~technology ~~are~~will ~~derived~~become ~~from~~obsolete. aOur future success will depend upon our ability ~~limited~~to ~~number~~address the increasingly sophisticated needs of our customers by supporting existing and emerging hardware, software, database, and ~~results~~networking ~~from~~platforms ~~operations~~and ~~could~~by bedeveloping ~~adversely affected~~and introducing enhancements to our existing products and ~~stockholder~~new ~~value~~products ~~harmed~~on ifa timely webasis ~~lose~~that ~~any~~keep ofpace ~~these~~with ~~customers~~technological developments, evolving industry standards, and changing customer requirements. Research and development expenses were $4,483,754, $3,016,693 and $2,705,669 for the years ended December 31, 2011, 2010 and 2009, respectively.

~~Historically, a significant portion of our revenues have been~~ ~~derived~~We ~~from~~face athe ~~limited~~risk ~~number~~ of ~~customers.~~systems ~~For~~interruptions ~~the years ended December 31, 2010, 2009~~ and ~~2008,~~capacity ~~17%~~constraints, ~~25%~~possibly ~~and~~resulting ~~34%~~in ofadverse ~~our revenues~~publicity, ~~respectively,~~revenue ~~were derived from our five largest customers. The~~ loss ofand ~~any~~erosion of ~~these~~customer ~~significant customers would adversely affect our revenues and stockholder value~~trust.

The ~~digital~~satisfactory ~~security~~performance, ~~geographic~~reliability and availability of our network infrastructure are critical to our reputation and our ability to attract and retain customers and to maintain adequate customer service levels. We may experience temporary service interruptions for a variety of reasons, including telecommunications or power failures, fire, water damage, vandalism, computer bugs or viruses or hardware failures. We may not be able to correct a problem in a timely manner. Any service interruption that results in the unavailability of our system or reduces its capacity could result in real or perceived public safety issues that may affect customer confidence in our services and ~~hospital~~result in negative publicity that could cause us to ~~information~~lose customer accounts or fail to obtain new accounts. Any inability to scale our systems ~~markets~~may cause unanticipated system disruptions, slower response times, degradation in ~~China~~levels ~~are~~of ~~highly~~customer ~~competitive~~service, or impaired quality and speed of transaction processing. We are not certain that we ~~may~~will ~~fail~~be able to ~~compete~~ ~~successfully~~project the rate or timing of increases, ~~thereby~~if ~~resulting~~any, in ~~loss~~the use of ~~customers~~our ~~and~~services ~~decline~~to inpermit us to upgrade and expand our systems effectively or to integrate smoothly any newly developed or purchased ~~revenues.~~modules with our existing systems.

~~The digital security, geographic, and hospital information~~ ~~systems~~If ~~markets~~we ~~in China~~ are ~~intensely~~not ~~competitive~~able ~~and~~to ~~are~~adequately ~~characterized~~secure ~~by frequent~~and ~~technological~~protect ~~changes~~our patent, ~~evolving~~trademark ~~industry standards~~ and ~~changing customer~~other ~~demands.~~proprietary Werights ~~have~~our ~~competition~~business ~~from multiple domestic competitors in each segment. Increased competition~~ may ~~result~~be inmaterially ~~price reductions, reduced margins and inability to gain or hold market share~~affected.

Under the MSA, we license 30 copyrighted software applications from iASPEC on an exclusive basis. To protect the intellectual property underlying these applications and our other intellectual property, we rely on a combination of copyright, trademark, and trade secret laws. We ~~have~~also ~~limited~~rely ~~insurance~~on ~~coverage~~non-disclosure agreements and other confidentiality procedures and contractual provisions to protect our intellectual property rights. Some of these technologies, other than the iASPEC copyrighted software applications, are very important to our business and are not protected by copyrights or patents. It may be possible for unauthorized third parties to copy or reverse engineer our ~~operations~~products, inor otherwise obtain and use information that we regard as proprietary. Further, third parties could challenge the scope or enforceability of our copyrights. In certain foreign countries, including China where we operate, the laws do not protect our proprietary rights to the same extent as the laws of the United States. Any misappropriation of our intellectual property could have a material adverse effect on our business and results of operations, and we cannot assure you that the measures we take to protect our proprietary rights are adequate.

~~The insurance industry in China is still at an early stage of~~ ~~development.~~20 Insurance companies in China offer limited insurance products. We have determined that the risks of disruption or liability from our business, the loss or damage to our property, including our facilities, equipment and office furniture, the cost of insuring for these risks, and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. As a result, we do not have any business liability, disruption, litigation or property insurance coverage for our operations in China except for insurance on some company owned vehicles. Any uninsured occurrence of loss or damage to property, or litigation or business disruption may result in the incurrence of substantial costs and the diversion of resources, which could have an adverse effect on our operating results.

We Claims ~~depend~~that ~~heavily~~we oninfringe ~~key~~the ~~personnel,~~proprietary ~~and~~rights ~~turnover~~ of ~~key employees~~third ~~and~~parties ~~senior~~could ~~management~~result ~~could~~in ~~harm~~significant expenses or restrictions on our ~~business.~~ability to sell our products and services.

~~Our future business and results of operations depend in~~ ~~significant~~Third ~~part~~parties ~~upon~~may ~~the~~claim ~~continued~~that ~~contributions of~~ our ~~key~~products ~~technical~~or ~~and senior~~services ~~management~~infringe ~~personnel,~~their ~~including~~proprietary ~~Jiang~~rights. ~~Huai~~Any ~~Lin,~~infringement ~~our Chairman and Chief Executive Officer~~claim, ~~Jackie~~with ~~You~~or ~~Kazmerzak,~~without ~~our Chief Financial Officer~~merit, ~~Zhi~~would ~~Qiang Zhao,~~be ~~our~~time-consuming ~~Chief~~and ~~Operating~~expensive ~~Officer,~~to Yilitigate Fuor ~~Liu,~~settle ~~our Chief Marketing Officer~~ and ~~Zhi~~ ~~Xiong~~could ~~Huang,~~divert our ~~Chief~~management’s ~~Technology Officer. They also depend in significant~~attention ~~part~~from ~~upon~~ our ~~ability~~core ~~to attract and retain additional qualified management, technical, marketing and sales and support personnel for our operations~~business. IfIn ~~we lose~~the aevent ~~key~~of ~~employee or if~~ a ~~key~~successful ~~employee~~infringement ~~fails~~claim toagainst ~~perform in his or her current position~~us, ~~or if~~ we ~~are~~may ~~not~~have ~~able~~ to ~~attract~~pay ~~and~~significant ~~retain skilled employees as needed~~damages, ~~our~~incur ~~business~~substantial ~~could~~legal ~~suffer.~~fees, ~~Significant~~develop ~~turnover~~costly innon-infringing ~~our~~technology, ~~senior~~or ~~management could~~enter ~~significantly~~into ~~deplete~~license ~~our~~agreements ~~institutional~~that ~~knowledge~~require ~~held~~us ~~by our existing~~to ~~senior~~pay ~~management~~substantial ~~team.~~royalties ~~We depend on the skills~~ and ~~abilities~~that ofmay ~~these~~not ~~key employees~~be inavailable ~~managing~~on ~~the~~terms ~~technical,~~acceptable ~~marketing~~to ~~and sales aspects of our business~~us, ~~any~~if ~~part~~at ~~of which could be harmed by further turnover~~all.

We A ~~may~~significant beportion ~~exposed~~of toour ~~potential~~sales ~~risks~~are ~~relating~~derived tofrom ~~our internal~~a ~~controls~~limited ~~over~~number ~~financial~~of ~~reporting~~customers, and ~~our~~results ~~ability~~from tooperations ~~have~~could ~~the~~be ~~operating effectiveness~~adversely ofaffected ~~our~~and ~~internal~~stockholder ~~controls~~value ~~attested~~harmed toif bywe ~~our~~lose ~~independent auditors.~~any of these customers.

~~As directed by Section 404 of the Sarbanes-Oxley Act of 2002,~~ ~~or SOX 404~~Historically, ~~the~~a ~~SEC~~significant ~~adopted~~portion ~~rules requiring public companies to include a report~~ of ~~management~~our onrevenues ~~their~~have ~~internal~~been ~~controls~~derived ~~over~~from ~~financial~~a ~~reporting~~limited innumber ~~their annual~~of ~~reports, on Form 10-K~~customers. WeFor ~~are~~the ~~subject~~years toended ~~this requirement commencing with our fiscal year ending~~ December 31, ~~2008~~2011, 2010 and a2009, ~~report of our management is included under Item 9A of this Annual Report on Form 10-K. In addition~~17%, ~~SOX~~17% ~~404 requires the independent registered public accounting firm auditing a company’s financial statements to also attest to~~ and ~~report~~25% ~~on the operating effectiveness~~ of ~~such~~our ~~company’s~~revenues, ~~internal~~respectively, ~~controls. This~~were ~~annual~~derived ~~report~~from ~~includes~~our anfive ~~attestation report since we are deemed to be an~~largest ~~accelerated filer~~customers. WeThe ~~can~~loss ~~provide~~of noany ~~assurance that we will comply with all~~ of ~~the~~ ~~requirements~~these ~~imposed thereby. There can be no assurance that we will receive a positive attestation from our independent registered public accountants. In the event we identify~~ significant ~~deficiencies~~customers orwould ~~material~~adversely ~~weaknesses~~affect in our ~~internal~~ ~~controls~~revenues ~~that we cannot remediate in a timely manner or we are unable to receive a positive attestation from our independent registered public accountants with respect to our internal controls, investors~~ and ~~others~~stockholder ~~may lose confidence in the reliability of our financial statements~~value.

- The 21digital -security, geographic, and hospital information systems markets in China are highly competitive, and we may fail to compete successfully, thereby resulting in loss of customers and decline in our revenues.

~~Our~~ The ~~holding~~digital ~~company~~security, ~~structure~~geographic, ~~may~~and ~~limit~~hospital ~~the~~information ~~payment~~systems ofmarkets in China are intensely competitive and are characterized by frequent technological changes, evolving industry standards and changing customer demands. We have competition ~~dividends~~from multiple domestic competitors in each segment. Increased competition may result in price reductions, reduced margins and inability to gain or hold market share.

We have nolimited ~~direct~~insurance ~~business~~coverage ~~operations,~~for ~~other than~~ our ~~ownership of~~operations ~~our subsidiaries. While we have no current intention of paying dividends, should we decide~~ in the future to do so, as a holding company, our ability to pay dividends and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries and other holdings and investmentsChina. In addition, our operating subsidiaries, from time to time, may be subject to restrictions on their ability to make distributions to us, including as a result of restrictive covenants in loan agreements, restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions as discussed below. If future dividends are paid in RMB, fluctuations in the exchange rate for the conversion of RMB into U.S. dollars may reduce the amount received by U.S. stockholders upon conversion of the dividend payment into U.S. dollars.

~~Chinese~~ The ~~regulations~~insurance ~~currently~~industry ~~permit~~in ~~the~~China ~~payment~~is ofstill ~~dividends only~~at ~~out~~an ofearly ~~accumulated~~stage ~~profits~~of asdevelopment. ~~determined~~Insurance companies in ~~accordance~~China ~~with~~offer ~~Chinese accounting~~limited ~~standards~~insurance ~~and regulations~~products. ~~Our~~We ~~subsidiaries~~have indetermined ~~China~~that ~~are~~the ~~also required~~risks toof ~~set~~disruption ~~aside~~or aliability ~~portion~~from ofour ~~their~~business, ~~after~~the ~~tax~~loss ~~profits~~or ~~according~~damage to ~~Chinese~~our ~~accounting~~property, ~~standards~~including our facilities, equipment and ~~regulations~~office tofurniture, ~~fund~~the ~~certain~~cost ~~reserve~~of ~~funds.~~insuring ~~Currently~~for these risks, ~~our~~ ~~subsidiaries~~and inthe ~~China~~difficulties ~~are~~associated ~~the~~with ~~only~~acquiring ~~sources~~such ofinsurance ~~revenues~~on orcommercially ~~investment holdings~~reasonable terms make it impractical for ~~the~~us ~~payment~~to ofhave ~~dividends~~such insurance. IfAs ~~they~~a result, we do not ~~accumulate~~have ~~sufficient profits~~any ~~under~~business ~~Chinese~~liability, ~~accounting~~disruption, ~~standards~~litigation ~~and~~or ~~regulations~~property toinsurance ~~first~~coverage ~~fund~~for ~~certain reserve~~our ~~funds~~operations asin ~~required~~China byexcept ~~Chinese~~for ~~accounting~~insurance ~~standards,~~on wesome ~~will~~company beowned ~~unable~~vehicles. Any uninsured occurrence of loss or damage to ~~pay~~property, ~~any~~or ~~dividends~~litigation or business disruption may result in the incurrence of substantial costs and the diversion of resources, which could have an adverse effect on our operating results.

~~RISKS~~ We ~~RELATING~~depend TOheavily ~~OUR~~on ~~COMMERCIAL~~key ~~RELATIONSHIP~~personnel, ~~WITH IASPEC~~and turnover of key employees and senior management could harm our business.

Our future business and results of operations depend in significant part upon the continued contributions of our key technical and senior management personnel, including Jiang Huai Lin’s, ~~association~~our ~~with~~Chairman ~~iASPEC~~and ~~could~~Chief ~~pose~~Executive aOfficer, Daniel K. Lee, our ~~conflict~~Chief ofFinancial ~~interest~~Officer, ~~which~~Zhi ~~may~~Qiang ~~result~~Zhao, our Chief Operating Officer, Yi Fu Liu, our Chief Marketing Officer, and Zhi Xiong Huang, our Chief Technology Officer. They also depend in ~~iASPEC~~significant ~~decisions~~part ~~that~~upon our ability to attract and retain additional qualified management, technical, marketing and sales and support personnel for our operations. If we lose a key employee or if a key employee fails to perform in his or her current position, or if we are ~~adverse~~not able to attract and retain skilled employees as needed, our business could suffer. Significant turnover in our senior management could significantly deplete our institutional knowledge held by our existing senior management team. We depend on the skills and abilities of these key employees in managing the technical, marketing and sales aspects of our business, any part of which could be harmed by further turnover.

~~Jiang Huai Lin, our president and Chief Executive Officer and~~ ~~the~~21 beneficial owner of 38.61% of our common stock also beneficially owns 100% of the equity interests in iASPEC, from whom we derived 39.1%, 48.6% and 48% of our revenue in the fiscal years ended December 31, 2010, 2009 and 2008, respectively pursuant to existing commercial arrangements. As a result, conflicts of interest may arise from time to time and these conflicts may result in management decisions that could negatively affect our operations and potentially result in the loss of opportunities.

If We ~~iASPEC~~may orbe ~~its~~exposed ~~shareholders~~to ~~violate~~potential ~~our~~risks ~~contractual arrangements~~relating ~~with~~to ~~it,~~ our ~~business~~internal ~~could~~controls beover ~~disrupted~~financial reporting and weour ~~may~~ability ~~have~~ to ~~resort to~~have ~~litigation~~the tooperating ~~enforce~~effectiveness of our ~~rights~~internal ~~which~~controls ~~may~~attested beto ~~time~~by ~~consuming~~our ~~and expensive.~~independent auditors.

~~Our~~ As ~~operations~~directed ~~are~~by ~~currently~~Section ~~dependent~~404 ~~upon~~of ~~our~~the ~~commercial relationship~~Sarbanes-Oxley ~~with~~Act ~~iASPEC.~~of ~~During~~2002, ~~the~~or ~~fiscal~~SOX ~~years~~404, ~~ended~~the ~~December~~SEC ~~31,~~adopted ~~2010,~~rules ~~2009 and~~requiring ~~2008,~~public wecompanies ~~derived~~to ~~39.1%,~~include ~~48.6%~~a ~~and~~report ~~48%~~ of ~~our~~management ~~revenues,~~on ~~respectively,~~their ~~from the~~internal ~~provision~~controls ofover ~~services~~financial toreporting ~~iASPEC~~in ~~customers.~~their Aannual ~~significant~~reports, ~~portion~~on ofForm ~~these~~10-K. ~~revenues~~We ~~have~~are ~~not~~subject ~~yet~~to ~~been~~this ~~collected.~~requirement ~~Amounts~~commencing ~~owed~~with byour ~~iASPEC~~fiscal ~~under~~year ~~the Management~~ending ~~Service~~December ~~Agreement~~31, ~~for~~2008 ~~each~~and ~~quarter~~a ~~will~~report beof ~~due~~our ~~and~~management ~~payable~~is noincluded ~~later than~~under ~~the~~Item ~~last~~9A ~~day~~ of ~~the~~this ~~month~~Annual ~~following~~Report ~~the~~on ~~end~~Form of10-K. ~~each~~In ~~such~~addition, ~~quarter.~~SOX If404 ~~iASPEC~~requires the independent registered public oraccounting ~~its~~firm ~~shareholders~~auditing ~~are~~a ~~unwilling~~company’s orfinancial ~~unable~~statements to ~~perform~~also ~~their~~attest ~~obligations~~to ~~under our~~and ~~commercial~~report ~~arrangements~~on ~~with~~the ~~it,~~operating ~~including~~effectiveness ~~payment~~ of ~~revenues~~such ~~under~~company’s ~~the Management~~internal ~~Service~~controls. ~~Agreement~~This asannual ~~they~~report ~~become~~includes ~~due~~an ~~each~~attestation ~~quarter,~~report since we ~~will~~are ~~not~~deemed to be an ~~able~~accelerated tofiler. ~~conduct~~We ~~our~~can ~~operations~~provide inno assurance that we will comply with all of the ~~manner~~requirements ~~currently~~imposed ~~planned~~thereby. InThere ~~addition, iASPEC~~can ~~may~~be ~~seek~~no toassurance ~~renew~~that ~~these~~we ~~agreements~~will onreceive ~~terms~~a ~~that~~positive ~~are~~attestation ~~disadvantageous~~from ~~to us.~~our ~~Although~~independent weregistered ~~have~~public ~~entered~~accountants. ~~into~~In athe ~~series~~event we ofidentify ~~agreements~~significant ~~that~~deficiencies ~~provide~~or usmaterial ~~with substantial~~weaknesses ~~ability~~in toour ~~control~~internal ~~iASPEC,~~controls that we ~~may~~cannot ~~not~~remediate ~~succeed~~ in ~~enforcing~~a ~~our rights~~timely ~~under~~manner ~~them.~~or If we are unable to ~~renew~~receive ~~these~~a ~~agreements~~positive onattestation ~~favorable terms,~~from orour toindependent ~~enter~~registered ~~into~~public ~~similar~~accountants ~~agreements~~ with ~~other~~respect ~~parties,~~ to our ~~business~~internal ~~may not~~controls, beinvestors ~~able~~and toothers ~~operate~~may orlose ~~expand,~~confidence ~~and~~in ~~our~~the ~~operating~~reliability ~~expenses~~of ~~may~~our ~~significantly increase.~~financial statements.

~~Uncertainties~~ Our inholding ~~the~~company ~~PRC~~structure ~~legal system~~ may ~~impede~~limit ~~our ability to enforce~~ the ~~commercial~~payment ~~agreements~~of ~~that we have entered into with iASPEC or any arbitral award thereunder and any inability to enforce these agreements could materially and adversely affect our business and operation~~dividends.

~~While disputes under the Management Service Agreement and the~~ ~~Option~~We ~~Agreement~~have ~~with~~no ~~iASPEC~~direct ~~are~~business ~~subject~~operations, toother ~~binding~~than ~~arbitration~~our ~~before~~ownership ~~the Shenzhen Branch~~ of ~~the~~our ~~China~~subsidiaries. ~~International~~While ~~Economic~~we ~~and~~have ~~Trade~~no ~~Arbitration Commission,~~current orintention ~~CIETAC,~~of inpaying ~~accordance with CIETAC Arbitration Rules~~dividends, ~~the agreements~~should ~~are~~we ~~governed~~decide ~~by PRC law and an arbitration award may be challenged~~ in ~~accordance~~the ~~with~~future ~~PRC~~to ~~law.~~do ~~For example~~so, as a ~~claim that~~holding ~~the~~company, ~~enforcement of an award in~~ our ~~favor~~ability ~~will~~to bepay ~~detrimental~~dividends toand ~~the~~meet ~~public~~other ~~interest,~~obligations ordepends ~~that~~upon ~~an issue does not fall within~~ the ~~scope~~receipt of ~~the~~dividends ~~arbitration would~~or ~~require~~other uspayments tofrom ~~engage~~our inoperating ~~administrative~~subsidiaries and ~~judicial~~other ~~proceedings~~holdings toand ~~defend an award~~investments. ~~China’s~~In ~~legal~~addition, ~~system~~our isoperating asubsidiaries, ~~civil~~from ~~law~~time ~~system~~to ~~based on written statutes and unlike common law systems~~time, itmay isbe asubject ~~system~~to inrestrictions ~~which~~on ~~decided~~their ~~legal~~ability ~~cases have~~to ~~little~~make ~~value~~distributions asto ~~precedent.~~us, Asincluding as a result, ~~China’s~~of ~~administrative~~restrictive ~~and~~covenants ~~judicial authorities have significant discretion~~ in ~~interpreting~~loan ~~and implementing statutory and contractual terms~~agreements, ~~and~~restrictions iton ~~may~~the beconversion ~~more~~of ~~difficult~~local tocurrency ~~evaluate~~into ~~the outcome~~U.S. ofdollars ~~administrative~~or ~~and~~other ~~judicial~~hard ~~proceedings~~currency and ~~the~~other ~~level~~regulatory ofrestrictions ~~legal protection~~as ~~available~~discussed ~~than in more developed legal systems~~below. ~~These~~If ~~uncertainties~~future ~~may~~dividends ~~impede~~are ~~our~~paid ~~ability~~in toRMB, ~~enforce~~fluctuations ~~the~~in ~~terms of~~ the ~~Management~~exchange ~~Service~~rate ~~Agreement, the~~for ~~Option Agreement and~~ the ~~other~~conversion ~~contracts~~of ~~that~~RMB ~~we may enter~~ into ~~with iASPEC~~U. ~~Any~~S. ~~inability~~dollars tomay ~~enforce~~reduce the ~~Management~~amount ~~Service~~received ~~Agreement~~by ~~and~~U.S. ~~Option~~stockholders ~~Agreement or~~upon anconversion ~~award~~of ~~thereunder~~the ~~could~~dividend ~~materially~~payment ~~and~~into ~~adversely affect our business and operation~~U.S. dollars.

- Chinese 22regulations -currently permit the payment of dividends only out of accumulated profits as determined in accordance with Chinese accounting standards and regulations. Our subsidiaries in China are also required to set aside a portion of their after tax profits according to Chinese accounting standards and regulations to fund certain reserve funds. Currently, our subsidiaries in China are the only sources of revenues or investment holdings for the payment of dividends. If they do not accumulate sufficient profits under Chinese accounting standards and regulations to first fund certain reserve funds as required by Chinese accounting standards, we will be unable to pay any dividends.

If After-tax ~~iASPEC~~profits/losses ~~fails~~with respect to ~~comply~~the ~~with~~payment ~~the~~of ~~confidentiality requirements~~dividends out of ~~certain~~accumulated profits and the annual appropriation of ~~its~~after-tax ~~customer~~profits ~~contracts,~~as ~~then~~calculated ~~iASPEC~~pursuant ~~could~~to bePRC ~~subject~~accounting standards and regulations do not result in significant differences as compared to ~~sanctions~~after-tax earnings as presented in our financial statements. However, there are certain differences between PRC accounting standards and ~~could~~regulations ~~lose~~and ~~its~~U.S. ~~business~~generally ~~license~~accepted ~~which~~accounting inprinciples, ~~turn~~arising ~~would~~from different ~~significantly~~treatment ~~disrupt~~of oritems ~~shut~~such ~~down~~as ~~our~~amortization ~~operations~~of intangible assets and change in fair value of contingent consideration rising from business combinations.

~~The business and operations of iASPEC, the owner and licensor~~ toRISKS usRELATING ofTO ~~the~~OUR ~~copyrighted~~COMMERCIAL ~~software~~RELATIONSHIP ~~applications~~WITH ~~and~~IASPEC other intellectual property that are essential to the operation of our business, is subject to Chinese contractual obligations and laws and regulations that restrict its use of security information and other information that it obtains from its customers in the public security sector. For some of its contracts with government agencies, iASPEC has agreed to keep confidential all technical and commercial secrets obtained during the performance of services under the contract. iASPEC or its shareholders could violate these contractual obligations and laws and regulations by inadvertently or intentionally disclosing confidential information or by otherwise failing to operate its business in a manner that complies with these contractual and legal obligations. A violation of these agreements could result in the significant disruption or shut down of our business or adversely affect our reputation in the market. If iASPEC or its shareholders violate these contractual and legal obligations, we may have to resort to litigation to enforce our rights under our contractual obligations with iASPEC. This litigation could result in the disruption of our business, diversion of our resources and the incurrence of substantial costs.

~~All~~ Jiang ofHuai ~~the~~Lin’s ~~share~~association ~~capital~~with of iASPEC iscould ~~held~~pose bya ~~our~~conflict ~~major shareholder,~~of ~~who~~interest which may ~~cause~~result ~~these agreements to be amended~~ in aiASPEC ~~manner~~decisions that is are adverse to ~~us.~~our business.

~~Our major shareholder, Mr.~~ Jiang Huai Lin, ~~owns~~our president and ~~controls iASPEC.~~Chief AsExecutive aOfficer ~~result,~~and ~~Mr.~~the ~~Lin~~beneficial ~~may~~owner beof ~~able~~41% toof ~~cause~~ our ~~commercial~~common ~~arrangements with~~stock ~~iASPEC~~also tobeneficially beowns ~~amended~~100% inof athe ~~manner~~equity ~~that~~interests ~~will~~in ~~be adverse to our company~~iASPEC, ~~or may~~from bewhom ~~able~~we toderived ~~cause~~47.1%, ~~these~~39.1% ~~agreements~~and ~~not~~48.6% toof beour ~~renewed,~~revenue ~~even~~in ifthe ~~their renewal~~fiscal ~~would~~years beended ~~beneficial~~December ~~for~~31, ~~us.~~2011, ~~Although~~2010 weand ~~have~~2009, ~~entered~~respectively ~~into~~pursuant anto ~~agreement~~existing ~~that prevents~~commercial ~~the~~arrangements. ~~amendment~~As ofa ~~these~~result, ~~agreements~~conflicts ~~without the approval~~ of ~~the~~interest ~~members of~~may ~~our~~arise ~~Board~~from ~~other~~time ~~than~~to ~~Mr.~~time ~~Lin,~~and ~~we can provide no assurances that~~ these ~~agreements~~ ~~will~~conflicts ~~not~~may beresult ~~amended~~ in ~~the~~management ~~future~~decisions ~~to contain terms~~ that ~~might~~could ~~differ~~negatively ~~from~~affect ~~the~~our ~~terms~~operations ~~that~~and ~~are~~potentially ~~currently~~result in ~~place.~~the ~~These~~loss ~~differences~~of ~~may be adverse to our interests~~opportunities.

~~Our~~ If ~~arrangements with~~ iASPEC ~~and~~or its shareholders ~~may~~violate ~~be subject~~our tocontractual aarrangements ~~transfer~~with ~~pricing~~it, ~~adjustment~~our bybusiness ~~the~~could ~~PRC~~be ~~tax~~disrupted ~~authorities~~and ~~which~~we ~~could~~ may have anto ~~adverse~~resort ~~effect~~to onlitigation to enforce our ~~income~~rights which may be time consuming and ~~expenses~~expensive.

We Our ~~could~~operations ~~face~~are ~~material~~currently dependent upon our commercial relationship with iASPEC. During the fiscal years ended December 31, 2011, 2010 and ~~adverse~~2009, ~~tax~~we ~~consequences~~derived if47.1%, 39.1% and 48.6% of our revenues, respectively, from the ~~PRC~~provision of services to ~~tax~~iASPEC ~~authorities~~customers. ~~determine~~A ~~that~~significant ~~our~~portion ~~contracts~~of ~~with~~these revenues have not yet been collected. Amounts owed by iASPEC under the MSA for each quarter will be due and ~~its~~payable ~~shareholders were~~no ~~not~~later ~~entered~~than ~~into~~the ~~based~~last onday ~~arm’s~~of ~~length~~the ~~negotiations.~~month ~~Although~~following ~~our~~the end of each such quarter. Our contractual arrangements may not be as effective as direct ownership, if iASPEC or its shareholders are ~~similar~~unwilling or unable to ~~other~~perform ~~companies~~their ~~conducting~~obligations ~~similar~~under our commercial arrangements with it, including payment of revenues under the MSA as they become due each quarter, we will not be able to conduct our operations in ~~China~~the manner currently planned. In addition, ifiASPEC ~~the~~may ~~PRC~~seek ~~tax~~to ~~authorities~~renew ~~determine~~these agreements on terms that ~~these~~are ~~contracts were~~disadvantageous ~~not~~to us. Although we have entered into ona anseries ~~arm’s~~of ~~length~~agreements ~~basis~~that provide us with substantial ability to control iASPEC, ~~they~~we may ~~adjust~~not succeed in enforcing our ~~income~~rights ~~and expenses~~under ~~for~~them. ~~PRC~~If ~~tax~~we ~~purposes~~are inunable ~~the~~to ~~form~~renew ofthese aagreements ~~transfer~~on ~~pricing~~favorable ~~adjustment.~~terms, ~~Such~~or to enter into similar agreements anwith ~~adjustment~~other ~~may~~parties, ~~require~~our ~~that~~business wemay ~~pay~~not ~~additional~~be ~~PRC~~able ~~taxes~~to ~~plus~~operate ~~applicable penalties~~or expand, and ~~interest,~~our ifoperating ~~any~~expenses may significantly increase.

~~The shares purchased by the investors in our 2007 private~~ ~~placement~~22 transaction are subject to redemption in the event that the PRC government takes action that unwinds our restructuring transaction. Any such redemption would materially and adversely affect our liquidity and capital resources since we would have to return the funds raised in the private placement.

~~If any PRC governmental agency takes action that materially and~~ ~~adversely~~Uncertainties ~~affects~~in the ~~transactions~~PRC ~~contemplated~~legal bysystem ~~the~~may ~~restructuring~~impede ~~agreement and~~our weability ~~are unable~~ to ~~reverse~~enforce the ~~adverse~~commercial ~~governmental~~agreements ~~action or otherwise address the material adverse effect to the reasonable satisfaction of the investors in the private placement transaction~~ that ~~closed on January 31, 2007 and February 5, 2007, within 60 days of the occurrence of such governmental action, then if asked,~~ we ~~are~~have ~~obligated,~~entered asinto ~~liquidated~~with ~~damages,~~iASPEC toor ~~redeem~~any ~~the shares~~arbitral ~~purchased~~award bythereunder ~~such~~and ~~investors,~~any ~~within~~inability ~~30 days of their demand, for an amount equal~~ to ~~the~~enforce ~~investor’s~~these ~~entire~~agreements ~~investment~~could ~~amount without interest. If the PRC government takes action that triggers this redemption right, then our liquidity and capital resources would be~~ materially and adversely ~~affected~~affect as we would be required to return the funds raised in the private placements. If we are required to return such funds we may required to sell assets or to seek financing on terms that are not favorable, if available at all, and our ~~financial~~business ~~condition could be thereby materially~~ and ~~adversely affected~~operation.

- While 23disputes -under the MSA and the Option Agreement with iASPEC are subject to binding arbitration before the Shenzhen Branch of the China International Economic and Trade Arbitration Commission, or CIETAC, in accordance with CIETAC Arbitration Rules, the agreements are governed by PRC law and an arbitration award may be challenged in accordance with PRC law. For example, a claim that the enforcement of an award in our favor will be detrimental to the public interest, or that an issue does not fall within the scope of the arbitration would require us to engage in administrative and judicial proceedings to defend an award. China’s legal system is a civil law system based on written statutes and unlike common law systems, it is a system in which decided legal cases have little value as precedent. As a result, China’s administrative and judicial authorities have significant discretion in interpreting and implementing statutory and contractual terms, and it may be more difficult to evaluate the outcome of administrative and judicial proceedings and the level of legal protection available than in more developed legal systems. These uncertainties may impede our ability to enforce the terms of the MSA, the Option Agreement and the other contracts that we may enter into with iASPEC. Any inability to enforce the MSA and Option Agreement or an award thereunder could materially and adversely affect our business and operation.

