Edgar Filing: China Information Technology, Inc.

China Information Technology, Inc.: Form 20-F - Filed by newsfilecorp.com

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

FORM 20-F

(Mark One)

[ ]	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

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

For the fiscal year ended December 31, 2015

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

For the transition period from ___________ to ___________

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

Date of event requiring this shell company report _________________________

Commission file number: 001-35722

CHINA INFORMATION TECHNOLOGY, INC.
(Exact Name of Registrant as Specified in Its Charter)

Not Applicable
(Translation of Registrant’s Name Into English)

British Virgin Islands
(Jurisdiction of Incorporation or Organization)

21st Floor, Everbright Bank Building
Zhuzilin, Futian District
Shenzhen, Guangdong 518040
People’s Republic of China
(Address of Principal Executive Offices)

Mr. Jiang Huai Lin, Chief Executive Officer
21st Floor, Everbright Bank Building
Zhuzilin, Futian District
Shenzhen, Guangdong 518040
People’s Republic of China
Tel: +86-755-88319888
Fax: + 86-755-83709333
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

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

Title of Each Class		Name of Each Exchange On Which Registered
Ordinary Shares, $0.01 par value		NASDAQ Global Select Market

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None
(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report (December 31, 2015): 39,331,364 ordinary shares

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]

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

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 Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

Large Accelerated Filer [ ]

Accelerated Filer [ ]

Non-Accelerated Filer [X]

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP [X]

International Financial Reporting
Standards as issued by the International
Accounting Standards Board [ ]

Other [ ]

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

[ ] Item 17 [ ] Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

Annual Report on Form 20-F

Year Ended December 31, 2015

TABLE OF CONTENTS

		Page

PART I
ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	2
	A. Directors and Senior Management	2
	B. Advisors	2
	C. Auditors	2
ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE	2
	A. Offer Statistics	2
	B. Method and Expected Timetable	2
ITEM 3.	KEY INFORMATION	2
	A. Selected Financial Data	2
	B. Capitalization and Indebtedness	3
	C. Reasons for the Offer and Use of Proceeds	3
	D. Risk Factors	3
ITEM 4.	INFORMATION ON THE COMPANY	21
	A. History and Development of the Company	21
	B. Business Overview	26
	C. Organizational Structure	35
	D. Property, Plants and Equipment	35
ITEM 4A.	UNRESOLVED STAFF COMMENTS	35
ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS	35
	A. Operating Results	35
	B. Liquidity and Capital Resources	45
	C. Research and Development, Patents and Licenses, Etc.	48
	D. Trend Information	48
	E. Off-Balance Sheet Arrangements	48
	F. Tabular Disclosure of Contractual Obligations	49
	G. Safe Harbor	49

ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	49
	A. Directors and Senior Management	49
	B. Compensation	51
	C. Board Practices	52
	D. Employees	54
	E. Share Ownership	54
ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	55
	A. Major Shareholders	55
	B. Related Party Transactions	55
	C. Interests of Experts and Counsel	56
ITEM 8.	FINANCIAL INFORMATION	56
	A. Consolidated Statements and Other Financial Information	56
	B. Significant Changes	56
ITEM 9.	THE OFFER AND LISTING	56
	A. Offer and Listing Details	56
	B. Plan of Distribution	57
	C. Markets	57
	D. Selling Shareholders	57
	E. Dilution	57
	F. Expenses of the Issue	57
ITEM 10.	ADDITIONAL INFORMATION	57
	A. Share Capital	57
	B. Memorandum and Articles of Association	57
	C. Material Contracts	62
	D. Exchange Controls	63
	E. Taxation	64
	F. Dividends and Paying Agents	68
	G. Statement by Experts	68
	H. Documents on Display	68
	I. Subsidiary Information	68
ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	68
ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	69
	A. Debt Securities	69
	B. Warrants and Rights	69
	C. Other Securities	69
	D. American Depositary Shares	69
PART II
ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	70

ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITIES HOLDERS AND USE OF PROCEEDS	70
ITEM 15.	CONTROLS AND PROCEDURES	70
ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT	71
ITEM 16B.	CODE OF ETHICS	71
ITEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	71
ITEM 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	72
ITEM 16E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	72
ITEM 16F.	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	72
ITEM 16G.	CORPORATE GOVERNANCE	72
ITEM 16H.	MINE SAFETY DISCLOSURE	72
PART III
ITEM 17.	FINANCIAL STATEMENTS	73
ITEM 18.	FINANCIAL STATEMENTS	73
ITEM 19.	EXHIBITS	73

iii

INTRODUCTORY NOTES

Use of Certain Defined Terms

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

	•	“CNIT,” “we,” “us,” “our” and the “Company” are to the combined business of China Information Technology, Inc., its subsidiaries and other consolidated entities;

	•	“CITN” are to China Information Technology (Nevada), Inc., a Nevada corporation;

	•	“CITH” are to China Information Technology Holding Ltd., a BVI company;

	•	“IST HK” are to Information Security Tech. International Co., Ltd., a Hong Kong company;

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

	•	“TopCloud” are to TopCloud Software Co., Ltd., a PRC company;

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

	•	“ISIOT” are to Information Security IoT Technology Co., Ltd., a PRC company;

	•	“iASPEC” are to iASPEC Geo Information Technology Co., Ltd, a PRC company;

	•	“Geo” are to Wuda Geoinformatics Co., Ltd., a PRC company;

	•	“Zhongtian” are to Shenzhen iASPEC Zhongtian Software Company Ltd., a PRC company;

	•	“Biznest” are to Biznest Internet Technology Co., Ltd., a PRC company;

	•	“Bocom” are to iASPEC Bocom IoT Technology Co. Ltd., a PRC company;

	•	“Taoping” are to Shenzhen Taoping Internet Technology Co., Ltd., a PRC company;

	•	“BVI” are to the British Virgin Islands;

	•	“Hong Kong” are to the Hong Kong Special Administrative Region of the People’s Republic of China;

	•	“PRC” and “China” are to the People’s Republic of China;

	•	“SEC” are to the Securities and Exchange Commission;

	•	“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.

Forward-Looking Information

In addition to historical information, this annual report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. 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 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 which are generally set forth under Item 3 “Key information—D. Risk Factors” and elsewhere in this annual report.

Readers are urged to carefully review and consider the various disclosures made by us in this report and our other filings with the SEC. These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation, except as required by law, to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.

PART I

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

A. Directors and Senior Management

Not applicable.

B. Advisors

Not applicable.

C. Auditors

Not applicable.

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

A. Offer Statistics

Not applicable.

B. Method and Expected Timetable

Not applicable.

ITEM 3.

KEY INFORMATION

A. Selected Financial Data

The following table presents selected financial data regarding our business. It should be read in conjunction with our consolidated financial statements and related notes contained elsewhere in this annual report and the information under Item 5 “Operating and Financial Review and Prospects.” The selected consolidated statement of (loss) income data for the fiscal years ended December 31, 2015, 2014 and 2013, and the selected consolidated balance sheet data as of December 31, 2015 and 2014 have been derived from our audited consolidated financial statements that are included in this annual report beginning on page F-1. The selected consolidated statement of (loss) income data for the fiscal years ended December 31, 2012 and 2011, and the selected consolidated balance sheet data as of December 31, 2013, 2012 and 2011 have been derived from our audited consolidated financial statements that are not included in this annual report.

Our consolidated financial statements are prepared and presented in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. In 2015, we disposed of our equity interests in Geo and Zhongtian. All periods presented herein have been retroactively restated to conform with the presentation of Geo and Zhongtian as discontinued operations. The selected financial data information is only a summary and should be read in conjunction with the historical consolidated financial statements and related notes contained elsewhere herein. The financial statements contained elsewhere fully represent our financial condition and operations; however, they are not indicative of our future performance.

		Years Ended December 31,
		2015			2014			2013			2012			2011
Statement of Income Data
Total revenue	$	10,284,868		$	38,634,747		$	55,419,831		$	68,103,843		$	99,521,202
Total cost of revenue	$	6,381,205		$	28,146,390		$	45,867,163		$	54,879,870		$	61,883,258
Gross profit	$	3,903,663		$	10,488,357		$	9,552,668		$	13,223,973		$	37,637,944
(Loss) income from operations	$	(26,963,357	)	$	(23,909,213	)	$	(118,215,368	)	$	(85,247,288	)	$	8,555,179
Net (loss) income attributable to CNIT-continuing operations	$	(9,003,233	)	$	(24,087,098	)	$	(118,511,760	)	$	(89,432,743	)	$	6,402,501
Net (loss) income per share-continuing operations - basic	$	(0.26	)	$	(0.79	)	$	(4.33	)	$	(3.31	)	$	0.24
Net (loss) income per share-continuing operations - diluted	$	(0.26	)	$	(0.79	)	$	(4.33	)	$	(3.31	)	$	0.23
Balance Sheet Data
Cash and cash equivalents	$	3,786,846		$	6,689,848		$	6,044,692		$	6,836,413		$	8,792,195
Working (deficiency) capital	$	(1,649,728	)	$	(56,043,116	)	$	(46,779,407	)	$	21,726,752		$	61,896,470
Total assets	$	66,091,704		$	179,405,809		$	189,238,990		$	287,421,889		$	361,792,142
Total liabilities	$	35,637,467		$	140,827,000		$	129,059,540		$	123,407,956		$	109,252,456
Temporary equity	$	360,000		$	1,425,000		$	2,175,000		$	-		$	-
Total equity	$	30,094,237		$	37,153,809		$	58,004,450		$	164,013,933		$	252,539,686

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

An investment in our capital 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 annual 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 ordinary shares could decline, and you may lose all or part of your investment.

Risks Relating to our Business

We have a limited operating history of selling our cloud-based products and services and may be unable to achieve or sustain profitability or accurately predict our future results.

In early 2013, we made a strategic decision to transition our business from servicing the public sector to focusing on the private sector. Leveraging our experience and expertise in handling large-scale IT projects for the public sector, we started investing in research and development of our own software products suitable for the private sector. In 2014, continuing our transition from the public sector to the private sector, we identified and provided cloud-based ecosystem solutions to new media, healthcare, education, and residential community management as the four core markets on which we would focus. Underpinning our ecosystems are our industry-specific integrated technology platform, resource exchange, and big data services. In 2014, we predominately sold our cloud-based solutions to the Chinese new media industry. Starting from 2015, we further expanded the customer base of our cloud-based solutions to numerous industries including new media, education, government and residential community management. As such, we have a very limited operating history of selling our cloud-based products and professional services to the private sector. Our limited operating history makes it difficult to evaluate our current business and future prospects and may increase the risk of your investment. In 2015, we generated only $7.31 million of revenue in our cloud-based technology (CBT) segment for customers in the education and new media sectors. We expect to have significant operating expenses in the future to further support and grow our business, including expanding the scope of our customer base, expanding our direct and indirect selling capabilities, pursuing acquisitions of complementary businesses, investing in our data storage and analysis infrastructure and research and development and increasing our international presence. As a result of our new initiatives, we may be unable to achieve or sustain profitability or reasonably predict our future outcome. We cannot assure you that we will achieve profitability in the future, or that if we do become profitable, we will sustain profitability.

Our independent registered auditors have expressed substantial doubt about our ability to continue as a going concern.

Our independent auditors have added an explanatory paragraph to their audit opinion issued in connection with our financial statements included in this report which states that the financial statements were prepared assuming that we would continue as a going concern.

As discussed in Note 1 to the consolidated financial statements included in this report, we have reported recurring net losses as well as negative cash flows from operating activities. In addition, we have a working capital deficit as of December 31, 2015. These factors raise substantial doubt about our ability to continue as a going concern. As disclosed under Item 5, “Operating and Financial Review and Prospects” and Note 1 to the consolidated financial statements, we have developed our 2015 business plan which will continue to be executed in 2016. However, there can be no assurance that we will be successful in achieving the goals set forth in our business plan.

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

The revenue growth and profitability of our business rely on the overall demand for software, display technology products, and internet related services. Our business depends on the overall economy in China and the economic and business conditions within our respective product and service sectors. If economic conditions become unstable, our existing and prospective customers may reassess their decisions to purchase our products and services. Fragile Chinese economic conditions or a reduction in information technology spending by our customers, could harm our business in many ways, including longer sales cycles and lower prices for our products and services. These events could have a material effect on our future revenue and earnings.

Our periodic operating results are difficult to predict and could fall below investors’ expectations or estimates by securities research analysts, which may cause the trading price of our ordinary shares to decline.

Our revenues and operating results can vary significantly from a filing period to the next due to a number of factors, many of which are outside of our control, such as fluctuations in the volume of business from our customers as a result of changes in their operations, their decisions to purchase our products and services, and currency fluctuations. Our revenues and operating results could also be affected by delays or difficulties in expanding our operational facilities and infrastructure, changes to our pricing strategies due to a competitive business environment and improper estimates of resources and time required to complete ongoing projects. Our first quarter revenues are relatively low compared to the other quarters due to the Chinese New Year holiday. Moreover, our operating and financial results may vary as a result of our dependency on our customers’ budgets and spending patterns. Therefore we may not be able to reasonably estimate the demand for our products and services beyond the current calendar year, which could adversely affect our business, operations and financial condition. In addition, business volumes for specific customers are likely to vary from year to year. Thus, a major customer in one year may not remain as a major customer in the subsequent years.

These fluctuations are likely to 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 filing period fall below investors’ expectations or estimates by securities research analysts, the trading price of our ordinary shares may decline.

We face risks once businesses are acquired through mergers or acquisitions and the acquired companies may not perform to our expectations, which may adversely affect our results of operations.

We face risks when we acquire other businesses. These risks include:

	•	difficulties in the integration of acquired operations and retention of personnel,

	•	unforeseen or hidden liabilities,

	•	tax, regulatory and accounting subject matters, and

	•	inability to generate sufficient revenues to offset acquisition costs.

Acquired companies may not perform to our expectations for various reasons, including loss of key personnel resulting changes in key customers, and our strategic focus may change. Therefore we may not realize the benefits we have previously anticipated. If we fail to integrate acquired businesses or realize expected benefits, we may lose economic returns on investments in these mergers and acquisitions and incur transaction costs causing our operating results to be materially and adversely affected.

If we are unable to secure additional financing or identify suitable merger or acquisition targets, 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 manner.

Our long-term business 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 recent uncertainties in the global economic outlook and financial market stability, we may not be able to secure an adequate level of additional financing, whether through equity financing, debt financing or other sources. To raise additional capital, we may need to issue new securities which could result in further dilution to our shareholders and significant dilution to our earnings per share. Issuance of new securities with registration rights or covenants through additional financings may be superior to the current ones that would restrict our operations and strategies. 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, lack of additional capital could force us to substantially curtail or even cease operations.

We also may not be able to identify merger or acquisition targets or, after a merger or acquisition, may not be able to successfully integrate the targeted business or operations with ours. Such failure to execute our long-term business plan likely will negatively impact our results of operations.

We generally do not have exclusive agreements with our customers and we may lose their contracts if they are not satisfied with our products and services or for other reasons.

We generally do not have exclusive agreements with our customers. As a result, we must rely on the quality of our products and services, our reputation in the industry, and favorable pricing terms to attract and retain customers. There is no assurance that we will be able to maintain and retain our relationships with current and/or future customers. Our customers may choose 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 from us, it would materially and adversely affect on our business and results of operations.

If we are unable to develop and offer competitive new products and services, our future operations could be adversely affected.

Our future revenue stream, to a large degree, depends on our ability to capitalize on our technology strength and capabilities to offer new software applications and services to a broader client base. We are required to make investments in research and development to continue developing and offering new software applications and internet related services, and to enhance our existing software applications and internet related services to achieve market acceptance of our products and services. We may encounter potential challenges in innovation and introduction of new products services. 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 the existing ones, our future operating results would be adversely affected. Timing for software developments is difficult to predict. Timely launch of new applications and their acceptance by customers are important to our future success. A delay in the development of new applications could have a significantly adverse impact on our results of operations.

If we are unable to keep abreast with the rapid technical changes in our industry, demand for our products and services could decline and adversely affect our revenue and growth.

Our industry is known for rapid changes in technology, frequent introductions of new applications, quick evolution of industry standards, and changes in customer demands. These conditions require continuous investments in product research and development to enhance existing products, innovate new products, and keep up with the leading edge technologies. We believe that the timely development of new products and continuous enhancements to the existing products are essential to maintain our competitive position in the marketplace. Our future success depends in part upon customer and market acceptance of our products and innovations. Failure to achieve market acceptance of our existing products and services and launch of new products could materially and adversely affect our business and results of operations.

Our software applications may contain defects or errors, which could decrease sales, damage our reputation, or delay deliveries of our products.

Our software products are complex and must meet the stringent technical requirements requested by our customers. In order to keep pace with the current technologies and the rapid changes in the industry standards, we must accelerate new product developments and enhancements for our existing products. Because of the complex designs and the expeditious development cycles, we cannot assure that our software products are free of errors, especially for the newly released software applications and the updates for the existing software products. If our software is not free of errors, this could potentially result in litigation, declining sales, increasing product returns and product warranty costs, and further damage to our reputation, which would adversely affect our business.

Our technology may become obsolete, which could materially adversely affect our ability to sell our products and services.

If our technology, products and services become obsolete, our business operations would be materially and adversely affected. The market in which we compete is known for rapid changes in technologies, quick evolution of industry standards, fast introductions of new products, and changes in customer demands. These market characteristics can cause the existing products to be obsolete and unmarketable. Our future success depends upon our ability to timely address the increasingly sophisticated requests from our customers to support the existing and new hardware, software, database, and networking platforms. We have to invest in research and development in order to succeed in this competitive industry and timely satisfy market demands. Research and development expenses from continuing operations were $3,446,867, $1,477,246 and $2,190,074 for the years ended December 31, 2015, 2014 and 2013, respectively.

We face the risk of systems interruptions and capacity constraints, possibly resulting in adverse publicity, revenue loss and erosion of customer trust.

The satisfactory performance, 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 result in negative publicity that could cause us to lose customer accounts or fail to obtain new accounts. Any inability to scale our systems 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 to permit us to upgrade and expand our systems effectively or to integrate smoothly any newly developed or purchased modules with our existing systems.

We have a limited history with our pricing models for our CBT products and services and, as a result, we may be forced to change the prices we charge for our applications or the pricing models upon which they are based.

We have limited experience with respect to determining the optimal prices and pricing models for certain of our CBT products and services and certain geographic markets. As the markets for our applications mature, or as competitors introduce products or services that compete with ours, including bundling competing offerings with additional products or services, we may be unable to attract new customers at the same price or based on the same pricing models as we have used historically. As a result, in the future we may be required to reduce our prices, which could adversely affect our financial performance. In addition, we may offer volume price discounts based on the number of products or services purchased by a customer or the number of our applications purchased by a customer, which would effectively reduce the prices we charge for our applications. Also, we may be unable to renew existing customer agreements or enter into new customer agreements at the same prices or upon the same terms that we have historically, which could have a material adverse effect on our financial position.

Security breaches may harm our business.

Our cloud-based applications involve the storage and transmission of our customers’ proprietary and confidential information, including personal or identifying information regarding their employees and customers. Any security breaches, unauthorized access, unauthorized usage, virus or similar breach or disruption could result in loss of confidential information, damage to our reputation, early termination of our contracts, litigation, regulatory investigations, indemnity obligations or other liabilities. If our security measures are breached as a result of third-party action, employee error, malfeasance or otherwise and, as a result, someone obtains unauthorized access to customer data, our reputation will be damaged, our business may suffer and we could incur significant liability. Because the techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. Any or all of these issues could negatively affect our ability to attract new customers, cause existing customers to elect not to renew or upgrade their subscriptions, result in reputational damage or subject us to third-party lawsuits, regulatory fines or other action or liability, which could adversely affect our operating results.

If we are not able to adequately secure and protect our patent, trademark and other proprietary rights our business may be materially affected.

Under our Amended and Restated Management Services Agreement, or the MSA, among our subsidiary IST, our variable interest entity, iASPEC, and Mr. Jiang Huai Lin, our Chairman and Chief Executive Officer, we license 71 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 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.

Claims that we infringe the proprietary rights of third parties could result in significant expenses or restrictions on our ability to sell our products and services.

Third parties may claim that our 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 our management’s attention from our core business. In the event of a successful infringement claim against us, we may have to pay significant damages, 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.

A significant portion of our sales are derived from a limited number of customers, and results from operations could be adversely affected and shareholder value harmed if we lose any of these customers.

Historically, a significant portion of our revenues have been derived from a limited number of customers. For each of the years ended December 31, 2015, 2014 and 2013, 21%, 17% and 21%, respectively of our revenues of continuing operations were derived from our five largest customers. The loss of any of these significant customers would adversely affect our revenues and shareholder value.

The digital 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.

The digital security, geographic, and hospital information systems markets in China are intensely competitive and are characterized by frequent technological changes, evolving industry standards and changing customer demands. We have competition 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 limited insurance coverage for our operations in China.

The insurance industry in China is still at an early stage of development. 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 depend heavily on key personnel, 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, our Chairman and Chief Executive Officer, Zhiqiang Zhao, our President and Interim Chief Financial Officer, Zhixiong Huang, our Chief Operating Officer, Guangzeng Chen, our Chief Technology Officer and Chief Product Officer, Guangyuan Zong, our Chief Marketing Officer and Junping Sun, our Chief Investment Officer. They also depend in significant part upon our ability to attract and retain additional qualified management, technical, marketing and sales and support personnel for our operations. If we lose a key employee or if a key employee fails to perform in his or her current position, or if we are not able to attract and retain skilled employees as needed, our business could suffer. Significant turnover in our senior management could significantly deplete our institutional knowledge held by our existing senior management team. We depend on the skills and abilities of these key employees in managing the technical, marketing and sales aspects of our business, any part of which could be harmed by further turnover.

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

Companies that file reports with the SEC, including us, are subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or SOX 404. SOX 404 requires management to establish and maintain a system of internal control over financial reporting and annual reports on Form 10-K or Form 20-F filed under the Exchange Act are required to contain a report from management assessing the effectiveness of a company’s internal control over financial reporting. Separately, under SOX 404, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, public companies that are large accelerated or accelerated filers must include in their annual reports on Form 10-K or Form 20-F an attestation report of their auditors attesting to and reporting on management’s assessment of internal control over financial reporting. Non-accelerated filers and smaller reporting companies are not required to include an attestation report of their auditors in annual reports.

A report of our management is included under Item 15 “Controls and Procedures” of this report. We are a non-accelerated filer and, consequently, are not required to include an attestation report of our auditor in this annual report. Management believes that our internal control over financial reporting was not effective as of December 31, 2015, as a result of material weaknesses identified as discussed in Item 15 of this report. We can provide no assurance that these material weaknesses will be remediated in a timely manner, as a result, investors and others may lose confidence in the reliability of our financial statements.

Our holding company structure may limit the payment of dividends.

We have no direct business operations, other than our ownership of 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 investments. 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 regulations 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.

After-tax profits/losses with respect to the payment of dividends out of accumulated profits and the annual appropriation of after-tax profits as calculated pursuant to PRC accounting standards and regulations do not result in significant differences as compared to after-tax earnings as presented in our financial statements. However, there are certain differences between PRC accounting standards and regulations and U.S. GAAP, arising from different treatment of items such as amortization of intangible assets and change in fair value of contingent consideration rising from business combinations.

Risks Relating to our Commercial Relationship with iASPEC

Mr. Lin’s association with iASPEC could pose a conflict of interest which may result in iASPEC decisions that are adverse to our business.

Mr. Jiang Huai Lin, our Chairman and Chief Executive Officer and the beneficial owner of 37.7% of our outstanding ordinary shares beneficially owns 100% of the equity interests in iASPEC, from whom we derived 68.2%, 42.4% and 22.5% of our revenue in the fiscal years ended December 31, 2015, 2014 and 2013, 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 iASPEC or its shareholders violate our contractual arrangements with it, our business could be disrupted and we may have to resort to litigation to enforce our rights which may be time consuming and expensive.