~~The~~ If ~~exercise~~iASPEC offails ~~our option~~ to ~~purchase~~comply ~~part~~with ~~or all of~~ the ~~equity~~ ~~interests~~confidentiality inrequirements orof ~~assets~~certain of ~~iASPEC~~its ~~under~~customer ~~the~~contracts, ~~Option~~then ~~Agreement~~iASPEC ~~might~~could be subject to ~~approval~~sanctions byand ~~the~~could ~~PRC~~lose ~~government.~~its ~~Our~~business ~~failure~~license towhich ~~obtain~~in ~~this~~turn ~~approval may~~would ~~impair~~significantly ~~our~~disrupt ~~ability~~or toshut ~~substantially~~down ~~control iASPEC and could result in actions by iASPEC that conflict with~~ our ~~interests~~ operations.

~~Our~~ The ~~Option~~business ~~Agreement~~and ~~with~~operations ~~iASPEC~~of ~~gives our Chinese operating subsidiary~~iASPEC, ~~IST,~~ the ~~option~~owner toand ~~purchase~~licensor ~~all~~to orus ~~part~~ of the ~~equity~~copyrighted ~~interests~~software ~~in or~~applications ~~assets~~and ofother ~~iASPEC,~~intellectual ~~however,~~property ~~the~~that ~~option~~are ~~may~~essential ~~not~~to bethe ~~exercised~~operation byof ~~IST~~our ifbusiness, ~~the exercise~~is ~~would~~subject ~~violate~~to ~~any~~Chinese ~~applicable~~contractual ~~laws~~obligations and laws and regulations inthat ~~China~~restrict orits ~~cause~~use ~~any license~~of orsecurity ~~permit~~information ~~held~~and ~~by,~~other ~~and~~information ~~necessary~~that ~~for~~it ~~the~~obtains ~~operation~~from ofits ~~iASPEC,~~customers toin ~~be cancelled~~the orpublic ~~invalidated~~security sector. ~~Under~~For ~~the~~some ~~laws~~ of ~~China,~~its ifcontracts awith ~~foreign~~government ~~entity~~agencies, ~~through a~~iASPEC ~~foreign~~has ~~investment~~agreed ~~company~~to ~~that~~keep itconfidential ~~invests~~all technical ~~in,~~and ~~acquires~~commercial asecrets ~~domestic~~obtained ~~related company,~~during ~~China’s~~the ~~regulations~~performance ~~regarding~~of ~~Mergers~~services ~~and~~under ~~Acquisitions~~the ~~would technically~~contract. ~~apply~~iASPEC toor ~~the~~its ~~transaction.~~shareholders ~~Application~~could ofviolate these ~~regulations~~contractual ~~requires an~~obligations ~~examination~~ and ~~approval~~laws ofand ~~the~~regulations ~~transaction~~ by ~~China’s~~inadvertently ~~Ministry~~or ofintentionally ~~Commerce,~~disclosing orconfidential ~~MOFCOM,~~information or ~~its~~by ~~local~~otherwise ~~counterparts.~~failing ~~Also,~~to anoperate ~~appraisal~~its ofbusiness ~~the~~in ~~equity~~a ormanner ~~assets to~~that becomplies ~~acquired~~with isthese ~~mandatory.~~contractual ~~However,~~and ~~the~~legal ~~Zhong~~obligations. ~~Lun~~A ~~Law~~violation ~~Firm,~~of ~~our~~these ~~local~~agreements ~~PRC counsel~~could ~~has~~result ~~advised~~in usthe ~~that~~significant ~~Shenzhen~~disruption ~~and~~or ~~other~~shut ~~local~~down ~~counterparts~~ of ~~MOFCOM~~our ~~hold~~business ~~the~~or ~~view~~adversely ~~that~~affect ~~such~~our areputation ~~transaction~~in ~~would~~the ~~not require their approval~~market. ~~Therefore,~~If ~~we do~~iASPEC ~~not~~or ~~believe~~its atshareholders ~~this~~violate ~~time~~these ~~that~~contractual ~~an approval~~ and anlegal ~~appraisal~~obligations, ~~are~~we ~~required~~may ~~for IST~~have to ~~exercise~~resort ~~its~~to ~~option~~litigation to ~~acquire~~enforce ~~iASPEC~~our inrights ~~Shenzhen.~~under Inour ~~light~~contractual ofobligations ~~the different~~with ~~views~~iASPEC. onThis ~~this issue, however, it is possible that the central MOFCOM~~litigation ~~office~~could result in ~~Beijing will issue a standardized opinion imposing~~ the ~~approval~~disruption ~~and appraisal~~of ~~requirement.~~our ~~If we are not able to purchase the equity or assets of iASPEC~~business, ~~then~~diversion ~~we will lose a substantial portion~~ of our ~~ability~~resources ~~to control iASPEC~~ and ~~our~~the ~~ability~~incurrence toof ~~ensure~~substantial ~~that iASPEC will act in our interests~~costs.

~~Our~~ All ~~right to elect a majority~~ of the ~~members~~share oncapital ~~iASPEC’s Board~~ of ~~Directors~~iASPEC ~~and~~is ~~other~~held ~~provisions~~by ofour ~~the~~major ~~Management~~shareholder, ~~Service~~who ~~Agreement~~ may be ~~viewed~~cause bythese ~~iASPEC’s~~agreements ~~customers~~to asbe aamended ~~change~~ in ~~control~~a ofmanner ~~iASPEC,~~that ~~which~~is ~~could subject~~adverse ~~iASPEC~~ to ~~sanctions and loss of its business license, which in turn would significantly disrupt or possibly terminate our operations~~us.

Our ~~new~~major ~~commercial~~shareholder, ~~arrangement~~Mr. ~~with~~Jiang ~~iASPEC~~Huai ~~gives us the right to designate two Chinese citizens to serve as senior managers of iASPEC~~Lin, ~~serve on~~owns ~~iASPEC’s Board of Directors~~ and ~~assist~~controls ~~in managing the business and operations of~~ iASPEC. InAs ~~addition~~a result, ~~iASPEC~~Mr. ~~will~~Lin ~~require~~may ~~the~~be ~~affirmative~~able ~~vote~~to ~~of the~~cause ~~majority of the~~ our ~~Board~~commercial ofarrangements ~~Directors, as well as at least one non-insider director, for completing certain material actions~~ with ~~respect~~iASPEC to ~~iASPEC, including,~~be ~~but~~amended ~~not~~in ~~limited to: (~~a) ~~the~~manner ~~nomination,~~that ~~appointment,~~will ~~election~~be ~~or replacement~~adverse ofto ~~any~~our ~~board members; (b) the distribution of any dividend or profits; (c) any merger~~company, ~~division, change of corporate form, dissolution~~ or ~~liquidation;~~ ~~(d)~~may ~~any~~be ~~reimbursement~~able ofto ~~net~~cause ~~losses or other payments or transfers~~these ofagreements ~~funds~~not ~~from IST~~ to ~~iASPEC;~~be ~~(e)~~renewed, ~~the~~even ~~formation~~if ortheir ~~disposition~~renewal ofwould abe ~~subsidiary~~beneficial ~~or the~~for ~~acquisition~~us. orAlthough ~~disposition~~we ofhave ~~any~~entered ~~interest~~into inan ~~any~~agreement ~~other~~that ~~entity;~~prevents ~~and (f)~~ the ~~encumbrance~~ amendment of ~~any~~these ~~assets~~agreements ~~under~~without ~~any lien not in~~ the ~~ordinary~~approval ~~course~~ of ~~business. However,~~the ~~fulfillment~~members of ~~certain~~our ~~PGIS~~Board ~~contracts~~other ~~with~~than ~~PRC~~Mr. ~~Government~~Lin, ~~customers~~we iscan ~~restricted~~provide tono ~~entities,~~assurances ~~such as iASPEC,~~ that ~~possess~~these ~~the~~agreements ~~necessary~~will ~~PRC government~~not ~~licenses and approvals, and any change in control may~~ be ~~viewed~~amended ~~under PRC law as creating a new entity. If iASPEC’s government customers view these Management Service Agreement provisions as a change~~ in ~~control~~the offuture ~~iASPEC or as evidence of iASPEC’s failure~~ to ~~operate~~contain ~~its~~terms ~~business in a manner~~ that ~~complies with~~might ~~its~~differ ~~contractual~~from ~~obligations~~the orterms ~~with~~that ~~related~~are ~~laws~~currently ~~and regulations. Such a perception could result~~ in ~~the cancellation or invalidation of iASPEC’s licenses and permits~~place. AThese ~~loss~~differences bymay ~~iASPEC~~be ofadverse ~~its~~to ~~licenses and permits could result in the significant disruption or possible termination of~~ our ~~business or adversely affect our reputation in the market~~interests.

~~RISKS~~ Our ~~RELATED~~arrangements TOwith ~~DOING~~iASPEC ~~BUSINESS~~and INits ~~CHINA~~shareholders may be subject to a transfer pricing adjustment by the PRC tax authorities which could have an adverse effect on our income and expenses.

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

~~Economic reforms adopted by the Chinese government have had a~~ ~~positive~~23 effect on the economic development of the country, but the government could change these economic reforms or any of the legal systems at any time. This could either benefit or damage our operations and profitability. Some of the things that could have this effect are:

~~Level~~ The exercise of ~~government~~our ~~involvement~~option to purchase part or all of the equity interests in or assets of iASPEC under the ~~economy;~~Option Agreement might be subject to approval by the PRC government. Our failure to obtain this approval may impair our ability to substantially control iASPEC and could result in actions by iASPEC that conflict with our interests.

~~Control~~ Our Option Agreement with iASPEC gives our Chinese operating subsidiary, IST, the option to purchase all or part of the equity interests in or assets of iASPEC, however, the option may not be exercised by IST if the exercise would violate any applicable laws and regulations in China or cause any license or permit held by, and necessary for the operation of iASPEC, to be cancelled or invalidated. Under the laws of China, if a foreign ~~exchange;~~entity, through a foreign investment company that it invests in, acquires a domestic related company, China’s regulations regarding Mergers and Acquisitions would technically apply to the transaction. Application of these regulations requires an examination and approval of the transaction by China’s Ministry of Commerce, or MOFCOM, or its local counterparts. Also, an appraisal of the equity or assets to be acquired is mandatory. However, the Zhong Lun Law Firm, our local PRC counsel has advised us that Shenzhen and other local counterparts of MOFCOM hold the view that such a transaction would not require their approval. Therefore, we do not believe at this time that an approval and an appraisal are required for IST to exercise its option to acquire iASPEC in Shenzhen. In light of the different views on this issue, however, it is possible that the central MOFCOM office in Beijing will issue a standardized opinion imposing the approval and appraisal requirement. If we are not able to purchase the equity or assets of iASPEC, then we will lose a substantial portion of our ability to control iASPEC and our ability to ensure that iASPEC will act in our interests.

~~Methods~~ Our right to elect a majority of ~~allocating~~the ~~resources;~~members on iASPEC’s Board of Directors and other provisions of the MSA may be viewed by iASPEC’s customers as a change in control of iASPEC, which could subject iASPEC to sanctions and loss of its business license, which in turn would significantly disrupt or possibly terminate our operations.

~~Balance~~ Our new commercial arrangement with iASPEC gives us the right to designate two Chinese citizens to serve as senior managers of iASPEC, serve on iASPEC’s Board of Directors and assist in managing the business and operations of iASPEC. In addition, iASPEC will require the affirmative vote of the majority of the our Board of Directors, as well as at least one non-insider director, for completing certain material actions with respect to iASPEC, including, but not limited to: (a) the nomination, appointment, election or replacement of any board members; (b) the distribution of any dividend or profits; (c) any merger, division, change of corporate form, dissolution or liquidation; (d) any reimbursement of net losses or other payments ~~position~~or transfers of funds from IST to iASPEC; (e) the formation or disposition of a subsidiary or the acquisition or disposition of any interest in any other entity; and (f) the encumbrance of any assets under any lien not in the ordinary course of business. However, fulfillment of certain PGIS contracts with PRC Government customers is restricted to entities, such as iASPEC, that possess the necessary PRC government licenses and approvals, and any change in control may be viewed under PRC law as creating a new entity. If iASPEC’s government customers view these MSA provisions as a change in control of iASPEC or as evidence of iASPEC’s failure to operate its business in a manner that complies with its contractual obligations or with related laws and regulations. Such a perception could result in the cancellation or invalidation of iASPEC’s licenses and permits. A loss by iASPEC of its licenses and permits could result in the significant disruption or possible termination of our business or adversely affect our reputation in the market.

~~International~~ RISKS ~~trade~~RELATED ~~restrictions;~~TO ~~and~~ DOING BUSINESS IN CHINA

~~International~~ Changes ~~conflict.~~in China’s political or economic situation could harm us and our operating results.

- Economic 24reforms -adopted by the Chinese government have had a positive effect on the economic development of the country, but the government could change these economic reforms or any of the legal systems at any time. This could either benefit or damage our operations and profitability. Some of the things that could have this effect are:

~~The Chinese economy differs from the economies of most~~ ~~countries~~Level ~~belonging to the Organization for Economic Cooperation and Development, or OECD, in many ways. For example, state-owned enterprises still constitute a large portion~~ of ~~the~~government ~~Chinese~~involvement ~~economy, and weak corporate governance and the lack of a flexible currency exchange policy still prevail~~ in ~~China. As a result of these differences, we may not develop in~~ the ~~same way or at the same rate as might be expected if the Chinese~~ economy ~~was similar to those of the OECD member countries.~~ ;
~~Uncertainties with respect to the PRC legal system could~~ ~~limit~~Control ~~the~~of ~~legal~~foreign ~~protections available to you and us.~~ exchange;
~~We conduct substantially all of our business through our~~ ~~operating~~Methods subsidiaries in the PRC. Our operating subsidiaries are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws applicable to FIEs. The PRC legal system is based on written statutes, and prior court decisions may be cited for reference but have limited precedential value. Since 1979, a series of ~~new~~allocating PRC laws and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, since the PRC legal system continues to evolve rapidly, the interpretations of many laws, regulations, and rules are not always uniform, and enforcement of these laws, regulations, and rules involve uncertainties, which may limit legal protections available to you and us. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention. In addition, most of our executive officers and directors are residents of China and not of the United States, and substantially all the assets of these persons are located outside the United States. As a result, it could be difficult for investors to affect service of process in the United States or to enforce a judgment obtained in the United States against our Chinese operations and subsidiary. ;
~~You~~ Balance ~~may~~of ~~have~~payments ~~difficulty enforcing judgments against us.~~position;
~~Most of our assets are located outside of the United States and~~ ~~most~~International oftrade ~~our~~restrictions; ~~current operations are conducted in the PRC. In addition, most of our directors~~ and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons is located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce in U.S. courts judgments on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, most of whom are not residents in the United States and the substantial majority of whose assets are located outside of the United States. In addition, there is uncertainty as to whether the courts of the PRC would recognize or enforce judgments of U.S. courts. Our counsel as to PRC law has advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. Courts in China may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based on treaties between China and the country where the judgment is made or on reciprocity between jurisdictions. China does not have any treaties or other arrangements that provide for the reciprocal recognition and enforcement of foreign judgments with the United States. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates basic principles of PRC law or national sovereignty, security, or the public interest. So it is uncertain whether a PRC court would enforce a judgment rendered by a court in the United States.
~~The PRC government exerts substantial influence over the~~ ~~manner~~International ~~in which we must conduct our business activities~~conflict.

~~The PRC government has exercised and continues to exercise~~ ~~substantial~~24 control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, import and export tariffs, environmental regulations, land use rights, property, and other matters. We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of the jurisdictions in which we operate may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations.

~~Accordingly,~~ The ~~government~~Chinese ~~actions~~economy indiffers from the ~~future,~~economies ~~including~~of ~~any decision~~most ~~not~~countries tobelonging ~~continue~~ to ~~support~~the ~~recent~~Organization ~~economic~~for ~~reforms~~Economic Cooperation and toDevelopment, ~~return~~or toOECD, ~~a more~~in ~~centrally~~many ~~planned~~ways. ~~economy~~For orexample, ~~regional~~state-owned orenterprises ~~local~~still ~~variations~~constitute ina ~~the implementation~~large portion of ~~economic~~the ~~policies~~Chinese economy, ~~could~~and ~~have~~weak acorporate ~~significant~~governance ~~effect~~and onthe ~~economic conditions~~lack inof ~~China~~a orflexible ~~particular~~currency ~~regions~~exchange ~~thereof~~policy ~~and~~still ~~could~~prevail ~~require~~in usChina. toAs ~~divest ourselves~~a result of ~~any~~these ~~interest~~differences, we ~~then~~may ~~hold~~not develop in ~~Chinese~~the ~~properties~~same way or ~~joint~~at ~~ventures.~~the same rate as might be expected if the Chinese economy was similar to those of the OECD member countries.

If Uncertainties wewith ~~fail~~respect to ~~obtain~~the orPRC ~~maintain~~legal ~~all~~system ~~licenses~~could ~~and approvals~~limit ~~required~~the tolegal ~~operate~~protections ~~our~~available ~~businesses~~to inyou ~~the PRC, our business~~ and ~~operations~~ ~~may be adversely affected~~us.

~~Fulfillment~~ We conduct substantially all of ~~certain~~our ~~PGIS~~business ~~contracts~~through ~~with~~our operating subsidiaries in the PRC. ~~Government customers~~Our isoperating ~~restricted~~subsidiaries are generally subject to ~~entities~~laws ~~possessing~~and ~~the~~regulations ~~necessary~~applicable ~~government~~to ~~licenses~~foreign investments in China and, in particular, laws applicable to FIEs. The PRC legal system is based on written statutes, and ~~approvals~~prior ~~which~~court ~~our~~decisions ~~subsidiary~~may ~~IST~~be ~~does~~cited ~~not~~for reference but have limited precedential value. WeSince ~~currently~~1979, ~~perform~~a ~~PGIS contracts~~series ~~through~~of ~~iASPEC,~~new ~~which~~PRC ~~possesses~~laws and regulations have significantly enhanced the ~~requisite~~protections afforded ~~licenses~~to ~~and~~various ~~approvals~~forms of foreign investments in China. However, ~~pursuant~~ since the PRC legal system continues to ~~our~~evolve ~~Management~~rapidly, ~~Services~~the ~~Agreement~~interpretations ~~with~~of ~~iASPEC~~many laws, ~~whereby~~regulations, ~~iASPEC exclusively~~and ~~engages~~rules ~~IST~~are asnot ~~its~~always ~~subcontractor~~uniform, toand ~~provide~~enforcement ~~iASPEC~~of ~~with~~these ~~outsourcing~~laws, regulations, ~~services~~and ~~(to~~rules ~~the~~involve ~~extent~~uncertainties, ~~that~~which ~~those~~may ~~services~~limit dolegal ~~not~~protections ~~violate~~available to you and us. In addition, any ~~special governmental~~litigation ~~permits~~in ~~held~~China bymay ~~iASPEC~~be protracted and doresult ~~not~~in ~~involve~~substantial ~~the~~costs ~~improper~~and ~~transfer~~diversion of resources and management attention. In addition, most ~~any~~of ~~sensitive~~our ~~confidential~~executive ~~governmental~~officers orand ~~other~~directors ~~data).~~are Ifresidents of China and not of the ~~PRC~~United ~~government determines~~States, ~~that~~and wesubstantially all the assets of these persons are ~~operating~~located ~~without~~outside the ~~requisite~~United ~~licenses~~States. weAs ~~may~~a ~~become subject~~result, toit ~~administrative~~could ~~penalties~~be ordifficult anfor ~~order~~investors to ~~discontinue~~affect ~~our business~~service ~~operations,~~of ~~both~~process ofin ~~which~~the ~~could~~United ~~have~~States or to enforce a ~~material~~judgment ~~adverse~~obtained ~~effect~~in onthe ~~our~~United ~~business and~~States ~~results~~against ofour Chinese operations and subsidiary.

- You 25may -have difficulty enforcing judgments against us.

~~Future~~ Most ~~inflation~~of our assets are located outside of the United States and most of our current operations are conducted in ~~China~~the PRC. In addition, most of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons is located outside the United States. As a result, it may ~~inhibit~~be difficult for you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce in U.S. courts judgments on the civil liability provisions of the U.S. federal securities laws against us and our ~~ability~~officers and directors, most of whom are not residents in the United States and the substantial majority of whose assets are located outside of the United States. In addition, there is uncertainty as to ~~conduct~~whether the courts of the PRC would recognize or enforce judgments of U.S. courts. Our counsel as to PRC law has advised us that the recognition and enforcement of foreign ~~business~~judgments are provided for under the PRC Civil Procedures Law. Courts in China may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based on treaties between China and the country where the judgment is made or on reciprocity between jurisdictions. China does not have any treaties or other arrangements that provide for the reciprocal recognition and enforcement of foreign judgments with the United States. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates basic principles of PRC law or national sovereignty, security, or the public interest. So it is uncertain whether a PRC court would enforce a judgment rendered by a court in the United States.

~~In recent years, the Chinese economy has experienced periods of~~ ~~rapid~~The ~~expansion~~PRC ~~and highly fluctuating rates of inflation. During the past ten years, the rate of inflation in China has been as high as 5.9% and as low as -0.8%. These factors have led to the adoption by the Chinese~~ government, ~~from time~~exerts tosubstantial ~~time,~~influence ofover ~~various corrective measures designed to restrict~~ the ~~availability~~ ofmanner ~~credit or regulate growth and contain inflation. High inflation may~~ in ~~the future cause the Chinese government to impose controls on credit and/or prices, or to take other action,~~ which ~~could~~we ~~inhibit~~must ~~economic~~conduct ~~activity in China, and thereby harm the market for~~ our ~~products~~business ~~and our company~~activities.

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

~~The~~ Accordingly, ~~majority~~government ofactions ~~our sales will be settled~~ in ~~RMB~~the future, ~~and~~including any ~~future~~ ~~restrictions~~decision onnot ~~currency~~to ~~exchanges~~continue ~~may~~to ~~limit~~support ~~our~~recent ~~ability~~economic toreforms ~~use~~and ~~revenue generated~~to inreturn ~~RMB~~ to ~~fund~~a ~~any~~more ~~future~~centrally ~~business~~planned ~~activities~~economy ~~outside China~~ or toregional ~~make dividend~~ or ~~other~~local ~~payments~~variations in ~~U.S. dollars. Although~~ the ~~Chinese~~implementation ~~government introduced regulations in 1996 to allow greater convertibility~~ of ~~the RMB for~~economic ~~current account transactions~~policies, ~~significant~~could ~~restrictions~~have ~~still~~a ~~remain,~~significant ~~including primarily~~effect ~~the~~on ~~restriction~~economic ~~that~~conditions ~~FIEs~~in ~~may~~China ~~only buy, sell~~ or ~~remit~~particular ~~foreign currencies~~regions ~~after~~thereof ~~providing~~and ~~valid~~could ~~commercial~~require ~~documents,~~us ~~at those banks in China authorized~~ to ~~conduct~~divest ~~foreign~~ourselves ~~exchange business. In addition, conversion~~ of ~~RMB for~~any ~~capital~~interest ~~account~~we ~~items,~~then ~~including~~hold ~~direct investment and loans, is subject to governmental approval~~ in ~~China, and companies are required to open and maintain separate foreign exchange accounts for capital account items. We cannot be certain that the~~ Chinese ~~regulatory~~properties ~~authorities~~or ~~will~~joint ~~not impose more stringent restrictions on the convertibility of the RMB~~ventures.

~~Fluctuations in exchange rates could adversely affect our~~ ~~business~~25 ~~and the value of our securities.~~

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

~~Since~~ China ~~July~~adopted ~~2005~~the new Labor Contract Law , ~~the~~or ~~RMB~~Labor ~~has~~Contract noLaw, ~~longer~~effective ~~been~~on ~~pegged~~January to1, ~~the~~2008, Uand issued its implementation rules, effective on September 18, 2008.~~S. dollar.~~ ~~Although~~The ~~the~~Labor ~~People’s~~Contract ~~Bank~~Law ofand ~~China~~related ~~regularly~~rules ~~intervenes~~and inregulations ~~the~~impose ~~foreign~~more ~~exchange~~stringent ~~market~~requirements on employers with regard to, ~~prevent~~among ~~significant~~others, ~~short~~minimum wages, severance payment and non-fixed-term ~~fluctuations~~employment incontracts, ~~the~~time ~~exchange rate~~limits for probation periods, as well as the ~~RMB~~duration ~~may~~and ~~appreciate~~the ortimes ~~depreciate~~that ~~significantly~~an inemployee ~~value~~can ~~against~~be ~~the~~placed on a Ufixed-term employment contract.S. ~~dollar~~Due into the ~~medium~~limited period of effectiveness of the Labor Contract Law and its implementation rules and regulations, and the lack of clarity with respect to ~~long~~their ~~term.~~implementation ~~Moreover~~and potential penalties and fines, it is uncertain ~~possible~~how ~~that~~they inwill impact our current employment policies and practices. In particular, compliance with the Labor Contract Law and its implementation rules and regulations may increase our operating expenses. In the event that we decide to ~~future~~terminate ~~PRC~~some ~~authorities~~of our employees or otherwise change our employment or labor practices, the Labor Contract Law and its implementation rules and regulations may ~~lift~~also ~~restrictions~~limit onour ~~fluctuations~~ability to effect those changes in ~~the~~a ~~RMB~~manner ~~exchange~~that we believe to be ~~rate~~cost-effective or desirable, and ~~lessen~~could ~~intervention~~result in ~~the~~a ~~foreign~~material ~~exchange~~decrease ~~market~~in our profitability.

~~Very limited hedging transactions are available in China to~~ ~~reduce~~If ~~our~~we ~~exposure~~fail to ~~exchange~~obtain ~~rate~~or ~~fluctuations.~~maintain Toall ~~date,~~licenses ~~we have not entered into any hedging transactions. While we may enter into hedging transactions in the future, the availability~~ and ~~effectiveness~~approvals ofrequired ~~these transactions may be limited, and we may not be able~~ to ~~successfully~~operate ~~hedge~~ our ~~exposure~~businesses atin ~~all.~~the ~~In addition~~PRC, our ~~foreign~~business ~~currency~~and ~~exchange~~operations ~~losses~~ may be ~~magnified~~adversely ~~by PRC exchange control regulations that restrict our ability to convert RMB into foreign currencies~~affected.

~~Restrictions~~ Fulfillment ~~under~~of ~~PRC~~certain ~~law~~PGIS oncontracts ~~our~~with PRC ~~subsidiaries’ ability~~Government customers is restricted to ~~make~~entities ~~dividends~~possessing the necessary government licenses and ~~other~~approvals ~~distributions~~which ~~could~~our ~~materially~~subsidiary ~~and~~IST ~~adversely~~does not have. We currently perform PGIS contracts through iASPEC, ~~affect~~which ~~our~~possesses ~~ability~~the requisite licenses and approvals, pursuant to ~~grow~~our MSA with iASPEC, ~~make~~whereby ~~investments~~iASPEC exclusively engages IST as its subcontractor to provide iASPEC with outsourcing services (to the extent that those services do not violate any special governmental permits held by iASPEC and do not involve the improper transfer of any sensitive confidential governmental or ~~acquisitions~~other data). If the PRC government determines that ~~could~~we ~~benefit~~are operating without the requisite licenses we may become subject to administrative penalties or an order to discontinue our business operations, ~~pay~~both ~~dividends~~of towhich ~~you,~~could ~~and~~have ~~otherwise~~a ~~fund~~material ~~and~~adverse ~~conduct~~effect on our business and results of operations.

~~Substantially all of our sales are earned by our PRC~~ ~~subsidiaries.~~Future ~~However,~~inflation PRC regulations restrict the ability of our PRC subsidiaries to make dividends and other payments to their offshore parent companies. PRC legal restrictions permit payments of dividends by our PRC subsidiaries only out of their accumulated after-tax profits, if any, determined in ~~accordance~~China ~~with~~may ~~PRC~~inhibit accounting standards and regulations. Our PRC subsidiaries are also required under PRC laws and regulations to allocate at least 10% of their 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 their registered capital. Allocations to these statutory reserve funds can only be used for specific purposes and are not transferable to us in the form of loans, advances, or cash dividends. Any limitations on the ability of our ~~PRC subsidiaries to transfer funds to us could materially and adversely limit our~~ ability to ~~grow,~~conduct ~~make investments or acquisitions that could be beneficial to our~~ business, ~~pay~~in ~~dividends and otherwise fund and conduct our business~~China.

- In 26recent years, the Chinese economy has experienced periods of rapid expansion and highly fluctuating rates of inflation. During the past ten years, the rate of inflation in China has been as high as 5.9% and as low as -0.8% . These factors have led to the adoption by the Chinese government, from time to time, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. High inflation may in the future cause the Chinese government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China, and thereby harm the market for our products and our company.

~~Failure to comply with PRC regulations relating to the~~ ~~establishment~~Restrictions ofon ~~offshore~~currency ~~special~~exchange ~~purpose companies by PRC residents~~ may ~~subject our PRC resident stockholders to personal liability,~~ limit our ability to ~~acquire PRC~~receive ~~companies~~and oruse ~~to inject capital into~~ our ~~PRC~~sales ~~subsidiaries, limit our PRC subsidiaries’ ability to distribute profits to us or otherwise materially adversely affect us~~effectively.

In The ~~October~~majority ~~2005,~~of ~~SAFE~~our ~~issued~~sales ~~the~~will ~~Notice~~be onsettled ~~Relevant Issues~~ in ~~the~~ ~~Foreign~~RMB, ~~Exchange Control over Financing~~ and ~~Return~~any ~~Investment~~future ~~Through Special~~restrictions ~~Purpose~~on ~~Companies~~currency byexchanges ~~Residents~~may ~~Inside~~limit ~~China,~~our ~~generally~~ability ~~referred~~ to ~~as Circular~~use ~~75,~~revenue ~~which~~generated ~~required~~in ~~PRC~~RMB ~~residents~~ to ~~register~~fund ~~with~~any ~~the~~future ~~competent~~business ~~local SAFE~~activities ~~branch~~outside ~~before~~China ~~establishing~~ or ~~acquiring~~to ~~control~~make ~~over~~dividend anor ~~offshore~~other ~~special~~payments in ~~purpose~~U.S. ~~company,~~dollars. orAlthough ~~SPV, for~~ the ~~purpose~~Chinese ofgovernment ~~engaging~~introduced regulations in an1996 ~~equity~~to ~~financing outside~~allow ofgreater ~~China~~convertibility onof the ~~strength~~RMB offor ~~domestic~~current ~~PRC~~account ~~assets~~transactions, ~~originally~~significant ~~held~~restrictions bystill ~~those residents.~~remain, ~~Amendments~~including toprimarily ~~registrations~~the ~~made~~restriction ~~under~~that ~~Circular~~FIEs 75may ~~are required in~~only ~~connection~~buy, ~~with~~sell ~~any increase~~ or ~~decrease~~remit offoreign ~~capital,~~currencies ~~transfer~~after ofproviding ~~shares,~~valid ~~mergers and~~commercial ~~acquisitions~~documents, ~~equity~~at ~~investment~~those orbanks ~~creation of any security interest~~ in ~~any assets located in~~ China authorized to ~~guarantee~~conduct ~~offshore~~foreign ~~obligations~~exchange business. In ~~the~~addition, ~~case~~conversion of anRMB ~~SPV which~~for ~~was~~capital ~~established~~account items, ~~and~~including ~~which~~direct ~~acquired~~investment ~~a related domestic company or assets,~~and ~~before~~loans, ~~the~~is ~~implementation~~subject ~~date~~to ofgovernmental ~~Circular~~approval 75in China, aand ~~retroactive~~companies ~~SAFE~~are ~~registration was~~ required. ~~Failure~~ to ~~comply~~open ~~with the requirements of Circular 75, may result in fines~~ and ~~other~~maintain ~~penalties~~separate ~~under~~foreign ~~PRC~~exchange ~~laws~~accounts for ~~evasion~~capital ofaccount ~~applicable foreign exchange restrictions~~items. ~~Any~~We ~~such~~cannot ~~failure~~be ~~could~~certain ~~also~~that ~~result in~~ the ~~SPV’s affiliates~~Chinese ~~being~~regulatory ~~impeded~~authorities orwill ~~prevented~~not ~~from~~impose ~~distributing their profits and the~~more ~~proceeds~~stringent ~~from~~restrictions ~~any~~on ~~reduction in capital, share transfer or liquidation to~~ the ~~SPV,~~ orconvertibility ~~from engaging in other transfers~~ of ~~funds~~the ~~into or out of China~~RMB.

~~We have asked our stockholders who are PRC residents as defined~~ inFluctuations ~~Circular 75 to register with the relevant branch of SAFE, as currently required,~~ in ~~connection~~exchange ~~with~~rates ~~their~~could ~~equity~~adversely interests in us and our acquisitions of equity interests in our PRC subsidiaries. However, we cannot provide any assurances that they can obtain the above SAFE registrations required by Circular 75. Moreover, because of uncertainty over how Circular 75 will be interpreted and implemented, and how or whether SAFE will apply it to us, we cannot predict how it will affect our business ~~operations or future strategies. For example, our present~~ and ~~prospective PRC subsidiaries’ ability to conduct foreign exchange activities, such as~~ the ~~remittance~~value of ~~dividends and foreign currency-denominated borrowings, may be subject to compliance with Circular 75 by~~ our ~~PRC resident beneficial holders~~securities.

In The ~~addition,~~value ~~such~~of ~~PRC~~our ~~residents~~common ~~may~~stock ~~not~~will ~~always~~ be ~~able~~indirectly ~~to complete~~affected by the ~~necessary~~foreign ~~registration~~exchange ~~procedures~~rate ~~required~~between bythe ~~Circular 75~~U.S. Wedollar ~~also have~~and ~~little~~RMB ~~control~~and ~~over~~between ~~either~~those currencies and other currencies in which our ~~present~~sales ormay ~~prospective~~be ~~direct~~denominated. Appreciation or ~~indirect stockholders~~depreciation orin the ~~outcome~~ value of ~~such~~the ~~registration~~RMB ~~procedures~~relative to the U.S. Adollar ~~failure~~would byaffect our ~~PRC~~ ~~resident~~financial ~~beneficial~~results ~~holders~~reported orin ~~future~~U.S. ~~PRC~~dollar ~~resident~~terms ~~stockholders~~without giving effect to ~~comply with~~any ~~Circular~~underlying ~~75,~~change ifin ~~SAFE~~our ~~requires~~business ~~it,~~or ~~could~~results ~~subject~~of ~~these~~operations. ~~PRC~~Fluctuations ~~resident beneficial~~in ~~holders~~the toexchange ~~fines~~rate orwill ~~legal~~also ~~sanctions,~~affect ~~restrict~~the ~~our~~relative ~~overseas~~value ~~or cross-border~~of ~~investment~~any ~~activities,~~dividend ~~limit~~we ~~our~~issue ~~subsidiaries’~~that ~~ability~~will tobe ~~make distributions~~exchanged orinto ~~pay~~U.S. ~~dividends~~dollars, oras ~~affect~~well ~~our~~as ~~ownership~~earnings ~~structure~~from, ~~which could~~and ~~adversely~~the ~~affect~~value ~~our~~of, ~~business~~any ~~and~~U.S. ~~prospects~~dollar-denominated investments we make in the future.

~~We may be unable to complete a business combination~~ ~~transaction~~26 ~~efficiently or on favorable terms due to complicated merger and acquisition regulations which became effective on September 8, 2006.~~

~~On August 9, 2006, six PRC regulatory agencies, including the~~ ~~China~~Since ~~Securities~~July ~~Regulatory Commission~~2005, ~~or CSRC, promulgated~~ the ~~Regulation~~RMB ~~on Mergers~~has ~~and~~no ~~Acquisitions~~longer ofbeen ~~Domestic~~pegged ~~Companies~~to bythe ~~Foreign~~U.S. ~~Investors, which became effective on September 8, 2006, and was amended in 2009~~dollar. ~~This~~Although ~~new regulation, among other things, governs~~ the ~~approval~~People’s ~~process~~Bank byof ~~which~~China aregularly ~~PRC company~~intervenes ~~may participate~~ in ~~an acquisition of assets or equity interests. Depending on~~ the ~~structure~~foreign ofexchange ~~the~~market ~~transaction, the new regulation will require the PRC parties~~ to ~~make~~prevent asignificant ~~series~~short-term offluctuations ~~applications~~in ~~and supplemental applications to~~ the ~~government~~exchange ~~agencies. In some instances~~rate, the ~~application~~RMB ~~process~~ may ~~require~~appreciate ~~the~~or ~~presentation~~depreciate ofsignificantly ~~economic~~in ~~data~~value ~~concerning~~against ~~a transaction, including appraisals of~~ the ~~target~~U.S. ~~business~~dollar ~~and~~in ~~evaluations of~~ the ~~acquirer,~~medium ~~which are designed~~ to ~~allow~~long ~~the government to assess the transaction~~term. ~~Government~~Moreover, ~~approvals will~~it ~~have expiration dates by which a transaction must be completed and reported to the government agencies. Compliance with the new regulations~~ is ~~likely~~possible tothat ~~be more time consuming and expensive than~~ in the ~~past~~future ~~and~~PRC ~~the~~authorities ~~government~~may ~~can~~lift ~~now exert~~restrictions ~~more~~on ~~control~~fluctuations ~~over~~in the ~~combination~~RMB ofexchange ~~two~~rate ~~businesses.~~and ~~Accordingly,~~lessen ~~due~~intervention toin the ~~new~~foreign ~~regulation,~~exchange our ability to engage in business combination transactions has become significantly more complicated, time consuming and expensive, and we may not be able to negotiate a transaction that is acceptable to our stockholders or sufficiently protect their interests in a transactionmarket.

~~The new regulation allows PRC government agencies to assess the~~ ~~economic~~Very ~~terms~~limited ofhedging atransactions ~~business~~are ~~combination~~available ~~transaction.~~in ~~Parties~~China to areduce ~~business combination~~our ~~transaction~~exposure ~~may have~~ to ~~submit~~exchange torate ~~MOFCOM~~fluctuations. ~~and~~To ~~other relevant government agencies an appraisal report~~date, anwe ~~evaluation~~have ~~report~~not ~~and~~entered ~~the~~into ~~acquisition agreement,~~any ~~all~~hedging ~~of which form part of the application for approval, depending on the structure of the transaction~~transactions. ~~The~~While ~~regulations~~we ~~also~~may ~~prohibit~~enter ainto ~~transaction~~hedging ~~at an~~transactions ~~acquisition~~in ~~price obviously lower than~~ the ~~appraised~~future, ~~value of~~ the ~~PRC~~availability ~~business or assets~~ and ineffectiveness ~~certain~~of ~~transaction~~these ~~structures,~~transactions ~~require~~may ~~that consideration must~~ be ~~paid~~limited, ~~within~~and ~~defined~~we ~~periods,~~may ~~generally~~ not inbe ~~excess~~able ofto ~~a year.~~successfully ~~The~~hedge ~~regulation also limits~~ our ~~ability~~exposure toat negotiate various terms of the acquisition, including aspects of the initial consideration, contingent consideration, holdback provisions, indemnification provisions and provisions relating to the assumption and allocation of assets and liabilitiesall. ~~Transaction structures~~In ~~involving trusts~~addition, ~~nominees~~our ~~and~~foreign ~~similar~~currency ~~entities~~exchange ~~are~~losses ~~prohibited. Therefore, such regulation~~ may ~~impede~~be ~~our~~magnified ~~ability~~by toPRC ~~negotiate~~exchange ~~and~~control ~~complete~~regulations ~~a business combination transaction on financial terms~~ that ~~satisfy~~restrict our ~~investors~~ ~~and~~ability ~~protect~~to ~~our~~convert ~~stockholders’~~RMB ~~economic~~into ~~interests.~~foreign currencies.

- Restrictions 27under -PRC law on our PRC subsidiaries’ ability to make dividends and other distributions could materially and adversely affect our ability to grow, make investments or acquisitions that could benefit our business, pay dividends to you, and otherwise fund and conduct our business.

~~Under~~ Substantially all of our sales are earned by our PRC subsidiaries. However, PRC regulations restrict the ~~New~~ability ~~Enterprise~~of ~~Income~~our ~~Tax~~PRC ~~Law~~subsidiaries to make dividends and other payments to their offshore parent companies. PRC legal restrictions permit payments of dividends by our PRC subsidiaries only out of their accumulated after-tax profits, weif ~~may~~any, bedetermined in accordance with PRC accounting standards and regulations. Our PRC subsidiaries are also required under PRC laws and regulations to allocate ~~classified~~at asleast 10% of their annual after-tax profits determined in accordance with PRC GAAP to a ~~“resident~~statutory ~~enterprise”~~general reserve fund until the amounts in said fund reaches 50% of ~~China~~their registered capital. ~~Such~~Allocations ~~classification~~to ~~will~~these ~~likely~~statutory reserve funds can only ~~result~~be used for specific purposes and are not transferable to us in ~~unfavorable~~the ~~tax~~form ~~consequences~~of loans, advances, or cash dividends. Any limitations on the ability of our PRC subsidiaries to transfer funds to us could materially and adversely limit our ~~non-PRC~~ability ~~stockholders.~~to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.

~~The~~ Failure ~~EIT~~to ~~Law~~comply ~~and~~with ~~its~~PRC ~~implementing~~regulations ~~rules~~relating ~~became~~to ~~effective on January 1, 2008. Under~~ the ~~EIT~~establishment ~~Law,~~of anoffshore ~~enterprise~~special ~~established~~purpose ~~outside~~companies ofby ~~China with~~PRC ~~“de~~residents ~~facto~~may ~~management~~subject ~~bodies”~~our ~~within~~PRC ~~China~~resident isstockholders ~~considered~~to apersonal ~~“resident enterprise~~liability,” ~~meaning~~limit ~~that~~our itability ~~can~~to beacquire ~~treated~~PRC incompanies aor ~~manner similar~~ to ~~a Chinese~~ ~~enterprise~~inject ~~for~~capital ~~enterprise~~into ~~income~~our ~~tax~~PRC ~~purposes.~~subsidiaries, ~~The~~limit ~~implementing~~our ~~rules~~PRC ofsubsidiaries’ ~~the~~ability ~~EIT Law~~to ~~define~~distribute deprofits ~~facto~~to ~~management~~us asor ~~“substantial~~otherwise ~~and~~materially ~~overall~~adversely ~~management~~affect ~~and control over the production and operations, personnel, accounting, and properties” of the enterprise~~us.

On SAFE ~~April~~has ~~22,~~promulgated ~~2009~~several regulations, ~~the~~including ~~State Administration of Taxation issued~~ the Notice Concerning ~~Relevant~~Foreign ~~Issues~~Exchange ~~Regarding~~Controls ~~Cognizance~~on ofDomestic ~~Chinese~~Residents’ ~~Investment Controlled~~Financing ~~Enterprises~~and ~~Incorporated~~Roundtrip ~~Offshore~~Investment asThrough ~~Resident~~Offshore ~~Enterprises~~Special ~~pursuant~~Purpose ~~to Criteria~~Vehicles ~~of de facto Management Bodies~~, or ~~the~~Circular ~~Notice~~75, ~~further~~effective ~~interpreting the~~on ~~application~~November of1, ~~the~~2005, ~~EIT Law~~ and ~~its~~Operating ~~implementation~~Procedures ~~non-Chinese~~on ~~enterprise~~Foreign ~~or group~~Exchange ~~controlled~~Administration ~~offshore~~for ~~entities.~~Domestic ~~Pursuant~~Residents toEngaging ~~the Notice, an enterprise incorporated~~ in anFinancing ~~offshore~~and ~~jurisdiction~~Round-trip ~~and~~Investment ~~controlled~~via byOffshore aSpecial ~~Chinese~~Purpose ~~enterprise~~ Vehicles, or ~~group~~Circular ~~will~~19, beeffective ~~classified~~on asJuly a1, ~~“non-domestically~~2011. ~~incorporated resident~~These ~~enterprise”~~regulations ifand ~~(i)~~rules ~~its~~require ~~senior~~PRC ~~management~~residents inand ~~charge~~corporate ofentities ~~daily~~to ~~operations~~register ~~reside~~with, ~~or perform~~and ~~their~~obtain ~~duties~~approval ~~mainly~~from, inprovincial ~~China;~~SAFE ~~(ii)~~branches ~~its~~in ~~financial~~connection orwith ~~personnel~~their ~~decisions are~~direct ~~made~~ or ~~approved~~indirect byoffshore ~~bodies~~investment oractivities. ~~persons~~Under inCircular ~~China;~~75 ~~(iii) its substantial assets~~ and ~~properties,~~related ~~accounting books~~rules, ~~corporate chops, board and shareholder minutes~~ ~~are~~a ~~kept~~PRC inresident ~~China;~~who ~~and~~makes, ~~(iv)~~or athas ~~least~~previously ~~half~~made, ofa ~~its~~direct ~~directors with voting rights~~ or ~~senior~~ ~~management~~indirect ~~often~~investment ~~resident~~ in ~~China.~~an Aoffshore ~~resident~~company ~~enterprise~~is ~~would~~required ~~be subject~~ to anregister ~~enterprise~~that ~~income~~investment. ~~tax~~In ~~rate~~addition, ofany ~~25%~~PRC onresident ~~its~~who ~~worldwide~~is ~~income and must pay~~ a ~~withholding~~direct ~~tax~~or atindirect ashareholder ~~rate~~ of ~~10%~~an ~~when~~offshore ~~paying~~company ~~dividends to its non-PRC~~is ~~shareholders.~~required ~~However, it remains unclear as~~ to ~~whether~~update the ~~Notice~~previously isfiled ~~applicable to~~registration anwith ~~offshore~~the ~~enterprise~~relevant ~~incorporated~~provincial bySAFE abranch ~~Chinese~~to ~~natural~~reflect ~~person.~~any ~~Nor~~material ~~are detailed~~change ~~measures~~with onrespect ~~imposition~~to ofthe ~~tax~~offshore ~~from~~company’s ~~non-domestically~~roundtrip ~~incorporated resident~~investment, ~~enterprises~~capital ~~are~~variation, ~~available.~~merger, ~~Therefore~~division, itlong-term isequity ~~unclear how tax authorities~~or ~~will~~debt ~~determine~~investment ~~tax~~or ~~residency~~creation ~~based on the facts~~ of ~~each~~any ~~case.~~security interest.

We ~~may~~have beasked ~~deemed~~our tostockholders bewho aare ~~resident enterprise by Chinese tax authorities. If the~~ PRC ~~tax~~residents ~~authorities~~as ~~determine~~defined ~~that~~in weCircular ~~are~~75 aand ~~“resident enterprise”~~related ~~for~~rules ~~PRC~~to ~~enterprise~~register ~~income~~with ~~tax~~the ~~purposes,~~relevant abranch ~~number~~ of ~~unfavorable~~SAFE, ~~PRC tax~~as ~~consequences~~currently ~~could follow. First~~required, wein ~~may~~connection bewith ~~subject~~their toequity ~~the~~interests ~~enterprise~~in ~~income tax~~us atand aour ~~rate~~acquisitions of ~~25%~~equity interests onin our ~~worldwide taxable income as well as~~ PRC ~~enterprise income tax reporting obligations~~subsidiaries. InHowever, ~~our~~we ~~case,~~cannot ~~this~~provide ~~would~~any ~~mean~~assurances that ~~income~~they ~~such as~~can ~~interest~~obtain onthe ~~financing~~above ~~proceeds~~SAFE ~~and~~registrations ~~non-China~~required ~~source~~by ~~income~~Circular ~~would~~75 beand ~~subject to~~related ~~PRC~~rules. ~~enterprise~~Moreover, ~~income~~because ~~tax at a rate~~ of ~~25%.~~uncertainty ~~Second,~~over ~~although~~how ~~under~~Circular ~~the~~75 ~~EIT Law~~ and ~~its~~related ~~implementing~~ rules ~~dividends~~will ~~paid to us from our PRC subsidiaries~~be ~~would~~interpreted ~~qualify~~and ~~as “tax-exempt income~~implemented,” weand ~~cannot~~how ~~guarantee~~or ~~that~~whether ~~such~~SAFE ~~dividends~~ will ~~not~~apply beit ~~subject~~ to ~~a 10% withholding tax~~us, aswe ~~the~~cannot ~~PRC~~predict ~~foreign~~how ~~exchange control~~it ~~authorities,~~will ~~which~~affect ~~enforce~~our ~~the~~business ~~withholding~~operations ~~tax,~~or ~~have~~future ~~not~~strategies. ~~yet~~For ~~issued guidance~~example, ~~with~~our ~~respect~~present toand ~~the~~prospective ~~processing~~PRC ofsubsidiaries’ ~~outbound~~ability ~~remittances~~ to ~~entities~~conduct ~~that~~foreign ~~are~~exchange ~~treated as resident enterprises for PRC enterprise income tax purposes. Finally~~activities, itsuch isas ~~possible that future guidance issued with respect to~~ the ~~new “resident~~remittance ~~enterprise”~~of ~~classification~~dividends ~~could~~and ~~result~~foreign incurrency-denominated aborrowings, ~~situation~~may inbe ~~which~~subject ~~a 10% withholding tax is imposed on dividends we pay~~ to ~~our~~compliance ~~non-PRC stockholders and~~ with ~~respect~~Circular to75 ~~gains~~and ~~derived~~related rules by our ~~non-~~PRC ~~stockholders from transferring our shares. We are actively monitoring the possibility of “~~resident ~~enterprise” treatment~~beneficial ~~for the 2011 tax year and are evaluating appropriate organizational changes to avoid this treatment, to the extent possible~~holders.

~~If we were treated as a “resident enterprise” by PRC tax~~ ~~authorities,~~27 ~~we would be subject to taxation in both the U.S. and China, and our PRC tax may not be creditable against our U.S. tax.~~

We In ~~face~~addition, ~~uncertainty~~such ~~from~~PRC ~~China’s~~residents may not always be able to complete the necessary registration procedures required by Circular ~~on Strengthening~~75 and related rules. We also have little control over either our present or prospective direct or indirect stockholders or the ~~Administration~~outcome of ~~Enterprise~~such ~~Income~~registration ~~Tax~~procedures. onA ~~Non-Resident Enterprises'~~failure ~~Share~~by ~~Transfer~~our ~~that~~PRC ~~was~~resident ~~released~~beneficial inholders ~~December~~or ~~2009~~future PRC resident stockholders to comply with ~~retroactive~~Circular 75 and related rules, if SAFE requires it, could subject these PRC resident beneficial holders ~~effect~~to ~~from~~fines ~~January~~or 1legal sanctions, ~~2008.~~restrict our overseas or cross-border investment activities, limit our subsidiaries’ ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.

~~The~~ We ~~Chinese~~may ~~State~~be ~~Administration~~unable ofto ~~Taxation,~~complete ~~or SAT, released~~ a ~~circular~~business oncombination ~~December~~transaction ~~15,~~efficiently ~~2009~~or ~~that~~on ~~addresses~~favorable ~~the~~terms ~~transfer~~due ~~of shares by nonresident companies, generally referred~~ to ascomplicated ~~Circular~~merger ~~698.~~and ~~Circular~~acquisition ~~698,~~ regulations which isbecame effective ~~retroactively~~on toSeptember ~~January 1~~8, ~~2008, may have a significant impact on many companies that use offshore holding companies to invest in China~~2006.

- On 28August -9, 2006, six PRC regulatory agencies, including the China Securities Regulatory Commission promulgated the Regulation on Mergers and Acquisitions of Domestic Companies by Foreign Investors, which became effective on September 8, 2006 and was amended in 2009. This regulation, among other things, governs the approval process by which a PRC company may participate in an acquisition of assets or equity interests. Depending on the structure of the transaction, the new regulation will require the PRC parties to make a series of applications and supplemental applications to the government agencies. In some instances, the application process may require the presentation of economic data concerning a transaction, including appraisals of the target business and evaluations of the acquirer, which are designed to allow the government to assess the transaction. Government approvals will have expiration dates by which a transaction must be completed and reported to the government agencies. Compliance with the new regulations is likely to be more time consuming and expensive than in the past and the government can now exert more control over the combination of two businesses. Accordingly, due to the new regulation, our ability to engage in business combination transactions has become significantly more complicated, time consuming and expensive, and we may not be able to negotiate a transaction that is acceptable to our stockholders or sufficiently protect their interests in a transaction.

~~Circular~~ The ~~698,~~new ~~which~~regulation ~~provides~~allows ~~parties~~PRC ~~with~~government aagencies ~~short period of time~~ to ~~comply~~assess ~~with its requirements, indirectly taxes foreign companies on gains derived from~~ the ~~indirect~~economic ~~sale~~terms of a ~~Chinese~~business ~~company~~combination transaction. ~~Where~~Parties ato ~~foreign investor indirectly transfers equity interests in~~ a ~~Chinese~~business ~~resident~~combination ~~enterprise by~~transaction ~~selling~~may ~~the~~have ~~shares~~to insubmit anto ~~offshore~~MOFCOM ~~holding company,~~ and ~~the~~other ~~latter~~relevant isgovernment ~~located in~~agencies aan ~~country or jurisdiction where the effective tax burden is less than 12.5%~~appraisal ~~or where the offshore income of his~~report, ~~her,~~an orevaluation ~~its~~report ~~residents~~and isthe ~~not~~acquisition ~~taxable~~agreement, ~~the foreign~~all ~~investor~~of iswhich ~~required~~form topart ~~provide~~of the ~~tax~~application ~~authority~~for inapproval, ~~charge~~depending ofon ~~that Chinese resident enterprise with~~ the ~~relevant~~structure ~~information within 30 days~~ of the ~~transfers~~ transaction. ~~Moreover,~~The ~~where~~regulations aalso ~~foreign~~prohibit ~~investor indirectly transfers equity interests in~~ a ~~Chinese~~transaction ~~resident~~at ~~enterprise through~~ an ~~abuse~~acquisition ofprice ~~form~~obviously oflower ~~organization~~than ~~and there are no reasonable commercial purposes such that~~ the ~~corporate~~ ~~income~~appraised ~~tax~~value ~~liability~~of ~~is avoided,~~ the PRC ~~tax~~business ~~authority~~or ~~will~~assets ~~have~~and ~~the power to re-assess the nature of the equity transfer~~ in ~~accordance~~certain ~~with~~transaction ~~PRC’s “substance-over-form”~~structures, ~~principle~~require ~~and deny the existence of the offshore holding company~~ that isconsideration ~~used~~must ~~for~~be ~~tax~~paid ~~planning~~within ~~purposes.~~defined ~~There is uncertainty as to the application of Circular 698. For example~~periods, ~~while~~generally ~~the term “indirectly transfer” is~~ not ~~defined,~~in itexcess isof ~~understood that the relevant PRC tax authorities have jurisdiction regarding requests for information over~~ a ~~wide range of foreign entities having no direct contact with China~~year. ~~Moreover,~~The ~~the~~regulation ~~relevant~~also ~~authority has~~limits ~~not~~our ~~yet~~ability ~~promulgated any formal provisions or formally declared or stated how~~ to ~~calculate the effective tax in the country or jurisdiction and to what extent~~negotiate ~~and~~various ~~the~~terms ~~process~~ of the ~~disclosure~~acquisition, toincluding ~~the~~aspects ~~tax authority in charge~~ of ~~that~~the ~~Chinese resident~~initial ~~enterprise.~~consideration, Incontingent ~~addition~~consideration, ~~there~~holdback ~~are~~provisions, ~~not~~indemnification ~~any~~provisions ~~formal~~and ~~declarations~~provisions ~~with regard~~relating to ~~how~~the toassumption ~~decide~~and ~~“abuse~~allocation of ~~form~~assets ~~of organization”~~ and ~~“reasonable~~liabilities. ~~commercial~~Transaction ~~purpose”,~~structures ~~which~~involving ~~can~~trusts, benominees ~~utilized~~and bysimilar usentities toare ~~balance if our Company complies with the Circular 698~~prohibited. ~~As a result~~Therefore, wesuch regulation may ~~become~~impede atour ~~risk~~ability ofto ~~being taxed~~negotiate ~~under Circular 698~~ and wecomplete ~~may~~a bebusiness ~~required~~combination totransaction ~~expend~~on ~~valuable~~financial ~~resources~~terms ~~to comply with Circular 698 or to establish~~ that wesatisfy ~~should~~our ~~not~~investors ~~be taxed under~~and ~~Circular~~protect ~~698, which could have a material adverse effect on~~ our ~~financial condition~~stockholders’ ~~and~~economic ~~results of operations~~interests.

We Our ~~may~~existing becontractual ~~exposed~~arrangements towith ~~liabilities~~iASPEC ~~under~~and ~~the~~its ~~Foreign~~shareholders ~~Corrupt Practices~~may ~~Act~~be ~~and~~subject ~~Chinese~~to ~~anti-corruption~~national ~~laws~~security review by MOFCOM, and ~~any~~the ~~determination~~failure ~~that~~to ~~we violated~~receive ~~these~~the ~~laws~~national security review could have a material adverse effect on our business. and operating results.

We In ~~are~~August ~~subject~~2011, toMOFCOM promulgated the ~~Foreign~~Rules ~~Corrupt~~of ~~Practice~~Ministry ~~Act,~~of orCommerce ~~FCPA,~~ on Implementation of Security Review System of Merger and ~~other~~Acquisition ~~laws~~of ~~that~~Domestic ~~prohibit~~Enterprises ~~improper~~by ~~payments~~Foreign Investors, or ~~offers~~the ofMOFCOM ~~payments~~Security Review Rules, to ~~foreign~~implement the ~~governments~~Notice ~~and~~of ~~their~~the ~~officials~~General ~~and~~Office ~~political~~of ~~parties~~the byState ~~U.S.~~Council ~~persons~~on Establishing the Security Review System for Merger and ~~issuers~~ asAcquisition ~~defined~~of Domestic Enterprises by ~~the~~Foreign ~~statute,~~Investors ~~for~~promulgated ~~the~~on ~~purpose~~February of3, ~~obtaining~~2011, or ~~retaining business~~Circular 6. WeThe ~~have~~MOFCOM ~~operations~~Security Review Rules became effective on September 1, ~~agreements~~2011. ~~with~~Under ~~third~~the ~~parties~~MOFCOM Security Review Rules, ~~and~~a ~~make~~national ~~most~~security ~~of our~~review ~~sales~~is inrequired ~~China.~~for ~~The~~certain ~~PRC~~mergers ~~also~~and ~~strictly~~acquisitions ~~prohibits~~by ~~bribery~~foreign ofinvestors ~~government officials~~raising concerns regarding national defense and security. ~~Our~~Foreign investors ~~activities~~are inprohibited ~~China~~from ~~create~~circumventing the ~~risk~~national ofsecurity ~~unauthorized~~review ~~payments~~requirements ~~or offers~~by ofstructuring ~~payments~~transactions bythrough ~~the~~proxies, ~~employees~~trusts, ~~consultants~~indirect investments, ~~sales~~leases, ~~agents~~loans, control through contractual arrangements or ~~distributors~~offshore transactions. The application and interpretation of the MOFCOM Security Review Rules remain unclear. Based on our ~~Company,~~understanding ~~even~~of ~~though~~the ~~they~~MOFCOM ~~may~~Security ~~not~~Review ~~always~~Rules, bewe ~~subject~~do not need to submit our ~~control.~~existing Itcontractual ~~is our~~arrangements ~~policy~~with iASPEC and its shareholders to ~~implement~~the MOFCOM ~~safeguards~~for national security review because, among other reasons, (i) we gained de facto control over iASPEC in 2007 prior to ~~discourage~~the ~~these~~effectiveness ~~practices~~of byCircular ~~our~~6 and the MOFCOM Security Review Rules; and (ii) there are currently no explicit ~~employees~~provisions or official interpretations indicating that our current businesses fall within the scope of national security review. ~~However,~~Although we have no plan to submit our existing ~~safeguards~~contractual ~~and~~arrangements ~~any~~with ~~future~~iASPEC ~~improvements~~and ~~may prove~~its shareholders to beMOFCOM ~~less~~for national ~~than~~security ~~effective~~review, ~~and~~ the ~~employees,~~relevant PRC ~~consultants~~government agencies, ~~sales~~such ~~agents~~as MOFCOM, may reach a different conclusion. If MOFCOM or ~~distributors~~another ofPRC regulatory agency subsequently determines that we need to submit our ~~Company~~existing ~~may~~contractual ~~engage~~arrangements inwith ~~conduct~~iASPEC and its shareholders for ~~which~~national security wereview ~~might~~by beinterpretation, ~~held responsible.~~clarification ~~Violations~~or amendment of the ~~FCPA~~MOFCOM orSecurity ~~Chinese~~Review ~~anti-corruption~~Rules ~~laws~~or ~~may~~by ~~result in~~any ~~severe~~new ~~criminal~~rules, regulations or ~~civil~~directives ~~sanctions~~promulgated, ~~and~~ we may beface ~~subject~~sanctions toby ~~other~~MOFCOM or another PRC regulatory agency. These sanctions may ~~liabilities,~~include ~~which~~revoking ~~could~~the ~~negatively~~business ~~affect~~or operating licenses of our ~~business~~PRC subsidiary, ~~operating~~IST, ~~results~~or iASPEC and ~~financial~~ ~~condition.~~its ~~In addition~~subsidiaries, ~~the~~discontinuing ~~U.S.~~or ~~government~~restricting ~~may~~our ~~seek~~operations toin ~~hold~~China, confiscating our ~~Company~~ ~~liable~~income ~~for~~or ~~successor~~the ~~liability~~income ~~FCPA~~of ~~violations~~iASPEC, ~~committed~~and bytaking ~~companies~~other inregulatory or ~~which~~enforcement weactions, ~~invest~~such oras levying fines, that wecould ~~acquire~~be harmful to our business. Any of these sanctions could cause significant disruption to our business operations.

~~RISKS~~ 28 ~~RELATED TO THE MARKET FOR OUR STOCK~~

We The ~~may~~MOFCOM beSecurity ~~subject~~Review toRules ~~penny~~may ~~stock~~make ~~regulations~~it ~~and~~more ~~restrictions and~~difficult ~~you~~for ~~may~~us ~~have~~to ~~difficulty~~make ~~selling~~future ~~shares~~acquisitions or dispositions of our ~~common~~business ~~stock.~~operations or assets in China.

The ~~SEC~~MOFCOM ~~has~~Security ~~adopted~~Review ~~regulations~~Rules, ~~which~~effective ~~generally~~as ~~define so-called~~of ~~“penny~~September ~~stocks”~~1, to2011, beprovides anthat ~~equity~~when ~~security~~deciding ~~that~~whether ~~has~~ a ~~market~~specific ~~price~~merger ~~less than $5.00 per share~~ or anacquisition ~~exercise price~~ of ~~less~~a ~~than~~domestic ~~$5.00~~enterprise ~~per~~by ~~share,~~foreign ~~subject to~~investors ~~certain~~is ~~exemptions. Our common stock may become a “penny stock” and~~ subject to ~~Rule~~the ~~15g-9~~national ~~under~~security ~~the~~review ~~Exchange~~by ~~Act~~MOFCOM, or the ~~Penny Stock Rule. This rule imposes~~ ~~additional~~principle ~~sales~~of ~~practice requirements on broker~~substance-~~dealers~~over-form ~~that~~should ~~sell~~be ~~such securities~~applied toand ~~persons~~foreign ~~other~~investors ~~than~~are ~~established~~prohibited ~~customers~~from ~~and~~circumventing ~~“accredited investors”~~the ~~(generally,~~national ~~individuals~~security ~~with~~review arequirement ~~net~~by ~~worth~~structuring intransactions ~~excess~~through ofproxies, $1trusts,~~000,000~~ ~~or annual~~indirect ~~incomes~~investments, ~~exceeding $200~~leases,~~000,~~ ~~or $300~~loans,~~000~~ ~~together with their spouses). For~~control ~~transactions~~through ~~covered~~contractual byarrangements ~~Rule~~or ~~15g-9,~~offshore atransactions. ~~broker-dealer~~If ~~must~~the ~~make~~business aof ~~special suitability~~any ~~determination~~target ~~for~~company ~~the~~that ~~purchaser~~we ~~and~~plan ~~have~~to ~~received~~acquire ~~the~~falls ~~purchaser's written~~within ~~consent to~~ the ~~transaction~~scope ~~prior~~subject to ~~sale.~~national Assecurity ~~a result~~review, ~~this~~we ~~rule~~ may ~~affect~~ ~~the~~not ~~ability~~be ofable ~~broker-dealers~~ to ~~sell~~successfully ~~our~~acquire ~~securities~~such ~~and~~company ~~may~~by ~~affect~~equity ~~the~~or ~~ability~~asset ~~of purchasers to sell any of our securities in the secondary market~~acquisition, ~~thus~~ ~~possibly~~capital ~~making~~increase itor ~~more~~even ~~difficult~~through ~~for~~any uscontractual ~~to raise additional capital~~arrangement.