Our operations are currently dependent upon our commercial relationship with iASPEC. During the fiscal years ended December 31, 2015, 2014 and 2013, we derived 68.20%, 42.4% and 22.5% of our revenues, respectively, from the provision of services to iASPEC customers. A significant portion of these revenues have not yet been collected. Amounts owed by iASPEC under the amended MSA for each quarter will be due and payable no later than the last day of the month following the end of each such quarter. Our contractual arrangements may not be as effective as direct ownership, if iASPEC or its shareholders are unwilling or unable to perform their obligations 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 the manner currently planned. In addition, iASPEC may seek to renew these agreements on terms that are disadvantageous to us. Although we have entered into a series of agreements that provide us with substantial ability to control iASPEC, we may not succeed in enforcing our rights under them. If we are unable to renew these agreements on favorable terms, or to enter into similar agreements with other parties, our business may not be able to operate or expand, and our operating expenses may significantly increase.

Uncertainties in the PRC legal system may impede our ability to enforce the commercial agreements 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.

While disputes under the amended 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.

If iASPEC fails to comply with the confidentiality requirements of certain of its customer contracts, then iASPEC could be subject to sanctions and could lose its business license which in turn would significantly disrupt or shut down our operations.

The business and operations of iASPEC, the owner and licensor to us of the copyrighted software applications and 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 of the share capital of iASPEC is held by our major shareholder, who may cause these agreements to be amended in a manner that is adverse to us.

Our major shareholder, Mr. Jiang Huai Lin, owns and controls iASPEC. As a result, Mr. Lin may be able to cause our commercial arrangements with iASPEC to be amended in a manner that will be adverse to our company, or may be able to cause these agreements not to be renewed, even if their renewal would be beneficial for us. Although we have entered into an agreement that prevents the amendment of these agreements without the approval of the members of our Board other than Mr. Lin, we can provide no assurances that these agreements will not be amended in the future to contain terms that might differ from the terms that are currently in place. These differences may be adverse to our interests.

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

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 length basis, they may adjust our income and expenses for PRC tax purposes in the form of a transfer pricing adjustment. Such an adjustment may require that we pay additional PRC taxes plus applicable penalties and interest, if any.

The exercise of our option to purchase part or all of the equity interests in or assets of iASPEC under the option agreement might be subject to approval by the PRC government, and 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.

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 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, Guangdong Jin Di Law Firm Sichuan Office, 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.

Our right to elect a majority of the 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.

Our 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 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 Police-use Geographic Information Systems, or 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.

Risks Relating to Doing Business in China

Changes in the economic and political policies of the PRC government could have a material and adverse effect on our business and operations.

We conduct substantially all our business operations in China. Accordingly, our results of operations, financial condition and prospects are significantly dependent on economic and political developments in China. China’s economy differs from the economies of developed countries in many aspects, including the level of development, growth rate and degree of government control over foreign exchange and allocation of resources. While China’s economy has experienced significant growth in the past 30 years, the growth has been uneven across different regions and periods and among various economic sectors in China. We cannot assure you that China’s economy will continue to grow, or that if there is growth, such growth will be steady and uniform, or that if there is a slowdown, such slowdown will not have a negative effect on its business and results of operations.

The PRC government exercises significant control over China. Accordingly, our results of operations, financial condition and prospects are significantly dependent on economic and political developments in China. Certain measures adopted by the PRC government may restrict loans to certain industries, such as changes in the statutory deposit reserve ratio and lending guidelines for commercial banks by the People’s Bank of China, or PBOC. These current and future government actions could materially affect our liquidity, access to capital, and ability to operate our business.

The global financial markets experienced significant disruptions in 2008 and the United States, Europe and other economies went into recession. Since 2012, growth of the Chinese economy has slowed down. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall PRC economy but may also have a negative effect on us. Our financial condition and results of operation could be materially and adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. In addition, any stimulus measures designed to boost the Chinese economy, may contribute to higher inflation, which could adversely affect our results of operations and financial condition. See “Risks Relating to Doing Business in China - Future inflation in China may inhibit our ability to conduct business in China.”

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

We conduct substantially all of our business through our operating 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 foreign invested entities established in the PRC, or 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 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, all of our executive officers and most of our directors are residents of China and not of the United States, and substantially all the assets of these persons are located outside the United States. As a result, it could be difficult for investors to affect service of process in the United States or to enforce a judgment obtained in the United States against our Chinese operations and subsidiaries.

You may have difficulty enforcing judgments against us.

Most of our assets are located outside of the United States and most of our current operations are conducted in the PRC. In addition, most of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons is located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce in U.S. courts judgments on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, most of whom are not residents in the United States and the substantial majority of whose assets are located outside of the United States. In addition, there is uncertainty as to whether the courts of the PRC would recognize or enforce judgments of U.S. courts. 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 in which we must conduct our business activities.

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

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

The enforcement of the PRC labor contract law may materially increase our costs and decrease our net income.

China adopted a new Labor Contract Law, effective on January 1, 2008, and issued its implementation rules, effective on September 18, 2008. The Labor Contract Law and related rules and regulations impose more stringent requirements on employers with regard to, among others, minimum wages, severance payment and non-fixed-term employment contracts, time limits for probation periods, as well as the duration and the times that an employee can be placed on a fixed-term employment contract. Due to the limited period of effectiveness of the Labor Contract Law and its implementation rules and regulations, and the lack of clarity with respect to their implementation and potential penalties and fines, it is uncertain how they will 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 terminate some of our employees or otherwise change our employment or labor practices, the Labor Contract Law and its implementation rules and regulations may also limit our ability to effect those changes in a manner that we believe to be cost-effective or desirable, and could result in a material decrease in our profitability.

If we fail to obtain or maintain all licenses and approvals required to operate our businesses in the PRC, our business and operations may be adversely affected.

Fulfillment of certain PGIS contracts with PRC government customers is restricted to entities possessing the necessary government licenses and approvals which our subsidiary IST does not have. We currently perform Police-use Geographic Information Systems contracts through iASPEC, which possesses the requisite licenses and approvals, pursuant to our MSA with iASPEC, whereby 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 other data). If the PRC government determines that we are operating without the requisite licenses we may become subject to administrative penalties or an order to discontinue our business operations, both of which could have a material adverse effect on our business and results of operations.

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

In recent 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.

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

The majority of our sales will be settled in RMB, and any future restrictions on currency exchanges may limit our ability to use revenue generated in RMB to fund any future business activities outside China or to make dividend or other payments in U.S. dollars. Although the Chinese government introduced regulations in 1996 to allow greater convertibility of the RMB for current account transactions, significant restrictions still remain, including primarily the restriction that FIEs may only buy, sell or remit foreign currencies after providing valid commercial documents, at those banks in China authorized to conduct foreign exchange business. In addition, conversion of RMB for capital account items, including 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 authorities will not impose more stringent restrictions on the convertibility of the RMB.

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

The value of our ordinary shares will be indirectly affected by the foreign exchange rate between the U.S. dollar and RMB and between those currencies and other currencies in which our sales may be denominated. Appreciation or depreciation in the value of the RMB relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. Fluctuations in the exchange rate will also affect the relative value of any dividend we issue 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 July 2005, the RMB has no longer been pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market.

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

Restrictions under PRC law on our PRC 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.

Substantially all of our sales are earned by our PRC subsidiaries. However, 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 with PRC 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, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.

Failure to comply with PRC regulations relating to the investment in offshore special purpose companies by PRC residents may subject our PRC resident stockholders to personal liability, limit our ability to acquire PRC companies or to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute profits to us or otherwise materially adversely affect us.

We have notified substantial beneficial owners of our company who we know are PRC residents to comply with the registration obligation. However, we may not be aware of the identities of all our beneficial owners who are PRC residents. In addition, we do not have control over our beneficial owners and cannot assure you that all of our PRC resident beneficial owners will comply with Circular 37. The failure of our beneficial owners who are PRC residents to register or amend their SAFE registrations in a timely manner pursuant to Circular 37 or the failure of future beneficial owners of our company who are PRC residents to comply with the registration procedures set forth in Circular 37 may subject such beneficial owners or our PRC subsidiaries to fines and legal sanctions. Failure to register or amend the registration may also limit our ability to contribute additional capital to our PRC subsidiaries or receive dividends or other distributions from our PRC subsidiaries or other proceeds from disposal of our PRC subsidiaries, or we may be penalized by SAFE. These risks may have a material adverse effect on our business, financial condition and results of operations.

We may be unable to complete a business combination transaction 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 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 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 regulation 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 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.

The regulation allows PRC government agencies to assess the economic terms of a business combination transaction. Parties to a business combination transaction may have to submit to MOFCOM and other relevant government agencies an appraisal report, an evaluation report and the acquisition agreement, all of which form part of the application for approval, depending on the structure of the transaction. The regulation also prohibits a transaction at an acquisition price obviously lower than the appraised value of the PRC business or assets and in certain transaction structures, requires that consideration must be paid within defined periods, generally not in excess of a year. The regulation also limits our ability to 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 liabilities. Transaction structures involving trusts, nominees and similar entities are prohibited. Therefore, such regulation may impede our ability to negotiate and complete a business combination transaction on financial terms that satisfy our investors and protect our stockholders’ economic interests.

Our existing contractual arrangements with iASPEC and its shareholders may be subject to national security review by MOFCOM, and the failure to receive the national security review could have a material adverse effect on our business and operating results.

In August 2011, MOFCOM promulgated the Rules of Ministry of Commerce on Implementation of Security Review System of Merger and Acquisition of Domestic Enterprises by Foreign Investors, or the Security Review Rules, to implement the Notice of the General Office of the State Council on Establishing the Security Review System for Merger and Acquisition of Domestic Enterprises by Foreign Investors promulgated on February 3, 2011, or Circular 6. The Security Review Rules became effective on September 1, 2011. Under the Security Review Rules, a national security review is required for certain mergers and acquisitions by foreign investors raising concerns regarding national defense and security. Foreign investors are prohibited from circumventing the national security review requirements by structuring transactions through proxies, trusts, indirect investments, leases, loans, control through contractual arrangements or offshore transactions. The application and interpretation of the Security Review Rules remain unclear. Based on our understanding of the Security Review Rules, we do not need to submit our existing contractual arrangements with iASPEC and its shareholders to the MOFCOM for national security review because, among other reasons, (i) we gained de facto control over iASPEC in 2007 prior to the effectiveness of Circular 6 and the Security Review Rules; and (ii) there are currently no explicit provisions or official interpretations indicating that our current businesses fall within the scope of national security review. Although we have no plan to submit our existing contractual arrangements with iASPEC and its shareholders to MOFCOM for national security review, the relevant PRC government agencies, such as MOFCOM, may reach a different conclusion. If MOFCOM or another PRC regulatory agency subsequently determines that we need to submit our existing contractual arrangements with iASPEC and its shareholders for national security review by interpretation, clarification or amendment of the Security Review Rules or by any new rules, regulations or directives promulgated, we may face sanctions by MOFCOM or another PRC regulatory agency. These sanctions may include revoking the business or operating licenses of our PRC subsidiary, IST, or iASPEC and its subsidiaries, discontinuing or restricting our operations in China, confiscating our income or the income of iASPEC, and taking other regulatory or enforcement actions, such as levying fines, that could be harmful to our business. Any of these sanctions could cause significant disruption to our business operations.

The Security Review Rules may make it more difficult for us to make future acquisitions or dispositions of our business operations or assets in China.

The Security Review Rules, effective as of September 1, 2011, provides that when deciding whether a specific merger or acquisition of a domestic enterprise by foreign investors is subject to the national security review by MOFCOM, the principle of substance-over-form should be applied and foreign investors are prohibited from circumventing the national security review requirement by structuring transactions through proxies, trusts, indirect investments, leases, loans, control through contractual arrangements or offshore transactions. If the business of any target company that we plan to acquire falls within the scope subject to national security review, we may not be able to successfully acquire such company by equity or asset acquisition, capital increase or even through any contractual arrangement.

Under the 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 shareholders.

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

On April 22, 2009, the State Administration of Taxation issued the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto Management Bodies, or the Notice, further interpreting the application of the EIT Law and its implementation non-Chinese enterprise or group controlled offshore entities. Pursuant to the Notice, an enterprise incorporated in an offshore jurisdiction and controlled by a Chinese enterprise or group will be classified as a “non-domestically incorporated resident enterprise” if (i) its senior management in charge of daily operations reside or perform their duties mainly in China; (ii) its financial or personnel decisions are made or approved by bodies or persons in China; (iii) its substantial assets and properties, accounting books, corporate chops, board and shareholder minutes are kept in China; and (iv) at least half of its directors with 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 withholding tax at a rate of 10% when paying dividends to its non-PRC shareholders. However, it remains unclear as to whether the Notice is applicable to an offshore enterprise incorporated by a Chinese natural person. Nor 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 facts of each case.

We may 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 worldwide taxable income as well as PRC enterprise income tax reporting obligations. In our case, this would mean that income such as interest on financing proceeds and non-China source income would be subject to PRC enterprise income tax at a rate of 25%. Second, although under the EIT Law and its implementing rules dividends paid to us from our PRC subsidiaries would qualify as “tax-exempt income,” we cannot guarantee that such dividends will not be subject to a 10% withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax, have not yet issued guidance with respect to the processing of outbound 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 shareholders and with respect to gains derived by our non-PRC stockholders from transferring our shares.

If we were treated as a “resident enterprise” by PRC tax authorities, 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.

Heightened scrutiny of acquisition transactions by PRC tax authorities may have a negative impact on Chinese company’s business operations and its acquisition strategy.

Pursuant to the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises, or SAT Circular 698, effective on January 1, 2008, and the Announcement on Several Issues Related to Enterprise Income Tax for Indirect Asset Transfer by Non-PRC Resident Enterprises , or SAT Announcement 7, effective on February 3, 2015, issued by the SAT, if a non-resident enterprise transfers the equity interests of or similar rights or interests in overseas companies which directly or indirectly own PRC taxable assets through an arrangement without a reasonable commercial purpose, but rather to avoid PRC corporate income tax, the transaction will be re-characterized and treated as a direct transfer of PRC taxable assets subject to PRC corporate income tax. SAT Announcement 7 specifies certain factors that should be considered in determining whether an indirect transfer has a reasonable commercial purpose. However, as SAT Announcement 7 is newly issued, there is uncertainty as to the application of SAT Announcement 7 and the interpretation of the term “reasonable commercial purpose.”

Under SAT Announcement 7, the entity which has the obligation to pay the consideration for the transfer to the transferring shareholders has the obligation to withhold any PRC corporate income tax that is due. If the transferring shareholders do not pay corporate income tax that is due for a transfer and the entity which has the obligation to pay the consideration does not withhold the tax due, the PRC tax authorities may impose a penalty on the entity that so fails to withhold, which may be relieved or exempted from the withholding obligation and any resulting penalty under certain circumstances if it reports such transfer to the PRC tax authorities.

Although SAT Announcement 7 is generally effective as of February 3, 2015, it also applies to cases where the PRC tax treatment of a transaction that took place prior to its effectiveness has not yet been finally settled. As a result, SAT Announcement 7 could be determined by PRC tax authorities to be applicable to the historical reorganization, and it is possible that these transactions could be determined by PRC tax authorities to lack a reasonable commercial purpose. As a result, the transfer of shares by certain shareholders to other parties could be subject to corporate income tax of up to 10% on capital gains generated from such transfers, and PRC tax authorities could impose tax obligations on the transferring shareholders or subject us to penalty if the transferring shareholders do not pay such obligations and withhold such tax.

SAT Announcement 7 and its interpretation by relevant PRC authorities clarify that an exemption provided by SAT Circular 698 for transfers of shares in a publicly-traded entity that is listed overseas is available if the purchase of the shares and the sale of the shares both take place in open-market transactions. However, if a shareholder of an entity that is listed overseas purchases shares in the open market and sells them in a private transaction, or vice-versa, PRC tax authorities might deem such a transfer to be subject to SAT Circular 698 and SAT Announcement 7, which could subject such shareholder to additional reporting obligations or tax burdens. Accordingly, if a holder of the Company’s ordinary shares purchases such ordinary shares in the open market and sells them in a private transaction, or vice-versa, and fails to comply with SAT Circular 698 or SAT Announcement 7, the PRC tax authorities may take actions, including requesting to provide assistance for their investigation or impose a penalty on it, which could have a negative impact on the company’s business operations.

We may be exposed to liabilities under 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 business.

We are subject to the Foreign Corrupt Practice Act, or FCPA, and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute, for the purpose of obtaining or retaining business. We have operations, agreements with third parties, and make most of our sales in 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, consultants, sales 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 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.

If we become directly subject to the recent scrutiny, criticism 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 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.

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 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 of many U.S. listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of 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.

The disclosures in our reports and 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 the fact that no governmental agency that is located in China where substantially all of our operations and business are located have conducted any due diligence on our operations or reviewed or cleared any of our disclosure.

We are regulated by the SEC and our reports and other filings with the SEC are subject to SEC review in accordance with the rules and regulations 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. Furthermore, our SEC reports and other disclosure and public pronouncements are not subject to the review or scrutiny of any PRC regulatory authority. For example, the disclosure in our SEC reports and other filings are not subject to the review of the China Securities Regulatory Commission, a PRC regulator that is tasked with oversight of the capital markets in China. 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 with the understanding 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.

Risks Relating to the Market for our Shares

If we fail to comply with the continued listing requirements of NASDAQ, we would face possible delisting, which would result in a limited public market for our shares and make obtaining future debt or equity financing more difficult for us.

Our ordinary shares are traded and listed on the Nasdaq Global Select Market under the symbol “CNIT.” The ordinary shares may be delisted if we fail to maintain certain listing requirements of the Nasdaq Stock Market, or NASDAQ. For instance, companies listed on 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 November 23, 2015, we received a letter from NASDAQ indicating that for the 30 consecutive business days between October 12, 2015 and November 20, 2015, the bid price of our ordinary shares 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 had an initial grace period of 180 calendar days, or until May 23, 2016, to regain compliance with the minimum bid price requirement. On December 22, 2015, we received a notification from NASDAQ that we had regained compliance with the minimum bid price requirement after maintaining a closing bid price equal to or in excess of $1.00 from November 27, 2015 to December 21, 2015. As a result, the matter of our noncompliance with the minimum bid price requirement had been closed.

We cannot ensure you that we will continue to comply with the requirements for continued listing on The NASDAQ Global Select Market in the future. If our shares lose their status on The NASDAQ Global Select Market and we are not successful in obtaining a listing on The NASDAQ Capital Market, our shares would likely trade in the over-the-counter market. If our shares were to trade on the over-the-counter market, selling our shares 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 shares are delisted, broker-dealers have certain regulatory burdens imposed upon them, which may discourage broker-dealers from effecting transactions in our shares, further limiting the liquidity of our shares. These factors could result in lower prices and larger spreads in the bid and ask prices for our shares. Such delisting from The NASDAQ Global Select Market and continued or further declines in our share price 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.

If we were delisted from NASDAQ, we may become subject to the trading complications experienced by “Penny Stocks” in the over-the-counter market.

Delisting from NASDAQ may cause our shares 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 less than $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 NASDAQ. The market price of our ordinary shares is currently lower than $5.00 per share. Therefore, were we to be delisted from NASDAQ, our ordinary shares 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 shareholders to purchase or sell our ordinary shares. Because the broker, not us, prepares this information, we would not be able to assure that such information is accurate, complete or current.

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

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

	•	our earnings releases, actual or anticipated changes in our earnings, fluctuations in our operating results or our failure to meet the expectations of financial market analysts and investors;
	•	changes in financial estimates by us or by any securities analysts who might cover our shares;
	•	speculation about our business in the press or the investment community;
	•	significant developments relating to our relationships with our customers or suppliers;
	•	stock market price and volume fluctuations of other publicly traded companies and, in particular, those that are in the our industries;
	•	customer demand for our products;
	•	investor perceptions of the our industry in general and our company in particular;
	•	the operating and stock performance of comparable companies;
	•	general economic conditions and trends;
	•	major catastrophic events;
	•	announcements by us or our competitors of new products, significant acquisitions, strategic partnerships or divestitures;
	•	changes in accounting standards, policies, guidance, interpretation or principles;
	•	loss of external funding sources;
	•	sales of our ordinary shares, including sales by our directors, officers or significant shareholders; and
	•	additions or departures of key personnel.

Securities class action litigation is often instituted against companies following periods of volatility in their share 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 ordinary shares and other interests in our company at a time when you want to sell your interest in us.

Our outstanding warrants may adversely affect the market price of our ordinary shares.

Currently we have 525,621 series A warrants outstanding. Each warrant has a term of three years and entitles the holders to purchase one ordinary share of the Company at a price of $7.73. The series A warrant could be exercised on a cashless basis. The sale or possibility of sale of the shares underlying the warrants could have an adverse effect on the market price of our ordinary shares or our ability to obtain future financing. If and to the extent these warrants are exercised, you may experience dilution to your holdings.

We do not intend to pay dividends for the foreseeable future.

For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our shares. Accordingly, investors must be prepared to rely on sales of their shares after price appreciation to earn an investment return, which may never occur. Investors seeking cash dividends should not purchase our shares. 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.

Certain of our shareholders hold a significant percentage of our outstanding voting securities.

Mr. Jiang Huai Lin, our Chairman and Chief Executive Officer, is the beneficial owner of approximately 37.7% of our outstanding voting securities. As a result, he possesses significant influence and can elect a majority of our board of directors and authorize or prevent proposed significant corporate transactions. His ownership and control may also have the effect of delaying or preventing a future change in control, impeding a merger, consolidation, takeover or other business combination or discourage a potential acquirer from making a tender offer.

We are a “foreign private issuer” and have disclosure obligations that are different than those of U.S. domestic reporting companies, so you should not expect to receive the same information about us as a U.S. domestic reporting company may provide. Furthermore, if we or lose our status as a foreign private issuer, we would be required to comply fully with the reporting requirements of the Exchange Act applicable to U.S. domestic issuers and would incur significant operational, administrative, legal and accounting costs that we would not incur as a foreign private issuer.

We are a foreign private issuer and, as a result, we are not subject to certain of the requirements imposed upon U.S. domestic issuers by the SEC. For example, we are not required by the SEC or the federal securities laws to issue quarterly reports or file proxy statements with the SEC. We are also allowed to file our annual report with the SEC within four months of our fiscal year end. We are also not required to disclose certain detailed information regarding executive compensation that is required from U.S. domestic issuers. Further, our directors and executive officers are not required to report equity holdings under Section 16 of the Securities Act. As a foreign private issuer, we are also exempt from the requirements of Regulation FD (Fair Disclosure) which, generally, are meant to ensure that select groups of investors are not privy to specific information about an issuer before other investors. We are, however, still subject to the anti-fraud and anti-manipulation rules of the SEC, such as Rule 10b-5. Since many of the disclosure obligations required of us as a foreign private issuer are different than those required by U.S. domestic reporting companies, our shareholders should not expect to receive all of the same types of information about us and at the same time as information is received from, or provided by, U.S. domestic reporting companies. We are liable for violations of the rules and regulations of the SEC which do apply to us as a foreign private issuer. Violations of these rules could affect our business, results of operations and financial condition.

If we lose our status as a foreign private issuer at some future time, we will be required to comply fully with the reporting requirements of the Exchange Act applicable to U.S. domestic issuers and would incur significant operational, administrative, legal and accounting costs that it would not incur as a foreign private issuer.

As a foreign private issuer, we are permitted to rely on exemptions from certain NASDAQ corporate governance standards applicable to domestic U.S. issuers. This may afford less protection to holders of our securities.