~~For~~ Under ~~any~~the ~~transaction~~Enterprise ~~involving~~Income aTax ~~penny stock~~Law, ~~unless~~we ~~exempt,~~may ~~the rules~~be ~~require~~classified ~~delivery,~~as ~~prior~~a to“resident ~~any~~enterprise” ~~transaction in penny stock,~~ of ~~a disclosure schedule prepared by the SEC relating to the penny stock market~~China. ~~Disclosure~~Such ~~is also~~classification ~~required~~will tolikely beresult ~~made~~in ~~about~~unfavorable ~~sales~~tax ~~commissions~~consequences ~~payable~~ to ~~both~~us ~~the broker-dealer~~ and ~~the~~our ~~registered~~non-PRC ~~representative and current quotations for the securities~~stockholders. ~~Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.~~

- The 29EIT -Law and its implementing rules became effective on January 1, 2008. Under the EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. The implementing rules of the EIT Law define de facto management as “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise.

~~There~~ On ~~can~~April be22, no2009, ~~assurance~~the ~~that~~State ~~our~~Administration ~~common~~of ~~stock~~Taxation ~~will~~issued ~~qualify~~the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto ~~for~~Management ~~exemption~~Bodies, ~~from~~or the ~~Penny~~Notice, ~~Stock~~further ~~Rule~~interpreting the application of the EIT Law and its implementation non-Chinese enterprise or group controlled offshore entities. InPursuant ~~any~~to ~~event~~the Notice, ~~even~~an ifenterprise ~~our~~incorporated ~~common~~in ~~stock~~an offshore jurisdiction ~~were~~and ~~exempt~~controlled ~~from~~by ~~the~~a ~~Penny~~Chinese ~~Stock~~enterprise ~~Rule,~~or wegroup ~~would~~will ~~remain~~be ~~subject~~classified toas ~~Section 15~~a “non-domestically incorporated resident enterprise” if (bi) its senior management in charge of daily operations reside or perform their duties mainly in China; (6ii) its offinancial ~~the~~or ~~Exchange~~personnel ~~Act~~decisions are made or approved by bodies or persons in China; (iii) its substantial assets and properties, ~~which~~accounting ~~gives~~books, ~~the~~corporate ~~SEC~~chops, ~~the~~board ~~authority~~and toshareholder ~~restrict~~minutes ~~any~~are kept in China; and (iv) at least half of its ~~person~~directors ~~from~~with ~~participating~~voting rights or senior management often resident in China. A resident enterprise would be subject to an enterprise income tax rate of 25% on its worldwide income and must pay a ~~distribution~~withholding tax at a rate of ~~penny~~10% ~~stock~~when paying dividends to its non-PRC shareholders. However, ifit remains unclear as to whether the ~~SEC~~Notice ~~finds that~~is ~~such~~applicable to an offshore enterprise incorporated by a ~~restriction~~Chinese ~~would~~natural beperson. inNor are detailed measures on imposition of tax from non-domestically incorporated resident enterprises are available. Therefore, it is unclear how tax authorities will determine tax residency based on the ~~public~~facts ~~interest~~of each case.

~~The~~ We ~~market~~may ~~price~~be deemed to be a resident enterprise by Chinese tax authorities. If the PRC tax authorities determine that we are a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we may be subject to the enterprise income tax at a rate of 25% on our ~~common~~worldwide ~~stock~~taxable isincome ~~volatile~~as well as PRC enterprise income tax reporting obligations. In our case, ~~leading~~this would mean that income such as interest on financing proceeds and non-China source income would be subject to ~~the~~PRC ~~possibility~~enterprise income tax at a rate of 25%. Second, although under the EIT Law and its ~~value~~implementing ~~being~~rules ~~depressed~~dividends atpaid to us from our PRC subsidiaries would qualify as “tax-exempt income,” we cannot guarantee that such dividends will not be subject to a ~~time~~10% ~~when~~withholding ~~you~~tax, ~~want~~as the PRC foreign exchange control authorities, which enforce the withholding tax, have not yet issued guidance with respect to ~~sell~~the processing of ~~your~~outbound ~~holdings~~remittances to entities that are treated as resident enterprises for PRC enterprise income tax purposes. Finally, it is possible that future guidance issued with respect to the new “resident enterprise” classification could result in a situation in which a 10% withholding tax is imposed on dividends we pay to our non-PRC stockholders and with respect to gains derived by our non-PRC stockholders from transferring our shares. We are actively monitoring the possibility of “resident enterprise” treatment for the 2011 tax year and are evaluating appropriate organizational changes to avoid this treatment, to the extent possible.

~~The market price of our common stock is volatile, and this~~ ~~volatility~~29 ~~may continue. Numerous factors, many of which are beyond our control, may cause the market price of our common stock to fluctuate significantly. These factors include:~~

~~our~~ If ~~earnings~~we ~~releases,~~were ~~actual~~treated oras ~~anticipated~~a ~~changes~~“resident inenterprise” ~~our~~by ~~earnings~~PRC tax authorities, ~~fluctuations~~ we would be subject to taxation in ~~our~~both ~~operating~~the ~~results~~U.S. orand China, and our ~~failure~~PRC totax ~~meet~~may ~~the~~not ~~expectations of~~be ~~financial~~creditable ~~market~~against ~~analysts~~our ~~and~~U.S. ~~investors;~~ tax.

~~changes~~ We inface ~~financial~~uncertainty ~~estimates~~from byChina’s usCircular oron byStrengthening ~~any~~the ~~securities~~Administration ~~analysts~~of ~~who might~~Enterprise ~~cover~~Income ~~our~~Tax ~~stock;~~on Non-Resident Enterprises’ Share Transfer that was released in December 2009 with retroactive effect from January 1, 2008.

~~speculation~~ The ~~about~~Chinese ~~our~~State ~~business~~Administration of Taxation, or SAT, released a circular on December 15, 2009 that addresses the transfer of shares by nonresident companies, generally referred to as Circular 698. Circular 698, which is effective retroactively to January 1, 2008, may have a significant impact on many companies that use offshore holding companies to invest in China. Circular 698, which provides parties with a short period of time to comply with its requirements, indirectly taxes foreign companies on gains derived from the ~~press~~indirect sale of a Chinese company. Where a foreign investor indirectly transfers equity interests in a Chinese resident enterprise by selling the shares in an offshore holding company, and the latter is located in a country or jurisdiction where the ~~investment~~effective ~~community;~~tax burden is less than 12.5% or where the offshore income of his, her, or its residents is not taxable, the foreign investor is required to provide the tax authority in charge of that Chinese resident enterprise with the relevant information within 30 days of the transfers. Moreover, where a foreign investor indirectly transfers equity interests in a Chinese resident enterprise through an abuse of form of organization and there are no reasonable commercial purposes such that the corporate income tax liability is avoided, the PRC tax authority will have the power to re-assess the nature of the equity transfer in accordance with PRC’s “substance-over-form” principle and deny the existence of the offshore holding company that is used for tax planning purposes. There is uncertainty as to the application of Circular 698. For example, while the term “indirectly transfer” is not defined, it is understood that the relevant PRC tax authorities have jurisdiction regarding requests for information over a wide range of foreign entities having no direct contact with China. Moreover, the relevant authority has not yet promulgated any formal provisions or formally declared or stated how to calculate the effective tax in the country or jurisdiction and to what extent and the process of the disclosure to the tax authority in charge of that Chinese resident enterprise. In addition, there are not any formal declarations with regard to how to decide “abuse of form of organization” and “reasonable commercial purpose,” which can be utilized by us to balance if our Company complies with the Circular 698. As a result, we may become at risk of being taxed under Circular 698 and we may be required to expend valuable resources to comply with Circular 698 or to establish that we should not be taxed under Circular 698, which could have a material adverse effect on our financial condition and results of operations.

~~significant~~ We ~~developments~~may ~~relating~~be exposed to ~~our~~liabilities ~~relationships~~under ~~with~~the Foreign Corrupt Practices Act and Chinese anti-corruption laws, and any determination that we violated these laws could have a material adverse effect on our ~~customers~~ business. ~~or suppliers;~~

~~stock~~ We ~~market~~are ~~price~~subject to the Foreign Corrupt Practice Act, or FCPA, and ~~volume~~other ~~fluctuations~~laws that prohibit improper payments or offers of ~~other~~payments ~~publicly~~to ~~traded companies~~foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute, for the purpose of obtaining or retaining business. We have operations, agreements with third parties, and make most of our sales in ~~particular~~China. The PRC also strictly prohibits bribery of government officials. Our activities in China create the risk of unauthorized payments or offers of payments by the employees, ~~those~~consultants, ~~that~~sales ~~are~~agents, or distributors of our Company, even though they may not always be subject to our control. It is our policy to implement safeguards to discourage these practices by our employees. However, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants, sales agents, or distributors of our Company may engage in conduct for which we might be held responsible. Violations of the FCPA or Chinese anti-corruption laws may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our ~~industries;~~business, operating results and financial condition. In addition, the U.S. government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.

~~customer demand for our products;~~ 30

~~investor~~ If ~~perceptions~~we ofbecome directly subject to the ~~our~~recent ~~industry~~scrutiny, incriticism ~~general~~and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our ~~company~~business operations, stock price and reputation and could result in a loss of your investment in our stock, especially if such matter cannot be addressed and resolved favorably. ~~particular;~~

Recently, U.S. public companies that have substantially all of their operations in China, particularly companies like us which have completed so-called reverse merger transactions, have been the ~~operating~~subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered around financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock ~~performance~~of many U.S. listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of ~~comparable~~these companies; are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on our Company, our business and our stock price. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend our company. This situation will be costly and time consuming and distract our management from growing our company.

~~general~~ The ~~economic~~disclosures ~~conditions~~in our reports and ~~trends;~~other filings with the SEC and our other public pronouncements are not subject to the scrutiny of any regulatory bodies in the PRC. Accordingly, our public disclosure should be reviewed in light of that fact.

~~major~~ We ~~catastrophic~~file ~~events;~~reports with the SEC and our reports and other filings with the SEC are subject to SEC review in accordance with the rules promulgated by the SEC under the Securities Act and the Exchange Act. Unlike public reporting companies whose operations are located primarily in the United States, however, substantially all of our operations are located in China. Since substantially all of our operations and business takes place in China, it may be more difficult for the Staff of the SEC to overcome the geographic and cultural obstacles that are present when reviewing our disclosure. These same obstacles are not present for similar companies whose operations or business take place entirely or primarily in the United States. Our SEC reports and other disclosure and public pronouncements are not subject to the review or scrutiny of the China Securities Regulatory Commission or any other PRC regulatory authority. Accordingly, you should review our SEC reports, filings and our other public pronouncements with the understanding that no local regulator has done any due diligence on our company and that none of our SEC reports, other filings or any of our other public pronouncements has been reviewed or otherwise been scrutinized by any local regulator.

~~announcements~~ RISKS byRELATED usTO orTHE ~~our~~MARKET ~~competitors~~FOR ofOUR ~~new~~STOCK ~~products, significant acquisitions, strategic partnerships or divestitures;~~

~~changes~~ If inwe ~~accounting~~were ~~standards,~~delisted ~~policies,~~from ~~guidance~~NASDAQ, ~~interpretation~~we ~~or principles;~~ may become subject to the trading complications experienced by “Penny Stocks” in the over-the-counter market.

~~loss~~ Delisting from NASDAQ may cause our common stock to become the SEC’s “penny stock” rules. The SEC generally defines a penny stock as an equity security that has a market price of ~~external~~less ~~funding~~than ~~sources;~~$5.00 per share or an exercise price of less than $5.00 per share, subject to specific exemptions. One such exemption is to be listed on the NASDAQ Stock Market. The market price of our common stock is currently less than $5.00 per share. Therefore, were we to be delisted from the NASDAQ Stock Market, our common stock may become subject to the SEC’s “penny stock” rules. These rules require, among other things, that any broker engaging in a purchase or sale of our securities provide its customers with: (i) a risk disclosure document, (ii) disclosure of market quotations, if any, (iii) disclosure of the compensation of the broker and its salespersons in the transaction and (iv) monthly account statements showing the market values of our securities held in the customer’s accounts. A broker would be required to provide the bid and offer quotations and compensation information before effecting the transaction. This information must be contained on the customer’s confirmation. Generally, brokers are less willing to effect transactions in penny stocks due to these additional delivery requirements. These requirements may make it more difficult for stockholders to purchase or sell our common stock. Because the broker, not us, prepares this information, we would not be able to assure that such information is accurate, complete or current.

~~sales of our common stock, including sales by our directors, officers or~~ ~~significant~~31 ~~stockholders; and~~

~~additions~~ The ormarket ~~departures~~price of ~~key~~our ~~personnel~~common stock is volatile, leading to the possibility of its value being depressed at a time when you want to sell your holdings.

~~Securities~~The ~~class~~market ~~action litigation is often instituted against companies following periods of volatility in their stock~~ price. ~~This type~~ of ~~litigation~~ ~~could result in substantial costs to us and divert~~ our ~~management’s attention~~common ~~and~~stock ~~resources.~~is ~~Moreover~~volatile, ~~securities markets may from time to time experience significant price~~ and ~~volume fluctuations for reasons unrelated to~~this ~~operating~~volatility ~~performance~~may ~~of particular companies~~continue. ~~For~~Numerous ~~example~~factors, inmany ~~July~~of ~~2008,~~which ~~the securities~~are ~~markets~~beyond inour ~~the United States~~control, ~~China and other jurisdictions~~ ~~experienced the largest decline in share prices since September 2001. These market fluctuations~~ may ~~adversely~~cause ~~affect~~ the market price of our common stock ~~and other interests in our company at a time when you want~~ to ~~sell~~fluctuate ~~your~~significantly. ~~interest~~These factors ininclude: ~~us.~~

Weour doearnings ~~not~~releases, ~~intend~~actual toor ~~pay~~anticipated ~~dividends~~changes ~~for~~in our earnings, fluctuations in our operating results or our failure to meet the ~~foreseeable~~expectations ~~future.~~ of financial market analysts and investors;
~~For~~changes ~~the~~in ~~foreseeable~~financial ~~future,~~estimates weby ~~intend~~us toor ~~retain~~by any ~~earnings~~securities ~~to finance~~analysts ~~the development and expansion of our business, and we do not anticipate~~who ~~paying~~ might ~~any~~cover ~~cash dividends on~~ our ~~common~~ stock~~. Accordingly, investors must be~~; prepared to rely on sales of their common stock after price appreciation to earn an investment return, which may never occur. Investors seeking cash dividends should not purchase our common stock. Any determination to pay dividends in the future will be made at the discretion of our board of directors and will depend on our results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board deems relevant.
~~ITEM~~speculation ~~1B.~~about ~~UNRESOLVED~~our ~~STAFF~~business ~~COMMENTS.~~in the press or the investment community;
Wesignificant ~~have~~developments norelating ~~outstanding~~to orour ~~unresolved~~relationships ~~comments~~with ~~from~~our ~~the~~customers or ~~SEC~~suppliers; ~~staff.~~
~~ITEM~~stock 2.market ~~PROPERTIES.~~price and volume fluctuations of other publicly traded companies and, in particular, those that are in the our industries;
~~All~~customer ~~land~~demand ~~in China is owned by the state or collectives. Individuals and companies are permitted to acquire rights to use land or land use rights~~ for ~~specific~~our ~~purposes. In the case of land used for industrial~~products; purposes, the land use rights are granted for a period of 50 years. This period may be renewed at the expiration of the initial and any subsequent terms according to the relevant Chinese laws. Granted land use rights are transferable and may be used as security for borrowings and other obligations.
-investor 30perceptions -of the our industry in general and our company in particular;
~~Prior to June 2007, our subsidiary IST occupied space in offices pursuant to a six month rental agreement. In June 2007, we moved into our new executive offices located on~~ the ~~21st~~operating Floor of the Everbright Bank Bldg., Zhuzilin, Futian District, Shenzhen, China, for which IST currently has land use rights. Our new executive offices consist of approximately 1,200 square meters, all of which are dedicated to administrative office space. We have fully paid the land use fees. Our other property primarily consists of computer equipment, servers, licensed software, some furniture and ~~fixtures.~~stock ~~There~~performance ~~is no lien on any~~ of ~~our~~comparable ~~property and we currently do not have any intention to make~~companies; ~~large scale improvements or developments with respect to these properties.~~
~~iASPEC~~general ~~and~~economic ~~Bocom~~conditions ~~lease offices, employee dormitories~~ and ~~factory~~ ~~space in Shenzhen, Guangzhou, Beijing and Wuhan in the PRC, pursuant to~~trends; lease agreements that will expire on various dates through November 2011. Rent expense for the years ended December 31, 2010, 2009 and 2008, was approximately $380,000, $386,200 and $337,000, respectively.
Wemajor ~~believe~~catastrophic ~~that all our properties have been adequately~~events; ~~maintained, are generally in good condition, and are suitable and adequate for our business.~~
~~ITEM~~announcements 3.by ~~LEGAL~~us ~~PROCEEDINGS.~~or our competitors of new products, significant acquisitions, strategic partnerships or divestitures;
~~From~~changes ~~time~~in toaccounting ~~time~~standards, ~~we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However~~policies, ~~litigation~~ ~~is subject to inherent uncertainties~~guidance, ~~and~~interpretation ~~an adverse result in these~~ or ~~other matters may arise from time to time that may harm our business. We~~ ~~are currently not aware of any such legal proceedings or claims that we believe~~principles; ~~will have a material adverse affect on our business, financial condition or operating results.~~
~~ITEM~~loss 4.of ~~(REMOVED~~external ~~AND~~funding ~~RESERVED).~~sources;
~~PART~~sales IIof our common stock, including sales by our directors, officers or significant stockholders; and
~~ITEM~~additions 5.or ~~MARKET~~departures ~~FOR~~of ~~REGISTRANT’S~~key ~~COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES~~personnel.

~~Market~~Securities ~~Information~~class action litigation is often instituted against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs to us and divert our management’s attention and resources. Moreover, securities markets may from time to time experience significant price and volume fluctuations for reasons unrelated to operating performance of particular companies. For example, in July 2008, the securities markets in the United States, China and other jurisdictions experienced the largest decline in share prices since September 2001. These market fluctuations may adversely affect the price of our common stock and other interests in our company at a time when you want to sell your interest in us.

~~Our~~We ~~common~~do ~~stock~~not isintend ~~traded~~to onpay ~~the~~dividends ~~Nasdaq~~for ~~Global Select Market under~~ the ~~symbol “CNIT~~foreseeable future.”

~~The~~For ~~following~~the ~~table~~foreseeable ~~sets forth~~future, ~~for~~we intend to retain any earnings to finance the ~~periods~~development ~~indicated~~and expansion of our business, ~~the~~and we do not anticipate ~~high~~paying ~~and~~any ~~low~~cash ~~closing~~dividends ~~prices~~on our common stock. Accordingly, investors must be prepared to rely on sales of their common stock after price appreciation to earn an investment return, which may never occur. Investors seeking cash dividends should not purchase our common stock. ~~These~~Any ~~prices~~determination ~~reflect~~to pay dividends in the ~~inter-dealer~~future ~~prices,~~will ~~without~~be ~~retail~~made ~~mark-up~~at the discretion of our board of directors and will depend on our results of operations, ~~mark-down~~financial orcondition, ~~commission~~contractual restrictions, restrictions imposed by applicable law and ~~may not~~other ~~represent~~factors ~~actual~~our ~~transactions~~board deems relevant.

		Closing Prices(1)
		High		Low
Year Ended December 31, 2010
1st Quarter	$	6.5	$	4.72
2nd Quarter		7		4.83
3rd Quarter		5.92		4.52
4th Quarter		6.75		4.85
Year Ended December 31, 2009
1st Quarter	$	3.93	$	1.83
2nd Quarter		3.99		2.55
3rd Quarter		5.54		2.60
4th Quarter		7.85		5.21

ITEM 1B.

UNRESOLVED STAFF COMMENTS.

~~(1)~~We ~~The~~have ~~above~~no ~~table~~outstanding ~~sets~~or ~~forth~~unresolved ~~the~~comments ~~range~~from ~~of high~~the ~~and low closing prices per share of our common stock as reported by~~SEC ~~www~~staff.~~quotemedia.com~~ ~~for the periods indicated.~~

~~Approximate~~ITEM ~~Number~~2. ~~of Holders of Our Common Stock~~PROPERTIES.

AsAll ofland ~~February~~in ~~28,~~China ~~2011,~~is ~~there~~owned ~~were~~by ~~approximately~~the ~~9,372~~state ~~holders~~or collectives. ofIndividuals ~~record~~and companies are permitted to acquire rights to use land or land use rights for specific purposes. In the case of ~~our~~land ~~common~~used ~~stock~~for industrial purposes, the land use rights are granted for a period of 50 years. This ~~number~~period may ~~excludes~~be renewed at the ~~shares~~expiration of ~~our~~the ~~common~~initial and any subsequent terms ~~stock~~according ~~owned~~to bythe ~~stockholders~~relevant ~~holding~~Chinese ~~stock~~laws. ~~under~~Granted ~~nominee~~land ~~security~~use ~~position~~rights are transferable ~~listings~~and may be used as security for borrowings and other obligations.

-Prior 31to -June 2007, our subsidiary IST occupied space in offices pursuant to a six month rental agreement. In June 2007, we moved into our new executive offices located on the 21st Floor of the Everbright Bank Bldg., Zhuzilin, Futian District, Shenzhen, China, for which IST currently has land use rights. Our new executive offices consist of approximately 1,200 square meters, all of which are dedicated to administrative office space. We have fully paid the land use fees. Our other property primarily consists of computer equipment, servers, licensed software, some furniture and fixtures. There is no lien on any of our property and we currently do not have any intention to make large scale improvements or developments with respect to these properties.

~~Dividend~~32 ~~Policy~~

WeiASPEC ~~have~~and ~~never~~Bocom ~~declared~~lease ~~dividends~~offices, oremployee ~~paid~~dormitories ~~cash dividends. Our~~and ~~board~~factory ofspace ~~directors~~in ~~will~~Shenzhen, ~~make~~Guangzhou, ~~any~~Beijing ~~future~~and ~~decisions~~Wuhan ~~regarding~~in ~~dividends.~~the ~~We currently~~PRC, ~~intend~~pursuant to lease ~~retain~~agreements ~~and~~that ~~use~~will ~~any~~expire ~~future~~on ~~earnings~~various ~~for~~dates ~~the~~through ~~development~~September ~~and~~2013. Rent ~~expansion~~expense offor ~~our~~the ~~business~~years ~~and~~ended doDecember ~~not~~31, ~~anticipate~~2011, ~~paying~~2010 ~~any~~and ~~cash~~2009, ~~dividends~~was ~~in the~~approximately ~~near~~$468,000, ~~future~~$380,000 and $386,200, respectively.

~~Securities~~We ~~Authorized~~believe ~~for~~that ~~Issuance~~all ~~Under~~our ~~Equity~~properties ~~Compensation~~have been adequately ~~Plans~~maintained, are generally in good condition, and are suitable and adequate for our business.

OnITEM ~~June 13, 2007, our Board of Directors authorized the establishment of the China Information Security Technology, Inc~~3. ~~Equity Incentive~~LEGAL ~~Plan, or Plan, whereby we are authorized to issue shares of our common stock to certain employees, consultants and directors~~PROCEEDINGS. ~~At that time we reserved 8,000,000 shares of our common stock for issuance under the Plan.~~

OnFrom ~~November~~time ~~27,~~to ~~2007~~time, we ~~issued~~may ~~70,000~~become ~~shares~~involved in various lawsuits and legal proceedings which arise in the ordinary course of ~~common~~business. ~~stock~~However, tolitigation ~~our~~is ~~senior~~subject ~~management~~to inherent uncertainties, and an ~~outside~~adverse ~~consultant~~result asin ~~bonus~~these or ~~awards~~other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.

OnITEM ~~March 20, 2008 our Board of Directors approved the grant of 400,000 stock awards to certain employees of the Company~~4. ~~These~~MINE ~~newly~~SAFETY ~~granted shares vested quarterly at 1/4 over a one-year period following the grant~~DISCLOSURES.

OnNot ~~February 2, 2009, we granted eligible employees a total of 60,000 shares of our common stock as compensation under the Plan~~applicable.

OnPART ~~January~~II ~~12, 2010, we granted eligible employees a total of 213,363 shares of common stock as compensation under the Plan.~~

OnITEM ~~September~~5. ~~25,~~MARKET ~~2010,~~FOR ~~the~~REGISTRANT’S ~~Company~~COMMON ~~granted eligible employees a total of 250~~EQUITY,~~000~~ ~~shares~~RELATED ofSTOCKHOLDER ~~the~~MATTERS ~~Company's~~AND ~~common~~ISSUER ~~stoc~~PURCHASES kOF asEQUITY ~~compensation under the Plan~~SECURITIES.

OnMarket ~~February~~Information ~~8, 2011, the Company granted eligible employees a total of 250,000 shares of the Company’s common stock as compensation under Plan.~~

~~Recent~~Our ~~Sales~~common ofstock ~~Unregistered~~is ~~Securities~~traded on the NASDAQ Global Select Market under the symbol “CNIT.”

WeThe ~~have~~following ~~not~~table ~~sold~~sets ~~any~~forth, ~~equity~~for ~~securities during~~ the ~~fiscal~~periods ~~year ended December 31~~indicated, ~~2010~~the high ~~that~~and ~~were~~low ~~not~~closing ~~previously~~prices ~~disclosed~~of inour acommon ~~quarterly~~stock. ~~report on~~These ~~Form~~prices 10reflect inter-Qdealer orprices, awithout ~~current~~retail ~~report~~mark-up, ~~on Form 8~~mark-Kdown ~~that~~or ~~was~~commission, ~~filed~~and ~~during~~may not ~~the~~represent ~~2010 fiscal~~actual ~~year~~transactions.

Purchases of Equity Securities

		Market Prices⁽¹⁾
		High		Low
*Year Ended December 31, 2011*
1^stQuarter	$	10.62	$	5.06
2^ndQuarter		6.02		2.80
3^rdQuarter		5.70		1.84
4^thQuarter		2.30		1.24


*Year Ended December 31, 2010*
1^stQuarter	$	13.60	$	9.04
2^ndQuarter		14.88		9.26
3^rdQuarter		11.96		8.92
4^thQuarter		13.56		9.62

No(1) ~~repurchases~~The above table sets forth the range of high and low market prices per share of our common stock ~~were~~as ~~made~~reported ~~during~~by Yahoo! Finance for the ~~fourth~~periods indicated. Prices have been adjusted to reflect the ~~quarter~~one-for-two ofreverse ~~2010~~stock split effected on March 1, 2012.

~~ITEM~~Approximate 6.Number ~~SELECTED~~of ~~FINANCIAL~~Holders ~~DATA.~~of Our Common Stock

~~The~~As ~~selected consolidated statement~~ of ~~income~~February ~~and comprehensive income data for the years ended December 31~~29, ~~2010~~2012, ~~2009~~there ~~and~~were ~~2008~~approximately ~~and~~86 ~~the~~holders of ~~selected~~record ~~balance sheet data as~~ of ~~December 31, 2010 and 2009 are derived from~~ our ~~audited~~common ~~consolidated financial statements included elsewhere in this report~~stock. ~~The~~ ~~selected~~This ~~consolidated~~number ~~financial~~excludes ~~data for~~ the ~~years~~shares ~~ended December 31, 2007 and 2006 and the selected balance sheet data as~~ of ~~December~~our ~~31,~~common ~~2008 and 2007~~stock ~~are~~owned ~~derived~~by ~~from~~stockholders ~~our~~holding ~~audited~~stock ~~consolidated~~under ~~financial~~nominee ~~statements~~security ~~not~~position ~~included in this report~~listings.

~~The~~33 following selected historical financial information should be read in conjunction with our consolidated financial statements and related notes and the information contained in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

~~For~~Dividend ~~business~~Policy ~~combinations during the years ended December 31, 2008, 2009 and 2010, see Item 1, Acquisitions, in this Report.~~

-We 32have -never declared dividends or paid cash dividends. Our board of directors will make any future decisions regarding dividends. We currently intend to retain and use any future earnings for the development and expansion of our business and do not anticipate paying any cash dividends in the near future.

~~(All~~Securities ~~amounts,~~Authorized ~~except~~ for ~~share~~Issuance ~~and~~Under ~~per~~Equity ~~share amounts, in U.S.~~Compensation ~~dollars)~~ Plans

		2010		2009		2008		2007		2006
Revenues	$	163,845,597	$	100,996,094	$	85,301,184	$	30,342,709	$	2,175,204
Income From Operations		42,563,452		32,156,443		23,882,882		13,310,477		1,881,233
Net Income	$	35,473,630	$	30,137,645	$	24,028,173	$	13,421,452	$	1,594,649
Income from Operations Per Share
Basic	$	0.82	$	0.66	$	0.51	$	0.34	$	0.06
Diluted	$	0.82	$	0.66	$	0.51	$	0.33	$	0.06
Total Assets	$	339,401,724	$	250,828,938	$	148,468,182	$	88,853,795	$	2,209,040
Total Current Liabilities		100,222,271		75,823,003		25,463,055		4,787,196		564,391
Total Long Term Liabilities		13,603,759		7,107,101
Net Assets	$	225,575,694	$	167,898,834	$	123,005,127	$	84,066,599	$	1,644,649
Weighted Average Number of Shares Outstanding
Basic		51,814,433		48,676,391		46,398,600		39,718,967		26,958,104
Diluted		52,145,011		48,676,391		46,852,827		40,152,855		26,958,104
Total Equity	$	225,575,694	$	167,898,834	$	123,005,127	$	84,066,599	$	1,644,649
Capital Stock (excluding long term debt and treasury stock)	$	255,115	$	233,548	$	209,121	$	190,891	$	50,000
Number of Shares Issued and Outstanding		52,061,787		49,905,141		47,462,404		45,639,396		31,550,298
Net Income Per Share
Basic	$	0.66	$	0.62	$	0.51	$	0.34	$	0.06
Diluted	$	0.66	$	0.62	$	0.51	$	0.33	$	0.06

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

~~ITEM~~Recent 7.Sales ~~MANAGEMENT’S~~of ~~DISCUSSION~~Unregistered ~~AND~~Securities ~~ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.~~

~~The~~We ~~following~~have ~~management’s~~not ~~discussion~~sold ~~and~~any ~~analysis~~equity ~~should~~securities ~~be read~~during ~~in conjunction with our financial statements and~~ the ~~notes~~fiscal ~~thereto and the~~year ~~other~~ended ~~financial~~December ~~information appearing elsewhere in this report. In addition to historical information~~31, ~~the~~2011 ~~following~~that ~~discussion~~were ~~contains~~not ~~certain forward-looking~~previously ~~information.~~disclosed ~~See~~in ~~“Special~~a ~~Note~~quarterly ~~Regarding Forward Looking~~report ~~Statements”~~on ~~above~~Form ~~for~~10-Q ~~certain~~or ~~information~~a ~~concerning~~current ~~those~~report ~~forward~~on ~~looking statements.~~Form ~~Our~~8-K ~~financial~~that ~~statements~~was ~~are~~filed ~~prepared~~during inthe ~~U.S. dollars and in~~2011 ~~accordance~~fiscal ~~with U~~year.S. ~~GAAP.~~

~~Overview~~Purchases of Equity Securities

WeDuring ~~are~~the afourth ~~leading~~quarter ~~provider~~ of ~~integrated~~fiscal ~~solutions~~year ~~for~~2011, ~~the~~we repurchased ~~Geographic~~shares ~~Information~~of ~~Systems,~~common orstock. ~~GIS,~~Below ~~Digital~~is ~~Public~~a ~~Security~~table ~~Technology,~~containing ~~or DPST~~information ~~and~~about ~~the~~our repurchases. ~~Digital~~Prices ~~Hospital~~and ~~Information~~share ~~Systems,~~amounts orhave ~~DHIS~~been ~~markets,~~retroactively inadjusted ~~the~~to ~~PRC.~~give Weeffect ~~provide~~to athe ~~broad~~one-for-two ~~portfolio~~reverse ofstock ~~fully~~split ~~integrated~~effected ~~solutions~~on ~~and~~March ~~services~~1, ~~encompassing~~ ~~both software development and display technologies~~2012.