We are exempted from certain corporate governance requirements of the Nasdaq Stock Market by virtue of being a foreign private issuer. As a foreign private issuer, we are permitted to follow the governance practices of our home country, the BVI in lieu of certain corporate governance requirements of NASDAQ. As result, the standards applicable to us are considerably different than the standards applied to domestic U.S. issuers. For instance, we are not required to:

•

have a majority of the board be independent (although all of the members of the audit committee must be independent under the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act);

	•	have a compensation committee and a nominating committee to be comprised solely of "independent directors; and

	•	hold an annual meeting of shareholders no later than one year after the end of the Company's fiscal year-end.

As a result, you may not have the same protections afforded to shareholders of companies that are subject to all of the Nasdaq corporate governance requirements.

You may have difficulty enforcing judgments obtained against us.

We are a BVI company and substantially all of our assets are located outside of the United States. Virtually all of our assets and a substantial portion of our current business operations are conducted in the PRC. In addition, almost all 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 are 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 obtained in U.S. courts including judgments based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, many of whom are not residents in the United States and whose assets are located in significant part outside of the United States. The courts of the BVI would recognize as a valid judgment, a final and conclusive judgment in personam obtained in the federal or state courts in the United States against the Company under which a sum of money is payable (other than a sum of money payable in respect of multiple damages, taxes or other charges of a like nature or in respect of a fine or other penalty) and would give a judgment based thereon provided that (a) such courts had proper jurisdiction over the parties subject to such judgment, (b) such courts did not contravene the rules of natural justice of the BVI, (c) such judgment was not obtained by fraud, (d) the enforcement of the judgment would not be contrary to the public policy of the BVI, (e) no new admissible evidence relevant to the action is submitted prior to the rendering of the judgment by the courts of the BVI and (f) there is due compliance with the correct procedures under the laws of the BVI. In addition, there is uncertainty as to whether the courts of the BVI or the PRC, respectively, would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state. In addition, it is uncertain whether such BVI or PRC courts would entertain original actions brought in the courts of the BVI or the PRC, against us or such persons predicated upon the securities laws of the United States or any state.

Because we are incorporated under the laws of the BVI, it may be more difficult for our shareholders to protect their rights than it would be for a shareholder of a corporation incorporated in another jurisdiction.

Our corporate affairs are governed by our memorandum and articles of association, by the BVI Business Companies Act, 2004 (as amended), or the BVI Act, and by the common law of the BVI. Principles of law relating to such matters as the validity of corporate procedures, the fiduciary duties of management and the rights of our shareholders differ from those that would apply if we were incorporated in the United States or another jurisdiction. The rights of shareholders under BVI law may not be as clearly established as are the rights of shareholders in the United States or other jurisdictions. Under the laws of most jurisdictions in the United States, majority and controlling shareholders generally have certain fiduciary responsibilities to the minority shareholders. Shareholder action must be taken in good faith, and actions by controlling shareholders which are obviously unreasonable may be declared null and void. BVI law protecting the interests of minority shareholders may not be as protective in all circumstances as the law protecting minority shareholders in United States jurisdictions. In addition, the circumstances in which a shareholder of a BVI company may sue the company derivatively, and the procedures and defenses that may be available to the company, may result in the rights of shareholders of a BVI company being more limited than those of shareholders of a company organized in the United States. Furthermore, our directors have the power to take certain actions without shareholder approval which would require shareholder approval under the laws of most United States jurisdictions. The directors of a BVI corporation, subject in certain cases to court approval but without shareholder approval, may implement a reorganization, merger or consolidation, the sale of any assets, property, part of the business, or securities of the corporation, subject to a limit of up to 50% of such assets. The ability of our board of directors to create new classes or series of shares and the rights attached by amending our Memorandum of Association and Articles of Association without shareholder approval could have the effect of delaying, deterring or preventing a change in our control without any further action by the shareholders, including a tender offer to purchase our ordinary shares at a premium over then current market prices. Thus, our shareholders may have more difficulty protecting their interests in the face of actions by our board of directors or our controlling shareholders than they would have as shareholders of a corporation incorporated in another jurisdiction.

ITEM 4.

INFORMATION ON THE COMPANY

A. History and Development of the Company

General Information

The current legal and commercial name of the Company is China Information Technology, Inc. The Company was incorporated in the BVI under the BVI Act on June 18, 2012. The address of our principal place of business is 21st Floor, Everbright Bank Building, Zhuzilin, Futian District, Shenzhen, Guangdong 518040, People’s Republic of China, and our telephone number is (+86)755-8831-9888. The name and address of our agent for service in the United States is Corporation Service Company, 80 State Street, Albany, NY 12207-2543.

Corporate History

Our predecessor company, CITN, was 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.

Between October 6, 2006 and January 31, 2007, our shareholders approved a series of transactions whereby we purchased all the issued and outstanding stock of CITH from our current Chairman and Chief Executive Officer, Jiang Huai Lin, for 25,500,000 shares of our common stock. As a result of these transactions, CITH and its wholly-owned subsidiary, IST, became our wholly-owned subsidiaries, and Mr. Lin became the beneficial owner of 25,500,000 shares of our common stock, which, at January 31, 2007, constituted 80.8% of our issued and outstanding common stock. As a result of these transactions, our business operations changed to the provision of integrated geographic information 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.

On April 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 we became a Nevada corporation.

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

On October 31, 2012, we completed a corporate reorganization, whereby the Company, which was established as a subsidiary of CITN under the laws of the BVI to effect the reorganization, became the publicly held parent company and CITN became a wholly-owned subsidiary of the Company. In connection with the reorganization, each outstanding share of the common stock of CITN was converted into the right to receive one ordinary share of the Company and the ordinary shares of the Company were listed on the NASDAQ Global Select Market under the trading symbol “CNIT,” the same symbol under which the common stock of CITN were listed. Prior to the reorganization, shares of CITN’s common stock were registered pursuant to Section 12(b) of the Exchange Act. On October 31, 2012, the Company filed a Form 8-K12B under cover of a Form 6-K to establish the Company as the successor issuer to CITN pursuant to Rule 12g-3 under the Exchange Act, and pursuant to Rule 12g-3(a) under the Exchange Act, the ordinary shares of the Company, as successor issuer, were deemed registered under Section 12(b) of the Exchange Act. On November 13, 2012, CITN filed a Form 15 with the SEC to terminate the registration of the shares of its common stock and suspend its reporting obligations under Sections 13 and 15(d) of the Exchange Act. On November 19, 2012, we changed the name of CITN to China Information Technology (Nevada), Inc., which was liquidated and dissolved in July 2014.

Management Services Agreement

On July 1, 2007, our subsidiary IST entered into a management services agreement, or MSA, with iASPEC and its shareholders, pursuant to which iASPEC granted IST an exclusive, royalty-free, transferable, 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 was also granted 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 agreed to 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. Furthermore, under the MSA, IST was entitled to receive 100% of the net received profit of iASPEC and would reimburse iASPEC for all net losses incurred by iASPEC. IST was also obligated to pay iASPEC $180,000 per year. If iASPEC or any of the iASPEC shareholders materially breaches the MSA 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) $50 million.

In connection with the MSA, 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(s), 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 a result of its relationship with iASPEC, iASPEC became a variable interest entity of our Company. A variable interest represents a contractual or ownership interest in another entity that causes the holder to absorb the changes in fair value of the other entity’s net assets. Potential variable interests include: holding economic interests, voting rights, or obligations to an entity; issuing guarantees on behalf of an entity; transferring assets to an entity; managing the assets of an entity; leasing assets 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 economic risks and rewards of the entity, regardless of ownership. While we have held an economic interest in iASPEC since October 9, 2006, the MSA and the Option Agreement gave us control over the business and operations of iASPEC. As a result, iASPEC’s 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. Jiang 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 December 13, 2009, IST, iASPEC and Mr. Lin, as the sole shareholder of iASPEC, amended and restated the MSA, pursuant to which IST would continue to provide management and consulting services to iASPEC, subject to the following changes:

	•	iASPEC agreed that IST will be entitled to receive ninety five percent (95%) of the net received profit of iASPEC during the term of the agreement, to be calculated as follows: accrued accounts receivable plus net turnover (revenue), minus cost of sales, minus operating expenses, and minus accrued but not collected accounts receivable, but only if the result is a positive number. iASPEC is obligated to calculate and pay the net received profit due to IST no later than the last day of the first month following the end of each fiscal quarter;

	•	Mr. Lin agreed to enter into a pledge agreement with IST to pledge all his equity interests in iASPEC as security for his and iASPEC’s fulfillment of their respective obligations under the MSA, and to register the pledge agreement with the local Administration for Industry and Commerce;

	•	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 MSA;

	•	Based on iASPEC’s needs for its development and operation, IST has the right, from time to time, at its sole discretion, to provide iASPEC with capital support either as an entrustment of funds to iASPEC, or as an advance to Mr. Lin, as iASPEC’s shareholder, for the sole purpose of making a capital contribution to iASPEC for use in the business of iASPEC; provided that, any such advance for capital contribution will be evidenced by an “advance agreement” in the form attached to the amended and restated MSA; and

•

IST agreed that it will not interfere in any business of iASPEC covered by iASPEC’s State Secret related Computer Information System Integration Certificate, including but not limited to, seeking access to relevant documents regarding such business; provided, however, that iASPEC agreed that it will cooperate with the requests of the Company as necessary to comply with the Company’s reporting obligations to the SEC.

In addition, during the term of the amended MSA, certain material actions with respect to iASPEC will require the affirmative vote of the majority of the Board of Directors of the Company, including the affirmative vote of at least one member of which who is not employed by IST, iASPEC, or any affiliate of either of them. Such material actions include: (a) the nomination, appointment, election or replacement of any members of any Board of Directors of iASPEC (who must be a citizen of the PRC); (b) the approval of any profit distribution plan and loss compensation plan; (c) any merger, division, change of corporate form, dissolution or liquidation of iASPEC; (d) 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 any other entity by iASPEC; (g) any corporate borrowing or lending by iASPEC except for routine extension of terms to trade creditors; (h) the encumbrance of any of the assets of iASPEC under any lien, except in the ordinary course of business; (i) any change in the methods of accounting or accounting practices of iASPEC; (j) any change in the scope of business of iASPEC, or any decision to engage in any type of business other than those engaged in by iASPEC as of the date of the agreement or (k) any agreement to do any of the foregoing.

After the amended MSA was executed, based on the advice of the Company’s PRC legal counsel, in January 2010 all the parties to the MSA decided not to enter into a pledge agreement.

The amended MSA has a term of 30 years unless otherwise earlier terminated by the parties by one of the following means:

	•	Either iASPEC or IST may terminate the amended MSA immediately (a) upon the material breach by the other of its obligations and the failure of such party to cure such breach within 30 working days after written notice from the non-breaching party; or (b) upon the filing of a voluntary or involuntary petition in bankruptcy by the other or of which the other is the subject, or the insolvency of the other, or the commencement of any proceedings placing the other in receivership, or of any assignment by the other for the benefit of creditors; or

	•	The amended MSA may be terminated at any time by IST upon 90 calendar days’ written notice delivered to all other parties.

Upon any effective date of any termination of the amended: (a) IST will cease providing management services to iASPEC; (ii) IST will deliver to iASPEC all chops and seals of iASPEC; (iii) IST will deliver to iASPEC all of the financial and other books and records of iASPEC, including any and all permits, licenses, certificates and other proprietary and operational documents and instruments; (iv) the senior managers who are recommended by IST and elected as directors of iASPEC will resign from the Board of Directors of iASPEC in a lawful way; and (v) the software license that iASPEC granted to IST according to the amended MSA will terminate unless otherwise agreed by the parties. In addition, any amounts owing from any party to any other party on the effective date of any termination under the terms of the amended MSA will continue to be due and owing despite such termination.

The amended MSA does not have renewal provisions. We expect that the parties to the amended MSA will negotiate to extend the term of the agreement before its expiration.

Purchase Option Agreement

On July 1, 2007, in connection with the execution of the original MSA, IST entered into a purchase option agreement, or the Option Agreement, with iASPEC and the then shareholders of iASPEC. The Option Agreement will terminate on the date IST exercises its purchase option and acquires all the shares or assets of iASPEC pursuant to the terms of the Option Agreement. The Option Agreement may be rescinded by IST upon 30 days’ notice without costs to terminate. The Option Agreement does not have renewal provisions.

Acquisitions

On November 7, 2007, we acquired 100% of the equity interests of ISSI, and its PRC operating subsidiary, TopCloud, for which we paid approximately $7.1 million in cash and issued 883,333 shares. On July 16, 2012, ISSI and iASPEC entered into an equity transfer agreement, pursuant to which ISSI agreed to transfer 100% of its equity interest in TopCloud to iASPEC for a purchase price of RMB 53.98 million (approximately $8.57 million).

On February 1, 2008, we acquired 100% of the equity interests of ISIID, and its PRC operating subsidiary, Bocom, for a purchase price of approximately $18,000,000. We paid approximately $9,000,000 of the purchase price in cash and the remaining $9,000,000 was paid in 1,125,000 shares.

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, our chief executive officer. On August 30, 2013 Mr Huang Chengdong, Geo’s minority shareholder, disposed his interest in Geo of total RMB 7,000,000, while PPG Business Management and Advisory Center L.P. (“PPG”) injected in Geo for total of RMB9,000,000 and four natural person shareholders invested RMB2,000,000 worth of patent rights which reinforced Geo’s operating business. As a result of the capital increase, the equity interest owned by iASPEC in Geo was reduced from 57% to 50.37% .

On 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.

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 2009 and 2010 targets were met by Zhongtian.

On October 1, 2009, we completed the acquisition of HPC Electronics (China) Company, Ltd., a Hong Kong company, or HPC and its PRC operating subsidiary, Information Security IoT Technology Co., Ltd. (ISIOT) (formerly Huipu Electronics (Shenzhen) Co., Ltd.” 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. 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 344,353 shares 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 would put us in a better position to execute our management strategies related to HPC.

On May 5, 2011, Kwong Tai and iASPEC entered into an equity transfer agreement, pursuant to which Kwong Tai agreed to transfer 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, our 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% .

On February 20, 2012, Zhongtian, increased its registered capital from RMB40.7 million (approximately $6.2 million) to RMB42.5 million (approximately $6.5 million). The RMB1.79 million (approximately $0.28 million) was contributed by new shareholders, comprising the management teams of Zhongtian, including Mr. 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 81.65% to 78.21% .

On August 30, 2013 a minority shareholder disposed of its interest in Geo totaling RMB 7 million (approximately $1.13 million). In addition, during 2013 various individual shareholders injected capital in Geo totaling of RMB21.50 million (approximately $3.53 million) and four other shareholders contributed patent rights valued at RMB2 million (approximately $0.32 million) which reinforced Geo’s operating business. As a result of the capital increase, Geo’s minority interest increased from 47.46% to 49.63% while the equity interest owned by iASPEC in Geo was decreased from 52.54% to 50.37% .

On September 10, 2013 iASPEC purchased shares from minority interest holders in Zhongtian for a total of RMB2.34 million (approximately $0.38 million). As a result, the equity interest owned by iASPEC in Zhongtian was increased from 78.21% to 83.72% .

On September 18, 2013, IST HK and iASPEC entered into an equity transfer agreement, pursuant to which iASPEC transferred 100% of equity interests in TopCloud, to IST HK, for a purchase price of RMB53.98 million (approximately $8.84 million).

On April 30, 2014, iASPEC purchased shares from minority interest holders in Zhongtian for RMB6.91 million (approximately $1.11 million). As a result, the equity interest owned by iAPSEC in Zhongtian was further increased from 83.72% to 99.99% .

On April 30, 2014, iASPEC purchased shares from minority interest holders in Geo for RMB8.28 million (approximately $1.33 million). As a result, the equity interest owned by iAPSEC in Geo was further increased from 50.37% to 54.89% .

On September 16, 2014, iASPEC and Shenzhen Yunchao Software Internet Co., Ltd. , a PRC company, or Yunchao, entered into an equity transfer agreement to acquire 100% equity interest of Yuntao’s subsidiary, Shenzhen Biznest Internet Software Co., Ltd., or Biznest, for the total consideration of approximately $12.7 million, consisting of approximately $7.5 million to be paid in cash and 1,543,455 ordinary shares to be issued by the Company. Both the cash consideration and the ordinary shares have been delivered as of the date of this report.

Newly Formed Subsidiary

On November 3, 2014, iASPEC formed a wholly owned PRC subsidiary, Shenzhen Taoping Internet Technology Co. Ltd. (“Taoping”), to construct online exchange for out-of-home advertisement resources. Taoping pairs small-and-medium enterprise (SME) corporate advertisers seeking marketing campaigns with owners of networked 21-to-75 inch digital display media terminals. Currently Taoping is a module of our Yunfa Net (www.pubds.com), an information distribution and advertising delivery system, and serves as an exchange platform for idle time-slot of digital screens owned by our customers of new media industry.

Disposal of Subsidiary

On November 6, 2015, iASPEC entered into an equity transfer agreement with certain individual and entity purchasers, pursuant to which, iASPEC sold all of its ownership of Geo, which constitutes approximately 54.89% of total capital stock of Geo for an aggregate of RMB 91.338 million (approximately $14.7 million). Pursuant to the transfer agreement, the transferees agreed to pay the purchase price in four installments by March 30, 2016. The purchase price had been fully collected by the Company as of February 29, 2016.

On November 9, 2015, iASPEC entered into an equity transfer agreement with certain entity purchaser, pursuant to which, iASPEC sold all of its ownership of Zhongtian, which constitutes 100% of total capital stock of Zhongtian for an aggregate of RMB 30 million (approximately $4.8 million). Pursuant to the agreement, the transferee agreed to pay the purchase price in three installments by May 31, 2016. As of April 12, 2016, a total of RMB 27 million (approximately $4.25 million) of the purchase price had been received by the Company, and the remaining RMB 3 million ((approximately $0.47 million) is expected to be received by May 31, 2016.

On June 22, 2015, the Company announced that its Board of Directors received a preliminary, non-binding proposal letter (the “Proposal”), dated June 19, 2015, from Mr. Jiang Huai Lin ("Mr. Lin"), Chairman and Chief Executive Officer of the Company, Mr. Zhiqiang Zhao (“Mr. Zhao”), Director and Chief Operating Officer of the Company, Mr. Junping Sun (“Mr. Sun”), Senior Vice President of the Company and Mr. Jinzhu Cai (“Mr. Cai”), an individual investor (together with Mr. Lin, Mr. Zhao and Mr. Sun, the "Buyer Group"), proposing a "going-private" transaction (the "Transaction") to acquire all of the outstanding ordinary shares of the Company not already owned by the Buyer Group at a proposed price of $4.43 per ordinary share.

“Going Private” Transaction

On June 22, 2015, the Company announced that its Board of Directors received a preliminary, non-binding proposal letter (the “Proposal”), dated June 19, 2015, from Mr. Jiang Huai Lin ("Mr. Lin"), Chairman and Chief Executive Officer of the Company, Mr. Zhiqiang Zhao (“Mr. Zhao”), Director and Chief Operating Officer of the Company, Mr. Junping Sun (“Mr. Sun”), Senior Vice President of the Company and Mr. Jinzhu Cai (“Mr. Cai”), an individual investor (together with Mr. Lin, Mr. Zhao and Mr. Sun, the "Buyer Group"), proposing a "going-private" transaction to acquire all of the outstanding ordinary shares of the Company not already owned by the Buyer Group at a proposed price of $4.43 per ordinary share.

On July 1, 2015, the Board of Directors announced that a special committee, consisting of three independent, disinterested directors of the Company, Mr. Yusen Huang, Mr. Remington Hu and Dr. Yong Jiang, (the “Special Committee”) was formed to consider the previously announced non-binding "going private" proposal that the Board received from the Buyer Group .

On August 19, 2015, the Special Committee announced the engagements of Duff & Phelps Securities, LLC and Duff & Phelps, LLC as its financial advisor and Gibson, Dunn & Crutcher LLP as its legal counsel, to review and evaluate the Proposal.

As of the date of this annual report, the Special Committee is still in the process of reviewing and evaluating the Proposal and there can be no assurance that the Proposal will be approved until such process is completed.

Corporate Structure

The following diagram illustrates our corporate structure as of the date of this report.

Principal Capital Expenditures and Divestitures

For the year ended December 31, 2015, our total capital expenditures and divestitures were $4.58 million, and $45.11 million, respectively. For the year ended December 31, 2014, our total capital expenditures and divestitures were $8.60 million, and $16.45 million, respectively. For the year ended December 31, 2013, our total capital expenditures and divestitures were $2.19 million, and $1.67 million, respectively. Such expenditures and divestitures were primarily related to the purchase and sale of long-lived assets and business acquisitions.

B. Business Overview

General

We were founded in 1993 and are headquartered in Shenzhen, China. As of December 31, 2015, we had approximately 190 employees and 10 sales offices nationwide.

We are a leading provider of integrated cloud-based platform, exchange, and big data solutions to the Chinese new media industry. Our Internet ecosystem enables all participants of the new media community to efficiently promote brands, disseminate information, and exchange resources. In addition, we provide a broad portfolio of software, hardware and fully integrated solutions, including Information Technology infrastructure, Internet-enabled display technologies to customers in government, education, healthcare, media, transportation and other private sectors.

Prior to 2014, we generated a majority of our revenues through selling our products mostly to public service entities to help improve their operational efficiency and service quality. Our representative customers included China Ministry of Public Security, provincial bureaus of public security, fire departments, traffic bureaus, police stations, human resource departments, urban planning boards, civic administrations, land resource administrations, mapping and surveying bureaus, and the Shenzhen General Station of Exit and Entry Frontier Inspection.

Since 2014, we have diversified our customer base to include the private sector. Our private sector customers include, among others, advertising agencies, auto dealerships, hotels, educational institutes and beauty spas. Our new corporate mission is to make publicity accessible and affordable for businesses of all size.

We generated revenues from sales of hardware products, software licenses, system integration services, and related maintenance and support services. Starting in 2015, with the introduction of our cloud-based software as a service (SaaS) offering, we expect to generate additional recurring monthly revenues from SaaS fees.

We report financial and operational information in the following two segments:

	(1)	Cloud-based Technology (CBT) segment — The CBT segment is our current and future focus of corporate development. It includes our cloud-based products and services sold to private sectors including new media, healthcare, education, and residential community management. In this segment, we generate revenues from the sales of hardware and total solutions of hardware integrated with proprietary software and content. Starting in the fourth quarter of 2014, we also began to generate additional revenue from monthly software licensing and Software-as-a Service (SaaS) fees.

	(2)	Traditional Information Technology (TIT) segment —The TIT segment includes our project-based technology products and services sold to the public sector, including Geographic Information Systems (GIS), Digital Public Security Technology (DPST), and Digital Hospital Information Systems (DHIS).In this segment, we generate revenues from the sales of software and systems integration services.

Industry Overview

General

Urbanization is the primary driver for the demand of our Cloud-based solutions for advertising placement and public information dissemination. China’s urbanization rate has accelerated in the past 30 years. Urban population has grown by over 100 million in the past five years to more than 770 million in 2015. According to Chinese Social Development Research, by 2035, approximately 70% of the Chinese population is expected to live in urban areas. Urban lifestyle revolves around information acquisition and consumption of goods and services, which necessitates advertising and public information dissemination. At the same time, urbanization imposed considerable pressure on land use, environment protection, and municipal infrastructure. Urbanization has also led to increasing demands for equitable treatment for all city-dwellers.

In the first quarter of 2014, China’s State Council unveiled a new urbanization plan for the 2014 -- 2020 period in an effort to steer the country onto a more humanistic and environmentally friendly urbanization path. The plan will increase the country’s investment in urban infrastructure, public service facilities, and affordable housing constructions. It also calls for closer coordination between urban and rural development, better optimization of city layouts, and tighter integration of environmental protection into urbanization efforts. The plan also projects new construction of 20,000 to 50,000 skyscrapers around the country as well as implementation of mass transit systems in more than 170 cities by 2025. In addition, it requires construction of regular railways to connect all medium-sized cities of over 200,000 residents and high-speed railways to connect large cities of over 500,000 residents by 2020. Also, it plans to expand the nation’s civil aviation network to cover 90 percent of its total population.

Out-of-Home Digital Advertising Market in China

Rising urbanization has resulted in prevalent traffic congestions throughout China. In medium-to-large cities, people on an average spend 39 minutes commuting to work. According to China New-type Urbanization Report (2014-2018), in densely populated tier-one cities including Beijing, Guangzhou and Shanghai, it costs commuters 14, 12 and 11 minutes every day in traffic jams, respectively. In Beijing, a megacity of over 20 million residents, the daily commute takes 52 minutes, the worst of all Chinese cities.

While traffic jams are a headache for urban commuters and city planners, they present revenue-generating opportunities for out-of-home advertisers who seek attentive audience at high-traffic areas. According to China-watching e-commerce analyst EnfoDesk (“EnfoDesk”), the out-of-home digital advertising market in China grew to RMB 11.3 billion in 2015, representing a 12% CAGR growth.

The growth, starting in 2013, scan be attributed to three factors: 1) macroeconomic recovery in China has encouraged businesses to increase their advertising spending; 2) industry leaders have led consolidation in the out-of-home advertising market and grown their market share in tier-one cities; 3) rapid advancement in Internet and mobile technologies has resulted in new O2O (Online-to-Offline) advertising opportunities.

According to China Industry Information Net, the estimated total market size of China's out-of-home advertising was RMB113 billion, and is expected to reach RMB 190 billion in 2018, with a CAGR of 19%. Cosmetics, beverage, and financial service companies continued to rank as top spenders. Internet and real estate companies also increased their advertisement spending significantly.

Over 50% of the advertisers rated commercial buildings and public transportation hubs as the top two prime locations for advertisement placement. Commercial buildings raked in RMB 35 billion of advertising revenue in 2015 and public transportation RMB 40 billion. The number of advertisers opting for residential buildings also increased considerably. Ad targeting precision with the use of digital technologies, such as internet-based ads management and distribution and big data analysis, continued to be advertisers’ focal point, which resulted in the increasing demands of digital advertising.

Market Trends

In addition to urbanization, two technological developments are further accelerating the demand for our CBT products and services: 1) offline-to-online migration of display terminals and 2) adoption of Quick Response (QR) codes.

Currently, most of the ad display terminals in China are not connected to any network. Consequently updating their media contents requires onsite manual operation through flash drives. They also tend to have low asset utilization rates. Based on our own primary research, we estimate that offline terminals have an average asset utilization rate of 40% in tier-one cities, 30% in tier-two cities, and 20% in tier-three-and-four cities. In comparison, content on cloud-based terminals can be remotely uploaded, updated, and managed, thus saving terminal operators, i.e., ad agencies, substantial labor cost. In addition, cloud-based terminals afford ad agencies the flexibility of fine-tuning ad schedules on the fly and customizing ad content at each location as specific as one single office building. More importantly, idle time slots on cloud-based terminals can be discovered and sold on Taoping, an online resource exchange of ours that was released in the fourth quarter of 2015 as a module of our Yunfa Net (www.pubds.com), an information distribution and advertising delivery system, and therefore their asset utilization rate can be greatly improved. As a result, there is a growing demand to convert offline terminals into networked terminals using our CBT products and services.

Furthermore, the wide adoption of QR codes is also positively impacting the demand for our cloud-based products and services. A QR code is a digital barcode that contains information. By incentivizing consumers to scan the QR code embedded in advertisement, ad agencies can analyze the effectiveness of their advertisements and adjust their sales and marketing tactics on a real-time basis. In China, the application of QR codes is permeating from tier-one cities to the rest of the country. Although QR codes have frequently appeared in print ads as well as in digital ads displayed on offline terminals, because the codes can be changed only as frequently as the advertisement itself, the data they bring to ad agencies cannot be segmented by precise locations or time slots and thus can generate only limited insight into viewer behavior. In contrast, individualized QR codes embedded in advertisement displayed on networked terminals can vary by location and time slot, thus affording ad agencies deeper insights at a much higher precision than offline terminals or print ads. Consequently adoption of QR codes is further driving the demand for our cloud-based ad display terminals.

Geographic Information System (GIS) Industry in China

The demand for our TIT products and services is mostly related to the growth and maturation of Geographic Information Systems (GIS). GIS is becoming an integral component of government, healthcare, security, trade, media, transportation, and tourism industries in China. Through centralized geographic information repositories, GIS software enables various Chinese governmental agencies to easily exchange and share geographic information, thus increasing their operational efficiency. GIS also allows Chinese businesses to better analyze their workflow, gain additional insights, and thus better manage their own operations. GIS has many applications in the Chinese public and private sectors, including land surveying, mining, water conservancy, environmental protection, power generation, mapping, telecommunication, civic construction, and public services.

Our Products and Services

In the CBT segment, we provide cloud-based ecosystem solutions to four end markets: 1) new media, 2) healthcare, 3) education, and 4) residential community management. Underpinning our ecosystems are our industry-specific integrated technology platform, resource exchange, and big data services. In 2014, we sold our cloud-based solutions predominately to the Chinese new media industry. Starting from 2015, we further expanded our customer base into healthcare, education, and residential community management markets.

For the new media industry, we provide our software as a service to automate the entire interactive workflow between advertising agencies and their customers, including, among others, establishing new projects, submitting advertisement proposals, revising and approving ad proposals, processing payment online, remotely uploading advertisement content, and tracking and analyzing performance data.

Our Technology Platform

The foundation of our product offerings is our proprietary technology platform called Cloud-Application-Terminal (CAT). Its trademark has been registered in PRC. Our CAT platform includes three layers of technology: 1) cloud infrastructure, 2) software application, and 3) high-definition digital display terminals ranging from 18.5 to 84 inches in display size. Bundled together, three layers of technology serve as a turnkey solution for our customers to improve their operational efficiency and maximize their revenue.

Our CAT platform can be accessed from a variety of devices, including networked display terminals, desktop computers and mobile devices. It can function in all available operating systems, including Windows, Android and iOS. It unifies all access points into one unique user account, through which a user can log into our cloud system and enjoy all available software features and functions.

Our Resource Exchange

Built on top of our CAT platform is our industry-specific resource exchange. For the new media industry, in the fourth quarter of 2015 we released a resource exchange called “Taoping” as a module of our proprietary cloud-based information distribution and ad delivery platform - Yunfa Net (www.pubds.com). Taoping means “search and select display terminals” in Chinese. Taoping pairs those who seek with those who own out-of-home advertisement resources and facilitates their transactions online.

For example, a local advertising agency based in the city of Shenzhen may need to place advertisement in the city of Guangzhou but does not own any display terminals in Guangzhou. Through Taoping, the ad agency can search available display terminals by location, venue, and time slots, find suitable resources, negotiate rental prices with terminal owners, and process payments online. Then through Taoping, the ad agency can upload advertisement content onto remote terminals, manage display schedules, monitor ad performances, and edit and update ad content.

Taoping enables advertising resource owners to improve their asset utilization rate and return on investments. At the same time, Taoping allows advertising resource seekers to leverage other people’s assets and expand into new business territories cost effectively.

Our Big Data Services

Built on top of our resource exchange is our big data service. After we release our resource exchange, we plan to compile and analyze data related to buyer/seller behavioral preferences so that we can provide value-added services to our customers.

For example, through data analysis, we will be able to make insightful suggestions to advertising resource owners as to which venues at what time slots will likely garner high rental prices and what is the optimal range of rental prices they could charge for each type of resources they own. For advertising resource seekers, we will be able to provide advices such as what is the optimal combination of terminals to rent in order to reach the biggest possible audience they desire and attain the greatest impact while staying within their advertising budget.

Our Industry-Specific Ecosystems

Combining our proprietary CAT technology platform, resource exchange, and big data services with our industry expertise, we provide integrated ecosystem solutions to the industries of new media, healthcare, education, and residential community management. As described above, starting from the new media industry, we will gradually roll out product offerings to all of those four industries.

Within the new media industry, we have sold industry-specific solutions to three types of businesses: 1) elevator management, 2) transportation management, and 3) community management.

	•	New Media Elevator Management – Our New Media Elevator Management solution integrates advertisement placement with safety supervision into one single technology unit. The unit’s built-in LED screen delivers high- definition digital advertisement, while its safety sensors and data collectors transmit the elevator’s operational and technical data to the appropriate property managers, safety supervisors, and maintenance crew so that the latter can efficiently maintain the elevator’s operational safety and instantaneously respond to emergencies. Because our New Media Elevator Management solution combines public safety with media display, property managers view our products as of strategic importance to their daily operations. Consequently they welcome our products better than those pure ad display terminals not equipped safety devices. As a result, we are able to help ad agencies that purchase our products to attain customers more easily and enter into new markets more cost effectively.

	•	New Media Transportation Management – Our New Media Transportation Management solution remotely uploads advertisement content together with critical transportation information -- such as arrival/departure schedules, delay/cancellation notifications, gate assignments, and station announcements – into our cloud infrastructure and displays the content on our large-screen terminals strategically placed at high-traffic transportation hubs, including high-speed railway stations, subways, airports, and onboard public buses. Because our Transportation New Media Application combines advertisement display with transportation information crucial to commuters, we enable ad agencies that purchase our products to attain large and attentive audiences at prime locations, which in turn help them achieve good advertisement placement rates and generate high revenue dollars.

	•	New Media Community Management – Our New Media Community Management solution combines advertisement display with community information dissemination. Placed within various high-rise residential communities, our large screen display terminals serve as a window of information into various resources available to community residents, including community maps, news updates, emergency announcements, safety precautions, health tips, recreational activities, and local commercial promotions.

Product Warranty

For our TIT segment, we usually offer a one-year or three-year warranty for our system integration services depending on the project. Our warranty includes support services, minimal updates and system maintenance. Based on our past experiences, the cost of our warranty provision has been immaterial.

For our CBT segment, we provide a three-year warranty for our digital displays. The actual warranty service is carried out by our OEM partners, with whom we have obtained a contractual guarantee that they will repair or replace any defective hardware products that we have purchased on behalf of our customers. Consequently, our own cost of warranty has been minimal.

Sales and Marketing

We develop new business 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 solidify 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. Currently we have 50 salespeople in 10 offices nationwide.

Customers

In fiscal years 2015, 2014, and 2013, no single customer represented 10% or more of our total revenue. The following tables provide revenue by our major customers for the years ended December 31, 2015, 2014 and 2013.

Year 2015

		Revenues	% of
		(Thousands)	Revenues
Panzhihua GangCheng Group Co., Ltd.	$	556	5%
Chongqing KangPuDa Technoloy Limited		483	5%
Chongqing BiFeng Technoloy Limited		476	5%
Dazhou ZhiXiang Technoloy Limited		304	3%
Beijing HeXinRuiTong Power Technology Co., Ltd.		298	3%
TOTAL	$	2,117	21%

Year 2014

		Revenues	% of
		(Thousands)	Revenues
Information Technology Office of Shenzhen Municipal Public Security Bureau		2,291	6%
Henan Chuangjing Technology Limited		1,645	4%
BenQ Corporation		1,320	3%
Hebei Xinshen Technology Limited		953	2%
Futian District of Shenzhen Municipal Public Security Bureau		912	2%
TOTAL	$	7,121	17%

Year 2013

		Revenues	% of
		(Thousands)	Revenues
Urumqi Diruite Electronic Technology Co., Ltd	$	3,779	7%
Bohuirongxin (Beijing) Technology Co., Ltd		3,513	6%
SMIT Visual Supplies		1,868	3%
Hennan Chuangjing Technology Limited		1,812	3%
China Great Wall Computer Shenzhen Company Limited		1,366	2%
TOTAL	$	12,338	21%

Competition

In the CBT segment, there are many small IT service companies in China providing one-off software packages to solve one aspect of the problem, but not integrated solutions combining technology platform, resource exchange, and big data services like ours. For example, in the new media industry, we encounter competition from 56iq.com, Fujian Star-net Communication Co., Ltd, Shanghai View Show Technology Co., Ltd, and Maipu Communications Technology Co., Ltd. We do not compete with ad agencies such as Focus Media, Air Media and VisionChina because we are not an advertising agency nor do we place advertisement ourselves.

In the TIT segment, we encounter competition from Beijing Founder Digital Co., Ltd, Beijing Easymap Information Technology Co., Ltd, Esri, Super Map Software Co., Ltd., and Zondy Cyber Group Co., Ltd in the geographic information system industry. In the digital hospital information system sector, our main competitors include Neusoft Corp. and DHC Software Co., Ltd.

Compared with our competitors, we believe we have the following advantages:

•

We provide integrated ecosystem solutions that combine technology platform, resource exchange and big data services. Our solution not only helps our customers improve their operational efficiency and reduce their labor cost, but more importantly, helps them maximize their asset utilization rate and increase their revenue. For example, by utilizing our solution, an advertising agency can upload its advertisement content from a centralized location to geographically dispersed display terminals, and thus saving its maintenance staff from traveling to each terminal and updating media content manually. In addition, the advertising agency can list its idle assets on Taoping, our resource exchange, and lease display terminals to other agencies by location and time slot, and thus generating additional revenue from their existing assets.

•

Our solution has high scalability, availability, and flexibility. Because our technology solution is architected from ground up using the latest cloud-computing technology, our system can easily scale up to handle a rapidly increasing amount of data. In addition, as the number of display terminals linked to our network grows, our system is able to handle the additional workload and ensure high availability of each terminal. More importantly, because we own our cloud infrastructure and platform instead of leasing it from a third-party, we have the flexibility of changing or upgrading our software anytime without any constraints..

•

Our solution has a high level of security guarantee. Because we own the entire stack of technology infrastructure and terminals, we have a solid security fortress to prevent hackers from breaking into our system. In addition, because we have over 10 years of experience providing large-scale information systems to public entities such as police stations and public security bureaus, we have a track record of protecting our network from security intrusions or breaches. Lastly, to protect ourselves from national security concerns, we have an operational agreement with China’s Internet Oversight Board to inspect and filter all of our advertisement content before uploading it onto our display network.

•

Our solution combines digital network with physical assets, and thus having a higher barrier to entry than other pure Internet companies. Our proprietary Cloud-Application-Terminal platform has integrated three layers of technology: cloud storage, application software, and display terminals. Although with today’s technology advancement it is relatively easy for potential competitors to establish software application companies, it will take them a considerable amount of time and capital to replicate our nationwide physical network of cloud-based display terminals.

Business Transformation

Prior to 2014, we predominately sold large-scale customized IT solutions to the Chinese public service sector through various build-and-transfer projects. Due to changes in policies and regulations in China in 2012, various local governments started postponing IT projects they had previously contracted with us indefinitely. As a result, many of our existing receivables became uncollectable.

In early 2013, our management team made a strategic decision to transition our business from servicing the public sector to focusing on the private sector. We started completing our in-process IT projects and ceased taking on new customers in the public sector. In addition, we wrote off accounts receivable that we deemed no longer collectable. At the same time, we decided to transform our business from a build-and-transfer IT service company into a standardized IT product company. Leveraging our experience and expertise in handling large-scale IT projects for the public sector, we started investing in research and development of our own software products suitable for the private sector.

In 2014, continuing our transition from the public sector to the private sector, we identified new media, healthcare, education, and residential community management as the four core end markets on which we would focus. After fortifying our own software R&D effort through our acquisition of Biznest in September 2014, we decided to exit the hardware manufacturing business and complete our transformation into a software company. In November 2014, we initiated the process of closing our own manufacturing facilities and transferring hardware production to our OEM partners which was completed during 2015. As a result, we wrote off a large amount of inventory and accounts receivable and took substantial goodwill and identifiable intangible asset impairment charges in 2014 and 2015.

As part of transition from the traditional IT business to the cloud-based business, in 2015 we sold iASPEC’s 100% equity holding in Zhongtian and 54.89% equity holding in Geo. Proceeds from these sales which totaled $19.5 million will be invested in the development and market expansion of our new cloud-based business, as well as used to pay off a portion of our short term debt.

Intellectual Property

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.

As of December 31, 2015, through our wholly-owned subsidiaries IST and TopCloud, we had 77 registered and copyrighted software products and held 23 patents. In addition, our variable interest entities, including iASPEC, Taoping, Biznest and Bocom, hold 106 registered and copyrighted software products and 17 patents.

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.

Regulation

Because all of our operating entities are located in the PRC, we are regulated by the national and local laws of the PRC. This section summarizes the major PRC regulations relating to our business.

Permits and Certificates

Our PRC subsidiary IST is a Shenzhen City Software Enterprise and holds ISO 9001:2000 Certification, Environment Management System Certificate and National High-Tech Enterprise. However, fulfillment of certain information technology system integration contracts with PRC Government customers is restricted to entities possessing the necessary government licenses and approvals which IST does not have. Through our wholly-owned subsidiaries IST, TopCloud and ISIOT, as well as our variable interest entities, we hold the following permits and certificates:

Name	Expiration Date	Company
ISO 9001:2000 Certification	Valid till July 19, 2016	IST
National High-tech Enterprise	Valid till September 12, 2018	IST
National High-tech Enterprise	Valid till July 24, 2017	TopCloud
Computer System Integration Level II Qualification from PRC Ministry	Valid till June 10, 2016	iASPEC
ISO 9001:2000 Certification	Valid till March 27, 2017	iASPEC
PRC Telecom Value-added Business License	Valid till November 17, 2016	iASPEC
Guangdong Province Security and Surveillance System	Valid till April 29, 2016	iASPEC
Design, Implementation and Repair Qualification PRC Telecom Value-added Business License	Valid till October 17, 2018	Biznest

Taxation

On March 16, 2007, the National People’s Congress of China passed the EIT Law, and on November 28, 2007, the State Council of China passed its implementing rules, which took effect on January 1, 2008. Before the implementation of the EIT Law, foreign invested enterprises, or 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%, which included a 30% state income tax and a 3% local income tax. The EIT Law and its implementing rules impose a unified EIT of 25.0% on all domestic-invested enterprises and FIEs, unless they qualify under certain limited exceptions. For instance, companies are eligible for a preferential tax rate of 15% if they are approved as High Technology Enterprises by the PRC government.

In addition to the changes to the current tax structure, under the EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a resident enterprise and will normally be subject to an EIT of 25% 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 3 “Key information—D. Risk Factors—Risks Relating 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 shareholders.”

Foreign Currency Exchange

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, SAFE or its local counterparts (as the case may be) is obtained. In May, 2013 SAFE promulgated Circular 21 which provides for and simplifies the operational steps and regulations on foreign exchange matters related to direct investment by foreign investors, including foreign exchange registration, account opening and use, receipt and payment of funds, and settlement and sales of foreign exchange. 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.

Dividend Distributions

Under 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.

After-tax profits/losses with respect to the payment of dividends out of accumulated profits and the annual appropriation of after-tax profits as calculated pursuant to PRC accounting standards and regulations do not result in significant differences as compared to after-tax earnings as presented in our financial statements. However, there are certain differences between PRC accounting standards and regulations and U.S. generally accepted accounting principles, arising from different treatment of items such as amortization of intangible assets and change in fair value of contingent consideration rising from business combinations.

In addition, 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.

Circular 37

On July 14, 2014, SAFE issued the Circular on Relevant Issues Relating to Domestic Residents’ Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or Circular 37, which replaced the Circular 75. Circular 37 requires PRC residents to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in Circular 37 as a “special purpose vehicle.” Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Furthermore, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls.

As we stated under “Risk factors—Risks Relating to Doing Business in China— Failure to comply with PRC regulations relating to the investment in offshore special purpose companies by PRC residents may subject our PRC resident stockholders to personal liability, limit our ability to acquire PRC companies or to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute profits to us or otherwise materially adversely affect us,” we have notified substantial beneficial owners of our company who we know are PRC residents to comply with the registration obligation. However, we may not be aware of the identities of all our beneficial owners who are PRC residents. In addition, we do not have control over our beneficial owners and cannot assure you that all of our PRC resident beneficial owners will comply with Circular 37. The failure of our beneficial owners who are PRC residents to register or amend their SAFE registrations in a timely manner pursuant to Circular 37 or the failure of future beneficial owners of our company who are PRC residents to comply with the registration procedures set forth in Circular 37 may subject such beneficial owners or our PRC subsidiaries to fines and legal sanctions. Failure to register or amend the registration may also limit our ability to contribute additional capital to our PRC subsidiaries or receive dividends or other distributions from our PRC subsidiaries or other proceeds from disposal of our PRC subsidiaries, or we may be penalized by SAFE.

Seasonality

The first quarter of the calendar year is typically the slowest season of the year due to the Chinese New Year holiday. During this period, accounts receivable collection is very slow and we also need to prepare for upcoming busier seasons by making payments for inventory. With the implementation plan of our cloud-based business, seasonality can be less obvious.

C. Organizational Structure

See “—A. History and Development of the Company—Corporate Structure” above for details of our current organizational structure.

D. Property, Plants and Equipment

All land in China is owned by the state or local governments. Individuals and companies are permitted to acquire rights to use land or land use rights for specific purposes. In the case of land used for industrial 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 collateral for borrowings and other obligations.

Our executive offices are located at 21st Floor, Everbright Bank Building, Zhuzilin, Futian District, Shenzhen, China, for which IST currently has land use rights. Our 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, 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.

On November 14, 2014, we entered into an agreement to sell our Fuyong Industrial Park to an unrelated third party for a cash consideration of RMB 375 million. As of December 2015, the cash consideration had been fully collected.

iASPEC and Bocom lease offices, employee dormitories and factory space in Shenzhen and Chongqing in the PRC, pursuant to lease agreements that will expire on various dates through December 2017. Rent expense for the years ended December 31, 2015, 2014 and 2013, was approximately $170,000, $263,915 and $153,101, respectively.

We believe that all our properties have been adequately maintained, are generally in good condition, and are suitable and adequate for our business.

ITEM 4A.

UNRESOLVED STAFF COMMENTS

None.

ITEM 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on Form 20-F. This discussion may contain forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements because of various factors, including those set forth under Item 3 “Key Information—D. Risk Factors” or in other parts of this annual report on Form 20-F. See also “Introductory Notes—Forward-looking Information.”

A. Operating Results

Overview

We are a leading provider of integrated cloud-based platform, exchange, and big data solutions to the Chinese new media industry. Our Internet ecosystem enables all participants of the new media community to efficiently promote brands, disseminate information, and exchange resources. In addition, we provide a broad portfolio of software, hardware and fully integrated solutions, including information technology infrastructure, Internet-enabled display technologies to customers in government, education, healthcare, media, transportation and private sectors.

We were founded in 1993 and are headquartered in Shenzhen, China. As of December 31, 2015, we had approximately 190 employees and 10 sales offices nationwide.

Prior to 2014, we generated majority of our revenues through selling our products mostly to public service entities to help improve their operational efficiency and service quality. Our representative customers included China Ministry of Public Security, provincial bureaus of public security, fire departments, traffic bureaus, police stations, human resource departments, urban planning boards, civic administrations, land resource administrations, mapping and surveying bureaus, and the Shenzhen General Station of Exit and Entry Frontier Inspection.

Since 2014, we have diversified our customer base beyond the public sector into private sectors. Our private sector customers include, among others, advertising agencies, auto dealerships, hotels, shopping malls, educational institutes and beauty spas. Our new corporate mission is to make publicity accessible and affordable for businesses of every size.