We were founded in 1993 and are headquartered in Shenzhen, China. As of December 31, 2010, we had 1,453 employees and 27 sales offices nationwide.

Period	Total Number of Shares Purchased⁽¹⁾		Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
October 1, 2011 to October 31, 2011	10,542	$	1.9998	10,542	4,978,499
November 1, 2011 to November 30, 2011	260,930	$	1.931	260,930	4,563,294
December 1, 2011 to December 31, 2011	106,156	$	1.6952	106,156	4,377,977

~~Our~~(1) ~~customers~~All ~~are~~purchases ~~mostly~~were ~~public~~made ~~sector~~pursuant ~~entities~~to ~~that use~~ our ~~products~~ amended and ~~services~~restated toRule ~~improve~~10b5-1 ~~the~~repurchase ~~service~~plan. ~~quality~~This ~~and~~plan ~~management~~was ~~level~~originally ~~and efficiency~~announced ~~of public security, traffic control, fire control, medical rescue,~~on ~~border~~September ~~control~~24, ~~and~~2010; ~~surveying~~an ~~and~~extension ~~mapping.~~to ~~Our typical customers include some of~~ the ~~most~~plan ~~important~~was ~~governmental~~announced ~~departments~~on inSeptember ~~China~~16, ~~including the State Bureau~~ of2010; ~~Surveying~~ and ~~Mapping,~~an ~~the~~amendment ~~State~~to ~~Grid Corporation,~~ the ~~Ministry~~plan ofwas ~~Public Security,~~announced ~~the~~on ~~public~~November ~~security~~17, ~~fire~~2011. ~~fighting,~~Under ~~traffic and police departments of~~the ~~several~~plan ~~provinces~~as amended, ~~the~~up ~~Shenzhen~~to ~~General~~$5 ~~Station~~million of ~~Exit~~shares ~~and~~may ~~Entry~~be ~~Frontier Inspection,~~repurchased ~~and~~by ~~several~~the ~~provincial personnel, urban planning, civil~~Company. ~~administration,~~The ~~land~~plan ~~resource,~~expires ~~and~~no ~~mapping~~later ~~and~~than ~~surveying~~September ~~bureaus~~15, 2012. ~~Over~~To the ~~past several~~extent ~~years~~applicable, ~~we have diversified our customer base beyond our local reach.~~the InCompany ~~the~~does ~~future,~~not weintend ~~expect~~ to ~~continually~~make ~~expand~~further ~~our~~purchases ~~market~~under ~~and product offerings in~~ the ~~public and private sectors, through geographic expansion and enhancement of our technical capabilities~~plan.

We(2) ~~generate~~During ~~revenues~~December ~~through~~2011, the ~~sale~~Company’s ofbroker ~~our~~sold ~~hardware and software products and through the provision of related support services. A significant portion of our operations are conducted through iASPEC~~20,000 our variable interest entity. iASPEC is a PRC domestic company owned by Jiang Huai Lin, our Chairman and Chief Executive Officer, who is a PRC citizen and resident. iASPEC is able to obtain governmental licenses that are restricted to PRC entities that have no foreign ownership. These licenses allow iASPEC to perform PGIS services for PRC governmental customers. Under our Amended and Restated Management Services Agreement among our subsidiary, IST, iASPEC and Mr. Lin, IST is entitled to receive 95% of the ~~net~~Company’s ~~received~~shares ~~profit~~ of ~~iASPEC~~common ~~during~~stock ~~the~~held ~~term~~in ~~of the~~its ~~Agreement,~~account ~~less costs and expenses related~~ to ~~sales~~meet ~~and~~cash ~~operations,~~calls ~~and accrued~~on ~~but~~previous ~~uncollected accounts receivable~~purchase. InThe ~~fiscal~~purchase ~~years~~information ~~2010,~~included ~~2009~~in ~~and 2008, 39.1%, 48.6% and 48% of our revenues, respectively, were generated under~~ this ~~exclusive~~table ~~commercial~~does ~~arrangement~~not ~~with~~reflect ~~iASPEC.~~these sales.

-ITEM 336. -SELECTED FINANCIAL DATA.

~~Fiscal~~The ~~Year~~selected consolidated statement of income and comprehensive income data for the years ended December 31, 2011, 2010 ~~Financial~~and ~~Performance~~2009 ~~Highlights~~and the selected balance sheet data as of December 31, 2011 and 2010 are derived from our audited consolidated financial statements included elsewhere in this report. The selected consolidated financial data for the years ended December 31, 2008 and 2007 and the selected balance sheet data as of December 31, 2009 and 2008 are derived from our audited consolidated financial statements not included in this report.

WeThe ~~continued~~following toselected ~~experience~~historical ~~strong~~financial ~~demand~~information ~~for~~should be read in conjunction with our ~~products~~consolidated financial statements and related ~~services~~notes ~~during~~and the ~~fiscal~~information ~~year~~contained ~~ended~~in ~~December~~Item ~~31,~~7 ~~2010,~~“Management’s ~~which~~Discussion ~~resulted in~~and ~~revenue~~Analysis of Financial Condition and ~~net~~Results ~~income~~of ~~growth~~Operations.” ~~The~~Earnings ~~following~~per ~~are~~share ~~some~~and share ~~financial~~amount ~~highlights~~data ~~for~~ have been retroactively adjusted to give effect to the one-for-two ~~year:~~reverse stock split effected on March 1, 2012.

~~Revenue:~~34 ~~Revenue increased $62.85 million, or 62.23%, to $163.85 million for the fiscal year ended December 31, 2010, from $101 million for 2009.~~

~~Gross~~(All ~~profit: Gross profit increased $19.91 million~~amounts, ~~or 39.31%,~~except ~~to $70.56 million~~ for ~~the~~share ~~fiscal~~and ~~year~~per ~~ended~~share ~~December 31~~amounts, ~~2010,~~in ~~from $50~~U.~~65 million for 2009~~S. ~~Gross margin decrease by 708 basis points to 43.07%~~ indollars) ~~2010 from 50.15% in 2009.~~

Income from continuing operations: Income from continuing operations increased $5.34 million, or 17.71%, to $35.47million for the fiscal year ended December 31, 2010, from $30.14 million for 2009. Operating margin (defined as income from continuing operations as a percentage of revenue) decrease by 819 basis points to 21.65% in 2010 from 29.84% in 2009.

		2011		2010		2009		2008		2007
Revenues	$	114,535,553	$	163,845,597	$	100,996,094	$	85,301,184	$	30,342,709
Income From Operations		9,527,133		42,563,452		32,156,443		23,882,882		13,310,477
Net Income	$	8,570,179	$	35,473,630	$	30,137,645	$	24,028,173	$	13,421,452
Income from Operations Per Share
Basic	$	0.36	$	1.64	$	1.32	$	1.03	$	0.67
Diluted	$	0.36	$	1.63	$	1.32	$	1.02	$	0.66
Total Assets	$	361,792,142	$	339,401,724	$	250,828,938	$	148,468,182	$	88,853,795
Total Current Liabilities		107,764,628		100,222,271		75,823,003		25,463,055		4,787,196
Total Long Term Liabilities		1,487,828		13,603,759		7,107,101
Net Assets	$	252,539,686	$	225,575,694	$	167,898,834	$	123,005,127	$	84,066,599
Weighted Average Number of Shares
Outstanding
Basic		26,737,638		25,907,217		24,338,196		23,199,300		19,859,484
Diluted		26,965,006		26,072,506		24,338,196		23,426,414		20,076,428
Total Equity	$	252,539,686	$	225,575,694	$	167,898,834	$	123,005,127	$	84,066,599
Capital Stock (excluding long term debt
and treasury stock)	$	286,326	$	255,115	$	233,548	$	209,121	$	190,891
Number of Shares Issued and Outstanding		27,591,462		26,030,894		24,952,571		23,731,202		22,819,698
Net Income Per Share
Basic	$	0.30	$	1.33	$	1.24	$	1.03	$	0.67
Diluted	$	0.29	$	1.32	$	1.24	$	1.02	$	0.66

~~Net~~ITEM ~~income attributable to the company: Net income was $34~~7.~~40 million~~ ~~for~~MANAGEMENT’S ~~the~~DISCUSSION ~~fiscal~~AND ~~year~~ANALYSIS ~~ended~~OF ~~December~~FINANCIAL ~~31,~~CONDITION ~~2010,~~AND asRESULTS ~~compared~~OF ~~to $30~~OPERATIONS.~~09 million for 2009, a 14.31% increase. As a result, net margin contracted by 880 basis points to 21 % in 2010 from 29.80% in 2009.~~

~~Fully~~The ~~diluted~~following ~~net~~management’s ~~income~~discussion ~~per~~and ~~share~~analysis ~~from~~should ~~continuing~~be ~~operations:~~read ~~Fully~~in ~~diluted~~conjunction ~~net~~with ~~income~~our ~~per~~financial ~~share~~statements ~~from~~and ~~continuing operations~~the ~~was~~notes ~~$0.66~~thereto ~~for~~and the other ~~fiscal~~financial ~~year~~information ~~ended~~appearing ~~December~~elsewhere ~~31,~~in ~~2010~~this report. In addition to historical information, asthe ~~compared~~following discussion contains certain toforward-looking $0information.62 See “Special Note Regarding Forward Looking Statements” above for ~~the~~certain ~~same~~information ~~period~~concerning those forward looking statements. Our financial statements are prepared in ~~2009,~~U.S. ~~representing~~dollars aand ~~growth~~in accordance ofwith 6U.~~45%~~S. GAAP. All share and earnings per share information in this item has been retroactively adjusted to reflect a one-for-two reverse stock split effected on March 1, 2012.

~~The~~Overview ~~total value of our backlog of contracts as of December 31, 2010 is estimated to be approximately $28.88 million.~~

~~Principal~~We ~~Factors~~are ~~Affecting~~a ~~Our~~leading ~~Financial~~provider of information and display ~~Performance~~technologies in the PRC. We provide a broad portfolio of software, hardware and fully integrated solutions to customers in a variety of technology sectors including GIS, DPST, DHIS, and DT.

~~Demand~~We ~~for~~were ~~Software~~founded ~~Products~~in 1993 and ~~Services~~are headquartered in Shenzhen, China. As of December 31, 2011, we had approximately 1,540 employees and 23 sales offices throughout China.

~~The~~Our ~~revenue~~customers ~~growth~~are ~~and~~mostly ~~profitability~~public ofsector ~~our~~entities ~~business~~that ~~depend~~use onour products and services to improve the ~~overall~~service ~~market~~quality ~~demand~~and ~~for~~management ~~software~~level ~~products~~and efficiency of public security, traffic control, fire control, medical rescue, border control, and ~~related~~surveying ~~services~~and mapping. ~~Over~~Our ~~the~~typical customers include some of ~~past~~the ~~two~~most ~~decades~~important governmental departments in China, including the ~~PRC~~Ministry ~~government~~of Public ~~has~~Security, ~~encouraged~~ the ~~development~~public security, fire fighting, traffic and ~~use~~police departments of ~~new~~ ~~technologies~~several ~~for~~provinces, ~~information~~the Shenzhen General Station of Exit and ~~communication~~Entry Frontier Inspection, and ~~their~~several ~~application~~provincial inpersonnel, ~~all spheres~~urban ofplanning, ~~government~~civil administration, ~~industry~~land resource, ~~education~~and mapping and ~~culture~~surveying bureaus. ~~The~~Over ~~term~~the past ~~“Informatization”~~several oryears, ~~“xinxihua”~~we ~~has~~have ~~been~~diversified ~~coined~~our incustomer ~~China~~base tobeyond ~~describe~~our ~~the~~local ~~overall~~reach. ~~process~~In ofthe ~~ICT~~future, ~~application~~we inexpect ~~China~~to continually expand our market and ~~has~~product offerings in ~~recent~~the ~~years~~public ~~become~~and aother ~~linchpin~~sectors, ~~of central~~through ~~and~~geographic ~~many~~expansion ~~local~~and enhancement ~~economic~~of ~~development~~our ~~strategies~~technical capabilities.

~~For~~35 example, the Golden Shield Program promotes the use of information technology for public security services. The Digital City Program aims to ultimately integrate the functions of multiple government departments by using the GIS technology. The Golden Health Program strives to improve the efficiency of public health care by using digital hospital technologies. All these initiatives are of top priority to the Chinese government and are driving the demand for our DPST, GIS and DHIS offerings.

~~Taxation~~ We generate revenues through the sale of our software and hardware products, through our fully integrated total solutions, and through the provision of related support services. A significant portion of our operations are conducted through iASPEC , our variable interest entity. iASPEC is a PRC domestic company owned by Mr. Jiang Huai Lin, our Chairman and Chief Executive Officer, who is a PRC citizen and resident. iASPEC is able to obtain governmental licenses that are restricted to PRC entities that have no foreign ownership. These licenses allow iASPEC to perform Police-use Geographic Information Systems, or PGIS, services for PRC governmental customers. Under our MSA among our subsidiary, IST, iASPEC and Mr. Lin, IST is entitled to receive 95% of the net received profit of iASPEC during the term of the agreement, less costs and expenses related to sales and operations, and accrued but uncollected accounts receivable. In fiscal years 2011, 2010 and 2009, 47.1%, 39.1% and 48.6% of our revenues, respectively, were generated under this exclusive commercial arrangement with iASPEC.

~~CNIT is subject to United States tax at a tax rate of 34%. No~~ ~~provision~~Recent ~~for~~Developments ~~income taxes in the United States has been made as CNIT has no income taxable in the United States.~~

~~CPSH~~ Effective March 1, 2012, we effected a one-for-two reverse split of our issued and ~~HPC~~outstanding ~~Intl~~common ~~was~~stock ~~incorporated~~by filing a Certificate of Change pursuant to Section 78.209 of the Nevada Revised Statutes with the Secretary of State of Nevada. Each two shares of then issued and outstanding common stock were reverse split into one share of common stock, and each holder who would receive a fractional share as a result of the reverse split received one full share in lieu of the ~~BVI~~fractional share. The reverse split became effective on the NASDAQ Stock Market on March 2, ~~but~~2012. Concurrently with the reverse stock split, the Certificate of Change is ~~not~~deemed to amend the Company’s Articles of Incorporation to decrease the authorized number of ~~subject~~shares of the Company’s Common Stock from two hundred million (200,000,000) shares to ~~taxation~~one inhundred ~~that~~million ~~jurisdiction~~(100,000,000) shares.

~~ISSI, ISIID, Kwong Tai and HPC HK were incorporated in Hong~~ ~~Kong~~Financial ~~and~~Performance ~~under~~Highlights ~~the current laws of Hong Kong, are subject to Profits Tax of 16.5%.~~

~~Under the EIT Law, Geo, Iaspec, Bocom and Zhongtian, are~~ ~~approved~~Some ~~as high-technology enterprises and are subject to EIT at a rate~~ of ~~15% in~~our ~~2010.~~key ~~ISS~~business ~~and~~segments ~~Huipu~~experienced ~~are~~slower ~~subject to EIT at a rate of 22% in 2010. IST enjoys a two~~public-~~year~~sector ~~tax~~sales ~~exemption, followed by a 50% exemption~~ for ~~three~~our ~~years,~~products ~~retroactive to~~and asservices ofduring ~~January 1, 2007. Year 2010 was~~ the ~~forth~~fiscal year ~~that~~ended ~~IST~~December ~~was entitled to the tax holiday and subject to a favorable tax rate of 11%. Since the EIT Law permits companies~~31, ~~such~~2011 asthan ~~IST,~~in ~~that~~previous ~~were previously exempt from taxes or that had concessional rates to retain their preferences until the original expiration date~~years, ~~the~~which ~~EIT~~resulted ~~Law~~in ~~does not impact IST’s income tax qualification to enjoy~~ a ~~50% tax~~decline ~~exemption~~ in ~~fiscal~~revenue ~~year 2010~~ and ~~will~~net ~~continue~~income. The tofollowing ~~qualify~~are some ~~for~~financial ahighlights ~~50% tax exemption~~ for the ~~one~~ year ~~thereafter.~~ :

- Revenue: 34Revenue -decreased $49.31 million, or 30.1%, to $114.54 million for the year ended December 31, 2011, from $163.85 million for 2010.
~~Business~~ Gross ~~Segment~~profit: ~~Information~~Gross profit decreased $26.24 million, or 37.19%, to $44.32 million for the year ended December 31, 2011, from $70.56 million for 2010. Gross margin decreased by 438 basis points to 38.69% in 2011 from 43.07% in 2010.
~~Segment~~ Net ~~information~~income: isNet ~~consistent~~income ~~with~~decreased ~~how~~$26.9 ~~management~~million, ~~reviews the~~or ~~businesses~~75.84%, ~~makes~~to ~~investing~~$8.57 ~~and~~million ~~resource~~for ~~allocation~~the ~~decisions~~year ~~and~~ended ~~assesses operating~~December ~~performance~~31, 2011, from $35.47 ~~Transfers~~million ~~and~~for ~~sales~~2010. ~~between~~Net ~~reportable~~income ~~segments,~~margin ifdecreased ~~any~~by 1, ~~are~~417 ~~recorded~~basis atpoints ~~cost~~to 7.48% in 2011 from 21.65% in 2010.
~~Our~~ Net ~~segment~~income ~~reporting~~attributable ~~follows~~to the ~~organizational~~company: ~~structure~~Net ~~as reflected~~income inattributable ~~our~~to ~~internal~~the ~~management~~company ~~reporting~~was ~~systems,~~$7.91 ~~which~~million ~~are~~for the ~~basis~~year ~~for assessing~~ended ~~the~~December ~~financial~~31, ~~performance~~2011, ofas ~~the~~compared ~~business~~to ~~segments~~$34.4 ~~and~~million for ~~allocating~~2010, a 77.01% decrease. As a result, net margin decreased ~~resources~~by to1,409 ~~the~~basis ~~business~~points ~~segments~~to 6.91% in 2011 from 21% in 2010.
We Fully ~~report~~diluted ~~financial~~net ~~and~~income ~~operating~~per ~~information~~share: inFully diluted net income per share was $0.29 for the ~~following four~~year ~~segments:~~ended December 31, 2011, as compared to $1.32 for the same period in 2010, representing a decrease of 78.02%.

~~GIS~~ Principal ~~Segment,~~Factors ~~which~~Affecting ~~includes~~Our ~~the~~Financial ~~PGIS~~Performance ~~and Civil-Use GIS sales;~~

~~DPST Segment, formerly known as the “Digital Information Security~~ ~~Technology~~Demand ~~Segment,”~~for ~~which~~Software ~~includes~~Products ~~revenues~~and ~~from information security related~~ Services ~~projects;~~

~~DHIS~~ The ~~Segment~~revenue growth and profitability of our business depend on the overall market demand for software products and related services. Over the past two decades, ~~which~~the ~~includes~~PRC ~~revenues~~government ~~from~~has ~~digital~~encouraged ~~information~~the ~~systems~~development and use of new technologies for ~~provided~~information toand ~~hospitals~~communication and their application in all spheres of government, industry, education and culture. The term “Informatization” or ~~medical~~“xinxihua” ~~institutes;~~has been coined in China to describe the overall process of ICT application in China and has in recent years become a linchpin of central and many local economic development strategies.

~~Other~~ For ~~Products~~example, ~~and~~the ~~Services,~~Golden ~~which~~Shield ~~include~~Program ~~new~~promotes ~~offerings~~the ~~under~~use ~~market assessment~~of orinformation ~~development~~technology ~~outside~~for public security services; the ~~existing~~Digital ~~main~~City ~~business~~Program ~~segments.~~aims ~~When~~to aultimately ~~meaningful~~integrate ~~stand-alone~~the functions of multiple government departments by using the GIS technology; the Golden Health Program strives to improve the ~~segment~~efficiency isof ~~formed,~~public ~~such~~health acare ~~new~~by ~~segment~~using ~~will~~digital behospital ~~separated~~technologies. ~~from~~All these ~~this~~initiatives ~~category~~are of top priority to the Chinese government and are driving the demand for our DPST, GIS and DHIS offerings.

~~We also provide general corporate services to our segments and~~ ~~these~~36 ~~costs are reported as “Corporate and others.”~~

~~For~~Taxation ~~more information regarding our operating segments, see Note 16 (Consolidated Segment Data) to our audited consolidated financial statements included elsewhere in this report.~~

~~Results~~CNIT is subject to United States tax at a tax rate of ~~Operations~~34%. No provision for income taxes in the United States has been made as CNIT has no income taxable in the United States.

~~Comparison~~CITH ofwas ~~Fiscal~~incorporated ~~Years~~in ~~Ended~~the ~~December 31~~BVI, ~~2010~~but ~~and~~is not subject to ~~2009~~taxation in that jurisdiction.

~~The~~ISSI, ~~following~~ISIID, ~~table~~and ~~sets~~HPC ~~forth~~were ~~key~~incorporated ~~components~~in ofHong ~~our~~Kong ~~results~~and ofunder ~~operations~~the ~~for~~current ~~fiscal~~laws ~~years~~of ~~ended~~Hong ~~December 31~~Kong, ~~2010~~ and ~~2009,~~are ~~both~~subject into ~~dollars and~~a asHong aKong ~~percentage~~Profits Tax of 16.5% ~~our revenue~~.

		2010				2009
				Percentage				Percentage
		Amount		of Revenue		Amount		of Revenue
Revenue	$	163,845,597		100.00%	$	100,996,094		100.00%
Costs of revenue		93,282,442		56.93%		50,344,427		49.85%
Gross Profit		70,563,155		43.07%		50,651,667		50.15%
Administrative expenses		(18,623,523	)	11.37%		(12,653,175	)	12.53%
Research and development expenses		(3,016,693	)	1.84%		(2,705,669	)	2.68%
Selling expenses		(6,359,487	)	3.88%		(3,136,380	)	3.11%
Income from operations		42,563,452		25.98%		32,156,443		31.84%
Subsidy income		948,630		0.58%		833,429		0.83%
Other income, net(expenses)		1,237,933		0.76%		1,153,288		1.14%
Interest income		126,459		0.08%		270,666		0.27%
Interest expenses		(1,539,407	)	0.94%		(388,686	)	0.38%
Income from continuing operations before income taxes		43,337,067		26.45%		34,025,140		33.70%
Income tax expense		(7,863,437	)	4.80%		(3,887,495	)	3.85%
Income from continuing operations		35,473,630		21.65%		30,137,645		29.84%
Income from discontinued operations (net of income taxes of $0)		-		-		-		-
Net income		35,473,630		21.65%		30,137,645		29.84%
Less: Net Income Attributable to the Non-controlling Interest		(1,071,626	)	-0.65%		(43,076	)	-
Net Income Attributable to the Company	$	34,402,004		21.00%	$	30,094,569		29.80%

Under the PRC’s EIT Law, Geo, iASPEC, Bocom, ISS and Zhongtian, are approved as High Technology Enterprises and are subject to EIT at a rate of 15%. Huipu is subject to EIT at a rate of 24%. IST benefitted from a two-year tax exemption, followed by a 50% exemption for three years, retroactive to as of January 1, 2007. 2011 was the fifth year that IST was entitled to the tax holiday and subject to a favorable tax rate of 12%. For 2012, IST will be subject to a 15% tax rate, as an approved High Technology Enterprise. See Item 1 “Business – Regulation – Taxation” for a detailed description of the EIT Law and tax regulations applicable to our PRC subsidiaries and variable interest entities.

-Business 35Segment -Information

~~Revenue~~Segment information is consistent with how management reviews the businesses, makes investing and resource allocation decisions and assesses operating performance. Transfers and sales between reportable segments, if any, are recorded at cost.

~~Our~~In ~~revenue~~connection iswith ~~generated from our hardware and software products and through~~ the ~~related~~changes ~~after-sales~~in ~~services. For the year ended December 31, 2010,~~ our ~~revenue~~business ~~was~~portfolio ~~$163.85 million, compared to $101 million for~~and ~~the~~realignment ~~year ended December 31, 2009, an increase~~ of ~~$62.85 million~~management, ormanagement ~~62.23%.~~conducted ~~The total revenue exceeded our plan primarily because progress on~~ a ~~few~~review ~~contracts was~~of ~~accelerated at client’s requests. In addition,~~ our ~~new offering of display technology products turned out faster than expected.~~operating ~~Finally,~~business wesegments ~~also~~during ~~liquidated some of HPC’s inventory that is not aligned with~~ the ~~new~~ ~~strategic~~first ~~direction~~quarter ~~as part~~ of ~~the restructuring process~~2011. ~~During~~The ~~the~~review ~~year, Huipu,~~resulted ~~which was acquired~~ in ~~October 2009, contributed $42.26 million to~~ ~~revenues.~~changing ~~Excluding~~ the ~~impact~~segment ~~of Huipu, organic revenue growth was 26~~reporting.~~23%.~~

~~Software~~Our ~~sales~~new ~~increased~~segment ~~by 41.66% to $90.42 million for the year ended December 31~~reporting, ~~2010,~~which ~~from~~has ~~$63.83~~been ~~million~~used for ~~the~~all ~~year ended December~~periods 31presented, ~~2009.~~follows ~~Software~~the ~~sales~~organizational ~~constituted~~structure ~~55.19%~~reflected ofin our ~~total~~internal management ~~revenue~~reporting systems, aswhich ~~compared~~are ~~to 63.20% during~~ the ~~prior~~basis ~~year.~~for ~~Excluding~~assessing the ~~impact of Huipu, software sales were~~financial ~~74.37%~~performance of ~~organic~~the ~~revenues,~~business ~~which~~segments ~~reflects~~and ~~our~~for ~~continued~~allocating ~~commitment~~resources to ~~our core~~the ~~competency~~business ~~in software~~segments.

~~Product~~We ~~sales~~report ~~increased~~financial byand ~~$36.54~~operating ~~million,~~information ~~or 217.72%, for the year ended December 31, 2010, as compared to $16.78 million~~ in ~~2009 primarily due to~~ the ~~sales of display technology products and the~~following ~~liquidation~~two ofsegments: HPC’s inventory described earlier. Product sales constituted 32.55% of total revenue during the current period as compared with 16.62% during the prior year. Excluding the impact of Huipu, the percentage of organic product revenues decreased to 11.99% for the year 2010, from 12.35% for the prior year.

Sales of system integration services decreased by 14.40% for the year ended December 31, 2010, as compared to 2009. As a percentage of revenue, it declined from 18.83% during the year ended December 31, 2009 to 9.94% during 2010. Excluding the impact of Huipu, system integration was 13.39% of organic revenues.

(1)	IT segment: IT includes revenues from products and services surrounding a variety of our software core competencies, currently primarily in GIS, DPST and DHIS. IT segment revenues are generated from the sales of software and system integration services, as well as hardware other than display products.

(2)	DT segment: DT includes revenues from products and services surrounding our display technology core competencies, currently primarily in GIS, DPST, education, media, and consumer products. DT segment revenues are generated from sales of hardware and total solutions of hardware integrated with proprietary software and content, as well as services.

~~Other~~For ~~revenue~~more ~~increased~~information byregarding ~~179.60%,~~our ~~from~~operating ~~$1.37~~segments, ~~million~~see ~~in the~~Note ~~year~~16 ~~ended~~(Consolidated ~~December~~Segment ~~31,~~Data) ~~2009~~ to ~~$3.82~~our ~~million~~audited inconsolidated ~~2010.~~financial ~~Other revenue mainly~~statements ~~derived~~included ~~from~~elsewhere ~~maintenance services~~ in ~~the~~this ~~year ended December 31, 2009, while in 2010, other income consisted of both maintenance services and royalty income from Huipu by licensing other manufacturers to use the HPC trademark~~report.

~~The~~Results ~~following~~of ~~table~~Operations ~~shows our revenue by segment:~~

		Year Ended December 31,			Change
		2010		2009	(%)
DPST Segment	$	70,642,366	$	54,197,481	30.34%
GIS Segment		70,916,352		36,826,430	92.57%
DHIS Segment(1)		18,175,542		9,972,183	82.26%
Other Products and Services		4,111,337		-
Total sales	$	163,845,597	$	100,996,094	62.23%

Comparison of Years Ended December 31, 2011 and 2010

~~GIS~~The ~~accounted~~following ~~for~~table ~~43.28%~~sets offorth ~~the~~key ~~total~~components ~~revenue~~of ~~while~~our ~~DPST,~~results ~~DHIS and Other Products and Services represented 43.12%,11.09% and 2.51%, respectively. These compared to 36.46%, 53.66%, 9.88% and nil~~ of ~~the total~~ ~~revenue~~operations for ~~the~~fiscal ~~year~~years ended December 31, ~~2009.~~2011 ~~The shifts in segment weights reflected the GIS~~ and ~~DHIS~~2010, ~~segments~~both ~~outpacing DPST~~ in ~~their growth momentum.~~dollars ~~This is the direct result of our focus in the last few years on targeting at areas with the highest barriers-to-entry~~ and ~~developing~~as ~~sustainable~~a ~~competitive advantages~~percentage ~~in the GIS and DHIS segments, in anticipation~~ of ~~accelerating market growth in the coming years. The addition of Other Products and Services represents~~ our ~~new market developments, primarily in display technology products~~revenue.

~~Cost~~37 of Revenue and Gross Profit. As indicated in the table below, our cost of revenues increased $42.94 million, or 85.29%, to $93.28 million, for the year ended December 31, 2010, from $50.34 million for the year 2009. As a percentage of revenues, our cost of revenue increased to 56.93% during the year 2010, from 49.89% in 2009. As a result, gross profit as a percentage of revenue was 43.07% for the year ended December 31, 2010, a decrease of 7.08%, from 50.15% in 2009. Huipu yielded a gross margin of 16.81%. Excluding the impact of Huipu, gross margin of organic business was 52.19%, exceeding the organic gross margin of 51.84% in 2009. Such an increase in organic gross margin is primarily due to the increased weight of software business relative to total organic business.

- 36 -

		Year Ended December 31, 2011					Year Ended December 31, 2010
				%					%
		Amount		of Revenue			Amount		of Revenue
Revenue	$	114,535,553		100.00%		$	163,845,597		100.00%
Costs of revenue		70,216,049		61.31%			93,282,442		56.93%
Gross profit		44,319,504		38.69%			70,563,155		43.07%
Administrative expenses		(22,785,631	)	(19.89%	)		(18,623,523	)	(11.37)%
Research and development expenses		(4,483,754	)	(3.91%	)		(3,016,693	)	(1.84)%
Selling expenses		(7,522,986	)	(6.57%	)		(6,359,487	)	(3.88)%
Income from operations		9,527,133		8.32%			42,563,452		25.98%
Subsidy income		1,939,787		1.69%			948,630		0.58%
Other (loss) income, net		538,624		0.47%			1,237,933		0.76%
Interest income		317,190		0.28%			126,459		0.08%
Interest expense		(2,948,406	)	(2.57%	)		(1,539,407	)	(0.94)%
Income before income taxes		9,374,328		8.18%			43,337,067		26.45%
Income tax expense		(804,149	)	(0.70%	)		(7,863,437	)	(4.80)%
Net income		8,570,179		7.48%			35,473,630		21.65%
Less: net income attributable to non-controlling interest		(660,781	)	(0.58%	)		(1,071,626	)	(0.65)%
Net income attributable to Company	$	7,909,398		6.91%		$	34,402,004		21.00%

		Year Ended December 31, 2010								Yesr Ended December 31, 2009
		Revenue	%		Cost		GP	GP%		Revenue	%		Cost		GP	GP%
Products	$	53,328,214	32.54%	$	46,052,309	$	7,275,905	13.64%	$	16,784,910	16.62%	$	13,560,279	$	3,224,631	19.21%
Software		90,419,181	55.19%		38,574,738		51,844,443	57.34%		63,827,233	63.20%		22,229,542		41,597,691	65.17%
System integration		16,278,860	9.94%		8,259,899		8,018,961	49.26%		19,017,962	18.83%		14,251,391		4,766,571	25.06%
Others		3,819,342	2.33%		395,496		3,423,846	89.64%		1,365,989	1.35%		303,215		1,062,774	77.80%
Subtotal	$	163,845,597	100.00%	$	93,282,442	$	70,563,155	43.07%	$	100,996,094	100%	$	50,344,427	$	50,651,667	50.15%

Revenue. Our revenue is generated from the sales of our software and hardware products, our fully integrated total solutions, and the related after-sales services. For the year ended December 31, 2011, our revenue was $114.54 million, compared to $163.85 million for the year ended December 31, 2010, a decrease of $49.31 million, or 30.1% . The decrease was primarily due to the Chinese government’s implementation of macroeconomic tightening policies, which led to a slowdown in projects for our government customers, which traditionally have been our core customer base; and, secondarily due to the weak global demand and challenging industry dynamics for flat-screen TV products.