In 2014, we generated revenues from sales of hardware products, software licenses, system integration services, and related maintenance and support services. Starting in 2015, with the introduction of our cloud-based software as a service (SaaS) offering, we generated additional recurring monthly revenues from SaaS fees, although in a small amount in 2015 but are expected to pick up quickly in 2016 along with the roll-out of our cloud-based new media terminals.

Principal Factors Affecting Our Financial Performance

Demand for Software Products and Services

The revenue growth and profitability of our business depend on the overall market demand for software products and related services. The demand for our CBT products is attributable to rapid urbanization and rising living standards in China. As people migrate to cities, their disposable income increases, and their consumption of information to assist their acquisition of materials goods and services increases as well. Consequently our CBT products become increasingly receptive to advertisements displayed at public locations. Meanwhile, rising competition has driven merchants and service providers to seek advertisement as a way to make their brands discoverable and memorable, which in turn drives the demand for innovative advertising technology like our cloud-based software and services.

The demand for our TIT products is attributable to digitization of public services in China. Over the past two decades, the PRC government has encouraged the development and use of information technology 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 software application in China and has become a linchpin of state and local economic development strategies in recent years.

For example, the Golden Shield Program promotes the use of information technology for public security services; the Digital City Program aims to integrate the functions of multiple government departments through geographic information system technology; the Golden Health Program strives to improve the efficiency of public healthcare through digital hospital technologies. All these initiatives are among Chinese government’s top priorities and are driving the demand for our DPST, GIS and DHIS offerings.

Taxation

CNIT and CITH were incorporated in the BVI, but are not subject to taxation in that jurisdiction. Under the “anti-inversion” rules of Section 7874 of the U.S. Internal Revenue Code, CNIT is treated for U.S. federal tax purposes as a U.S. corporation and, accordingly, is subject to U.S. federal income tax on its worldwide income, currently at a maximum rate of 35%.

CNIT is subject to United States taxes at a tax rate of 35%. No provision for income taxes in the United States has been made as CNIT had no income taxable in the United States.

ISSI, ISIID, and HPC were incorporated in Hong Kong and under the current laws of Hong Kong, are subject to a Hong Kong Profits Tax of 16.5% ..

Under the PRC’s EIT Law, IST, ISIOT and TopCloud, are approved as High Technology Enterprises and are subject to EIT at a rate of 15%. Biznest is subject to EIT at a rate 12.5% . iASPEC and Bocom are subject to EIT at a rate 25%.

Business Segment Information

Segment information is consistent with how management reviews business health, makes investment, allocates resources and assesses operating performances. Transfers and sales between reportable segments, if any, are recorded at cost.

We report financial and operational information in the following two segments:

(1)	Cloud-based Technology (“CBT”) segment — The CBT segment is our current and future focus of corporate development. It includes our cloud-based products and services sold to private sectors including new media, healthcare, education, and residential community management. In this segment, we generate revenues from the sales of hardware and total solutions of hardware integrated with proprietary software and content. Starting in the fourth quarter of 2014, we also began to generate additional revenue from monthly software licensing and Software-as-a Service (“SaaS”) fees.

(2)	Traditional Information Technology (“TIT”) segment — The TIT segment includes our project-based technology products and services sold to the public sector, including Geographic Information Systems (“GIS”), Digital Public Security Technology (“DPST”), and Digital Hospital Information Systems (“DHIS”). In this segment, we generate revenues from the sales of software and systems integration services ..

For more information regarding our operating segments, see Note 21 (Consolidated Segment Data) to our audited consolidated financial statements included elsewhere in this report.

Results of Operations

Comparison of Years Ended December 31, 2015 and 2014

The following table sets forth key components of our results of operations for fiscal years ended December 31, 2015 and 2014, both in dollars and as a percentage of our revenue.

		December 31, 2015					December 31, 2014
		Amount		% of Revenue			Amount		% of Revenue
Revenue	$	10,284,868		100.00	%	$	38,634,747		100.00	%
Costs of revenue		6,381,205		62.04	%		28,146,390		72.85	%
Gross profit		3,903,663		37.96	%		10,488,357		27.15	%
Administrative expenses		(11,223,502	)	(109.13	)%		(20,837,181	)	(53.93	)%
Research and development expenses		(3,446,867	)	(33.51	)%		(1,477,246	)	(3.82	)%
Selling expenses		(2,661,545	)	(25.88	)%		(4,240,097	)	(10.97	)%
Impairment of intangible assets and goodwill		(8,918,427	)	(86.71	)%		(7,015,727	)	(18.16	)%
Impairment of property, plant and equipment		(4,616,679	)	(44.89	)%		(827,319	)	(2.41	)%
Loss from operations		(26,963,357	)	(262.16	)%		(23,909,213	)	(61.89	)%
Subsidy income		501,404		4.88	%		676,159		1.75	%
Gain on sale of assets		29,994,037		291.63	%		-		-
Other (loss) income, net		776,233		7.55	%		(407,616	)	(1.06	)%
Interest income		76,716		0.75	%		408,121		1.06	%
Interest expense		(3,116,777	)	(30.30	)%		(5,858,770	)	(15.16	)%
Warrant expense		(5,657,988	)	(55.01	)%		-		-
Loss before income taxes		(4,389,732	)	(42.66	)%		(29,091,319	)	(75.30	)%
Income tax (expense) benefit		(4,305,028	)	(41.86	)%		4,599,559		11.91	%
Loss from continuing operations		(8,694,760	)	(84.52	)%		(24,491,760	)	(63.39	)%
Less: net (income) loss attributable to non- controlling interest		(308,473	)	(3.00	)%		404,662		1.05	%
Net loss from continuing operations attributable to the Company		(9,003,233	)	(87.52	)%		(24,087,098	)	(62.35	)%
Income (loss) from operations of discontinued Operations		1,667,853		16.22	%		(5,049,880	)	(13.07	)%
Income tax expense		(168,882	)	(1.64	)%		(210,658	)	(0.55	)%
Income (loss) from discontinued operations		1,498,971		14.58	%		(5,260,538	)	(13.62	)%
Less: Net loss attributable to the non-controlling interest		-		-			116,289		(0.30	)%
Net income (loss) from discontinued operations attributable to Company		1,498,971		14.58	%		(5,144,249	)	(13.32	)%
Net loss attributable to Company	$	(7,504,262	)	(72.94	)%	$	(29,231,347	)	(75.66	)%

Revenue. We generate revenues from selling hardware, software, system integration, software as a service, and other technology-related services. For the year ended December 31, 2015, our revenue was $10.28 million, compared to $38.63 million for the year ended December 31, 2014, a decrease of $28.35 million, or 73.38% . The decrease was primarily due to two factors: (1) in 2015 we continued shifting hardware production from our own factory to OEM partners; as a result our hardware revenue reduced to $4.95 million in 2015, as compared to $22.63 million; (2) our strategic business transformation from the traditional IT business to the cloud-based business resulted in a decrease in the revenue of software and system integration, from $10.37 million and $4.82 million, respectively, in 2014, to $3.20 million and $1.01 million, respectively, in 2015.

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

		Year Ended December 31, 2015					Year Ended December 31, 2014
			% of	Cost of	Gross			% of		Cost of	Gross
		Revenue	Revenue	Revenue	Margin		Revenue	Revenue		Revenue	Margin
Hardware	$	4,953,139	48.16%	2,910,334	41.24%	$	22,628,612	58.57%	$	18,769,338	17.05%
Software		3,200,905	31.12%	1,267,834	60.39%		10,366,560	26.83%		4,086,717	60.58%
System Integration		1,012,088	9.84%	1,745,647	(72.48)%		4,822,003	12.48%		4,480,388	7.08%
Others		1,118,736	10.88%	457,390	59.12%		817,572	2.12%		809,947	0.93%
Total	$	10,284,868	100.00%	6,381,205	37.96%	$	38,634,747	100.00%	$	28,146,390	27.15%

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

		Year Ended December 31, 2015					Year Ended December 31, 2014
			% of	Cost of	Gross			% of		Cost of	Gross
		Revenue	Revenue	Revenue	Margin		Revenue	Revenue		Revenue	Margin
TIT Segment	$	2,970,952	28.89%	2,819,717	5.09%	$	13,024,506	33.71%	$	9,165,237	29.63%
CBT Segment		7,313,916	71.11%	3,561,488	51.31%		25,610,241	66.29%		18,981,153	25.88%
Total	$	10,284,868	100.00%	6,381,205	37.96%	$	38,634,747	100.00%	$	28,146,390	27.15%

Cost of revenue and gross profit. As indicated in the tables above, our cost of revenue decreased by $21.77 million, or 77.33%, to $6.38 million, for the year ended December 31, 2015, from $28.15 million for the year ended December 31, 2014. As a percentage of revenue, our cost of revenue decreased to 62.04% during the year ended December 31, 2015, from 72.85% during the year ended December 31, 2014. As a result, gross profit as a percentage of revenue was 37.96% for the year ended December 31, 2015, an increase of 10.81% from 27.15% for the year ended December 31, 2014. The increase in the overall gross margin primarily resulted from the Company's strategic shift from a traditional IT business to a cloud-based technology business, which commands higher margins.

Administrative expenses. Our administrative expenses consist primarily of compensation and benefits to our general management, finance and administrative staff, professional advisor fees, audit fees and other expenses incurred in connection with general operations. Our administrative expenses decreased by $9.62 million, or 46.14%, to $11.22 million for the year ended December 31, 2015, from $20.84 million for the year ended December 31, 2014. As a percentage of revenue, administrative expenses increased to 109.13% for 2015, from 53.93% for 2014. Such increase was primarily due to the significant decrease in revenues for which we are continuing to address through reduction in headcount and overhead into 2016.

Research and development expenses. Our research and development expenses consist primarily of personnel-related expenses, as well as costs associated with new software and hardware development and enhancement. Our research and development expenses increased by $1.97 million, or 133.33%, to $3.45 million for the year ended December 31, 2015, from $1.48 million for the year ended December 31, 2014. As a percentage of revenue, research and development expenses increased to 33.51% for 2015, from 3.82% in 2014. Such increase was primarily due to the increased R&D personnel in accordance with our increasing focus on the CBT business in 2015.

Selling expenses. Our selling expenses consist primarily of compensation and benefits to our sales and marketing staff, sales and after-sales traveling costs, and other sales-related costs. Our selling expenses decreased by $1.58 million, or 37.23%, to $2.66 million for the year ended December 31, 2015, from $4.24 million for the year ended December 31, 2014. This decrease was due to our shrink of salesforce in the traditional IT business. As a percentage of revenue, our selling expenses increased to 25.88% for 2015, from 10.97% for 2014.

Impairment of intangible assets and goodwill. As we transition our business focus from the public sector to the private sector and from hardware manufacturing to software and cloud-based solutions development, we analyzed our operations and tested our goodwill and intangible assets for impairment in 2014 and 2015. We recognized a goodwill impairment loss of $8.92 million and an impairment of intangible assets of $0 million, respectively, in 2015, based on our best estimation. For the year ended December 31, 2014, we recorded $4.68 million of goodwill impairment loss and $2.33 million of impairment in intangible assets.

Impairment of property, plant and equipment. Since we started our factory closure process in late 2014, we began selling most of our factory-related property, plant, and equipment and disposing of the remainder. Consequently we recorded $4.62 million of impairment in property, plant and equipment for the year ended December 31, 2015. In comparison, we recognized $0.83 million of impairment in property, plant and equipment for the year ended December 31, 2014.

Subsidy income. Because we have developed a number of technology products in fields designated by the Chinese government as highly innovative, we received governmental subsidies of $0.50 million in 2015 and $0.68 million in 2014, respectively.

Gain on sale of assets. In 2015 we completed the sale of our factory-related real estate property which resulted in a gain of $29.99 million, on the sale of these assets.

Income tax expense. We recorded income tax expense of $4.31 million for the year ended December 31, 2015, as compared to $4.60 million of income tax benefit in 2014 which primarily resulted from a reversal of a deferred tax asset in 2014 which was utilized in 2015 after we sold our factory-related real estate property.

Warrant expense. We recorded $5.64 million in warrant expense in 2015 related to changes in the fair value of the warrant derivative liability recorded in connection with our May 2015 equity offering.

Net (loss) income attributable to Company. As a result of the cumulative effect of the foregoing factors, we had a net loss attributable to the Company of $7.50 million for the year ended December 31, 2015, as compared to a net loss of $29.23 million for the year ended December 31, 2014.

Comparison of Years Ended December 31, 2014 and 2013

The following table sets forth key components of our results of operations for fiscal years ended December 31, 2014 and 2013, both in dollars and as a percentage of our revenue.

		December 31, 2014					December 31, 2013
		Amount		% of Revenue			Amount		% of Revenue
Revenue	$	38,634,747		100.00	%	$	55,419,831		100.00	%
Costs of revenue		28,146,390		72.85	%		45,867,163		82.76	%
Gross profit		10,488,357		27.15	%		9,552,668		17.24	%
Administrative expenses		(20,837,181	)	(53.93	)%		(88,699,489	)	(160.05	)%
Research and development expenses		(1,477,246	)	(3.82	)%		(2,190,074	)	(3.95	)%
Selling expenses		(4,240,097	)	(10.97	)%		(4,893,234	)	(8.83	)%
Impairment of intangible assets and goodwill		(7,015,727	)	(18.16	)%		(2,008,249	)	(3.62	)%
Impairment of property, plant and equipment		(827,319	)	(2.41	)%		(29,976,990	)	(54.09	)%
Loss from operations		(23,909,213	)	(61.89	)%		(118,215,368	)	(213.31	)%
Subsidy income		676,159		1.75	%		1,491,280		2.69	%
Other (loss) income, net		(407,616	)	(1.06	)%		1,241,666		2.24	%
Interest income		408,121		1.06	%		447,586		0.81	%
Interest expense		(5,858,770	)	(15.16	)%		(4,934,479	)	(8.90	)%
Loss before income taxes		(29,091,319	)	(75.30	)%		(119,969,315	)	(216.47	)%
Income tax benefit (expense)		4,599,559		11.91	%		(1,731,145	)	(3.12	)%
Loss from continuing operations		(24,491,760	)	(63.39	)%		(121,700,460	)	(219.60	)%
Less: net loss attributable to non- controlling interest		404,662		1.05	%		3,188,700		5.75	%
Net loss attributable to Company –continuing operations		(24,087,098	)	(62.35	)%		(118,511,760	)	(213.84	)%
Loss from operations of discontinued operations		(5,049,880	)	(13.07	)%		(340,167	)	(0.61	)%
Income tax expense		(210,658	)	(0.55	)%		(165,400	)	(0.30	)%
Loss from discontinued operations		(5,260,538	)	(13.62	)%		(505,567	)	(0.91	)%
Less: Net income (loss) attributable to the non-controlling interest		116,289		(0.30	)%		(219,496	)	(0.40	)%
Net loss attributable to Company –discontinued operations		(5,144,249	)	(13.32	)%		(725,063	)	(1.31	)%
Net loss attributable to Company	$	(29,231,347	)	(75.66	)%	$	(119,236,823	)	(215.15	)%

Revenue. For the year ended December 31, 2014, our revenue was $38.63 million, compared to $55.42 million for the year ended December 31, 2013, a decrease of $16.79 million, or 30.29% . The decrease was primarily due to our strategic transformation from a hardware manufacturer to a software solution provider. In 2014 we started shifting hardware production from our own factory to our OEM partners. As a result, our hardware revenue reduced to $22.63 million in 2014, as compared to $46.11 million in 2013, a decrease of 50.93% . Meanwhile, our software revenue increased to $10.37 million in 2014 from $ 2.92 million in 2013, an increase of 251.61% . Our system integration revenue decreased 11.07% to $4.82 million, as compared to $5.42 million in 2013. Other revenue, which constituted only 2% of total revenues in 2014, declined slightly to $0.82 million in 2014 from $0.96 million in 2013.

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

		Year Ended December 31, 2014						Year Ended December 31, 2013
			% of		Cost of	Gross			% of		Cost of	Gross
		Revenue	Revenue		Revenue	Margin		Revenue	Revenue		Revenue	Margin
Hardware	$	22,628,612	58.57%	$	18,769,338	17.05%	$	46,114,109	83.21%	$	38,829,515	15.80%
Software		10,366,560	26.83%		4,086,717	60.58%		2,923,397	5.28%		1,559,861	46.64%
System integration		4,822,003	12.48%		4,480,388	7.08%		5,422,151	9.78%		4,733,815	12.69%
Others		817,572	2.12%		809,947	0.93%		960,174	1.73%		743,972	22.52%
Total	$	38,634,747	100.00%	$	28,146,390	27.15%	$	55,419,831	100.00%	$	45,867,163	17.24%

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

		Year Ended December 31, 2014						Year Ended December 31, 2013
			% of		Cost of	Gross			% of		Cost of	Gross
		Revenue	Revenue		Revenue	Margin		Revenue	Revenue		Revenue	Margin
TIT Segment	$	13,024,506	33.71%	$	9,165,237	29.63%	$	7,699,309	13.89%	$	6,000,372	22.07%
CBT Segment		25,610,241	66.29%		18,981,153	25.88%		47,720,522	86.11%		39,866,790	16.46%
Total	$	38,634,747	100.00%	$	28,146,390	27.15%	$	55,419,831	100.00%	$	45,867,162	17.24%

Cost of revenue and gross profit. Because our revenue composition began shifting towards the high-margin software business from the low-margin hardware business in 2014, our gross profit increased for the year ended December 31, 2014 despite of the overall revenue decline. As indicated in the tables above, our cost of revenue decreased to $28.15 million in 2014 from $45.87 million in 2013. Because our cost of revenue decrease of 38.63% outpaced our revenue decline of 30.29% in 2014, our gross margin increased to 27.15% in 2014 from 17.24% in 2013.

Administrative expenses. Our administrative expenses decreased by $67.86 million, or 76.51%, to $20.84 million for the year ended December 31, 2014, from $88.70 million for the year ended December 31, 2013. As a percentage of revenue, administrative expenses decreased to 53.93% in 2014, from 160.05% in 2013. Notable changes that resulted in decreased administrative expenses include: 1) a decrease of $59.15 million in provision of accounts receivable and other current assets; 2) a decrease of $5.64 million in depreciation of property and equipment; 3) a decrease of $6.70 million in stock based compensation; offset by 4) an increase in provision for obsolete and loss on disposal of inventories of $3.6 million.

Research and development expenses. Our research and development expenses consist primarily of personnel-related expenses, as well as costs associated with new software and hardware development and enhancement. Prior to September 2014, we outsourced a portion of our software development to Biznest. After September 2014, we acquired Biznest and brought all of its research and development talents in house. Our research and development expenses decreased by $0.71 million, or 32.55%, to $1.48 million for the year ended December 31, 2014, from $2.19 million for the year ended December 31, 2013. As a percentage of revenue, research and development expenses decreased to 3.82% for 2014, from 3.95% in 2013.

Selling expenses. Our selling expenses consist primarily of compensation and benefits to our sales and marketing staff, sales and after-sale-related traveling costs, and other sales-related costs. Our selling expenses decreased by $0.65 million, or 13.35%, to $4.24 million for the year ended December 31, 2014, from $4.89 million for the year ended December 31, 2013. As a percentage of revenue, our selling expenses remained relatively stable, increasing to 10.97% for 2014, from 8.83% for 2013.

Impairment of intangible assets and goodwill. As we transition our business focus from the public sector to the private sector and from hardware manufacturing to software development, we analyzed our operations and tested our goodwill and intangible assets for impairment in the fourth quarter of 2014. We came to the conclusion that goodwill impairment was probable, and therefore recognized a goodwill impairment loss of $4.68 million during the second half-year of 2014 based on our best estimation. Also for the year ended December 31, 2014, we recorded $2.33 million of impairment in intangible assets relating to technology and trademarks utilized in hardware manufacturing. In comparison, we did not recognize any impairment in goodwill in 2013 but did record an impairment of $2.0 million on intangible assets for the year ended December 31, 2013.

Impairment of property, plant and equipment. Since we started our factory closure process in late 2014, we began selling most of our factory-related property, plant, and equipment and disposing of the remainder. Consequently we recorded $0.83 million of impairment in property, plant and equipment for the year ended December 31, 2014. In comparison, we recognized $29.98 million of impairment in property, plant and equipment for the year ended December 31, 2013 related to our public sector projects.

Subsidy income. Because we have developed a number of technology products in fields designated by the Chinese government as highly innovative, we received governmental subsidies of $0.67 million in 2014 and $1.49 million in 2013, respectively.

Income tax benefit and expense. We recorded an income tax benefit of $4.60 million for the year ended December 31, 2014, mostly due to a reversal of deferred tax provisions after we closed down our own manufacturing facility in 2014, which we sold for a gain in 2015. In comparison, we recorded an income tax expense of $1.73 million for the year ended December 31, 2013 relating to an increase in our valuation allowance.

Net loss attributable to Company. As a result of the cumulative effect of the foregoing factors, we had a $29.23 million of net loss attributable to the Company for the year ended December 31, 2014, as compared to $119.24 million of net loss for the year ended December 31, 2013.

Inflation

Inflation does not materially affect our business or the results of our operations.

Foreign Currency Fluctuations

See Item 11 “Quantitative and Qualitative Disclosures About Market Risk—Foreign Exchange Risk.”

Critical Accounting Policies

The preparation of financial statements in conformity with U.S. GAAP 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:

Revenue Recognition

The Company generates its revenues primarily from three sources, (1) hardware sales, (2) software license and software-as-a-service sales, and (3) system integration services. The Company’s revenue recognition policies are in accordance with SEC Staff Accounting Bulletin No. 104, "Revenue Recognition", FASB ASC No. 605-35 "Construction-Type and Production-Type Contracts" ("FASB ASC 605-35"), and FASB ASC No. 605-25 “Multiple-Element Arrangements” (“FASB ASC 605-25”).

Hardware

Hardware revenues are generated primarily from the sale of display technology products and are recognized only when persuasive evidence of an arrangement exists, delivery has occurred and upon receipt of customers’ acceptance, the price to the customer is fixed or determinable in accordance with the contract, and collectability is reasonably assured. In November 2014, we started closing down our own hardware manufacturing facilities and outsourcing production to our OEM partners. We also shifted to our OEM partners after-sale support of hardware products sold to our private-sector customers. For hardware products sold to our public sector customers, we remain responsible for providing after-sale support due to contractual requirements specific to the public sector. Consequently in 2015, we will recognize revenue on a net basis on hardware sold to the private sector and on a gross basis on hardware sold to the public sector. Hardware sales are classified on the “Revenue-hardware” line on the Company’s consolidated statement of (loss) income.

Software License

Starting in the fourth quarter of 2014, the Company began to generate software license revenues from upfront software license sales in the private sector and from fixed-price software contracts in the public sector. The basis for our new software licenses revenue recognition is substantially governed by the accounting guidance contained in ASC 985-605, Software-Revenue Recognition. We exercise judgment and use estimates in connection with the determination of the amount of software and software related services revenues to be recognized in each accounting period.

In the private sector, our customers pay us an upfront software license fee for the right of using our proprietary Cloud-Application-Terminal platform. For software license arrangements that do not require significant modification or customization of the underlying software, we recognize new software licenses revenues when: (1) we enter into a legally binding arrangement with a customer for the license of software; (2) we deliver the products; (3) the sale price is fixed or determinable and free of contingencies or significant uncertainties; and (4) collection is probable. Revenues from software license contracts are classified on the “Revenue-Software” line on the Company’s consolidated statement of (loss) income.

When our private sector customers purchase software licenses from us, they also pay us a monthly maintenance service fee to access our continued software updates and support. Such software maintenance fees are recognized ratably during contract terms and are classified on the “Revenue-Software” line on the Company’s consolidated statement of (loss) income.

An increasing number of our customers in the private sector are choosing to subscribe to our Cloud-Application-Terminal platform as a service instead of paying upfront license fees. Consequently we generate software-as-a-service (SaaS) revenues by selling our CBT platform as a monthly subscription service. Our SaaS revenues are generally recognized ratably over the contract term commencing with the date our service is made available to customers and all other revenue recognition criteria have been satisfied. Customers typically subscribe to our SaaS offerings on a three-to-five-year basis and in return obtain access to our display terminals deployed on their premises and to our cloud-based software hosted on our servers via the Internet. Although the durations of some of our SaaS contracts are longer than 75% of the economic life of the hardware equipment in accordance with ASC 605 and ASC 840, Leases, because in China payment collection beyond any three-year term is highly uncertain, we’ve chosen to recognize our SaaS revenues ratable over the contract term as we collect subscription payment, which is the most conservative method of revenue recognition. Revenues from SaaS contracts are classified on the “Revenue-Software” line on the Company’s consolidated statement of (loss) income.

Software Sales

In the public sector, our customers pay us a fixed price to design and develop software products specifically customized for their needs. Software development projects usually include developing software, integrating various isolated software systems into one, and testing the system. The design and build services, together with the integration of the various elements, are generally determined to be essential to the functionality of the delivered software, and accordingly revenue is recognized using the percentage of completion method of accounting in accordance with FASB ASC 605-35. The percentage of completion for each contract is estimated based on the ratio of direct labor hours incurred to total estimated direct labor hours. Revenues from software development contracts are classified on the “Revenue-Software” line on the Company’s consolidated statement of (loss) income.

System Integration Services

System integration revenues are generated from fixed-price contracts which combine both customized software development and integration and non-customized hardware. System integration usually include the purchase of hardware, development of software, integration of various systems into one, and testing the system. Accordingly, system integration revenues contain multiple deliverable elements including: (1) software development and integration, and (2) hardware, both of which are clearly outlined in contracts executed with customers. Revenue from the software element is recognized using the percentage of completion method of accounting outlined above under software revenues. Revenue from the hardware element is recognized when all four revenue recognition criteria are met, as outlined above under hardware revenues, which generally occurs upon customer acceptance. The hardware component of system integration projects consists of standard products and requires only minor modification and an insignificant amount of labor to meet customers’ needs. Collectively, revenues from system integration projects are recognized using percentage of completion based on the ratio of costs incurred to total estimated costs, and are classified on the “Revenue-System-Integration” line on the Company’s consolidated statement of (loss) income.

The Company accounts for system integration projects in accordance with FASB ASC 605-25. To determine the selling price of each unit of account included within the system integration contracts, the Company uses vendor-specific objective evidence (VSOE) for the software component, and third-party evidence for the hardware component. In addition, the Company provides post contract support (PCS), which includes telephone technical support that is not essential to the functionality of the software or hardware elements. Although VSOE does not exist for PCS, because (1) the PCS fees are included in the total contract amount, (2) the PCS service period is for less than one year, (3) the estimated cost of providing PCS is not significant, and (4) unspecified upgrades enhancements offered are minimal and infrequent, the Company recognizes PCS revenue upon delivery and customer acceptance.

Contract periods are usually less than six months, and typical contract periods for PCS are 12 months.

Customers are billed in accordance with contract terms, which typically require partial payment at the signing of the contract, partial payment upon delivery and customer acceptance, with the remainder due within a stated period of time not exceeding 12 months. Occasionally, the Company enters into contracts which allow a percentage of the total contract price to be paid one to three years after completion of a system integration project. Revenues on these extended payments are recognized upon completion of the terms specified in the contract and when collectability is reasonably assured.

No rights of return are allowed except for defective products, which have been insignificant based on historical experiences. If defective products are returned due to software issues, the Company will provide upgrades or additional customization to suit customers’ needs. In cases where the defect is a result of integrated hardware, the Company returns the hardware to the original vendor for replacement.

Changes in estimates for revenues, costs and profits are recognized in the period in which they are determinable. When the Company’s estimates indicate that the entire contract will be performed at a loss, a provision for the entire loss is recorded in the current accounting period.

Accounts Receivable

We regularly evaluate and monitor the credit worthiness of every customer on a case-by-case basis. We 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 is written off against the allowance.

Inventories

We value inventories at the lower of cost or market price. Market price 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 analyses 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.

Income Taxes

Deferred income taxes are provided on an asset and liability approach for financial accounting and reporting of income taxes. 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. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion, or all of 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.

Goodwill

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.

We used the discounted cash flow method to estimate the fair value of our CBT and TIT reporting units. The goodwill impairment analysis is a two-step test on each reporting unit. Determining the fair value of a reporting unit involved the use of significant estimates and assumptions, such as revenue growth rate, gross profit rate, and discount rate.

Any goodwill and any fair value adjustment to the carrying amounts of assets and liabilities as a result of the acquisition of foreign operation shall be treated as assets and liabilities of that foreign operation. Thus they shall be expressed in the functional currency of the foreign operation and shall be translated at the closing rate. As our acquired subsidiaries’ functional currency is RMB, goodwill as a result of these acquisitions is denominated in RMB. As our presentation currency is USD, the change of goodwill balance includes foreign exchange differences between each period or year-end.

Long-Lived Assets

Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Recoverability of an asset to be held and used is determined by comparing its carrying amount with the net undiscounted future cash flows it should generate. If such asset is considered to be impaired, the impairment to be recognized is measured by how much its carrying amount exceeds its fair value. Assets held for disposal, if any, are reported at the lower of the carrying amount or fair value less costs to sell.

Management reviews impairment of property, plant and equipment if an event occurs or circumstances change that would more likely than not reduce the fair value of the property, plant and equipment to below its carrying value. Management used the discounted cash flow method to estimate the fair value of the property, plant and equipment.

Recent Accounting Pronouncements

Please refer to Note 2 to our audited consolidated financial statements for a discussion of relevant pronouncements.

B. Liquidity and Capital Resources

As of December 31, 2015, we had cash and cash equivalents of $3.79 million.

On May 26, 2015, we closed a registered direct offering (the “Registered Direct Offering”), in which we sold 2,102,484 ordinary shares to certain institutional investors at the price of $6.44 per share. In addition, warrants to purchase an aggregate of 1,576,863 ordinary shares of the Company were issued to the investors. Gross proceeds from the offering were approximately $13.54 million. After deducting offering expenses, the net proceeds of approximately $12.79 million from the Registered Direct Offering are used for working capital and general corporate purposes.

In previous years, with respect to private-sector customers, we generally provided for a payment period of 90 days and for certain strategic customers, we extended the payment period to up to 120 days. In 2015, we have implemented far more stringent cash collection policies than ever before. With our private-sector customers, we generally require 30% of cash down payment at the signing of a sales contract and the reminder 70% to be paid prior to product shipment.

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 $5.03 million as of December 31, 2015 and $4.48 million at December 31, 2014. The following table describes the movement in the allowance for doubtful accounts during the year ended December 31, 2015:

Balance at January 1, 2015	$	4,484,321
Increase in allowance for doubtful accounts		1,166,764
Amounts recovered during the year		(379,731	)
Foreign exchange difference		(242,247	)
Balance at December 31, 2015	$	5,029,107

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

Cash Flows

		Year Ended December 31,
		2015			2014			2013
Net cash used in operating activities-continuing operations	$	(25,319,197	)	$	(12,514,459	)	$	(10,644,010	)
Net cash used in operating activities-discontinued operations		(595,404	)		(115,066	)		(733,530	)
Net cash used in operating activities		(25,914,601	)		(12,629,525	)		(11,377,540	)
Net cash provided by (used in) investing activities-continuing operations		40,526,336			7,851,482			(530,942	)
Net cash provided by (used in) investing activities- discontinued operations		1,558,581			(1,530,773	)		(2,697,359	)
Net cash provided by (used in) investing activities		42,084,917			6,320,709			(3,228,301	)
Net cash (used in) provided by financing activities-continuing operations		(23,989,549	)		5,264,165			10,296,220
Net cash (used in) provided by financing activities- discontinued operations		(147,237	)		1,131,223			4,422,085
Net cash (used in) provided by financing activities		(24,136,786	)		6,395,388			14,718,305
Effects of exchange rate changes on cash and cash equivalents		564,125			19,027			223,130
Net increase (decrease) in cash and cash equivalents		(7,402,345	)		105,599			335,594
Cash and cash equivalents at beginning of the year		11,189,191			11,083,592			10,747,998
Cash and cash equivalents at end of the year		3,786,846			11,189,191			11,083,592
Less cash and cash equivalents from discontinued operations		-			4,499,343			5,038,900
CASH AND CASH EQUIVALENTS FROM CONTINUING OPERATIONS, end of period		3,786,846			6,689,848			6,044,692

Operating Activities-Continuing operations

Net cash used in operating activities was $25.32 million for the year ended December 31, 2015, an increase from $12.51 million in net cash used in operating activities for the year ended December 31, 2014. The increase in cash used in operating activities in 2015 primarily consists of an additional $18.12 million in cash used for payment of accounts payable and bills payable in 2015 offset by a net increase in cash flows from operating assets in 2015.

Net cash used in operating activities was $12.51 million for the year ended December 31, 2014, an increase of $1.87 million from the $10.64 million of net cash used in operating activities for the year ended December 31, 2013, mostly due to the increased cash used for working capital during the year ended December 31, 2014.

Investing Activities-Continuing operations

Net cash provided by investing activities was $40.53 million for the year ended December 31, 2015, as compared to $7.85 million for the year ended December 31, 2014. The increase was primarily due to $45.05 million in cash received from the sale of the Fuyong Industrial Park assets, offset by cash of $13.02 million received in 2014 from a deposit in advance if this sale.

Net cash provided by investing activities was $7.85 million for the year ended December 31, 2014 as compared with net cash used in investing activities of $0.53 million for the year ended December 31, 2013. The change was primarily due to the receipt of $13.02 million deposit for assets held for sale and receipt of $3.36 million from the government for land use rights during the year ended December 31, 2014, which was partially offset by $5.95 million of cash paid for acquisition of Biznest, $1.35 million for software development costs and $0.53 million for purchase of property and equipment.

Financing Activities-Continuing operations

Net cash used in financing activities was $23.99 million for the year ended December 31, 2015, as compared to $5.26 million in net cash provided by financing activities for the year ended December 31, 2014. The change was mainly attributable to the $79.95 million in repayment of short-term loans in the second half of 2015, offset by borrowings of short-term loans of $44.58 million in 2015, and $12.79 million of net proceeds from the Registered Direct Offering in May 2015, compared to $3.68 million in common stock sold in 2014.

Net cash provided by financing activities was $5.26 million for the year ended December 31, 2014, as compared to $10.30 million for the year ended December 31, 2013. The decrease was mainly attributable to $5.32 million of decrease in cash received from restricted shares issued to company employees, $2.00 million of decrease in net borrowings on short-term loans, and $1.71 million of decrease in cash used for repurchase of ordinary shares.

Loan Facilities

As of December 31, 2015 and 2014, our loan facilities were as follows:

Short-term bank loans

		December 31,
		2015		2014
Secured short-term loans	$	15,058,189	$	51,726,194
Add: amounts due within one year under long-term loan contracts		214,797		97,675
Total short-term bank loans	$	15,272,986	$	51,823,869

In February and March 2016, we repaid $3.1 million in short term bank loans.

Long-term bank loans

		December 31,
		2015			2014
Secured long-term loans	$	214,747		$	312,305
Less: Amounts due within one year under long-term loan contracts		(214,747	)		(97,675	)
Total long-term bank loans	$	-		$	214,630

Management’s Plans

For the years ended December 31, 2015 and 2014, we reported negative cash flows from operations of $25.91 million and $12.63 million, respectively. Net cash used in operating activities in 2015 significantly increased as $22.41 million of cash was used for payment of outstanding bills payable, which resulted in the bills payable at December 31, 2015 being significantly reduced to $1.32 million as of December 31, 2015. In addition, we had a working capital deficiency of $1.65 million as of December 31, 2015, compared to a working capital deficiency of $56 million at December 31, 2014. Continuing our business transformation, management has developed its 2015 business plan which will continue to be executed in 2016, encompassing six strategies: 1) redirect our resources to selling high-margin software solutions; 2) reinforce stringent cash collection policies to shorten our days of sales outstanding; 3) streamline our purchase order management process to reduce inventory; 4) control our cost structure; 5) obtain additional government subsidies for developing new and innovative cloud-based software solutions; and 6) reduce our short-term debt burden. As of December 31, 2015, by using the proceeds from sale of certain real estate and plant assets, we have significantly reduced our short-term debt burden to $15.27 million, down from $51.82 million at the end of 2014. In addition, in the fourth quarter of 2015, we completed our sales of iASPEC’s 100% equity holding of Zhongtian and 54.89% equity holding of Geo, which provided cash inflows to us of approximately $4.8 million and $14.74 million, respectively. A total of $6.27 million related to these sales was received in 2015 and $13.02 million was received in 2016. In addition, starting from April 2016, we began receiving an annual rental fee of $380,000 from certain third parties for leasing of our office facility located in Nanshan Industrial Park, Shenzhen. As of April 21, 2016, we had $0.76 million additional availability under our credit facilities. In addition, management believes it has the ability, if needed, to obtain additional credit lines from local banks to provide capital needs by using the title of its office facility as collateral. Management believes that our current cash and cash equivalents, cash flows from the sales of Zhongtian and Geo, anticipated cash flows from operations in 2016, and additional availability under its borrowing facilities will be sufficient to meet our operating and financial obligations for the remainder of 2016.

We may, however, require additional cash due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If our existing cash and amounts available under existing credit facilities are insufficient to meet our requirements, we may seek to sell additional equity securities, debt securities, or borrow from lending institutions. We can make no assurances that financing will be available in the amounts we need, or on terms acceptable to us, if at all. The sale of additional equity securities, including convertible debt securities, would dilute the interests of our current shareholders. The incurrence of debt would divert cash for working capital and capital expenditures to service debt obligations and could result in operating and financial covenants that restrict our operations and our ability to pay dividends to our shareholders. If we are unable to obtain additional equity or debt financing as required, our business operations and prospects may suffer.

As a result of our recurring negative cash flows from operations and working capital deficit, our independent registered public accounting firm’s report on our consolidated financial statements as of, and for the year ended December 31, 2015, includes an explanatory paragraph discussing that these conditions raise substantial doubt about our ability to continue as a going concern.

Intercompany Transfers

Our subsidiaries 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. Our PRC subsidiaries’ general 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 approval from SAFE 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.

The following 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, 2015 and 2014:

		December 31,
		2015		2014
PRC general reserve - restricted net assets	$	13,812,095	$	14,755,946
Consolidated net assets	$	20,747,940	$	19,508,247
Restricted net assets as percentage of consolidated net assets		66.57%		75.64%

An offshore holding company, as a shareholder of a 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 with iASPEC.

As of December 31, 2015, the breakdown of our cash and cash equivalents (including restricted cash) was as follows:

		December 31,
		2015		2014
Cash located outside of the PRC	$	62,050	$	739,076
Cash held by VIEs		1,590,830		4,715,278
Cash held by other entities located in the PRC (except VIEs noted above)		3,002,283		12,388,664
	$	4,655,163	$	17,843,018

We do not believe there would be any material costs incurred by our company to transfer cash outside of the PRC. In addition, as our operations are principally based in China, our non-PRC consolidated entities do not incur material cash obligations. If the nature of our non-PRC consolidated entities’ businesses change in the future resulting in a need for material cash transfers to them, we will assess the feasibility and plan any transfer in accordance with foreign exchange regulations, taking into account tax consequences. Any company which is registered in mainland China must apply to the State Administration of Foreign Exchange for approval in order to remit foreign currency to any foreign country and must comply with PRC’s statutory reserve requirement as disclosed in Item 3 Key Information – D. Risk Factor of this annual report. As we conduct all of our operations in China, we do not believe that the inability to convert cash and short-term investments held in RMB to other currencies will materially affect our liquidity.

C. Research and Development, Patents and Licenses, Etc.

Our industry is characterized by extremely rapid technological change, evolving industry standards and changing customer demands. These conditions require continuous expenditures on product research and development to enhance existing products, create new products and avoid product obsolescence. See Item 3 “Key Information—D. Risk Factors—If we are unable to develop competitive new products and service offerings our future results of operations could be adversely affected,” —“If we are unable to keep pace with the rapid technological changes in our industry, demand for our products and services could decline which would adversely affect our revenue,” and —“Our technology may become obsolete which could materially adversely affect our ability to sell our products and services.”

For the years ended December 31, 2015, 2014 and 2013, our researched and development expenses amounted to $3.45 million, $1.48 million and $2.19 million, respectively, accounting for approximately 33.51%, 3.82% and 3.95%, of our total revenue, respectively. These expenses consist primarily of personnel-related expenses, as well as costs associated with new software and hardware development and enhancement.

As of December 31, 2015, we had approximately 80 employees devoted to our research and development efforts, which are mainly focus on our cloud-based business, aimed at finding new varieties of products, improving existing products, improving overall product quality, and reducing production costs.

D. Trend Information

Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our net revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition.

E. Off-Balance Sheet Arrangements

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

F. Tabular Disclosure of Contractual Obligations

The table below shows our material contractual obligations as of December 31, 2015.

		Payments Due by Period
				Less than						More than
Contractual Obligations		Total		1 year		1-3 years		3-5 years		5 years
Operating Lease Obligations	$	179,870	$	108,720	$	71,150	$		$
Purchase Obligations ⁽¹⁾		9,774,612		9,774,612		-		-		-
Interest payable on long-term bank loans		7,835		7,835		-		-		-
Short-term bank loans		15,272,986		15,272,986		-		-		-
Total	$	25,235,303	$	25,164,153	$	71,150	$	-	$	-

⁽¹⁾ Represents amounts due under a contract with the municipal government of Dongguan City to purchase a land use right for a piece of land. The amount is payable only at such time that the government has completed the process of making the land ready for use by the Company.

G. Safe Harbor

See “Introductory Notes—Forward-Looking Information.”

ITEM 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

The following table sets forth certain information regarding our directors and senior management, as well as employees upon whose work we are dependent, as of the date of this annual report.

NAME	AGE	POSITION
Jiang Huai Lin	46	Chairman of the Board, Chief Executive Officer
Zhiqiang Zhao	44	Director, President and Interim Chief Financial Officer
Zhixiong Huang	46	Chief Operating Officer
Guangzeng Chen	36	Chief Technology Officer and Chief Product Officer
Guangyuan Zong	41	Chief Marketing Officer
Junping Sun	53	Chief Investment Officer
Yunsen Huang	69	Director
Yong Jiang	41	Director
Remington C.H. Hu	49	Director

Mr. Jiang Huai Lin. Mr. Lin has been the Chairman of our Board of Directors and our Chief Executive Officer and President since June 19, 2012 and has been the Chairman of the Board of CNIT since September 6, 2006 and the Chief Executive Officer and President of CNIT since October 3, 2006. Mr. Lin has also served as the Chairman and Chief Executive Officer of our subsidiary, IST, since its incorporation in January 2006. During the period from September 2000 to June 2004, Mr. Lin served as the President and Chief Executive Officer of Hong Kong United Development Group, a consolidated enterprise engaging in investment, high technology and education. Before that, during the period from February 1995 through August 2000, Mr. Lin was a Director and the General Manager of Fujian Wild Wolf Electronics Limited, a company engaged in the business of manufacturing electrical consumer products. Mr. Lin holds a Master’s degree in Software Engineering from Wuhan University and a Bachelor’s degree in Industrial Accounting from Xiamen University.

Mr. Zhiqiang Zhao. Mr. Zhao has been our President since August 2015, Interim Chief Financial Officer since October 2015 and a member of our Board of Directors since June 19, 2012. Mr. Zhao has extensive experience in corporate operations and integrations, strategy planning and human resources management. From March 2003 to March 2005, Mr. Zhao served as Supervisor of Human Resources for the Foxconn Technology Group; from April 2005 to July 2006, as Admin and Human Resource Director of iASPEC; and from July 2006 to August 2010, as Deputy General Manager of iASPEC. From November 2010, Mr. Zhao began serving as the COO and Vice President of CNIT. From August 2010, he was vice chairman of iASPEC, and from July 2011, Mr. Zhao began serving as General Manager of ISIOT (formerly HPC Electronics (Shenzhen) Ltd.). Mr. Zhao holds a Bachelor degree in Mechanical & Electrical Engineering from Inner Mongolia University.

Mr. Zhixiong Huang. Mr. Huang has been our Chief Operating Officer since August 2015. Between July 2001 and March 2002, Mr. Huang served as the General Manager of product development of Shenzhen Runsheng Information Systems Company Ltd. and was responsible for overseeing general operations. From September 2002 and October 2006, Mr. Huang served as the deputy general manager of iASPEC, where he supervised iASPEC’s research and development activities and consulted on various types of sophisticated, technical issues. From January 2006 to September 2013, he served as CNIT’s vice president and was our Chief Technology Officer from December 2008 and September 2013. Mr. Huang holds a B.S. in computer science from Hehai University in China and has over twenty years’ experience in information systems. Mr. Huang is currently a Director of the Shenzhen Computer Association and is an expert with the Shenzhen Expert Association and the Shenzhen Science and Technology Innovation Association.

Mr. Guangzeng Chen. Mr. Chen has been our Chief Technology Officer and Chief Product Officer since December 1, 2015 and June 26, 2015, respectively. Mr. Chen joined the Company as VP of the Research & Development Division in March 2014. Prior to that, Mr. Chen was a project manager at CoolPad Group Limited, a Shenzhen-based telecommunications equipment company and one of the top ten smartphone companies in China from May 2011 to February 2014. Previously, Mr. Chen was the head of research and development at VideoHome, a Taiwanese multimedia appliance manufacturer and exporter from June 2004 to May 2011. Mr. Chen graduated from Zhengzhou University with a Bachelor's Degree in Computer Science.

Mr. Guangyuan Zong. Mr. Zong has been our Chief Marketing Officer since September 4, 2013. Mr. Zong has over ten years combined experience in capital management, marketing development and business operations. He has been the Executive Vice President of IST, a wholly-owned subsidiary of CNIT since July 2010. From July 2009 to July 2010, he served as the Deputy General Manager of ISIOT (formerly HPC Electronics (Shenzhen) Ltd.) and as the Company’s Investment Manager from December 2007 to June 2009. Prior to that, Mr. Zong was a co-director of Jufu Asset Management Ltd., where he provided tutoring for pre-listing companies. Mr. Zong holds a bachelor degree in Japanese from Nankai University.

Mr. Junping Sun. Mr. Sun has been our Chief Investment Officer since August 2015. He has profound background and experience in investment management, public relations and industry collaborations. Mr. Sun jointed the Company in 2013 and became Senior VP of Investment of the Company in 2014. Prior to that, he was the vice president of iASPEC since 2013. Between 2005 and 2012, Mr. Sun worked at Union Development Co., Ltd., an investment company in Hong Kong. Mr. Sun holds a bachelor degree in Economy Management from Nanjing University.

Mr. Yunsen Huang. Mr. Huang has been a member of our Board of Directors since June 19, 2012 and was a member of the Board of CITN from August 10, 2007 until completion of the corporate reorganization on October 31, 2012. Mr. Huang has been a Professor in the School of Information Engineering at Shenzhen University since September 1984. He has been involved in many computer application projects, and has received many awards, including a First Grade Award of Technology Advancement from Sichuan Province, a Second Grade Award of Technology Advancement from Guangdong Province, and a Third Grade Award of Technology Advancement from the Chemical Ministry. Mr. Huang has published eight books in the field of Networks and Multimedia Applications. In addition, Mr. Huang was a founder of the International Software Development (Shenzhen) Co., Ltd, a co-partnership company incorporated by IBM, East Asia Bank, and Shenzhen SDC Company, and its Chairman between 2001-2006. Currently, Mr. Huang is a Director of the Shenzhen Computer Academy, a Vice Director of the Guangdong Province Computer Academy, as well as Executive Director of the China University Computer Basic Education Committee. Mr. Huang holds a Bachelor’s Degree of Electronics Engineering from Tsinghua University.