~~The~~Product ~~decrease~~sales indecreased ~~the~~by ~~overall gross margin resulted from a number of factors~~$6.89 ~~First~~million, ~~during~~or ~~the year 2010~~12.93%, ~~our product sales increased in weight relative~~ to ~~total revenues~~$46. ~~Such increase was accelerated~~44 ~~due~~million tofor the ~~clearance~~year ofended ~~HPC’s~~December ~~non-strategic~~31, ~~inventory~~2011, as ~~well~~compared asto ~~our faster-than expected sales of display technology products~~$53.33 ~~Since~~million ~~the~~for ~~average gross margin of products is lower than~~ the ~~other~~year ~~categories~~ended ofDecember ~~revenues~~31, ~~the~~ ~~overall gross margin declined~~2010. ~~Meanwhile,~~Product ~~gross~~sales ~~margin~~constituted 40.54% of ~~product categories~~total ~~declined~~revenue byduring ~~557~~2011 ~~basis~~as ~~points~~compared ~~mostly~~with ~~because~~32.54% ~~the~~during ~~clearance~~2010. ofThe ~~HPC’s~~decrease ~~non-strategic inventory~~in ~~was done at cost and the~~ product sales ofprimarily ~~the~~reflected ~~new~~1) ~~display~~our ~~technology~~efforts ~~products~~to ~~did~~transition ~~not~~our ~~enjoy~~DT ~~economies~~segment offrom ~~scale due to~~ the ~~low volume in~~ ~~the~~increasingly ~~beginning.~~competitive Inand ~~addition,~~low-margin weflat-screen ~~experienced~~TV ~~decline~~market ofinto ~~gross margins of software~~the ~~on a year~~multi-~~over-year~~functional ~~basis.~~and ~~This~~interactive isdisplay ~~because~~technology wemarkets, ~~were~~which ~~engaged~~caused ~~in larger software~~total ~~projects~~product onunit ~~average~~sales ~~than~~to ~~2009~~fall, and ~~larger~~2) ~~projects generally offer~~ lower ~~profit margin~~pricing ~~than~~of ~~smaller~~our ~~ones.~~traditional ~~The negative impact on gross margin from the above~~flat-screen ~~factors~~TVs ~~was~~in ~~partially mitigated by~~ the ~~improvement~~midst inof ~~profitability~~increasing inindustry ~~system integration~~competition and ~~increased~~weak ~~weight~~global inconsumer demand ~~other~~for ~~revenues~~flat-screen TVs.

~~For~~Software sales decreased by $51.12 million, or 56.53%, to $39.3 million for the year ended December 31, ~~2010~~2011, ~~approximately~~from $4190.70 42 million offor ~~our~~the ~~cost~~year ended ofDecember ~~revenues~~31, ~~was~~2010. ~~attributable~~Software tosales constituted 34.31% of our ~~DPST~~total ~~segment~~revenue during 2011, ~~$39~~compared with 55.~~70 million~~19% during 2010. The decrease was ~~attributable~~mainly due to the ~~our~~Chinese ~~GIS~~government’s ~~segment,~~implementation ~~$8.02~~of ~~million~~macroeconomic ~~was~~tightening ~~attributable~~policies toand ~~our~~the ~~DHIS~~curtailment ~~segment~~of ~~and~~the ~~$3.86~~massive ~~million~~government ~~was~~economic ~~attributable~~stimulus package, which led to a slowdown in software projects for our ~~Other~~government ~~Products~~customers. ~~and~~In addition, ~~Services~~during ~~segement~~2011, ~~compared~~the toCompany ~~$31.67~~instituted ~~million~~more tostringent ~~DPST~~customer acceptance policies, which ~~$15.41~~limited ~~million~~new projects to ~~GIS~~those ~~, $3.27~~with ~~million~~solid bycredit ~~DHIS~~credentials and ~~nil~~long-term business byprospects ~~others,~~in ~~respectively,~~light ~~during~~of ~~2009.~~the unfavorable government fiscal environment.

~~Administrative~~Sales ~~Expenses. Administrative expenses consist primarily~~ of ~~compensation~~system ~~and~~integration ~~benefits~~services ~~to our general management, finance and administrative staff, professional advisor fees, audit fees and other expenses incurred in connection with general operations. Total administrative expenses~~ increased by $511.97 40 million, or 4770.1803%, to $1827.6268 million for the year ended December 31, ~~2010~~2011, ~~from~~as compared to $1216.6528 million infor the year ~~2009~~ended December 31, 2010. As a ~~percentage~~ percentage of revenue, ~~administrative~~it ~~expenses~~increased ~~decreased~~from ~~to 11~~9.3794% ~~for~~during ~~the year~~ 2010, ~~from~~to 1224.5317% ~~for~~during ~~the year 2009~~2011. ~~Some~~Such growth ~~notable~~primarily ~~changes that~~ resulted infrom ~~the increase~~an ~~of administrative expenses are: 1) the~~ increase ofin ~~stock~~demand ~~based compensation~~for ~~expenses~~system ~~of $1.67 million; 2) the increase of depreciation and~~integration ~~amortization~~solutions ~~expenses~~in ofconnection ~~$1.85~~with ~~million partly because~~ the ~~depreciation~~Shenzhen ~~and amortization~~Summer ~~expenses~~Universiade, ofwhich ~~HPC~~was ~~impacted~~held ~~the full year of 2010 whereas they only~~in ~~affected~~August ~~the last three months of fiscal year 2009. Also contributing to the increase was the addition of properties~~2011, ~~plants~~ and ~~equipment~~other ~~for~~new ~~future business~~projects ~~growth~~during ~~and 3) the addition of provision for long term investment in Tianhe of $0~~2011.85 ~~million. 4) the increase of bad debt provision for accounts receivable of $0.89 million. Also contributing to the increase were the expenses incurred in new representative offices.~~

~~Research~~Other ~~and~~revenue ~~Development~~decreased ~~Expenses.~~from ~~Research and development expenses consist primarily of personnel-related expenses as well as costs associated with new software product development and enhancement~~$3.82 ~~For~~million for the year ended December 31, 2010, ~~research and development expenses increased~~ to ~~$3.02~~ ~~million, from~~ $21.7112 million infor the year ~~2009~~ended December 31, 2011, a decrease of $02.3170 million, or 1170.568% ~~increase~~ . AsOther ~~a percentage of~~ revenue, ~~the~~was ~~research~~mainly ~~and~~derived ~~development expenses~~from ~~decreased~~maintenance ~~0.84%~~services toin ~~1.84%~~2011, ~~for~~while in 2010, ~~from 2.68%~~ in ~~2009.~~addition ~~Such decrease was due~~ to maintenance ~~the~~services, ~~fact~~we ~~that~~also ~~research~~generated ~~and~~royalty ~~development~~income ~~investments made~~ from ~~prior~~Huipu ~~years~~by ~~are~~licensing other ~~yielding~~manufacturers ~~scalable~~to ~~effects~~use inthe ~~revenue~~HPC ~~growth~~trademark.

~~Selling~~The ~~Expenses.~~following ~~Selling~~table ~~expenses~~shows ~~consist primarily of compensation and benefits to~~ our ~~sales and marketing staff~~revenue, sales and after-sales traveling cost, and other sales related costs. Selling expenses increased $3.22 million for the year ended December 31, 2010, or 102.77%, to $6.36 million, from $3.14 million in 2009. As a percentage of revenue, ~~our~~ ~~selling~~cost ~~expenses~~of ~~increased~~revenue toand ~~3.88%~~gross ~~for 2010~~margin, ~~from~~by ~~3.11% in 2009. The selling expenses outpacing~~ revenue ~~growth~~categories: ~~reflects our heightened efforts in national market expansion.~~

~~Subsidy~~38 Income. For the year ended December 31, 2010 and 2009, in connection with research and development activities in a designated locale, we received approximately $948,630, $833,429, respectively as a subsidy from the local governmental agency in China.

Income Tax Expense. Income tax expense increased $3.98 million for the year ended December 31, 2010, or 102.28%, to $7.86 million, from $3.89 million in 2009. The increase was mainly due to the increase in pre-tax income and an increase in our effective income tax rate from 11.43% in 2009 to 18.14% in 2010 as a result of the tax unification program in China.

		Year Ended December 31, 2011						Year Ended December 31, 2010
			% of		Cost of	Gross			% of		Cost of	Gross
		Revenue	Revenue		Revenue	Margin		Revenue	Revenue		Revenue	Margin
Products	$	46,435,133	40.54%	$	36,815,966	20.72%	$	53,328,214	32.54%	$	46,052,309	13.64%
Software		39,301,812	34.31%		13,302,464	66.15%		90,419,181	55.19%		38,574,738	57.34%
System integration		27,678,685	24.17%		19,625,349	29.10%		16,278,860	9.94%		8,259,899	49.26%
Others		1,119,923	0.98%		472,270	57.83%		3,819,342	2.33%		395,496	89.64%
Total	$	114,535,553	100.00%	$	70,216,049	38.69%	$	163,845,597	100.00%	$	93,282,442	43.07%

-A 37breakdown -of revenue, percentage of revenue, cost of revenue and gross margin by segments is as follows:

Non-controlling Interest. Non-controlling interest of $1,071,626 for the year ended December 31, 2010 represents the $893,316 fee retained by iASPEC under the Management Service Agreement and $178,310 of Geo’s profit attributable to its 47.46% non-controlling interest.

		Year Ended December 31, 2011						Year Ended December 31, 2010
			% of		Cost of	Gross			% of		Cost of	Gross
		Revenue	Revenue		Revenue	Margin		Revenue	Revenue		Revenue	Margin
IT segment	$	68,281,729	59.62%	$	33,078,316	51.56%	$	113,700,273	69.39%	$	53,403,510	53.03%
DT segment		46,253,824	40.38%		37,137,733	19.71%		50,145,324	30.61%		39,878,932	20.47%
Total	$	114,535,553	100.00%	$	70,216,049	38.69%	$	163,845,597	100.00%	$	93,282,442	43.07%

~~Net~~Cost ~~income~~of ~~attributable~~revenue toand ~~the~~gross ~~Company~~profit. As ~~a result~~indicated of in the ~~factors~~tables ~~described~~ above, ~~net~~our ~~income~~cost ~~attributable~~of torevenue ~~the~~decreased ~~Company increased~~ $423.3107 million, or 1424.3173%, to $3470.422 million, for the year ended December 31, ~~2010~~2011, from $3093.0928 million for the ~~2009~~year ended December 31, 2010. As a percentage of revenue, our cost of revenue increased to 61.31% during the year ended December 31, 2011, from 56.93% during the year ended December 31, 2010. As a result, gross profit as a percentage of revenue was 38.69% for the year ended December 31, 2011, a decrease of 438 basis points from 43.07% for the year ended December 31, 2010.

~~Comparison~~The decrease in gross profit margins, as displayed in the tables above, resulted from several factors. First, in 2011 we continued our effort to increase our DT solutions as a percentage of ~~Fiscal~~total ~~Years~~revenues. ~~Ended~~The percentage of DT revenue increased from 30.61% during 2010 to 40.38% during 2011. The increase in contribution from DT revenues resulted in a decrease in gross profit margin for 2011 as our DT solutions business has lower average gross margins than other segments of our business. Second, due to the Chinese government’s implementation of macroeconomic tightening policies, our government customers reduced software project orders. As a result, the percentage of software revenue decreased from 55.19% during 2010 to 34.31% in 2011. The decrease in contribution from software revenues resulted in a decrease in gross profit margin for 2011 as, on average, software projects have higher average gross margins than other segments of our business. Third, the gross profit margin for our system integration business decreased from 49.26% during 2010 to 29.10% in 2011, primarily due to the high profit margin of certain projects in the 2010 period. Finally, the Company lowered its LCD TV prices in the face of increased competition and weak global consumer demand, while costs of manufacturing continued to rise in 2011. All of these factors resulted in a decrease in overall gross profit margin for the year ended December 31, ~~2009~~2011. However, as we became more selective with our acceptance of orders in an effort to improve the quality of our earnings, the gross margin for product and ~~2008~~software sales were higher in the fiscal year ended December 31, 2011 compared to the fiscal year ended December 31, 2010.

~~The~~Administrative ~~following~~expenses. ~~table~~Our ~~sets~~administrative expenses ~~forth~~consist ~~key~~primarily ~~components~~ of compensation and benefits to our ~~results~~general management, offinance and administrative staff, professional advisor fees, audit fees and other expenses incurred in connection with general operations. Administrative expenses increased by $4.16 million, or 22.35%, to $22.79 million for ~~fiscal~~the ~~years~~year ended December 31, ~~2009~~2011, from $18.62 million for the year ended December 31, 2010. As a percentage of revenue, administrative expenses increased to 19.89% for 2011, from 11.37% for 2010. Notable changes year-over-year that resulted in increased administrative expenses were: First, inventory write downs increased by $6.63 million; and ~~2008~~second, ~~both~~depreciation and amortization expenses increased by $1.41 million. These changes were offset by the decrease in share ~~dollars~~based compensation and bonus expenses to employees of $3.9 million. Our DT segment’s inventory was written down mainly for the following reasons: 1) the DT business’s transition from its traditional flat-screen TV products to multi-functional interactive digital display technologies resulted in some electronic components in inventory becoming incompatible with, and asthus not usable for, the new advanced DT products; and 2) the global flat-screen, especially LCD TV market faced major challenges in 2011, including weak global consumer demand, a ~~percentage~~supply glut, and the emergence of ~~our~~new ~~revenue~~display technologies and products such as 3D-TV and OLED technology that is expected to replace LCD technology in the coming years, leading to the obsolescence of many flat-screen display products and components.

		2009				2008
				Percentage				Percentage
		Amount		of Revenue		Amount		of Revenue
Revenue	$	100,996,094		100.00%	$	85,301,184		100.00%
Costs of revenue		50,344,427		49.85%		46,222,320		54.19%
Gross Profit		50,651,667		50.15%		39,078,864		45.81%
Administrative expenses		(12,653,175	)	12.53%		(10,158,863	)	11.91%
Research and development expenses		(2,705,669	)	2.68%		(2,596,430	)	3.04%
Selling expenses		(3,136,380	)	3.11%		(2,440,689	)	2.86%
Income from operations		32,156,443		31.84%		23,882,882		28.00%
Subsidy income		833,429		0.83%		738,482		0.87%
Other income, net		1,153,288		1.14%		200,439		0.23%
Interest income		270,666		0.27%		214,850		0.25%
Interest expenses		(388,686	)	0.38%		(179,130	)	0.21%
Income from continuing operations before income taxes		34,025,140		33.70%		24,857,523		29.14%
Income tax expense		(3,887,495	)	3.85%		(1,547,509	)	1.81%
Income from continuing operations		30,137,645		29.84%		23,310,014		27.33%
Income from discontinued operations (net of income taxes of $0)		-		-		718,159		0.84%
Net income		30,137,645		29.84%		24,028,173		28.17%
Less: Net Income Attributable to the Non-controlling Interest		(43,076	)			(241,197	)	0.28%
Net Income Attributable to the Company	$	30,094,569		29.80%	$	23,786,976		27.89%

~~Revenue~~Research and development expenses. Our ~~revenue~~research and isdevelopment ~~generated~~expenses ~~from~~consist ~~our hardware~~primarily ~~and~~of ~~software~~personnel-related ~~products~~expenses, ~~and~~as well ~~through~~as ~~the~~costs ~~related~~associated ~~after-sales~~with ~~services.~~new ~~For the~~software ~~year~~and ~~ended~~hardware ~~December~~development ~~31,~~and enhancement. ~~2009,~~Research ~~our~~and ~~revenue~~development ~~was~~expenses increased by $~~101~~1.47 million, ~~compared~~or 48.63%, to $854.3048 million for the year ended December 31, ~~2008~~2011, anfrom ~~increase of~~ $153.7002 million, orfor ~~18.40%.~~the ~~Our~~year ~~increase~~ended inDecember ~~revenues~~31, ~~during~~2010. ~~2009~~As ~~was~~a ~~attributable~~percentage toof anrevenue, ~~increase~~research inand ~~our~~development ~~software~~expenses ~~sales~~increased ofto 823.5891% tofor ~~$63.83 million~~2011, from ~~$34~~1.9684% ~~million~~in ~~for~~2010. ~~the~~The ~~year~~increase ~~ended~~was ~~December~~primarily ~~31,~~a ~~2008.~~result ~~Software~~of ~~sales~~our ~~constituted~~efforts ~~63.20%~~in ofimproving ~~our~~product ~~total~~profitability ~~revenue~~and developing new products.

~~Sales~~Selling expenses. Our selling expenses consist primarily of ~~hardware~~compensation ~~products~~and ~~included~~benefits ~~$4.68~~to ~~million~~our ~~contributed by~~sales ~~Huipu~~and inmarketing ~~November~~staff, sales and ~~December~~after-sales oftraveling ~~2009.~~costs, ~~Sales~~and ofother ~~hardware~~sales-related ~~products~~costs. ~~and~~Selling ~~system~~expenses ~~integration~~increased ~~services~~$1.16 ~~decreased~~million, byor 3718.423%, ~~and~~to 1$7.~~61%~~52 million for the year ended December 31, ~~respectively~~2011, from $6.36 million for the year ended December 31, ~~2009~~2010. As a percentage of revenue, asour ~~compared~~selling expenses increased to ~~2008~~6.57% for 2011, from 3.88% for 2010. The increase in selling expenses reflected our heightened efforts in our PRC market expansion.

~~These~~Subsidy ~~changes~~income. ~~are~~For ~~reflective~~the ofyears ~~our~~ended ~~increased~~December ~~focus~~31, 2011 onand ~~high~~2010, in connection with research and development activities in a ~~value-added~~designated ~~offerings~~locale, ~~surrounding~~we ~~our~~received ~~core~~$1,939,787 ~~competency~~and $948,630, ~~which~~respectively, ~~warrant~~as ~~higher~~a ~~gross~~subsidy ~~margin~~from the local governmental agency in China.

Other income, net. Other income, net of $538,624 for the year ended December 31, 2011, a decrease from $1.2 million from the previous year. The ~~following~~decrease ~~table~~was ~~shows~~the ~~our~~result ~~revenue~~of a loss from the disposal of inventory of approximately $0.76 million during the current year. The decrease was offset by ~~segment:~~the change in the estimated fair value of contingent shares paid towards the HPC acquisition. The gain of approximately $1.48 million resulted from a decrease in the fair value of the liability associated with issuing contingent consideration that was recorded during the year ended December 31, 2011. Because our stock price declined during the year, the contingent liability, which is based on our stock price, also decreased in fair value. This decrease in contingent liability resulted in an increase in our income.

		Year Ended December 31,			Change
		2009		2008	(%)
DPST Segment	$	54,197,481	$	50,968,985	6.33%
GIS Segment		36,826,430		34,281,398	7.42%
DHIS Segment(1)		9,972,183		50,801	19,529.90%
Total sales	$	100,996,094	$	85,301,184	18.40%

Income tax expense. Income tax expense for the year ended December 31, 2011 was $0.8 million, a decrease from $7.86 million for the year ended December 31, 2010. The decrease was largely due to the following factors: a) income before taxes from PRC subsidiaries decreased $39.59 million, causing approximately $5.94 million of the decrease; and b) our subsidiary, ISS, obtained the High Technology Enterprise designation during 2011 and was approved for the EIT rate of 15% with retroactive effect to fiscal year 2010, causing approximately $0.5 million of the decrease.

Non-controlling 38interest. Non-controlling interest of $0.66 million for the year ended December 31, 2011 represents the $0.39 million fee retained by iASPEC under the MSA, and $0.27 million of Geo retained by the 47.46% non-controlling interest in Geo.

~~(1)~~Net ~~The~~income ~~DHIS~~attributable ~~segment~~to ~~was~~Company. ~~started~~As ina ~~November~~result of ~~2008,~~the socumulative effect of the ~~full-year~~ ~~comparison~~foregoing isfactors, ~~skewed~~net byincome attributable to the ~~difference~~Company indecreased ~~time~~$26.49 ~~periods~~million, ~~that contributed~~or 77.01%, to $7.91 million for the ~~consolidated~~year ended ~~results~~December 31, 2011, from $34.4 million for the year ended December 31, 2010.

~~Cost~~Comparison of ~~Revenue~~Years ~~and~~Ended ~~Gross Profit. As indicated in the table below, our cost of revenues increased $4.12 million, or 8.92%, to $50.34 million, for the year ended~~ December 31, ~~2009,~~2010 ~~from $46.22 million for~~and ~~the year 2008. As a percentage of revenues, our cost of revenue decreased to 49.85% during the year~~ 2009, ~~from 54.19% in 2008. As a result, gross profit as a percentage of revenue was 50.15% for the year ended December 31, 2009, an increase of 4.34%, from 45.81% in 2008.~~

		Year Ended December 31, 2009								Year Ended December 31, 2008
		Revenue	%		Cost		GP	GP%		Revenue	%		Cost		GP	GP%
Products	$	16,784,910	16.62%	$	13,560,279	$	3,224,631	19.21%	$	26,822,325	31.44%	$	25,049,072	$	1,773,253	6.61%
Software		63,827,233	63.20%		22,229,542		41,597,691	65.17%		34,958,401	40.98%		5,628,436		29,329,965	83.89%
System integration		19,017,962	18.83%		14,251,391		4,766,571	25.06%		19,328,312	22.66%		12,196,185		7,132,127	36.89%
Others		1,365,989	1.35%		303,215		1,062,774	77.80%		4,192,146	4.91%		3,348,627		843,519	20.13%
Subtotal	$	100,996,094	100%	$	50,344,427	$	50,651,667	50.15%	$	85,301,184	100%	$	46,222,320	$	39,078,864	45.81%

The following table sets forth key components of our results of operations for fiscal years ended December 31, 2010 and 2009, both in dollars and as a percentage of our revenue.

The increase is the result of three counter-active factors. First, during the year 2009, we sharpened our focus on high value-added offerings surrounding our core competency, which led to the weight of software contribution to revenue to 63.20% in 2009 from 41.0% in 2008. The gross margin of software is 65.17%, significantly higher than those of hardware of 19.2% and system integration of 25.1%. In the meantime, we experienced decline of gross margins of software and system integration sub-categories on a year-over-year basis. This is because we were engaged in larger projects on average than 2008, and larger projects generally offer lower profit margin than smaller ones. Finally, as we focused our product business on high-end hardware, the gross margin of our product subcategory increased significantly from 2008. In the end, the benefit of the product mix change in favor of software and the improvement in profitability of hardware business out-weighed the decline in profitability of software and system integration business. Consequently, the gross margin improved year-over-year.

		Year Ended December 31, 2010				Year Ended December 31, 2009
				%				%
		Amount		of Revenue		Amount		of Revenue
Revenue	$	163,845,597		100.00%	$	100,996,094		100.00%
Costs of revenue		93,282,442		56.93%		50,344,427		49.85%
Gross profit		70,563,155		43.07%		50,651,667		50.15%
Administrative expenses		(18,623,523	)	(11.37)%		(12,653,175	)	(12.53)%
Research and development expenses		(3,016,693	)	(1.84)%		(2,705,669	)	(2.68)%
Selling expenses		(6,359,487	)	(3.88)%		(3,136,380	)	(3.11)%
Income from operations		42,563,452		25.98%		32,156,443		31.84%
Subsidy income		948,630		0.58%		833,429		0.83%
Other income (loss), net		1,237,933		0.76%		1,153,288		1.14%
Interest income		126,459		0.08%		270,666		0.27%
Interest expenses		(1,539,407	)	(0.94)%		(388,686	)	(0.38)%
Income before income taxes		43,337,067		26.45%		34,025,140		33.70%
Income tax expense		(7,863,437	)	(4.80)%		(3,887,495	)	(3.85)%
Net income		35,473,630		21.65%		30,137,645		29.84%
Less: net income (loss) attributable to non-controlling interest		(1,071,626	)	(0.65)%		(43,076	)	-
Net income attributable to Company	$	34,402,004		21.00%	$	30,094,569		29.80%

~~For~~40 the year ended December 31, 2009, approximately $31.67 million of our cost of revenues was attributable to our DPST segment, $15.41 million was attributable to our GIS segment and $3.27 million was attributable to our DHIS segment, compared to $31.51 million to DPST, $14.68 million to GIS and $35,577 by DHIS, respectively, during the year 2008. Gross margins for all segments improved.

~~Administrative Expenses~~Revenue. ~~Administrative~~For ~~expenses consist~~the ~~primarily~~year ofended ~~compensation~~December ~~and~~31, ~~benefits to our general management~~2010, ~~finance~~our ~~and~~revenue ~~administrative~~was ~~staff,~~$163.85 ~~professional advisor fees~~million, ~~audit~~compared ~~fees~~to ~~and other~~$101 ~~expenses~~million ~~incurred~~for inthe ~~connection~~year ~~with~~ended December ~~general~~31, ~~operations.~~2009, ~~Total administrative~~an ~~expenses~~increase ~~increased~~of by $262.4985 million, or 2462.5523%, ~~to $12~~.65 ~~million~~The total revenue ~~for~~exceeded ~~the~~our ~~year~~plan ~~ended~~primarily ~~December~~because ~~31,~~progress ~~2009,~~on ~~from~~a ~~$10.16~~few ~~million~~contracts inwas ~~the~~accelerated at ~~year~~client’s ~~2008~~requests. AsIn ~~a percentage~~addition, our new offering of ~~revenue,~~display ~~administrative~~technology products ~~expenses~~turned ~~increased~~out tofaster 12than expected.~~53%~~ ~~for~~Finally, ~~the~~we ~~year~~also liquidated some of ~~2009,~~HPC’s ~~from~~inventory ~~11.91%~~that ~~for~~is ~~the~~not ~~year~~aligned ~~2008.~~with ~~Such~~the anew ~~ratio~~strategic ~~incline~~direction ~~reflects~~as ~~our~~part ~~efforts~~of inthe ~~enhancing~~restructuring ~~managerial~~process. ~~capabilities~~During ~~which~~the ~~lead~~year, toHuipu, ~~higher~~which ~~compensation~~was toacquired ~~staff~~in October ~~and~~2009, ~~increased~~contributed ~~head count~~$42.26 ~~Such~~million ~~investment~~to ~~shall~~revenues. ~~yield~~Excluding ~~managerial~~the ~~efficiency~~impact inof Huipu, ~~the~~organic ~~long~~revenue ~~run~~growth was 26.23% .

~~Research~~Product ~~and~~sales ~~Development~~increased ~~Expenses~~by $36.54 ~~Research~~million, ~~and development~~or ~~expenses~~217.72%, ~~consist~~for ~~primarily~~the year ofended ~~R&D~~December ~~personnel-related~~31, ~~expenses~~2010, as ~~well~~ ascompared ~~costs~~to ~~associated~~$16.78 ~~with~~million ~~new~~for ~~software product development and enhancement. For~~ the year ended December 31, 2009, ~~research~~primarily ~~and~~due ~~development~~to ~~expenses~~the sales of display technology products and ~~increased~~the toliquidation $2of HPC’s inventory described earlier.71 ~~million,~~Product ~~from~~sales $2constituted 32.6055% ~~million~~of intotal ~~the~~revenue ~~year~~during ~~2008,~~2010 aas ~~$0.11 million,~~compared orwith 416.2162%, ~~increase~~during 2001. Excluding Asthe aimpact ~~percentage~~ of ~~revenue~~Huipu, the ~~research~~percentage ~~and development~~of ~~expenses~~organic product revenues decreased ~~0.36%~~ to 211.6899% for ~~2009~~2010, from 312.0435% infor ~~2008~~2009. ~~This ratio decline reflects the revenue scalability of the R&D results.~~

~~Selling~~Software ~~Expenses.~~sales ~~Selling~~increased ~~expenses~~by ~~consist primarily~~41.66% ofto ~~compensation~~$90.42 ~~and~~million ~~benefits~~for tothe year ~~our~~ended ~~sales~~December ~~and~~31, ~~marketing staffs~~2010, ~~business~~ ~~travels~~from ~~after-sale~~$63.83 ~~support,~~million ~~transportation~~for ~~costs~~the ~~and~~year ~~other~~ended ~~sales~~December ~~related~~31, ~~costs~~2009. ~~Selling~~Software ~~expenses~~sales ~~increased~~constituted $055.719% ~~million~~of ~~for~~our ~~the~~total ~~year~~revenue ~~ended December~~for 312010, ~~2009,~~as compared orto 2863.6920%, tofor $32009.14 ~~million,~~Excluding ~~from~~the ~~$2.44~~impact ~~million~~of inHuipu, ~~2008.~~software Assales awere ~~percentage~~74.37% of ~~revenue~~organic revenues, ~~our~~which ~~selling~~reflects ~~expenses~~our ~~decreased~~continued commitment to ~~2.68%~~our ~~for 2009, from~~core ~~2.86%~~competency in ~~2008~~software.

~~Subsidy~~Sales ~~Income.~~of ~~For~~system integration services decreased by 14.40% for the year ended December 31, ~~2009~~ 2010, inas ~~connection~~compared ~~with~~to ~~research~~the ~~and~~year ~~development~~ended ~~activities~~December in31, 2009. As a ~~designated locale~~percentage of revenue, weit ~~received~~declined ~~approximately~~from ~~$833,429~~18.83% asduring a2009 ~~subsidy~~to ~~from~~9.94% during 2010. Excluding the ~~local governmental~~impact ~~agency~~of inHuipu, ~~China~~system integration was 13.39% of organic revenues.

~~Income~~Other ~~Tax~~revenue ~~Expense.~~increased ~~Income~~by ~~tax~~179.60%, ~~expense~~from ~~increased~~ $21.3437 million ~~for~~in the year ended December 31, 2009, ~~or 151.21%,~~ to $3.~~89 million,~~82 ~~from $1.55~~ million in ~~2008. The increase was mainly due to~~ the ~~increase in~~year ~~pre-tax~~ended ~~income~~December ~~and an increase in our effective income tax rate from 6.23% in~~31, ~~2008 to 11.43% in~~ 2009. ~~Our~~Other ~~subsidiaries,~~revenue ~~ISS,~~mainly ~~Zhongtian~~derived ~~and~~from ~~Huipu~~maintenance ~~are~~services ~~subject to EIT at a rate of 20% of assessable profits~~ in 2009, ~~compared~~while to 18% for 2008, an increase of 2%. Our VIE, iASPEC (exclusive of Geo) acquired the high technology enterprise qualification during 2009, and became subject to EIT at a rate of 15%, decrease of 3% compared with 18% in ~~2008. As a High-Tech~~ ~~Enterprise~~2010, ~~Geo~~other isincome ~~subject~~consisted ~~to EIT at a rate~~ of ~~15%~~both ofmaintenance ~~assessable~~services ~~profits.~~and ~~However,~~royalty ~~after offsetting accumulated~~income ~~losses~~ from ~~prior~~Huipu ~~years,~~by ~~Geo~~licensing ~~had~~other nomanufacturers ~~assessable profits subject~~ to ~~EIT~~use ~~for~~ the ~~year~~ ~~ended~~HPC ~~December 31, 2009~~trademark. As a software company, IST was entitled to a two-year exemption from EIT followed by a 50% tax exemption for the next 3 years. In 2008, IST enjoyed tax exemption. From 2009 through 2011, IST is subject to a favorable tax rate of 10%, 11% and 12%, respectively.