Dr. Yong Jiang. Dr. Jiang has been a member of our Board of Directors since August 13, 2013. As a professor and supervisor for PH. D candidates, Dr. Jiang has been the Vice Director of Division of Information Science & Technology and Director of Network Center in the Graduate School at Shenzhen, Tsinghua University (GSST) since 2002. Dr. Jiang is a member of the Association of Computing Machinery (ACM), the world’s largest educational and scientific computing society, and a member of China Computer Federation (CCF). He also serves as the Vice Chairman of the Shenzhen Association of Chief Information Officer, and a committee member of the Shenzhen Association of Experts. Dr. Jiang is majored in the research of next generation internet and computer network architecture, and has led more than 10 state-level scientific research programs, including programs from National Natural Science Foundation of China (NSFC), the National 863 Program, the pilot program from China Next Generation Internet (CNGI) and National Major Projects. Dr. Jiang graduated from the Department of Computer Science and Technology of Tsinghua University.

Mr. Remington C.H. Hu. Mr. Hu has been a member of our Board of Directors since June 19, 2012 and was a member of the Board of CITN from October 30, 2009 until completion of the corporate reorganization on October 31, 2012. He is a seasoned executive with more than 16 years of experience in corporate finance and investment management, and is currently the founder and CEO of Tomorrow Capital Limited, a financial advisory firm. Prior to founding Tomorrow Capital Limited, Mr. Hu served from February 2008 to July 2009, as Chief Financial Officer of Yucheng Technologies Limited, a Nasdaq listed top IT solutions and BPO company servicing China’s banking industry, and from August 2004 to August 2007, as China Representative for CVM Capital Partners, LLC, Taiwan’s largest VC affiliated with Taiwan’s largest private equity investment group. Earlier in his career, Mr. Hu founded and served from June 1999 to June 2002, as Chief Financial Officer of eSoon Communications International Corp., a software start-up focusing on the then fast-growing CRM/CTI market served from August 1996 to May 1999, as Vice President of Crimson Asia Capital Holdings, Ltd., formerly Asia’s largest venture capital firm backed by Taiwan’s Chinatrust Financial Group. He began his career at Citibank, NA, as an Assistant Vice President in the Taipei and Hong Kong. Mr. Hu holds a Master’s Degree in Business Administration from the Wharton Business School and a Bachelor’s Degree in Computer Science and Information Engineering from the National Chiao Tung University.

There is no arrangement or understanding with any major shareholders, customers, suppliers or others, pursuant to which any person named above was selected as a director or member of senior management.

No family relationship exists between any of the persons named above.

B. Compensation

In 2015, we paid an aggregate of $492,000 in cash compensation to our directors and senior management as a group. We do not set aside or accrue any amounts for pension, retirement or other benefits for our directors and senior management. However, we reimburse our directors for out-of-pocket expenses incurred in connection with their services in such capacity.

2013 Equity Incentive Plan

On September 11, 2013, the Board of Directors of the Company adopted the 2013 Equity Incentive Plan, or the 2013 Plan, pursuant to which the Company may offer up to five million ordinary shares as equity incentives to its directors, employees and consultants. Such number of shares is subject to adjustment in the event of certain reorganizations, mergers, combinations, recapitalizations, stock splits, stock dividends, or other change in the corporate structure of the Company affecting the shares issuable under the 2013 Plan. At the Company’s 2013 Annual Meeting of Members, held on December 20, 2013, our shareholders approved the 2013 Plan. As of April 21, 2016, we have issued 4.41 million shares of restricted stock to our officers and employees under the 2013 Plan.

The following paragraphs summarize the terms of our 2013 Plan:

Purpose. The purposes of the 2013 Plan are to promote the long-term growth and profitability of the Company and its Affiliates by stimulating the efforts of Employees, Directors and Consultants of the Company and its Affiliates who are selected to be participants, aligning the long-term interests of participants with those of shareholders, heightening the desire of participants to continue in working toward and contributing to our success, attracting and retaining the best available personnel for positions of substantial responsibility, and generally providing additional incentive for them to promote the success of our business through the grant of Awards of or pertaining to our Ordinary Shares. The 2013 Plan permits the grant of ISOs, NSOs, Restricted Shares, Restricted Share Units, Share Appreciation Rights, Performance Units and Performance Shares as the Administrator may determine.

Administration. The 2013 Plan may be administered by our Board or a committee. The 2013 Plan is currently being administered by our Compensation Committee. The Administrator has the authority to determine the specific terms and conditions of all Awards granted under the 2013 Plan, including, without limitation, the number of Ordinary Shares subject to each Award, the price to be paid for the Ordinary Shares and the applicable vesting criteria. The Administrator has discretion to make all other determinations necessary or advisable for the administration of the 2013 Plan.

Eligibility. NSOs, Restricted Shares, Restricted Share Units, Share Appreciation Rights, Performance Units and Performance Shares may be granted to Employees, Directors or Consultants either alone or in combination with any other Awards. ISOs may be granted only to employees of the Company, and of any Parent or Subsidiary.

Shares Available for Issuance Under the 2013 Plan. Subject to adjustment as described below, (a) the maximum aggregate number of Shares that may be issued under the 2013 Plan is 5,000,000 Ordinary Shares, (b) to the extent consistent with Section 422 of the Code, not more than an aggregate of 5,000,000 Ordinary Shares may be issued under ISOs, and (c) not more than 500,000 Ordinary Shares (or for Awards denominated in cash, the Fair Market Value of 500,000 Ordinary Shares on the Grant Date), may be awarded to any individual Participant in the aggregate in any one fiscal year of the Company, such limitation to be applied in a manner consistent with the requirements of, and only to the extent required for compliance with, the exclusion from the limitation on deductibility of compensation under Code Section 162(m). The number and class of shares available under the 2013 Plan are subject to adjustment in the event of certain reorganizations, mergers, combinations, recapitalizations, share splits, share dividends, or other similar events which change the number or kind of shares outstanding.

Transferability. Unless otherwise provided in the 2013 Plan or otherwise determined by the Administrator, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Participant, only by the Participant. However, the Administrator may, at or after the grant of an Award other than an ISO, provide that such Award may be transferred by the recipient to a “family member” (as defined in the 2013 Plan); provided, however, that any such transfer is without payment of any consideration whatsoever and that no transfer shall be valid unless first approved by the Administrator, acting in its sole discretion, and as required by our Amended and Restated Articles of Association. If the Administrator makes an Award transferable, such Award will contain such additional terms and conditions as the Administrator deems appropriate.

Termination of, or Amendments to, the 2013 Plan. The Board may at any time amend, alter, suspend or terminate the 2013 Plan, provided that the Company will obtain shareholder approval of any 2013 Plan amendment to the extent necessary and desirable to comply with Applicable Laws. No amendment, alteration, suspension or termination of the 2013 Plan will impair the rights of any Participant, unless mutually agreed otherwise between the Participant and the Administrator, which agreement must be in writing and signed by the Participant and the Company. Termination of the 2013 Plan will not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to Awards granted prior to the date of such termination.

The Plan will terminate five years following the date it was adopted by the Board, unless sooner terminated by the Board.

C. Board Practices

Terms of Directors and Executive Officers

Our Board of Directors currently consists of five directors, who were elected to serve until their successors are duly elected and qualified. Directors may be elected by shareholders at any general meeting by a majority of votes cast. Each director so elected holds office for the term, if any, as may be specified in the resolution appointing him or until his earlier death, disqualification, resignation or removal. The directors may appoint one or more directors to fill a vacancy on the Board of Directors. We do not have any contracts with our directors providing for benefits upon termination of employment.

Our executive officers are appointed by our Board of Directors. The executive officers shall hold office until their successors are duly elected and qualified, but any officer elected or appointed by the directors may be removed at any time, with or without cause, by a majority vote of the directors.

Board Composition and Committees

The Board has established three standing committees: the Audit Committee, the Compensation Committee and the Governance and Nominating Committee. Each of the Audit Committee, Compensation Committee and Governance and Nominating Committee are comprised entirely of independent directors. From time to time, the Board may establish other committees. The Board has adopted a written charter for each of the Committees which are available on the corporate governance page of our website at www.chinacnit.com. Printed copies of these charters may be obtained, without charge, by contacting the Corporate Secretary, China Information Technology, Inc., 21st Floor, Everbright Bank Building, Zhuzilin, Futian District, Shenzhen, Guangdong 518040, China.

Audit Committee and Audit Committee Financial Expert

Our Audit Committee is currently composed of three members: Messrs. Yunsen Huang, Yong Jiang, and Remington C.H. Hu. Our Board of Directors determined that each member of the Audit Committee meets the independence criteria prescribed by applicable regulation and the rules of the SEC for audit committee membership and is an “independent” director within the meaning of the NASDAQ Marketplace Rules. Each Audit Committee member also meets NASDAQ’s financial literacy requirements. Mr. Hu serves as Chair of the Audit Committee.

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

	•	selecting our independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by our independent auditors;
	•	reviewing with our independent auditors any audit problems or difficulties and management’s response;
	•	reviewing and approving all proposed related-party transactions;
	•	discussing the annual audited financial statements with management and our independent auditors;
	•	reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of significant internal control deficiencies;
	•	annually reviewing and reassessing the adequacy of our Audit Committee charter;
	•	meeting separately and periodically with management and our internal and independent auditors;
	•	reporting regularly to the full Board of Directors; and
	•	such other matters that are specifically delegated to our Audit Committee by our Board of Directors from time to time.

Our Board of Directors has determined that Mr. Hu is the “audit committee financial expert” as such term is defined in Item 407(d) of Regulation S-K promulgated by the SEC and also meets NASDAQ’s financial sophistication requirements.

Compensation Committee

Our Compensation Committee is currently composed of three members: Messrs. Yunsen Huang, Yong Jiang, and Remington C.H. Hu, each of whom is “independent” within the meaning of the NASDAQ Marketplace Rules. Mr. Huang serves as Chair of the Compensation Committee.

The purpose of our Compensation Committee discharge the responsibilities of the Company’s Board of Directors relating to compensation of the Company’s executives, to produce an annual report on executive compensation for inclusion in the Company’s proxy statement, if required, and to oversee and advise the Board on the adoption of policies that govern the Company’s compensation programs, including stock and benefit plans. Our chief executive officer may not be present at any Compensation Committee meeting during which his compensation is deliberated. The Compensation Committee is responsible for, among other things:

	•	Reviewing and approving the compensation structure for corporate officers at the level of corporate vice president and above;

	•	Overseeing an evaluation of the performance of the Company’s executive officers and approve the annual compensation, including salary, bonus, incentive and equity compensation, for the executive officers;

	•	Reviewing and approving chief executive officer goals and objectives, evaluate chief executive officer performance in light of these corporate objectives, and set chief executive officer compensation consistent with Company philosophy;

	•	Making recommendations to the Board regarding the compensation of board members;

	•	Reviewing and making recommendations concerning long-term incentive compensation plans, including the use of equity-based plans. Except as otherwise delegated by the Board of Directors, the Compensation Committee will act on behalf of the Board of Directors as the “Committee” established to administer equity-based and employee benefit plans, and as such will discharge any responsibilities imposed on the Compensation Committee under those plans, including making and authorizing grants, in accordance with the terms of those plans.

Governance and Nominating Committee

Our Governance and Nominating Committee is currently composed of three members: Messrs. Yunsen Huang, Yong Jiang, and Remington C.H. Hu, each of whom is “independent” within the meaning of the NASDAQ Marketplace Rules. Mr. Jiang serves as Chair of the Governance and Nominating Committee.

The Governance and Nominating Committee assists the Board in identifying individuals qualified to become our directors and in determining the composition of the Board and its committees.

The Governance and Nominating Committee is responsible for, among other things:

	•	identifying and recommending to the Board nominees for election or re-election to the Board, or for appointment to fill any vacancy;
	•	reviewing annually with the Board the current composition of the Board in light of the characteristics of independence, age, skills, experience and availability of service to us;
	•	identifying and recommending to the Board the directors to serve as members of the Board’s committees; and
	•	monitoring compliance with our code of ethics.

The procedures by which stockholders may recommend nominees have not changed materially since last year’s proxy statement.

D. Employees

As of December 31, 2015, we had approximately 190 full-time employees. The following table illustrates the allocation of these employees among the various job functions conducted at our company.

Department		Number of Employees
Software Development		80
Sales & Marketing		40
Administration & Human Resources		10
Finance and Accounting		12
Management		10
Production		20
Project Execution		18
TOTAL		190

We believe that our relationship with our employees is good. Our Chinese 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 required by applicable Chinese law, we have entered into employment contracts with all of our officers, managers and employees.

Our employees in China participate in a state pension scheme organized by Chinese municipal and provincial governments. We are required to contribute to the scheme at rates ranging from 13% to 18% of the average monthly salary. As of the date of this report, we have complied with the regulation and have paid the state pension plan as required by law. In addition, we are required by Chinese law to cover employees in China with various types of social insurance. We have purchased social insurance for all of our employees.

E. Share Ownership

The following table sets forth information regarding beneficial ownership of each class of our voting securities as of April 21, 2016 (i) by each person who is known by us to beneficially own more than 5% of our voting securities; (ii) by each of our officers and directors; and (iii) by all of our officers and directors as a group. Unless otherwise specified, the address of each of the persons set forth below is in care of the Company, 21^stFloor, Everbright Bank Building, Zhuzilin, Shenzhen 518040, China.

Name and Address of Beneficial Owner	Office, If Any	Title of Class	Amount and Nature of Beneficial Ownership⁽¹⁾	Percent of Class⁽²⁾
Officers and Directors
Jiang Huai Lin	Chairman and CEO	Ordinary Shares	15,164,893	37.70%
Zhiqiang Zhao	Director, President and Interim Chief Financial Officer	Ordinary Shares	103,167	*
Zhixiong Huang	Chief Operating Officer	Ordinary Shares	51,142	*
Guangzeng Chen	Chief Technology Officer and Chief Product Officer	Ordinary Shares	5,000	*
Guangyuan Zong	Chief Marketing Officer	Ordinary Shares	80,000	*
Junping Sun	Chief Investment Officer	Ordinary Shares	600,000	1.50%
Yunsen Huang	Director	Ordinary Shares	0	*
Yong Jiang	Director	Ordinary Shares	0	*
Remington C.H. Hu	Director	Ordinary Shares	0	*
All officers and directors as a group (9 persons named above)		Ordinary Shares	16,004,202	39.78%
5% Security Holders
Jiang Huai Lin		Ordinary Shares	15,164,893	37.70%

* Less than 1%

(1)	Beneficial Ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power with respect to our ordinary shares.

(2)	As of April 21, 2016, a total of 40,231,159 ordinary shares are considered to be outstanding pursuant to SEC Rule 13d-3(d)(1). For each Beneficial Owner above, any securities that are exercisable or convertible within 60 days have been included in the denominator.

None of our major shareholders have different voting rights from other shareholders. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our Company.

ITEM 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

Please refer to Item 6 “Directors, Senior Management and Employees—E. Share Ownership.”

B. Related Party Transactions

The following includes a summary of transactions since the beginning of the 2013 fiscal year between us and certain related persons. We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions.

	•	Mr. Lin, the CEO of the Company, provided the Company with RMB5.5 million (US$895,950) of personal loan without charging any interest on December 25, 2013. The due date of such loan was extended to December 26, 2015 and has been fully repaid to Mr. Lin by the end of December, 2015.

	•	iASPEC and Bocom lease office spaces in a building personally owned by Mr. Lin. Consequently, the Company paid Mr. Lin approximately $170,000, $263,915 and $153,101 of rental expenses during the years ended December 31, 2015, 2014 and 2013, respectively. Zhongtian leases office space in a building personally owned by Mr. Lin. Consequently, the Company paid Mr. Lin approximately $ 160,166, $ 67,114 and $ 90,314 of rental expenses during the years ended December 31, 2015, 2014 and 2013, respectively. These amounts are included within discontinued operations.

See also Item 6 “Directors, Senior Management and Employees—B. Compensation.”

C. Interests of Experts and Counsel

Not applicable.

ITEM 8.

FINANCIAL INFORMATION

A. Consolidated Statements and Other Financial Information

Financial Statements

We have appended consolidated financial statements filed as part of this annual report. See Item 18 “Financial Statements.”

Legal Proceedings

We may be subject to legal proceedings, investigations and claims incidental to the conduct of our business from time to time. We are currently not party to any legal or arbitration proceedings, including those relating to bankruptcy, receivership or similar proceedings and those involving any third party, which may have, or have had in the recent past, significant effects on our financial position or profitability.

Dividend Policy

To date, we have not paid any cash dividends on our shares. As a BVI company, we may only declare and pay dividends if our directors are satisfied, on reasonable grounds, that immediately after the distribution (i) the value of our assets will exceed our liabilities and (ii) we will be able to pay our debts as they fall due. We currently anticipate that we will retain any available funds to finance the growth and operation of our business and we do not anticipate paying any cash dividends in the foreseeable future. Additionally, our cash held in foreign countries may be subject to certain control limitations or repatriation requirements, limiting our ability to use this cash to pay dividends.

B. Significant Changes

No significant change has occurred since the date of our consolidated financial statements filed as part of this annual report.

ITEM 9.

THE OFFER AND LISTING

A. Offer and Listing Details

Our ordinary shares are listed on the NASDAQ Global Select Market and trade under the symbol “CNIT.” The following table provides the high and low reported market prices of our ordinary shares as reported by Yahoo! Finance for the periods indicated.

		Closing Prices
		High		Low
*Annual Market Prices*	$		$
2011		5.22		0.63
2012		1.59		0.62
2013		7.23		0.91
2014		7.46		3.43
2015		7.17		0.69

*Quarterly Market Prices*	$		$
1^stQuarter 2014		7.46		4.07
2^ndQuarter 2014		5.64		3.89
3^rdQuarter 2014		5.56		3.92
4^thQuarter 2014		4.48		3.43
1^stQuarter 2015		4.78		3.16
2^ndQuarter 2015		7.17		3.10

		Closing Prices
		High		Low
3^rdQuarter 2015		3.30		1.28
4^thQuarter 2015		2.27		0.69
1^stQuarter 2016		1.72		1.05

*Monthly Market Prices*
October 2015	$	1.06	$	0.88
November 2015		1.41		0.69
December 2015		2.27		1.05
January 2016		1.72		1.05
February 2016		1.29		1.11
March 2016		1.56		1.23
April 2016 (up to April 21, 2016)		1.66		1.41

B. Plan of Distribution

Not applicable.

C. Markets

See our disclosures above under “A. Offer and Listing Details.”

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

ITEM 10.

ADDITIONAL INFORMATION

A. Share Capital

Not applicable.

B. Memorandum and Articles of Association

The following represents a summary of certain key provisions of our memorandum and articles of association. The summary does not purport to be a summary of all of the provisions of our memorandum and articles of association and of all relevant provisions of BVI law governing the management and regulation of BVI companies.

Register

We were incorporated in the BVI on June 18, 2012 under the BVI Act. Our memorandum of association authorizes the issuance of up to 100,000,000 ordinary shares of a nominal or par value of US$0.01 each, which may be issued from time to time at the discretion of the Board of Directors without shareholder approval. Our Board of Directors is authorized to issue these shares in different classes and series and, with respect to each class or series, to determine the designations, powers, preferences, privileges and other rights, including dividend rights, conversion rights, terms of redemption and liquidation preferences, any or all of which may be greater than the powers and rights associated with the ordinary shares, at such times and on such other terms as they think proper.

Objects and Purposes

Our memorandum of association grants us full power and capacity to carry on or undertake any business or activity and do any act or enter into any transaction not prohibited by the BVI Act or any other BVI legislation.

Directors

Directors have the powers necessary for managing, and for directing and supervising our business and affairs, including general powers to borrow on behalf of the Company.

Our articles of association provide that a director who is interested in a transaction entered into or to be entered into by us may: (i) vote on a matter relating to the transaction; (ii) attend a meeting of directors at which a matter relating to the transaction arises and be included among the directors present at the meeting for the purposes of a quorum; and (iii) sign a document on our behalf, or do any other thing in his capacity as a director, that relates to the transaction. Additionally, our articles of association provide that no director shall be disqualified by his office from contracting with us either as a buyer, seller or otherwise, nor shall any such contract or arrangement entered into by or on our behalf in which any director shall be in any way interested be voided, nor shall any director so contracting or being so interested be liable to account to us for any profit realized by any such contract or arrangement, by reason of such director holding that office or by reason of the fiduciary relationship thereby established, provided such director shall, immediately after becoming aware of the fact that he is interested in a transaction entered into or to be entered into by us, disclose such interest to our Board of Directors. A director is not required to make such a disclosure if: (i) the transaction or proposed transaction is between us and the director, and (ii) the transaction or proposed transaction is or is to be entered into in the ordinary course of our business and on usual terms and conditions. A disclosure to our Board to the effect that a director is a member, director, officer or trustee of another named company or other person and is to be regarded as interested in any transaction which may, after the date of the entry or disclosure, be entered into with that company or person, is a sufficient disclosure of interest in relation to that transaction. Such a disclosure is not made to our Board of directors unless it is made or brought to the attention of every director on the Board. Subject to Section 125(1) of the BVI Act, the failure by a director to comply with this provision does not affect the validity of a transaction entered into by the director or the Company.

Pursuant to our articles of association, a director shall not require a share qualification, but nevertheless shall be entitled to attend and speak at any meeting of the directors and meeting of the shareholders and at any separate meeting of the holders of any class of our shares. In addition, the remuneration of directors (whether by way of salary, commission, participation in profits or otherwise) in respect of services rendered or to be rendered in any capacity to us (including to any company in which we may be interested) shall be fixed by resolution of directors or shareholders. The directors may also be paid such travelling, hotel and other expenses properly incurred by them in attending and returning from meetings of the directors, or any committee of the directors or meetings of the shareholders, or in connection with our business as shall be approved by resolution of directors or of shareholders.

Rights and Obligations of Shareholders

Dividends. Subject to the BVI Act, the directors may, by resolution of directors, authorize a distribution (including a dividend) by us to shareholders at such time and of such an amount as they think fit if they are satisfied, on reasonable grounds, that immediately after the distribution, the value of our assets exceeds our liabilities and we are able to pay our debts as they fall due. Any distribution payable in respect of a share which has remained unclaimed for three years from the date when it became due for payment shall, if the board of the directors so resolves, be forfeited and cease to remain owing by us. The directors may, before authorizing any distribution, set aside out of our profits such sum as they think proper as a reserve fund, and may invest the sum so set apart as a reserve fund upon such securities as they may select. The holder of each ordinary share has the right to an equal share in any distribution paid by us.

Voting Rights. Each ordinary share confers on the shareholder the right to one vote at a meeting of the shareholders or on any resolution of shareholders on all matters before our shareholders.

Winding Up. The holder of each ordinary share is entitled to an equal share in the distribution of the surplus assets of us on a winding up.

Redemption. The directors may, on behalf of the Company, purchase, redeem or otherwise acquire any of our own shares for such consideration as the directors consider fit, and either cancel or hold such shares as treasury shares. Shares may be purchased or otherwise acquired in exchange for newly issued shares. The directors shall not, unless permitted pursuant to the BVI Act, purchase, redeem or otherwise acquire any of our own shares unless immediately after such purchase, redemption or other acquisition, the value of our assets exceeds our liabilities and we are able to pay our debts as they fall due.