-The 39following -table shows our revenue, percentage of revenue, cost of revenue and gross margin, by revenue categories:

Non-controlling Interest. Non-controlling interest of $43,076 for the year ended December 31, 2009 represents the $180,000 fee retained by iASPEC under the Management Service Agreement, and $136,926 of Geo’s losses attributable to its 43% non-controlling interest.

		Year Ended December 31, 2010						Year Ended December 31, 2009
			% of		Cost of	Gross		Revenue	% of		Cost of	Gross
		Revenue	Revenue		Revenue	Margin			Revenue		Revenue	Margin
Products	$	53,328,214	32.54%	$	46,052,309	13.64%	$	16,784,910	16.62%	$	13,560,279	19.21%
Software		90,419,181	55.19%		38,574,738	57.34%		63,827,233	63.20%		22,229,542	65.17%
System integration		16,278,860	9.94%		8,259,899	49.26%		19,017,962	18.83%		14,251,391	25.06%
Others		3,819,342	2.33%		395,496	89.64%		1,365,989	1.35%		303,215	77.80%
Total	$	163,845,597	100.00%	$	93,282,442	43.07%	$	100,996,094	100%	$	50,344,427	50.15%

~~Net~~A ~~income~~breakdown ~~attributable to the Company. As a result~~ of ~~the factors described above~~revenue, ~~net~~percentage ~~income attributable to the Company increased $6.31 million, or 26.52%, to $30.09 million for the year ended December 31, 2009, from $23.79 million for 2008. During November and December~~ of ~~2009,~~ ~~Huipu generated a net loss of $197~~revenue,~~803.~~ ~~This~~cost ~~near break-even result is in line with our expectation, as Huipu is going through significant strategic changes and restructuring upon the close~~ of ~~our acquisition on October 14, 2009.~~revenue ~~We believe that as Huipu completes the restructuring process, it will realize the economies of scale~~ and ~~optimize~~gross ~~efficiency~~margin toby ~~realize~~segments ~~the goals set in the earn-out provisions, which~~ is toas ~~earn~~follows: ~~a minimum of $3.2 million in net profit for 2010.~~

Liquidity and Capital Resources

		Year Ended December 31, 2010						Year Ended December 31, 2009
			% of		Cost of	Gross			% of		Cost of	Gross
		Revenue	Revenue		Revenue	Margin		Revenue	Revenue		Revenue	Margin
IT segment	$	113,700,273	69.39% $		53,403,510	53.03%	$	89,665,844	88.78% $		41,990,839	53.17%
DT segment		50,145,324	30.61%		39,878,932	20.47%		11,330,250	11.22%		8,353,588	26.27%
Total	$	163,845,597	100.00%	$	93,282,442	43.07%	$	100,996,094	100.00%	$	50,344,427	50.15%

As41 of December 31, 2010, we had cash and cash equivalents of $18.17 million. The following table summarizes the key cash flow components from our condensed consolidated statements of cash flows for the periods indicated.

~~Cash~~Cost ~~Flow~~of ~~(all~~revenue ~~amounts~~and gross profit. As indicated in the Utables above, our cost of revenues increased $42.S94 million, or 85.29%, ~~dollars)~~to $93.28 million, for the year ended December 31, 2010, from $50.34 million for the year ended December 31, 2009. As a percentage of revenues, our cost of revenue increased to 56.93% in 2010, from 49.89% in 2009. As a result, gross profit as a percentage of revenue was 43.07% for the year ended December 31, 2010, a decrease of 7.08%, from 50.15% the year ended December 31, 2009. Huipu yielded a gross margin of 16.81% . Excluding the impact of Huipu, gross margin of organic business was 52.19%, exceeding the organic gross margin of 51.84% in 2009. Such an increase in organic gross margin is primarily due to the increased weight of software business relative to total organic business.

		Year Ended December 31,
		2010			2009			2008
Net cash provided by operating activities	$	26,949,537		$	11,477,783		$	4,547,977
Net cash used in investing activities		(62,355,594	)		(14,664,274	)		(21,045,087	)
Net cash provided by financing activities		38,564,344			7,113,658			5,228,098
Effects of exchange rate change on cash and cash equivalents		1,529,937			(13,786	)		1,079,082
Net increase (decrease) in cash and cash equivalents		4,688,224			3,913,381			(10,189,930	)
Cash and cash equivalents at beginning of the year		13,478,633			9,565,252			19,755,182
Cash and cash equivalents at end of the year	$	18,166,857		$	13,478,633		$	9,565,252

The decrease in the overall gross margin resulted from a number of factors. First, during 2010, our product sales increased in weight relative to total revenues. Such increase was accelerated due to the clearance of HPC’s non-strategic inventory as well as our faster-than expected sales of display technology products. Since the average gross margin of products is lower than the other categories of revenues, the overall gross margin declined. Meanwhile, gross margin of product categories declined by 557 basis points mostly because the clearance of HPC’s non-strategic inventory was done at cost and the sales of the new display technology products did not enjoy economies of scale due to the low volume in the beginning. In addition, we experienced decline of gross margins of software on a year-over-year basis. This is because we were engaged in larger software projects on average than 2009, and larger projects generally offer lower profit margin than smaller ones. The negative impact on gross margin from the above factors was partially mitigated by the improvement in profitability in system integration and increased weight in other revenues.

~~Operating~~For ~~Activities~~the year ended December 31, 2010, approximately $53.4 million of our cost of revenues was attributable to our IT segment and $39.88 million was attributable to our DT segment, compared to $41.99 million to our IT segment and $8.35 million to our DT segment, respectively, for the year ended December 31, 2009.

~~Net~~Administrative ~~cash~~expenses. ~~provided~~Our administrative expenses increased by ~~operating~~$5.97 ~~activities~~million, ~~was~~or 47.18%, to $2618.9562 million for the year ended December 31, 2010, anfrom ~~increase of~~ $1512.4765 million orfor the year ended December 31, 2009. ~~134~~As a percentage of revenue, administrative expenses decreased to 11.837%, for 2010, from 12.53% for 2009. Some notable changes that resulted in the increase of administrative expenses are the increase in stock-based compensation expenses of $111.4867 million, ~~net~~and ~~cash~~the ~~provided~~increase byin ~~operating~~depreciation ~~activities~~and ~~for~~amortization expenses ~~2009~~of $1.85 ~~This~~million, partly because the depreciation and amortization ~~increase~~expenses ~~far~~of ~~outpaced~~HPC ~~revenue~~impacted ~~growth~~the full year of ~~62.23%.~~2010, ~~Such~~whereas anthey ~~increase~~only ~~was~~affected ~~primarily~~the ~~due~~last three months of 2009. Also contributing to the ~~improvements~~increase inwas ~~working~~the ~~capital~~addition ~~turnover~~of property, ~~including~~plant and equipment for future business growth and the ~~speeding~~addition upof provision for long term investment in Tianhe of $0.85 million. Also contributing was the ~~turn-over~~increase of bad debt provision for accounts receivable ~~and~~of ~~inventories~~$0.89 million. Also contributing to the increase were the expenses incurred in new representative offices.

~~For~~Research ~~fiscal~~and ~~2009,~~development ~~net~~expenses. ~~cash~~Our ~~provided~~research and bydevelopment ~~our~~expenses ~~operating activities~~ increased by $60.9331 million, or ~~152~~11.45%, asto ~~compared~~$3.02 tomillion for ~~fiscal~~the ~~2008~~year ended December 31, 2010, from $2.71 ~~Such~~million anfor the year ended ~~increase~~December in31, ~~net~~2009. ~~cash~~As ~~provided~~a bypercentage ~~operating~~of ~~activities~~revenue, ~~while~~research ~~revenues~~and ~~expanded~~development expenses bydecreased 18to 1.484%, ~~reflected~~for ~~improved~~2010, ~~operating~~from ~~cash~~2.68% ~~flow management~~ in 2009. ~~The increase~~Such decrease was ~~mainly~~ due to the fact ~~improvement~~that inresearch ~~working~~and ~~capital~~development ~~turnover~~investments made from prior years are yielding scalable effects in revenue growth.

~~Investing~~Selling ~~Activities~~expenses. Our selling expenses increased $3.22 million, or 102.77%, to $6.36 million for the year ended December 31, 2010, from $3.14 million for the year ended December 31, 2009. As a percentage of revenue, our selling expenses increased to 3.88% for 2010, from 3.11% in 2009. The selling expenses outpacing revenue growth reflects our heightened efforts in national market expansion.

~~Net~~Subsidy ~~cash used in our investing activities was $62~~income.36 ~~million for~~For the ~~year~~years ended December 31, 2010, asand ~~compared~~2009, toin ~~$14.66~~connection ~~million~~with ~~net~~research ~~cash used~~and indevelopment ~~investing~~ activities ~~for 2009. Approximately $25.31 million of the total was used as the deposit for purchasing land use rights under local government incentives. Details have been provided~~ in ~~Footnote 10(~~a), designated ~~Item 1~~locale, ~~Part~~we Ireceived ofapproximately ~~this report and Footnote 17 (Subsequent Event)~~$948, ~~Item 1~~630, ~~Part I of the Form 10Q/A for the quarterly period ended June 30~~$833,429, ~~2010. Approximately $32.82 million was used~~respectively, toas ~~purchase~~a ~~machineries,~~subsidy ~~equipment~~from ~~and~~the ~~software~~local asgovernmental anagency ~~investment~~in ~~for future business expansion~~China.

~~For~~Income ~~fiscal~~tax ~~2009,~~expense. ~~net~~Income ~~cash~~tax ~~used~~expense ~~by our investing activities decreased~~increased by $63.3898 million, or 30102.328%, asto ~~compared~~$7.86 tomillion ~~fiscal~~for ~~2008.~~the ~~The~~year ~~decrease~~ended ~~was~~December ~~mainly~~31, ~~due~~2010, tofrom a$3.89 ~~decrease~~million infor ~~cash~~the ~~used~~year ~~for~~ended ~~acquisitions~~December of31, $82009.02 ~~million,~~The ~~with~~increase ~~Huipu~~was ~~being~~mainly ~~the~~due ~~only~~to ~~acquisition~~the increase in ~~2009,~~pre-tax asincome ~~compared~~and ~~with~~an 3increase ~~acquisitions completed~~ in ~~2008,~~our aeffective income ~~decrease~~tax inrate ~~proceeds~~ from ~~investments~~11.43% ofin $32009 to 18.4514% ~~million~~in ~~and~~2010 as a ~~decrease~~ result of ~~capital~~the ~~expenditure~~tax unification ofprogram ~~$1.8~~in ~~million~~China.

-42 ~~40 -~~

~~Financing~~ Non-controlling ~~Activities~~interest. Non-controlling interest of $1,071,626 for the year ended December 31, 2010 represents the $893,316 fee retained by iASPEC under the MSA and $178,310 of Geo’s profit attributable to its 47.46% non-controlling interest.

Net ~~cash~~income ~~provided~~attributable byto ~~our~~Company. ~~financing~~As ~~activities~~a ~~increased~~result ~~to $38.56~~of ~~million~~cumulative ~~during~~effect of the ~~year~~foregoing ~~ended December 31~~factors, ~~2010,~~net asincome ~~compared to $7.11 million during 2009. The increase was mainly~~ attributable to the ~~net~~Company ~~proceeds~~increased of $94.3831 million, ~~raised~~or ~~in issuing of common stock~~14.31%, anto ~~increase in net bank borrowings of~~ $2234.444 million, ~~and~~for anthe ~~increase~~year inended ~~net~~December ~~borrowings~~31, ~~from~~2010, ~~shareholders’~~from ~~long-term loan of~~ $530.09 million. ~~Geo~~for ~~also~~the ~~received~~year ~~capital~~ended ~~injection of~~December ~~$1.74~~31, ~~million from minority shareholders~~2009.

~~For fiscal 2009, net cash provided by our financing activities~~ ~~increased~~Liquidity by $1.89 million, as compared to fiscal 2008. The increase was mainly due to an increase in net borrowings under short-term bank loans of $1.2 million, a decrease in long-term loan repayment of $734,000 and aCapital ~~purchase of treasury stock in 2009 of $11,500.~~ Resources

~~Loan~~ As ~~Facilities~~of December 31, 2011, we had cash and cash equivalents of $14.02 million.

As Our customers have historically been primarily public sector entities that use our products and services to improve the service quality and management level and efficiency of ~~December~~public 31security, ~~2010~~traffic control, fire control, medical rescue, border control, surveying, mapping, and healthcare management. Over the ~~amount~~past several years, ~~maturity~~especially ~~date~~during 2011 and ~~duration~~2010, we diversified our customer base beyond our historical geographic reach, and expanded our market and product offerings in the ofpublic ~~each~~and private sectors, through geographic expansion and the enhancement of our ~~loan~~technical ~~facilities~~capabilities. ~~were~~Along with our expansion in the market, our customer base of accounts receivable increased from 234 as ~~follows:~~of December 31, 2009, to 289 as of December 31, 2010, and to 378 as of December 31, 2011.

Lender	Terms	Loan Period	Interest Rate Per annum		2010
China Merchants Bank, WuhanDonghu Branch	Principal amount of RMB 3,000,000 ($455,100). Fixed interest rate; interest is payable monthly and principal is due at maturity. The loan is collateralized by Geo's land and office buildings	November 24, 2010 to November 24,2011	5.36%	$	455,100
China Merchants Bank, WuhanDonghu Branch	Principal amount of RMB 3,000,000 ($455,100 ). Fixed interest rate; interests is payable monthly and principal is due at maturity. The loan is collateralized by Geo's land and office buildings	November 15, 2010 to November 15,2011	5.84%		455,100
China Merchants Bank, WuhanDonghu Branch	Principal amount of RMB5,000,000 ($758,500). Fixed interest rate; interest is payable monthly and principal is due at maturity. The loan is collateralized by Geo's land and office buildings	December 03, 2010 to December 3, 2011	5.84%		758,500
Bank of China, Shenzhen Longgang Branch	Principal amount of RMB4,000,000 ($606,800). Variable interest rate; interest is payable monthly and principal is due at maturity. The loan is guaranteed by IST.	October 22, 2010 to October 22, 2011	6.116% per PBOC Rate		606,800
Industrial and Commercial Bank of China, Shenzhen Branch	Principal amount of RMB2,500,000 ($379,250).Fixed interest rate; interest is payable monthly and principal is due at maturity. The loan is collateralized by accounts receivable of RMB3,575,400 ($542,388) and guaranteed by iASPEC.	October11,2010 to April 10, 2011	5.35%		379,250
Industrial and Commercial Bank of China, Shenzhen Branch	Principal amount of RMB3,960,000 ($600,732). Fixed interest rate; interest is payable monthly and principal is due at maturity. The loan is collateralized by accounts receivable of RMB 4,411,080 ($669,161) and guaranteed by iASPEC.	November 11, 2010 to January 11, 2011	5.36%		600,732
Bank of China, Shenzhen Longgang Branch	Principal amount of RMB10,000,000 ($1,517,000). Fixed interest rate; interest is payable monthly and principal is due at maturity. The loan is guaranteed by IST.	February 26, 2010 to February 26, 2011	4.86%		1,517,000
Bank of China, Shenzhen Longgang Branch	Principal amount of RMB16,000,000 ($2,427,200). Fixed interest rate; interest is payable monthly and principal is due at maturity. The loan is guaranteed by IST.	March 31, 2010 to March 31, 2011	4.86%		2,427,200

Due to the Chinese government’s implementation of macroeconomic tightening policies since the second quarter of 2011, government customers have slowed their payment of our accounts receivables. Historically, government customers generated over half of our revenues. As a result, the percentage of total accounts receivable attributable to government customers increased to 80% as of December 31, 2011 from 77% as of December 31, 2010.

- As 41the increase in our customer base and sales were primarily a result of an increase in non-public sector customers, the risk of recoverability increased compared with previous periods. Additionally, although we have had no significant experience of failure in the collection of accounts receivable from government customers, the recent slowdown in payments described above has caused us to view these customers’ risk of recoverability as having increased. In this regard, we further noted that turnover days of accounts receivable increased. The accounts receivable that were outstanding for longer than one year accounted for 52% of total accounts receivable as of December 31, 2011 and 6% as of December 31, 2010, and government customers accounted for 91% of all receivables outstanding for longer than one year as of December 31, 2011 compared to 57% as of December 31, 2010.

Ping An Bank	Principal amount of RMB 32,600,000 ($4,945,420). Fixed interest rate; interest is payable monthly and principal is due at maturity. The loan is collateralized by Huipu's land and office buildings	March 31, 2010 to March 30, 2011	5.31%	4,945,420
Ping An Bank	Principal amount of RMB 40,000,000 ($6,068,000). Fixed interest rate; interest is payable monthly and principal is due at maturity. The loan is collateralized by Huipu's land and office buildings.	June 30, 2010 to June 30,2011	5.31%	6,068,000
Shenzhen Development Bank	Principal amount of RMB15,000,000 ($2,275,500). Quarterly fixed interest rate; interest is payable monthly and principal is due at maturity.	August 6, 2010 to February 3, 2011	4.86%	2,275,500
DBS Bank	Principal amount of RMB2,112,270 ($320,432). Fixed interest rate; interest is payable monthly and principal is due at maturity. The loan is collateralized by Bocom's bank deposit.	Within 90 days per bank contracts	5.83%	320,432
DBS Bank	Principal amount of USD1,093,960. Fixed interest rate; interest is payable monthly and principal is due at maturity. The loan is guaranteed by Huipu.	October 18, 2010 to January 18, 2011	3.84%	1,093,960
DBS Bank	Principal amount of USD999,600. Fixed interest rate; interest is payable monthly and principal is due at maturity. The loan is guaranteed by Huipu.	October 21, 2010 to January 25,2011	5.14%	999,600
DBS Bank	Principal amount of USD423,584. Fixed interest rate; interest is payable monthly and principal is due at maturity. The loan is guaranteed by Huipu.	October 27, 2010 to January 25,2011	5.00%	423,584
DBS Bank	Principal amount of RMB8,000,000 ($1,213,600). Fixed interest rate; interest is payable monthly and principal are due at maturity. The loan is guaranteed by Huipu.	October 14, 2010 to January 21, 2011	6.73%	1,213,600
DBS Bank	Principal amount of RMB5,500,000 ($834,350)Fixed interest rate; interest is payable monthly and principal is due at maturity. The loan is guaranteed by Huipu.	October 27, 2010 to January 27, 2011	6.75%	834,350
DBS Bank	Principal amount of RMB1,153,882 ($175,044). Fixed interest rate; interest is payable monthly and principal is due at maturity. The loan is guaranteed by Huipu.	October 29, 2010 to January 27, 2011	5.36%	175,044
Hang Seng Bank Limited	Packing loan (PAC) of Principal amount of USD5,346,342. Fixed interest rate; interest is payable monthly and principal is due at maturity (90 days Per bank contracts). The loan is guaranteed by Huipu’s LC.	Within 90 days per bank contracts	2.75% per annum over LIBOR	5,346,342
Hang Seng Bank Limited	Packing loan (PAC) negotiated under documentary credit with discrepancies (L/G) for principal amount of USD395,552. Principal is due at maturity (90 days per bank contract). The loan is collateralized and guaranteed by Huipu’s goods and export documentary credits, and guaranteed by the Company.	Within 90 days per bank contracts	Interest free	395,552

We generally do not consider receivables from government customers to be past due at any particular point in time primarily for the following reasons: PRC government entities are very safe customers in that they are generally well-established and able to access credit more easily than private-sector customers; we have generally had good collection histories with these customers; the recent government macroeconomic tightening policies have affected government customers relatively equally, and we therefore believe that the resulting slowdown in payments from such customers is outside their immediate control. We also view government customers as important to our business. As a result, we have continued sales relationships with most PRC government customers and extended flexible repayment terms to them, including with respect to those that have slowed down their payments to us.

With respect to private-sector 42customers, we generally provide for a payment period of 90 days. Typically we are willing to extend the payment period to up to 120 days. For payment extensions beyond this time, we typically evaluate private-sector customers based on the criteria described in Note 2(f) to the audited financial statements contained in this report. Due to their differing credit histories and periods of operations, as described above, we consider the risk of recoverability for these customers to be higher than public-sector customers. However, we have generally been willing to continue the sales relationship with these customers and allow for additional time for them to make payments upon receipt of assurances that payment will be received as soon as practicable, in light of our aim to diversify our customer base and expand our market penetration. All accounts receivables with aging over two years with non-government customers are fully reserved.

DBS Bank	Packing loan (PAC) of principal amount of USD1,760,000. Fixed interest rate; interest is payable monthly and principal is due at maturity (90 days Per bank contract). The loan is guaranteed by Huipu’s LC.	Within 90 days per bank contracts	Interest free		1,760,000
Shenzhen Development Bank	Principal amount of RMB 15,000,000, ($2,275,500 )	December 31, 2010 to December 31, 2011	5.40%		2,275,500
Total				$	35,326,566

Management performs ongoing credit evaluations, and we maintain an allowance for potential credit losses based upon our loss history and our aging analysis. We estimated that the amount of probable credit losses in existing accounts receivable was equal to the allowance for doubtful accounts of $9.37 million at December 31, 2011 and $6.07 million at December 31, 2010. The following table describes the movement in the allowance for doubtful accounts during the year ended December 31, 2011:

~~Obligations~~ 43 ~~Under Material Contracts~~

The following table sets forth our material contractual obligations as of December 31, 2010:

Balance at January 1, 2011	$	6,072,644
Increase in allowance for doubtful accounts		6,169,941
Amounts recovered during current period		(3,145,063	)
Foreign exchange difference		275,804
Balance at December 31, 2011	$	9,373,326

		Payments Due by Period
				Less than						More than
Contractual Obligations		Total		1 year		1-3 years		3-5 years		5 years
Operating Lease Obligations	$	289,606	$	268,472	$	21,134	$	-	$	-
Purchase Obligations		5,107,788		5,107,788		-		-		-
Total	$	5,397,394	$	5,376,260	$	21,134	$	-	$	-

The following table summarizes the key cash flow components from our consolidated statements of cash flows for the periods indicated.

~~Critical~~Cash ~~Accounting~~Flow ~~Policies~~(all amounts in U.S. dollars)

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

		Year Ended December 31,
		2011			2010			2009
Net cash provided by operating activities	$	16,341,327		$	26,949,537		$	11,477,783
Net cash used in investing activities		(18,626,690	)		(60,871,618	)		(14,664,274	)
Net cash (used in) provided by financing activities		(2,169,334	)		37,080,368			7,113,658
Effects of exchange rate changes on cash and cash equivalents		307,474			1,529,937			(13,786	)
Net (decrease) increase in cash and cash equivalents		(4,147,223	)		4,688,224			3,913,381
Cash and cash equivalents at beginning of the year		18,166,857			13,478,633			9,565,252
Cash and cash equivalents at end of the year	$	14,019,634		$	18,166,857		$	13,478,633

•

Goodwill—ASC 350-30-50, We review goodwill and intangible assets with indefinite lives for impairment on an annual basis and whenever events or circumstances indicate that the carrying value may not be recoverable. Goodwill is assessed for impairment using a two-step test. In the first step, the fair value of each reporting unit is compared to its carrying amount. If the fair value of the reporting unit exceeds the carrying amount, no impairment exists and we are not required to perform further testing. If the carrying amount exceeds its fair value, the second step must be performed to determine the implied fair value of the reporting unit’s goodwill. If the carrying value of the reporting unit’s goodwill exceeds its implied fair value, then an impairment loss is recorded in an amount equal to that excess. Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. Valuation techniques we use to measure fair value is the income approach. It includes discounted cash flow measurements using a market discount rate. Our valuation techniques could yield variable results based on changes in assumptions such as the discount rate and long-term growth rate and forecasted revenue and expense. Our annual impairment analysis indicated a fair value for goodwill that was above its book value. Accordingly, no impairment loss was charged against earnings.

•

Revenue Recognition—Revenues from products are recognized only when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price to the customer is fixed or determinable, and collectability is reasonably assured. Generally, revenue is recognized (1) upon shipment for equipment and software, (2) as work is performed for professional services and (3) in equal periodic amounts over the term of the contract for software and hardware maintenance.

Operating Activities

-Net 43cash -provided by operating activities was $16.34 million for the year ended December 31, 2011, a decrease from $26.95 million for the year ended December 31, 2010. The decrease was primarily due to an increase in our accounts receivable turnover days during 2011. Many government customers slowed down their payments as a result of China’s implementation of macroeconomic tightening policies. Because over half of our total revenues are generated from government projects, accounts receivable turnover days increased from 192 days during 2010 to 322 days during 2011.

~~The~~Net ~~majority~~cash ofprovided ~~revenues~~by ~~are~~operating ~~generated~~activities ~~from~~was ~~fixed-price~~$26.95 ~~contracts, which provide~~ million for ~~licenses~~the toyear ~~software~~ended ~~products,~~December ~~and services to customize such software to meet customers' use. Generally~~31, ~~when the services are determined to be essential to the functionality of the delivered software~~2010, ~~revenue~~an isincrease ~~recognized using the percentage~~ of ~~completion method of accounting~~$15.47 ~~The~~million percentage of completion for each contract is estimated based on the ratio of direct labor hours incurred to total estimated direct labor hours. We review accounts receivables for allowances whenever events or ~~changes in circumstances indicates that the related carrying amounts may not be recoverable~~, ~~losses on accounts receivables are provided when they become evident~~134.8%, from ~~• Accounts Receivable—We regularly evaluates and monitors the creditworthiness of each customer on a case-by-case basis~~$11.48 Wemillion ~~include any account balances that are determined to be uncollectible in an allowance~~ for ~~doubtful accounts. After all attempts to collect a receivable have failed,~~ the ~~receivable~~year isended ~~written off against the allowance. The allowance for doubtful accounts at~~ December 31, ~~2010 and~~ 2009~~, totaled $6,073,000 and $3,123,000 respectively, representing management’s best estimate~~. •This ~~Inventories~~increase ~~—We~~far outpaced ~~valued~~revenue ~~inventories~~growth ~~at the lower~~ of ~~cost~~62.23% ~~or market~~. ~~Market~~Such isan ~~the~~increase ~~estimated~~was ~~selling~~primarily ~~price~~due ~~in the ordinary course of business less the estimated cost of completion and the estimated costs necessary~~ to ~~make~~ the improvements ~~sale.~~in Weworking ~~perform~~capital ~~an analysis of slow-moving or obsolete inventory periodically and any necessary valuation reserves~~turnover, ~~which~~including ~~could potentially be significant, are included in~~ the ~~period~~speeding inup ~~which~~of the ~~evaluations are completed. • Income Taxes~~ turn-over ~~Income taxes are provided on an asset and liability approach for financial accounting and reporting~~ of ~~income~~accounts ~~taxes.~~receivable ~~Deferred income taxes are recognized for all significant temporary differences at enacted rates~~ and ~~classified as current or non-current based upon the classification of the related asset or liability in the financial statements~~inventories. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all, the deferred tax asset will not be realized. The Company classifies interest and/or penalties related to unrecognized tax benefits, if any, as a component of income tax provisions.

~~Recent~~Investing ~~Accounting~~Activities ~~Pronouncements~~

InNet ~~April~~cash ~~2010,~~used ~~the~~in ~~FASB~~investing ~~issued~~activities ~~Accounting~~was ~~Standards Update No~~$18. ~~2010-17,~~63 ~~Revenue~~million ~~Recognition - Milestone Method (Topic 605) - Revenue~~for ~~Recognition (ASU 2010-17). ASU 2010-17 provides guidance on defining~~ the ~~milestone~~ ~~and~~year ~~determining~~ended ~~when~~December ~~the~~31, ~~use~~2011, ofas ~~the~~compared ~~milestone~~to ~~method of revenue recognition for research or development transactions is appropriate~~$60.87 Itmillion ~~provides criteria~~ for ~~evaluating if~~ the ~~milestone is substantive and clarifies that a~~year ~~vendor~~ended ~~can~~December ~~recognize~~31, ~~consideration~~2010. ~~that~~The isdecrease ~~contingent~~was ~~upon~~primarily ~~achievement~~due ofto: a ~~milestone~~) asa ~~revenue~~$25.31 inmillion deposit ~~the~~for ~~period~~purchasing inland ~~which~~use ~~the~~rights ~~milestone~~during is2010; ~~achieved,~~b) ifa ~~the milestone meets all the criteria to be considered substantive~~$13.08 ~~ASU~~million ~~2010-17 is~~decrease ~~effective for us~~ in ~~fiscal~~property ~~2011~~ and ~~should~~equipment bepurchases ~~applied~~during ~~prospectively.~~2011 ~~The adoption~~as ofcompared ~~ASU~~with 2010~~-17~~, ~~did~~and ~~not~~c) ~~have~~a $2.96 ~~any~~million ~~effect~~decrease onin ~~the~~software ~~Company’s~~purchases ~~financial position~~during or2011 ~~results~~as ofcompared ~~operations.~~with 2010.

InNet ~~January~~cash ~~2010,~~used in investing activities was $62.36 million for the ~~FASB~~year ~~issued~~ended ~~ASU~~December 31, 2010~~-06~~, ~~Improving Disclosures~~as ~~about~~compared ~~Fair~~to ~~Value Measurements~~$14.66 ~~ASU~~million ~~2010-06~~for ~~amends~~the ~~ASC~~year ended ~~Topic~~December ~~820~~31, ~~Fair~~ ~~Value~~2009. ~~Measurement~~Approximately ~~and~~$25.31 ~~Disclosure~~million ~~(“ASC~~of ~~820”)~~the tototal ~~require~~was aused ~~number of~~as ~~additional~~the ~~disclosures~~deposit ~~regarding~~for ~~fair~~purchasing ~~value~~land ~~measurements.~~use Inrights ~~addition~~under tolocal ~~the~~government ~~new~~incentives. ~~disclosure~~Details ~~requirements,~~have ~~ASU~~been ~~2010-06~~provided ~~also~~in ~~amends~~Note ~~ASC~~10(a) ~~820~~of tothe ~~clarify~~financial ~~that~~statements contained ~~reporting~~in ~~entities~~this ~~are~~report ~~required~~and toNote ~~provide~~17 ~~fair~~(Subsequent ~~value~~Event) ~~measurement~~of ~~disclosures for~~the ~~each~~financial ~~class~~statements contained ofin ~~assets~~our ~~and~~Form ~~liabilities.~~10Q/A ~~Prior~~for to the ~~issuance~~quarterly ofperiod ~~ASU~~ended ~~2010-06~~June 30, 2010. ~~the~~Approximately ~~guidance~~$32.82 inmillion ~~ASC~~was ~~820~~used ~~required~~to ~~separate~~purchase ~~fair~~machineries, ~~value~~equipment ~~disclosures~~and software ~~for~~as ~~each~~an ~~major category~~investment offor ~~assets~~future ~~and~~business ~~liabilities~~expansion.

~~ASU~~Financing ~~2010-06~~Activities also clarifies the requirement for entities to disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. Except for the requirement to disclose information about purchases, sales, issuance and settlements in the reconciliation of recurring Level 3 measurements on a gross basis, all of the provisions of ASU 2010-06 are effective for interim and annual reporting periods beginning after December 15, 2009, or January 1, 2010 for the Company. The requirement to separately disclose purchases, sales, issuances and settlements of recurring Level 3 measurements does not become effective until fiscal years beginning after December 15, 2010, or January 1, 2011 for the Company. The adoption of ASU 2010-06 is for disclosure purposes only and did not have any effect on the Company’s financial position or results of operations.

InNet ~~June~~cash ~~2009,~~used ~~the~~in ~~FASB~~financing ~~issued~~activities ~~guidance~~was ~~now~~$2.17 ~~codified~~million ~~within~~for ~~ASC~~the ~~Topic~~year ~~810,~~ended ~~Consolidation~~December ~~(“ASC~~31, ~~810”).~~2011, ~~ASC~~as ~~810~~compared ~~requires entities~~ to ~~perform~~$37.08 ~~an analysis~~million tonet ~~determine~~cash ~~whether~~provided ~~the enterprise’s variable interest or interests~~by ~~give~~financing itactivities afor ~~controlling~~the ~~financial~~year ~~interest~~ended inDecember a31, ~~variable interest entity~~2010. ~~This analysis~~The ~~identifies~~change ~~the~~was ~~primary beneficiary of a variable interest entity as one~~mainly ~~with~~attributable ~~the power~~ to ~~direct~~ the ~~activities~~net ofproceeds ~~a variable interest entity that most significantly impact the entity’s economic performance and obligation to absorb losses~~ of ~~the entity that could potentially be significant to the variable interest~~$9.38 ~~The~~million ~~guidance~~raised isfrom ~~effective~~an asoffering of ~~the~~ ~~beginning~~common ofstock ~~the~~during ~~annual reporting period commencing after November 15, 2009, or January 1,~~ 2010 ~~for the Company~~, ~~with~~and ~~early~~a ~~adoption~~decrease ~~prohibited.~~in ~~The~~net ~~adoption~~borrowings of ~~the~~ ~~guidance~~$28.59 ~~codified within ASC 810 did not have any effect on the Company’s~~million ~~financial~~during ~~position~~2011 oras ~~results~~compared ofwith ~~operations~~2010.

- 44 -

InNet ~~October~~cash ~~2009,~~provided ~~the~~by ~~FASB~~financing ~~issued~~activities ~~ASU~~increased ~~2009-13, “Multiple-Deliverable Revenue Arrangements,” (amendments~~ to ~~FASB ASC Topic 605,~~$37.08 ~~“Revenue~~million ~~Recognition”)~~during ~~(ASU~~the ~~2009-13)~~year ~~and~~ended ~~ASU~~December ~~2009-14~~31, ~~“Certain Arrangements That Include Software Elements~~2010,” ~~(amendments~~as compared to ~~FASB ASC Topic 985, “Software”) (ASU 2009-14)~~$7.11 ~~ASU 2009-13 requires entities to allocate revenue in an arrangement~~million ~~using~~during ~~estimated selling prices of~~ the ~~delivered~~year ~~goods~~ended ~~and~~December ~~services~~31, ~~based on a selling price hierarchy~~2009. The ~~amendments~~increase ~~eliminate~~was ~~the~~mainly ~~residual~~attributable ~~method of revenue allocation and require revenue~~ to ~~be allocated using~~ the ~~relative~~net ~~selling~~proceeds ~~price method~~of $9.38 ~~ASU~~million ~~2009-14~~raised ~~removes~~in ~~tangible~~issuing ~~products from the scope~~ of ~~software~~common ~~revenue guidance~~stock, ~~and~~an ~~provides guidance on determining whether software deliverables in~~increase anin ~~arrangement~~net ~~that~~bank ~~includes~~borrowings ~~a tangible product are covered by the scope~~ of ~~the software revenue guidance~~$22.44 ~~ASU~~million, ~~2009-13~~ and ~~ASU~~an ~~2009-14~~increase ~~should~~in benet ~~applied~~borrowings ~~on a~~from ~~prospective~~shareholders’ ~~basis~~long-term ~~for~~loan ~~revenue~~of ~~arrangements~~$5 ~~entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted~~million. ~~The~~Geo ~~Company~~also ~~considered~~received ~~the~~capital ~~adoption~~ injection of ~~ASU~~$1.74 ~~2009-13~~million orfrom ~~ASU~~minority ~~2009-14 would have no material impact to consolidated results of operations and financial condition~~shareholders.

~~Seasonality~~Loan Facilities

~~The~~As ~~first quarter~~ of ~~the~~December ~~calendar year is typically the slowest season of the year due to the Chinese New Year holiday. During this period~~31, ~~accounts~~ ~~receivable~~2011 ~~collection is very slow~~ and we2010, ~~also~~our ~~need~~loan tofacilities ~~prepare~~were ~~for~~as ~~upcoming~~follows: ~~busier seasons by making payments for inventory.~~

~~Inflation~~Short-term bank loans

Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net revenues if the selling prices of our products do not increase with these increased costs.

		As of December 31,
		2011		2010
Secured short-term loans	$	39,177,186	$	33,051,066
Add: amounts due within one year under long-term loan contracts		1,806,271		2,275,500
Total short-term bank loans	$	40,983,457	$	35,326,566

~~Off~~Long-~~Balance~~term ~~Sheet~~bank ~~Arrangements~~loans

We do not have any off-balance arrangements.

		As of December 31,
		2011			2010
Secured long-term loans	$	1,915,795		$	8,138,705
Less: amounts due within one year under long-term loan contracts		(1,806,271	)		(2,275,500	)
Total long-term bank loans	$	109,524		$	5,863,205

~~ITEM~~The ~~7A.~~covenants ~~QUANTITATIVE~~or ~~AND~~financial ~~QUALITATIVE~~restrictions ~~DISCLOSURES~~related ~~ABOUT~~to ~~MARKET~~our outstanding ~~RISK.~~debt obligations as of December 31, 2011 are as follows: (1) a certain subsidiary that is party to the loan should maintain a certain level of tangible assets; (2) the subsidiary should maintain a certain level of cash in its bank accounts; and (3) the subsidiary should inform the bank 30 days before any of the following events occurs (if the bank determines that such event will cause a material impact to the bank loan, the subsidiary may perform the event only upon receipt of the approval of the bank):

~~Interest~~dispose ~~Rate~~material ~~Risk~~assets constituting over 10% of the total net assets by sale, bestowment, lending, transfer, mortgage, pledge or any other means;
Weprofit ~~deposit~~distribution ~~surplus~~over funds with Chinese banks earning daily interest. We do not invest in any instruments for trading purposes. Most of our outstanding debt instruments carry fixed rates of interest. Our operations generally are not directly sensitive to fluctuations in interest rates. The amount of long-term debt outstanding as of December 31, 2010 and 2009 was $11 million and $2 million, respectively. A hypothetical 1.030% ~~increase in the annual interest rates for all~~ of ~~our credit facilities under which we had outstanding borrowings at December 31, 2010, would decrease net income before provision for income taxes by approximately $235,000, or less than 1% for~~ the ~~fiscal~~current year ~~ended December 31, 2010. Management monitors the banks~~’s ~~prime~~after ~~rates~~tax ~~in conjunction~~profits, ~~with our cash requirements to determine the appropriate level of~~or ~~debt~~ over ~~balances~~20% ~~relative to other sources~~ of ~~funds.~~the Wetotal ~~have~~retained ~~not~~earnings; ~~entered into any~~and ~~hedging transactions in an effort to reduce our exposure to interest rate risk.~~
~~Foreign~~new ~~Exchange~~investments ~~Risk~~by the subsidiary outside its current operations which constitute over 20% of its net assets.

While our reporting currency is the U.S. dollars, substantially all of our consolidated revenues and consolidated costs and expenses are denominated in RMB. Substantially all of our assets are denominated in RMB except for cash. As ~~a result, we are exposed to foreign exchange risk as our revenues and results~~ of ~~operations~~December ~~may be affected by fluctuations in the exchange rate between U.S. dollars and RMB. If the RMB depreciates against the U.S. dollars~~31, ~~the value of our RMB revenues~~2011, ~~earnings~~we ~~and~~were ~~assets as expressed~~ in ~~our~~ ~~U.S.~~compliance ~~dollars~~with ~~financial statements will decline. Assets and liabilities are translated at exchange rates at~~ the ~~balance sheet dates and revenue and expenses~~above ~~are translated at the average exchange rates and equity is translated at historical exchange rates~~covenants. Any resulting translation adjustments are not included in determining net income but are included in determining other comprehensive income, a component of equity. An average appreciation (depreciation) of the RMB against the U.S. dollars of 5% would increase (decrease) our comprehensive income by $10.46 million based on our outstanding revenues, costs and expenses, assets and liabilities denominated in RMB as of December 31, 2010. As of December 31, 2010, our accumulated other comprehensive income was $11.33 million. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk.

Our short-term 45loan balances as of December 31, 2011 and 2010 were $40.98 million and $35.33 million, respectively. As a percentage of working capital, short-term bank loans accounted for approximately 66.21% and 60.06% as of December 31, 2011 and 2010, respectively. The increase in reliance on bank borrowings to fund working capital in 2011 was mainly due to our efforts to increase display technology R&D and sales. As our newer manufacturing business requires more working capital than our traditional business of software technology and system integration technology, we needed to borrow more to fund working capital needs. As we introduce new products in new markets in 2012, we expect to continue to rely on bank borrowings to fund working capital.

~~The~~We ~~value~~believe ofthat ~~RMB~~our ~~against~~current ~~the~~cash ~~U.S.~~and ~~dollars~~cash equivalents and anticipated ~~other~~cash ~~currencies is~~flow ~~affected~~from ~~by,~~operations ~~among~~will ~~other~~be ~~things~~sufficient to meet our anticipated cash needs, ~~changes~~including inour ~~China’s~~cash ~~political~~needs for working capital and ~~economic~~capital ~~conditions~~expenditures for at least the next 12 months. ~~Since~~We ~~July~~may, ~~2005~~however, ~~RMB~~require additional ~~has~~cash ~~not~~due ~~been~~to ~~pegged~~changing tobusiness ~~the~~conditions ~~U.S.~~or ~~dollars~~other future developments, including any investments or acquisitions we may decide to pursue. ~~Although~~If ~~the~~our ~~People’s~~existing ~~Bank~~cash ofand ~~China~~amounts ~~regularly~~available ~~intervenes~~under inexisting ~~the~~credit ~~foreign~~facilities ~~exchange~~is ~~market~~insufficient to ~~prevent~~meet ~~significant~~our ~~short-term~~requirements, ~~fluctuations~~we inmay ~~the~~seek ~~exchange~~to ~~rate,~~sell ~~RMB~~additional equity ~~may~~securities, ~~appreciate~~debt securities, or ~~depreciate~~borrow ~~significantly~~from inlending ~~value~~institutions. ~~against~~We ~~the~~can ~~U.S.~~make ~~dollars~~no assurances that financing will be available in the ~~medium~~amounts we need, or on terms acceptable to ~~long~~us, ~~term~~if at all. ~~Moreover~~The sale of additional equity securities, itincluding convertible isdebt ~~possible~~securities, ~~that~~would indilute the ~~future,~~interests ~~PRC~~of our current ~~authorities~~shareholders. ~~may~~The ~~lift~~incurrence ~~restrictions~~of ondebt ~~fluctuations~~would divert cash for working capital and capital expenditures to service debt obligations and could result in ~~RMB~~operating ~~exchange~~and ~~rate~~financial covenants that restrict our operations and our ~~lessen~~ability ~~intervention~~to inpay ~~the~~dividends ~~foreign~~to ~~exchange~~our ~~market~~shareholders. If we are unable to obtain additional equity or debt financing as required, our business operations and prospects may suffer.

~~Inflation~~45

~~Inflationary~~Intracompany ~~factors~~Transfers such as increases in the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net revenues if the selling prices of our products do not increase with these increased costs.

~~ITEM~~Our 8subsidiaries that are organized in the PRC may pay dividends only out of their accumulated profits and our PRC subsidiaries are required to set aside at least 10% of their after-tax profit to their general reserves until such reserves cumulatively reach 50% of their respective registered capital. ~~FINANCIAL~~Our ~~STATEMENTS~~PRC ~~AND~~subsidiaries’ ~~SUPPLEMENTARY~~general ~~DATA~~reserves are not distributable as cash dividends. Restrictions on our net assets also include the conversion of local currency into foreign currencies, tax withholding obligations on dividend distributions, the need to obtain SAFE approval for loans to a non-PRC consolidated entity and the covenants or financial restrictions related to outstanding debt obligations. We are not aware of other restrictions on our net assets or the transferability of assets via loans or advances to our non-PRC consolidated entities. As our operations are principally based in China, our non-PRC consolidated entities do not have material cash obligations.

~~Consolidated~~The ~~Financial~~following ~~Statements~~table provides the amount of our statutory general reserve, the amount of restricted net assets, consolidated net assets, and the amount of restricted net assets as a percentage of consolidated net assets, as of December 31, 2011 and 2010:

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

		December 31,	December 31,
		2011	2010

PRC general reserve	$	14,488,533$	12,968,985
Restricted net assets and retained earnings related to covenants of existing bank loans		18,595,200	18,204,400
Total restricted net assets	$	33,083,733 $	31,173,385
Consolidated net assets	$	230,866,530$	207,072,687
Restricted net assets as percentage of consolidated net assets		14.33%	15.05%

~~Quarterly~~An ~~Financial~~offshore ~~Results~~holding company, as a shareholder of an FIE, can make loans to the FIE, provided the parties comply with PRC regulations governing such loans. Our parent company can make a shareholder loan to a PRC subsidiary provided that (i) the amount of the loan does not exceed the difference between the total investment and registered capital as approved by the local Administration for Industry and Commerce that issued the business license of the subsidiary; and (ii) before the loan can be converted into RMB, the subsidiary reports to SAFE the intended use of proceeds (which cannot be to purchase domestic assets). The subsidiary can finance the operations of iASPEC in accordance with the terms of the MSA.

~~The~~Obligations ~~following~~Under ~~table~~Material ~~sets~~Contracts forth certain unaudited financial information for each of the eight quarters ended December 31, 2010. The consolidated financial statements for each of these quarters have been prepared on the same basis as the audited consolidated financial statements included in this annual report and, in the opinion of management, include all adjustments necessary for the fair presentation of the results of operations for these periods. This information should be read together with our audited consolidated financial statements and the related notes included elsewhere in this annual report.

~~(All~~The ~~amounts~~following intable ~~U.S.~~sets ~~dollars,~~forth ~~except~~our ~~for~~material ~~per~~contractual obligations ~~share~~as ~~amounts)~~of December 31, 2011:

2010		1st Quarter			2nd Quarter			3rd Quarter			4th Quarter
			Payments Due by Period
Revenue	$	25,305,107		$	33,516,888		$	43,806,131		$	61,217,471
														More
Gross profit		11,117,453			16,798,306			21,085,593			21,561,803
						Less than								than
Income before income taxes		7,563,010			11,817,789			12,832,281			11,123,987
Contractual Obligations			Total			1 year			1-3 years			3-5 years		5 years
Net income		6,391,927			9,654,180			10,470,688			8,956,835
Operating Lease Obligations		$	507,416		$	347,781		$	159,635		$	-	$	-
Basic income per share	$	0.12			0.18		$	0.21		$	0.16
Purchase Obligations			5,299,708			5,299,708			-			-		-
Diluted income per share	$	0.12			0.18		$	0.21		$	0.16
Interest payable on long-term bank loans			102,454			82,764			13,312			6,378		-
Long-term bank loans			1,915,795			1,806,271			71,042			38,482		-
Total		$	7,825,373		$	7,536,524		$	243,989		$	44,860	$	-

2009		1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
Revenue	$	14,980,184	$	25,787,919	$	28,680,681	$	31,547,310
Gross profit		7,483,264		12,266,751		15,119,997		15,781,655
Income before income taxes		4,565,212		8,963,025		11,346,512		9,150,391
Net income		3,976,816		7,871,225		9,548,567		8,741,037
Basic income per share	$	0.08	$	0.16	$	0.20	$	0.18
Diluted income per share	$	0.08	$	0.16	$	0.20	$	0.18

Critical Accounting Policies

~~Earnings~~The ~~per~~preparation ~~share~~of ~~are~~financial ~~computed~~statements ~~independently~~in ~~for~~conformity ~~each~~with accounting ofprinciples generally accepted in the United States requires our ~~quarters~~management ~~presented.~~to ~~Therefore~~make assumptions, estimates and judgments that affect the ~~sum~~amounts reported ofin the ~~quarterly~~financial ~~net~~statements, ~~earnings~~including ~~per~~the ~~share will~~notes ~~not~~thereto, ~~necessarily~~and ~~equal~~related disclosures ~~the~~of ~~total~~commitments ~~for~~and ~~the~~contingencies, ~~year~~if any. We consider our

-critical 46accounting -policies to be those that require the more significant judgments and estimates in the preparation of financial statements, including the following:

~~ITEM~~46 ~~9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.~~

~~None~~Goodwill Prior to the beginning of the 2011 fiscal year, management reviewed our businesses so as to make investing and resource allocation decisions and assess operating performance from the perspective of our operating segments, which at the time consisted of our GIS segment, DPST segment, DHIS segment, and Other Products and Services, or Other, segment. In connection with the changes in our business portfolio and realignment of management’s decision-making process, management conducted a review of its operating segments during the first quarter of 2011, which resulted in two new segments, IT and DT. Accordingly, we reallocated our goodwill from each of the four segments to one or both of the two new segments since the first quarter of 2011. The former and current allocations of goodwill by reportable segments were as follows as at December 31, 2010:

ITEM 9A. CONTROLS AND PROCEDURES.

(All amounts in U.S. dollars)
Goodwill

Former segments				Current segments
				IT		DT
				segment		segment	Total
DPST		19,363,966		2,625,551		16,738,415	19,363,966
GIS		13,416,896		4,178,278		9,238,618	13,416,896
DHIS		19,137,413		19,137,413		-	19,137,413
Other		-		-		-	-
Total	$	51,918,275	$	25,941,242	$	25,977,033 $	51,918,275

~~Evaluation~~In accordance with FASB ASC topic 350, we review goodwill impairment annually or more frequently if an event occurs or circumstances change that would reduce the fair value below its carrying value. Due to the Chinese government’s implementation of ~~Disclosure~~its ~~Controls~~macroeconomic ~~and~~tightening policies, ~~Procedures~~our revenue decreased significantly, especially software technology sales during the fiscal year ended December 31, 2011. Although we do not view the slowdown of our growth as a significant adverse change in our business, we performed the goodwill impairment test for the fiscal year ended December 31, 2011.

We ~~maintain~~used ~~disclosure~~the ~~controls~~discounted ~~and~~cash ~~procedures~~flow ~~(as defined in~~method ~~Rule~~to ~~13a-15(e)~~estimate ~~under~~ the ~~Exchange~~fair ~~Act)~~value of goodwill. ~~Disclosure~~The ~~controls~~goodwill ~~and~~impairment ~~procedures~~analysis ~~refer~~is a totwo ~~controls~~step ~~and~~test ~~other~~on ~~procedures~~each ~~designed~~reporting unit. Prior to ~~ensure~~the ~~that~~beginning ~~information~~of ~~required~~the to2011 fiscal beyear, ~~disclosed~~we inconsidered ~~the~~each ~~reports~~subsidiary weas ~~file~~one orreporting ~~submit~~unit, ~~under~~and we used the discounted ~~Securities~~cash ~~Exchange~~flow ~~Act~~method on each reporting unit. During the first fiscal isquarter ~~recorded,~~of ~~processed~~2011, ~~summarized~~we ~~and~~grouped ~~reported~~some ~~within~~reporting ~~the~~units ~~time~~with ~~periods~~similar economic ~~specified~~characteristics intogether ~~the~~and ~~rules~~redefined our reporting units to be our IT and ~~forms~~DT operating segments. Determining the fair value of a reporting unit involved the use ~~SEC~~of significant estimates and ~~that~~assumptions, such ~~information~~as isrevenue growth rate, gross ~~accumulated~~profit rate, and ~~communicated~~discount torate. ~~our~~The ~~management,~~average ~~including~~revenue ~~our~~increase ~~Chief~~rate ~~Executive~~used in the ~~Officer~~cash ~~and~~flow ~~Chief~~models ~~Financial~~approximately ~~Officer,~~ranged asfrom ~~appropriate,~~9% to ~~allow~~11% ~~timely~~depending ~~decisions~~on the reporting ~~regarding~~unit ~~required~~over ~~disclosure~~the initial five-year forecast period. The discount rate used in the cash flow models was approximately 11.43%, which was calculated by using weighted average cost of capital.

AsBased ~~required~~on bythe ~~Rule~~above ~~13a-15(e),~~calculation in our cash ~~management~~flow ~~has~~models, ~~carried~~the ~~out an~~test ~~evaluation,~~results ~~with~~indicated that the ~~participation~~fair ~~and~~value ~~under~~of each reporting unit exceeded its carrying value. The percentage of the ~~supervision~~excess of the fair value over carrying value of our ~~Chief Executive~~reporting ~~Officer,~~units ~~Mr.~~ranged ~~Jiang~~from ~~Huai~~14% ~~Lin~~to ~~and~~41%. We believe that our ~~Chief~~DT ~~Financial~~segment ~~Officer~~reporting unit, ~~Ms.~~whose fair value exceeded its ~~Jackie~~carrying ~~You~~value ~~Kazmerzak~~by approximately 14%, is at risk of ~~the~~failing ~~effectiveness~~step one of the goodwill ~~design~~impairment ~~and~~test ~~operation~~in ofthe ~~our disclosure~~future. ~~controls~~During ~~and~~the ~~procedures,~~fiscal asyear ofended December 31, ~~2010.~~2011, ~~Based~~the ~~upon,~~Company ~~and~~put ~~as of~~more ~~the~~effort ~~date~~in ofdeveloping ~~this~~its ~~evaluation~~DT business, ~~Mr.~~and revenues ~~Lin~~generated ~~and~~by ~~Ms.~~the ~~Kazmerzak,~~reporting ~~determined~~unit ~~that,~~increased during this period as ofcompared to the fiscal year ended December 31, 2010,. ~~and~~Though asmanagement ofhas confidence that it will continue to develop the ~~date~~fair value of ~~this~~our ~~report~~DT segment, ~~our~~we intend ~~disclosure~~to ~~controls~~closely monitor any event or change in circumstances that could ~~and~~negatively ~~procedures~~affect ~~were~~the ~~effective~~key assumptions relating to this reporting unit.

~~Management’s~~Our ~~Annual~~valuation ~~Report~~techniques could yield variable results based on ~~Internal~~changes ~~Control~~in ~~Over~~assumptions such as the discount rate and ~~Financial~~net ~~Reporting~~income increase rate. We performed a sensitivity analysis that indicated that if the discount rate ranged from 10% to 13%, the revenue increase rate ranged from 6% to 8%, the fair value of each reporting unit would continue to exceed the carrying value, and that no goodwill impairment is required.

~~Management~~47 is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting refers to the process designed by, or under the supervision of, our chief executive officer and chief financial officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP, and includes those policies and procedures that:

•Goodwill ~~pertain~~by tosegment ~~the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; • provide reasonable assurance that transactions are recorded~~ as ~~necessary to permit preparation~~ of ~~financial~~December ~~statements in accordance with U.S. GAAP~~31, 2011 and ~~that~~December our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and • provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition31, ~~use~~2010 orwas ~~disposition~~as offollows: ~~our assets that could have a material effect on the financial statements.~~

~~Because~~(All ofamounts inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in ~~conditions, or that the degree of compliance with the policies or procedures may deteriorate~~U.S. dollars)

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2010. In making this assessment, management used the framework set forth in the report entitled Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. Based on our assessment, we determined that, as of December 31, 2010, the Company’s internal control over financial reporting was effective based on those criteria.

Goodwill		December		December
		31, 2011		31, 2010
IT Segment	$	26,980,194	$	25,941,242
DT Segment		27,003,493		25,977,033
Total	$	53,983,687	$	51,918,275

~~Our~~Any ~~independent~~goodwill ~~registered~~arising ~~public~~on ~~accounting~~the ~~firm,~~acquisition ~~BDO~~of ~~Limited,~~a ~~has~~ foreign ~~issued~~operation anand ~~audit~~any ~~report~~fair value adjustments to the carrying amounts of assets and liabilities arising on ~~our~~the ~~internal~~acquisition ~~control~~of ~~over~~that ~~financial~~foreign ~~reporting.~~operation ~~Their~~ shall ~~audit~~be ~~report~~treated isas ~~set~~assets ~~forth~~and ~~under~~liabilities ~~Item~~of 8the foreign operation. Thus they shall be expressed in the functional currency of ~~this~~the ~~Annual~~foreign ~~Report~~operation and shall be translated at the closing rate. As our acquired subsidiaries’ functional currency is RMB, goodwill arising on ~~Form~~these ~~10-K~~acquisitions is denominated in RMB. As our presentation currency is USD, the change of goodwill balance represents the foreign exchange difference between each period or year end.

~~Changes~~Revenue Recognition—Revenues from products are recognized only when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price to the customer is fixed or determinable, and collectability is reasonably assured. Generally, revenue is recognized (1) upon shipment for equipment and software, (2) as work is performed for professional services and (3) in ~~Internal~~equal ~~Control~~periodic ~~Over~~amounts ~~Financial~~over ~~Reporting~~the term of the contract for software and hardware maintenance.The majority of revenues are generated from fixed-price contracts, which provide for licenses to software products, and services to customize such software to meet customers’ use. Generally, when the services are determined to be essential to the functionality of the delivered software, revenue is recognized using the percentage of completion method of accounting. The percentage of completion for each contract is estimated based on the ratio of direct labor hours incurred to total estimated direct labor hours. We review accounts receivable for allowances whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable, losses on accounts receivable are provided when they become evident.
~~There~~Accounts ~~have~~Receivable—We ~~been~~regularly noevaluate ~~changes~~and inmonitor ~~our~~the creditworthiness ~~internal~~of ~~control~~each ~~over~~customer on a case-by-case basis. We include any ~~financial~~ account ~~reporting~~balances ~~during~~that ~~the~~are ~~fourth~~determined ~~quarter~~to ofbe ~~fiscal~~uncollectible ~~year~~in ~~2010~~an ~~that~~allowance ~~have~~for ~~materially~~ doubtful ~~affected,~~accounts. orAfter ~~are~~all ~~reasonably~~attempts ~~likely~~ to ~~materially~~collect ~~affect~~a receivable have failed, the ~~Company’s~~ receivable ~~internal~~is ~~control~~written ~~over~~off ~~financial~~against ~~reporting~~the allowance. The allowance for doubtful accounts at December 31, 2011 and 2010, totaled $9,373,000 and $6,073,000 respectively, representing management’s best estimate.
-Inventories 47—We value inventories at the lower of cost or market. Market is the estimated selling price in the ordinary course of business less the estimated cost of completion and the estimated costs necessary to make the sale. We perform an analysis of slow-moving or obsolete inventory periodically and any necessary valuation reserves, which could potentially be significant, are included in the period in which the evaluations are completed. Inventory impairments result in a new cost basis for accounting purposes.
~~ITEM~~Income 9BTaxes - Income taxes are provided on an asset and liability approach for financial accounting and reporting of income taxes. ~~OTHER~~Deferred income ~~INFORMATION~~taxes are recognized for all significant temporary differences at enacted rates and classified as current or non-current based upon the classification of the related asset or liability in the financial statements. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all, the deferred tax asset will not be realized. The Company classifies interest and/or penalties related to unrecognized tax benefits, if any, as a component of income tax provisions.

WeRecent ~~have~~Accounting noPronouncements ~~information to disclose that was required to be disclosed in a report on Form 8-K during fourth quarter of fiscal year 2010, but was not reported.~~

~~PART~~Please ~~III~~refer to Note 2 to our audited financial statements included elsewhere in this report for a discussion of relevant pronouncements.

~~ITEM~~48 ~~10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.~~

~~The~~Seasonality ~~information required by Item 10 of Part III is included in our Proxy Statement for our 2010 Annual Meeting of Stockholders and is incorporated herein by reference.~~

~~ITEM~~The 11first quarter of the calendar year is typically the slowest season of the year due to the Chinese New Year holiday. ~~EXECUTIVE~~During ~~COMPENSATION~~this period, accounts receivable collection is very slow and we also need to prepare for upcoming busier seasons by making payments for inventory.

~~The~~Inflation ~~information required by Item 11 of Part III is included in our Proxy Statement for our 2010 Annual Meeting of Stockholders and is incorporated herein by reference.~~

~~ITEM~~Inflation ~~12.~~does ~~SECURITY~~not ~~OWNERSHIP~~materially OFaffect ~~CERTAIN~~our ~~BENEFICIAL~~business ~~OWNERS~~or ~~AND~~the results ~~MANAGEMENT~~of ~~AND~~our ~~RELATED STOCKHOLDER MATTERS~~operations.

~~The~~Off-Balance ~~information~~Sheet ~~required~~Arrangements ~~by Item 12 of Part III is included in our Proxy Statement for our 2010 Annual Meeting of Stockholders and is incorporated herein by reference.~~

~~ITEM~~We ~~13.~~do ~~CERTAIN~~not ~~RELATIONSHIPS~~have ~~AND~~any ~~RELATED~~off-balance ~~TRANSACTIONS, AND DIRECTOR INDEPENDENCE~~arrangements.

~~The~~ITEM ~~information~~7A. ~~required~~QUANTITATIVE byAND ~~Item~~QUALITATIVE 13DISCLOSURES ofABOUT ~~Part~~MARKET ~~III is included in our Proxy Statement for our 2010 Annual Meeting of Stockholders and is incorporated herein by reference~~RISK.

~~ITEM~~Interest ~~14.~~Rate ~~PRINCIPAL~~Risk ~~ACCOUNTING FEES AND SERVICES.~~

We deposit surplus funds with Chinese banks earning daily interest. We do not invest in any instruments for trading purposes. Most of our outstanding debt instruments carry fixed rates of interest. Our operations generally are not directly sensitive to fluctuations in interest rates. The amount ~~information~~of ~~required~~long-term bydebt ~~Item~~outstanding 14as of ~~Part~~December ~~III~~31, is2011 ~~included~~and 2010 was $0.11 million and $5.86 million, respectively. A hypothetical 1.0% increase in the annual interest rates for all of our ~~Proxy~~credit ~~Statement~~facilities under which we had outstanding borrowings at December 31, 2011 would decrease net income before income taxes by approximately $95,000, or less than 1% for the year ended December 31, 2011. Management monitors the banks’ prime rates in conjunction with our ~~2010~~cash ~~Annual~~requirements ~~Meeting~~to determine the appropriate level of ~~Stockholders~~debt ~~and~~balances relative isto other sources of funds. We have not entered into any hedging ~~incorporated~~transactions ~~herein~~in byan ~~reference~~effort to reduce our exposure to interest rate risk.

~~PART~~Foreign IVExchange Risk

~~ITEM~~While 15our reporting currency is the U.S. ~~EXHIBITS~~dollar, ~~FINANCIAL~~substantially all ~~STATEMENT~~of ~~SCHEDULES~~our consolidated revenues and consolidated costs and expenses are denominated in RMB. Substantially all of our assets are denominated in RMB except for cash. As a result, we are exposed to foreign exchange risk as our revenues and results of operations may be affected by fluctuations in the exchange rate between the U.S. dollar and the RMB. If the RMB depreciates against the U.S. dollar, the value of our RMB revenues, earnings and assets as expressed in our U.S. dollar financial statements will decline. Assets and liabilities are translated at exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates and equity is translated at historical exchange rates. Any resulting translation adjustments are not included in determining net income but are included in determining other comprehensive income, a component of equity. An average appreciation (depreciation) of the RMB against the U.S. dollar of 5% would increase (decrease) our comprehensive income by $14.94 million based on our outstanding revenues, costs and expenses, assets and liabilities denominated in RMB as of December 31, 2011. As of December 31, 2011, our accumulated other comprehensive income was $19.93 million. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk.

~~Financial~~The ~~Statements~~value of RMB against the U.S. dollar and ~~Schedules~~other currencies is affected by, among other things, changes in China’s political and economic conditions. Since July 2005, RMB has not been pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future, PRC authorities may lift restrictions on fluctuations in RMB exchange rate and lessen intervention in the foreign exchange market.

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

~~Exhibit~~Inflationary ~~List~~factors such as increases in the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net revenues if the selling prices of our products do not increase with these increased costs.

~~The~~49 ~~following exhibits are filed as part of this report or incorporated by reference:~~

Exhibit No.		Description
3.1*		Amended and Restated Articles of Incorporation of the Company as filed with the Secretary of State of Nevada, as amended to date
3.2		Bylaws of the Company, adopted on February 13, 2008 (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed by the Company on April 7, 2008)
4.1		China Information Security Technology, Inc. 2007 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on June 13, 2007)
10.1		Form of Securities Purchase Agreement, dated January 7, 2010, among the Company and the investors signatory thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on January 7, 2010)

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

-Consolid

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