Changes in Rights of Shareholders

Under our memorandum and articles of association, if at any time the shares which we are authorized to issue are divided into different classes of shares, the rights attaching to any class may only be changed by a consent in writing of the holders of a majority of the issued shares of that class or with the sanction of a resolution passed by the holders of at least a majority of the shares of the class present in person or by proxy at a separate general meeting of the holders of the shares of the class. At such a separate general meeting, the quorum shall be at least one person holding or representing by proxy a majority of the issued shares of the class.

Meetings

Under the BVI Act, there is no requirement for an annual meeting of shareholders. Under our articles of association, we are required to hold an annual meeting of shareholders at the time designated by the Board of Directors. Our annual shareholders’ meetings may be held in such place within or outside the BVI as our Board of Directors considers appropriate.

Our Board of Directors shall call a shareholders’ meeting if requested in writing to do so by shareholders entitled to exercise at least 10% of the voting rights in respect of the matter for which the meeting is being requested.

Our Board of Directors shall give not less than 10 days and not more than 60 days prior written notice of a shareholders’ meeting to those persons whose names on, either (a) the date the notice is given or (b) on a date fixed by the directors as the record date (which must be a date that is not less than 10 days nor more than 60 days prior to the meeting), appear as shareholders in our register and are entitled to vote at the meeting. The inadvertent failure of the directors to give notice of a meeting to a shareholder, or the fact that a shareholder has not received notice, does not invalidate the meeting.

Our articles of association provide that a meeting of shareholders is duly constituted if, at the commencement of the meeting, there are shareholders present in person or by proxy representing not less than a majority of the votes of the shares or class or series of shares entitled to vote on resolutions of shareholders to be considered at the meeting. A shareholder may be represented at a meeting of shareholders by a proxy (who need not be a shareholder) who may speak and vote on behalf of the shareholder. A written instrument giving the proxy such authority must be produced at the place appointed for such purpose. A shareholder shall be deemed to be present at the meeting if he participates by telephone or other electronic means and all shareholders participating in the meeting are able to hear each other.

Holders of our ordinary shares are entitled to one vote for each share held of record on all matters at all meetings of shareholders, except at a meeting where holders of a particular class or series of shares are entitled to vote separately. Our shareholders have no cumulative voting rights. Our shareholders take action by a majority of votes cast, unless otherwise provided by the BVI Act or our memorandum and articles of association.

Limitations on Ownership of Securities

There are no limitations on the right of non-residents or foreign persons to own our securities imposed by BVI law or by our memorandum and articles of association.

Change in Control of Company

Our Board of Directors is authorized to issue our ordinary shares in different classes and series and, with respect to each class or series, to determine the designations, powers, preferences, privileges and other rights, including dividend rights, conversion rights, terms of redemption and liquidation preferences, any or all of which may be greater than the powers and rights associated with the ordinary shares, at such times and on such other terms as they think proper. Such power could be used in a manner that would delay, defer or prevent a change of control of our Company.

Ownership Threshold

There are no provisions governing the ownership threshold above which shareholder ownership must be disclosed imposed by BVI law or by our memorandum and articles of association.

Changes in Capital

Subject to the provisions of our amended and restated memorandum and articles of association, the BVI Act and the rules of NASDAQ, our unissued shares shall be at the disposal of the directors who may, without prejudice to any rights previously conferred on the holders of any existing shares or class or series of shares, offer, allot, grant options over or otherwise dispose of the shares to such persons, at such times and upon such terms and conditions as we may by resolution of directors determine.

Subject to the provisions of the amended and restated memorandum of association relating to changes in the rights of shareholders and the powers of directors in relation to shareholders, we may, by a resolution of members, amend our memorandum of association to increase or decrease the number of ordinary shares authorized to be issued.

Differences in Corporate Law

BVI law differs from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of the significant differences between the provisions of BVI law applicable to us and the laws applicable to companies incorporated in the United States and their shareholders.

Protection for Minority Shareholders

Under the laws of most U.S. jurisdictions, majority and controlling shareholders of a company generally have certain “fiduciary” responsibilities to the minority shareholders. Corporate actions taken by majority and controlling shareholders which are unreasonable and materially detrimental to the interests of minority shareholders may be declared null and void. Minority shareholders may have less protection for their rights under BVI law than they would have under U.S. law.

Powers of Directors

Unlike most U.S. jurisdictions, the directors of a BVI company, subject in certain cases to court approval but without shareholders’ approval, may implement the sale, transfer, exchange or disposition of any Company asset, property, part of the business, or securities, with the exception that shareholder approval is required for the disposition of over 50% in the value of our total assets.

Conflict of Interests

Similar to the laws of most U.S. jurisdictions, when a director becomes aware of the fact that he has an interest in a transaction which we are to enter into, he must disclose it to our Board. However, with sufficient disclosure of interest in relation to that transaction, the director who is interested in a transaction entered into or to be entered into by us may (i) vote on a matter relating to the transaction; (ii) attend a meeting of directors at which a matter relating to the transaction arises and be included in the quorum; and (iii) sign a document on behalf of us, or do any other thing in his capacity as a director, that relates to the transaction.

Written Consent and Cumulative Voting

Similar to the laws of most U.S. jurisdictions, under BVI law, shareholders are permitted to approve matters by way of written resolution in place of a formal meeting. BVI law does not make a specific reference to cumulative voting, and our current articles of association have no provisions authorizing cumulative voting.

Takeover Provisions

Some provisions of our memorandum and articles of association may discourage, delay or prevent a change in control of our company or management that shareholders may consider favorable. For instance, our Board of Directors is authorized to issue ordinary shares in different classes and series and, with respect to each class or series, to determine the designations, powers, preferences, privileges and other rights, including dividend rights, conversion rights, terms of redemption and liquidation preferences, any or all of which may be greater than the powers and rights associated with the ordinary shares previously issued, at such times and on such other terms as they think proper.

Shareholder’s Access to Corporate Records

Under the BVI Act, a member of a business company may, on giving written notice to a company, inspect the company’s memorandum and articles, the register of shareholders, the register of directors and the minutes of meetings and resolutions of shareholders and of those classes of shareholders of which he is a member.

In addition, our articles of association allow any shareholder of record who owns at least 15% of our outstanding shares, upon at least five days’ written demand, to inspect, during usual business hours, the books of account and all financial records, to make copies of records, and to conduct an audit of such records at their own cost.

Indemnification

BVI law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the BVI courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime.

Under our articles of association, subject to the BVI Act, we shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director or officer (excluding the auditors), or who is or was serving at our request as a director or officer of another company, partnership, joint venture, trust or other enterprise. Each such indemnified person shall be indemnified out of our assets against any liability, action, proceeding, claim, demand, judgments, fines, costs, damages or expenses, including legal expenses, whatsoever which they or any of them may reasonably incur as a result of any act or failure to act in carrying out their functions other than such liability that they may incur by reason of their own actual fraud or willful default. In addition, to be entitled to indemnification, an indemnified person must not have acted in such a manner as to have incurred the liability by virtue of having committed actual fraud or willful default but no person shall be found to have committed actual fraud or willful default unless or until a court of competent jurisdiction shall have made a finding to that effect.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us under the foregoing provisions, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Mergers and Similar Arrangements

Under the laws of the BVI, two or more companies may merge or consolidate in accordance with Section 170 of the BVI Act. A merger means the merging of two or more constituent companies into one of the constituent companies, and a consolidation means the uniting of two or more constituent companies into a new company. In order to merge or consolidate, the directors of each constituent company must approve a written plan of merger or consolidation which must be authorized by a resolution of shareholders.

While a director may vote on the plan even if he has a financial interest in the plan, in order for the resolution to be valid, the material facts of the interest and the director’s relationship to any party to the transaction must be disclosed and the resolution approved (1)without counting the vote or consent of any interested director, or (2)by the unanimous vote or consent of all disinterested directors if the votes or consents of all disinterested directors is insufficient to approve a resolution of directors.

Shareholders not otherwise entitled to vote on the merger or consolidation may still acquire the right to vote if the plan of merger or consolidation contains any provision which, if proposed as an amendment to the memorandum or articles of association, would entitle them to vote as a class or series on the proposed amendment. In any event, all shareholders must be given a copy of the plan of merger or consolidation irrespective of whether they are entitled to vote at the meeting or consent to the written resolution to approve the plan of merger or consolidation.

The shareholders of the constituent companies are not required to receive shares of the surviving or consolidated company but may receive debt obligations or other securities of the surviving or consolidated company, or other assets, or a combination thereof. Further, some or all of the shares of a class or series may be converted into a kind of asset while the other shares of the same class or series may receive a different kind of asset. As such, not all the shares of a class or series must receive the same kind of consideration.

After the plan of merger or consolidation has been approved by the directors and authorized by a resolution of the shareholders, articles of merger or consolidation are executed by each company and filed with the Registrar of Corporate Affairs in the BVI.

Dissenter Rights

A shareholder may dissent from a mandatory redemption of his shares, an arrangement (if permitted by the court), a merger (unless the shareholder was a shareholder of the surviving company prior to the merger and continues to hold the same or similar shares after the merger) and a consolidation. A shareholder properly exercising his dissent rights is entitled to payment in cash of the fair value of his shares.

A shareholder dissenting from a merger or consolidation must object in writing to the merger or consolidation before the vote by the shareholders on the merger or consolidation, unless notice of the meeting was not given to the shareholder. If the merger or consolidation is approved by the shareholders, the company must within 20 days give notice of this fact to each shareholder who gave written objection, and to each shareholder who did not receive notice of the meeting. Such shareholders then have 20 days to give their written election in the form specified by the BVI Act to dissent from the merger or consolidation, provided that in the case of a merger, the 20 days starts when the plan of merger is delivered to the shareholder.

Upon giving notice of his election to dissent, a shareholder ceases to have any rights of a shareholder except the right to be paid the fair value of his shares. As such, the merger or consolidation may proceed in the ordinary course notwithstanding the dissent.

Within seven days of the later of the delivery of the notice of election to dissent and the effective date of the merger or consolidation, the company must make a written offer to each dissenting shareholder to purchase his shares at a specified price that the company determines to be their fair value. The company and the shareholder then have 30 days to agree upon the price. If the company and a shareholder fail to agree on the price within the 30 days, then the company and the shareholder shall each designate an appraiser and these two appraisers shall designate a third appraiser. These three appraisers shall fix the fair value of the shares as of the close of business on the day before the shareholders approved the transaction without taking into account any change in value as a result of the transaction.

Under BVI law, shareholders are not entitled to dissenters’ rights in relation to liquidation.

Shareholders’ Suits

Similar to the laws of most U.S. jurisdictions, BVI law permits derivative actions against its directors. However, the circumstances under which such actions may be brought, and the procedures and defenses available may result in the rights of shareholders of a BVI company being more limited than those of shareholders of a company incorporated and/or existing in the United States.

The courts of the BVI may, on the application of a shareholder of a company, grant leave to that shareholder to bring proceedings in the name and on behalf of that company, or intervene in proceedings to which the company is a party for the purpose of continuing, defending or discontinuing the proceedings on behalf of the company. In determining whether to grant leave, the courts must take into account (1) whether the shareholder is acting in good faith; (2) whether the derivative action is in the interests of the company taking account of the views of the company’s directors on commercial matters; (3) whether the proceedings are likely to succeed; (4) the costs of the proceedings in relation to the relief likely to be obtained; and (5) whether an alternative remedy to the derivative claim is available.

Leave to bring or intervene in proceedings may be granted only if the court is satisfied that (1) the company does not intend to bring, diligently continue or defend, or discontinue the proceedings, as the case may be; or (2)it is in the interests of the company that the conduct of the proceedings should not be left to the directors or to the determination of the shareholders as a whole.

C. Material Contracts

We have not entered into any material contracts other than in the ordinary course of business and other than those described in Item 4 “Information on the Company,” Item 5 “Operating and Financial Review and Prospects—F. Tabular Disclosure of Contractual Obligations,” Item 7 “Major Shareholders and Related Party Transactions,” or filed (or incorporated by reference) as exhibits to this annual report or otherwise described or referenced in this annual report.

D. Exchange Controls

BVI Exchange Controls

There are no material exchange controls restrictions on payment of dividends, interest or other payments to the holders of our ordinary shares or on the conduct of our operations in the BVI, where we were incorporated. There are no material BVI laws that impose any material exchange controls on us or that affect the payment of dividends, interest or other payments to nonresident holders of our ordinary shares. BVI law and our memorandum and articles of association do not impose any material limitations on the right of non-residents or foreign owners to hold or vote our ordinary shares.

PRC Exchange Controls

Under the Foreign Currency Administration Rules promulgated in 1996 and revised in 1997, and various regulations issued by SAFE and other relevant PRC government authorities, RMB is convertible into other currencies without prior approval from SAFE only to the extent of current account items, such as trade related receipts and payments, interest and dividends and after complying with certain procedural requirements. The conversion of RMB into other currencies and remittance of the converted foreign currency outside PRC for the purpose of capital account items, such as direct equity investments, loans and repatriation of investment, requires the prior approval from SAFE or its local office. Payments for transactions that take place within China must be made in RMB. Unless otherwise approved, PRC companies must repatriate foreign currency payments received from abroad. Foreign-invested enterprises may retain foreign exchange in accounts with designated foreign exchange banks subject to a cap set by SAFE or its local office. Unless otherwise approved, domestic enterprises must convert all of their foreign currency proceeds into RMB.

On October 21, 2005, SAFE issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fund-raising and Reverse Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, which became effective as of November 1, 2005. According to the notice, a special purpose company, or SPV, refers to an offshore company established or indirectly controlled by PRC residents for the special purpose of carrying out financing of their assets or equity interest in PRC domestic enterprises. Prior to establishing or assuming control of an SPV, each PRC resident, whether a natural or legal person, must complete the overseas investment foreign exchange registration procedures with the relevant local SAFE branch. The notice applies retroactively. As a result, PRC residents who have established or acquired control of these SPVs that previously made onshore investments in China were required to complete the relevant overseas investment foreign exchange registration procedures by March 31, 2006. These PRC residents must also amend the registration with the relevant SAFE branch in the following circumstances: (i) the PRC residents have completed the injection of equity investment or assets of a domestic company into the SPV; (ii) the overseas funding of the SPV has been completed; (iii) there is a material change in the capital of the SPV. Under the rules, failure to comply with the foreign exchange registration procedures may result in restrictions being imposed on the foreign exchange activities of the violator, including restrictions on the payment of dividends and other distributions to its offshore parent company, and may also subject the violators to penalties under the PRC foreign exchange administration regulations.

On August 29, 2008, SAFE promulgated Circular 142 which regulates the conversion by a foreign-funded enterprise of foreign currency into RMB by restricting how the converted RMB may be used. In addition, SAFE promulgated Circular 45 on November 9, 2011 in order to clarify the application of Circular 142. Under Circular 142 and Circular 45, the RMB capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the applicable government authority and may not be used for equity investments within the PRC. In addition, SAFE strengthened its oversight of the flow and use of the RMB capital converted from foreign currency registered capital of foreign-invested enterprises. The use of such RMB capital may not be changed without SAFE’s approval, and such RMB capital may not in any case be used to repay RMB loans if the proceeds of such loans have not been used. Violations of Circular 142 and Circular 45 could result in severe penalties, such as heavy fines as set out in the relevant foreign exchange control regulations

SAFE also promulgated Circular 59 in November 2010, which tightens the regulation over settlement of net proceeds from overseas offerings and requires, among other things, the authenticity of settlement of net proceeds from offshore offerings to be closely examined and the net proceeds to be settled in the manner described in the offering documents In May, 2013 SAFE promulgated Circular 21 which provides for and simplifies the operational steps and regulations on foreign exchange matters related to direct investment by foreign investors, including foreign exchange registration, account opening and use, receipt and payment of funds, and settlement and sales of foreign exchange.

E. Taxation

The following is a general summary of certain material BVI and U.S. federal income tax considerations. The discussion is not intended to be, nor should it be construed as, legal or tax advice to any particular shareholder or prospective shareholder. The discussion is based on laws and relevant interpretations thereof in effect as of the date hereof, all of which are subject to change or different interpretations, possibly with retroactive effect.

BVI Taxation

The BVI does not impose a withholding tax on dividends paid to holders of our ordinary shares, nor does the BVI levy any capital gains or income taxes on us. Further, a holder of our ordinary shares who is not a resident of the BVI is exempt from the BVI income tax on dividends paid with respect to the ordinary shares. Holders of ordinary shares are not subject to the BVI income tax on gains realized on the sale or disposition of the ordinary shares.

Our ordinary shares are not subject to transfer taxes, stamp duties or similar charges in the BVI. However, as a company incorporated under the BVI Act, we are required to pay the BVI government an annual license fee based on the number of shares we are authorized to issue.

There is no income tax treaty or convention currently in effect between the United States and the BVI.

PRC Taxation

We are a holding company incorporated in the BVI, which indirectly holds our equity interests in our PRC operating subsidiaries. The EIT Law and its implementation rules, both of which became effective as of January 1, 2008, provide that a PRC enterprise is subject to a standard income tax rate of 25% and China-sourced income of foreign enterprises, such as dividends paid by a PRC subsidiary to its overseas parent, will normally be subject to PRC withholding tax at a rate of 10%, unless there are applicable treaties between the overseas parent’s jurisdiction of incorporation and China to reduce such rate.

Under the Arrangement between the Mainland and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, or the Double Taxation Arrangement, effective as of January 1, 2007, such dividend withholding tax rate is reduced to 5% if a Hong Kong resident enterprise owns over 25% of the PRC company distributing the dividends. Under the aforesaid arrangement, any dividends that our PRC operating subsidiaries pay to their Hong Kong holding companies may be subject to a withholding tax at the rate of 5% if they are not considered to be a PRC “resident enterprise” as described below. However, if the Hong Kong holdings companies are not considered to be the “beneficial owner” of such dividends under the Notice Regarding Interpretation and Recognition of Beneficial Owners under Tax Treaties promulgated by the State Administration of Taxation on October 27, 2009 (and not a PRC “resident enterprise”), such dividends would be subject to the withholding tax rate of 10%. The withholding tax rate of 5% or 10% applicable will have a significant impact on the amount of dividends to be received by us and ultimately by shareholders.

According to the Notice Regarding Interpretation and Recognition of Beneficial Owners under Tax Treaties, the term “beneficial owner” refers to a person who has the right to own and dispose of the income and the rights or properties generated from the said income. The “beneficial owner” may be an individual, a company or any other organization which is usually engaged in substantial business operations. A conduit company is not a “beneficial owner.” The term “conduit company” refers to a company which is usually established for purposes of dodging or reducing taxes, and transferring or accumulating profits. Such a company is only registered in the country of domicile to satisfy the organizational form as required by law, but it does not engage in such substantial business operations as manufacturing, distribution and management. As our Hong Kong holding companies are controlling companies and are not engaged in substantial business operations, they could be considered as conduit companies by tax authorities and we do not expect them to be a beneficial owner.

It remains unclear whether the PRC tax authorities would require or permit our overseas registered entities to be treated as PRC resident enterprises. We do not currently consider our company to be a PRC resident enterprise. However, 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 worldwide taxable income as well as PRC enterprise income tax reporting obligations. In our case, this would mean that income such as interest on offering proceeds and non-China source income would be subject to PRC enterprise income tax at a rate of 25%. Second, although under the EIT Law and its implementing rules dividends paid to us from our PRC subsidiaries would qualify as “tax-exempt income,” we cannot guarantee that such dividends will not be subject to a 10% withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax, have not yet issued guidance with respect to the processing of outbound 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 shareholders and with respect to gains derived by our non-PRC shareholders from transferring our shares.

U.S. Federal Income Taxation

The following is a discussion of certain material U.S. federal income tax consequences of the acquisition, ownership and disposition of our ordinary shares. It does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a particular person’s situation. The discussion applies only to holders that hold their ordinary shares as capital assets (generally property held for investment) within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended, or the Code. This discussion is based on the Code, income tax regulations promulgated thereunder, judicial positions, published positions of the Internal Revenue Service, or the IRS, and other applicable authorities, all as in effect as of the date hereof and all of which are subject to change, possibly with retroactive effect. This discussion is general in nature and is not exhaustive of all possible tax considerations, nor does the discussion address any state, local or foreign tax considerations or any U.S. tax considerations (e.g., estate or gift tax) other than U.S. federal income tax considerations, that may be applicable to particular holders.

This discussion does not address all aspects of U.S. federal income taxation that may be relevant in light of particular circumstances, nor does it address the U.S. federal income tax consequences to persons who are subject to special rules under U.S. federal income tax law, including:

	•	banks, insurance companies or other financial institutions;
	•	persons subject to the alternative minimum tax;
	•	tax-exempt organizations;
	•	controlled foreign corporations, passive foreign investment companies and corporations that accumulate earnings to avoid United States federal income tax;
	•	certain former citizens or long-term residents of the United States;
	•	dealers in securities or currencies;
	•	traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;
	•	persons that own, or are deemed to own, more than five percent of our capital stock;
	•	holders who acquired our stock as compensation or pursuant to the exercise of a stock option; or
	•	persons who hold our shares as a position in a hedging transaction, “straddle,” or other risk reduction transaction.

For purposes of this discussion, a U.S. holder is (i) an individual who is a citizen or resident of the United States for U.S. federal income tax purposes; (ii) a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States (or treated as such under applicable U.S. tax laws), any state thereof, or the District of Columbia; (iii) an estate the income of which is subject to U.S. federal income tax regardless of its source; or (iv) a trust if (a) a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (b) it has a valid election in effect under applicable law and regulations to be treated as a U.S. person for U.S. federal income tax purposes. A non-U.S. holder is a holder that is neither a U.S. holder nor a partnership or other entity classified as a partnership for U.S. federal income tax purposes.

In the case of a partnership or entity classified as a partnership for U.S. federal income tax purposes, the U.S. federal income tax treatment of a partner generally will depend on the status of the partner and the activities of the partnership. Partners of partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them of the merger or of the ownership and disposition of our ordinary shares.

Because of the redomestication transaction in 2012 by which CNIT, a British Virgin Islands corporation, became the parent of our group, under Section 7874 of the Code, CNIT is treated for U.S. federal tax purposes as a U.S. corporation and, among other consequences, is subject to U.S. federal income tax on its worldwide income. This discussion assumes that Section 7874 of the Code continues to apply to treat CNIT as a U.S. corporation for all purposes under the Code. If, for some reason (e.g., future repeal of Section 7874 of the Code), CNIT were no longer treated as a U.S. corporation under the Code, the U.S. federal income tax consequences described herein could be materially and adversely affected.

U.S. Federal Income Tax Consequences for U.S. Holders

Distributions

We do not currently anticipate paying distributions on our ordinary shares. In the event that distributions are paid, however, the gross amount of such distributions will be included in the gross income of the U.S. holder as dividend income on the date of receipt to the extent that the distribution is paid out of current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Such dividends will be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations. Dividends received by non-corporate U.S. holders, including individuals, may be subject to reduced rates of taxation under current law. A U.S. holder may be eligible to claim a foreign tax credit with respect to any PRC withholding tax imposed on dividends paid by us. However, the foreign tax credit rules are complex, and their application in connection with Section 7874 of the Code and the Agreement Between the Government of the United States of America and the Government of the People’s Republic of China for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income, or the U.S.-PRC Tax Treaty, is not entirely clear at this time. U.S. holders should consult their own tax advisors with respect to any benefits they may be entitled to under the foreign tax credit rules and the U.S.-PRC Tax Treaty.

To the extent that dividends paid on our ordinary shares exceed current and accumulated earnings and profits, the distributions will be treated first as a tax-free return of tax basis on our ordinary shares, and to the extent that the amount of the distribution exceeds tax basis, the excess will be treated as gain from the disposition of those ordinary shares. Because Section 7874 of the Code has applied to treat CNIT as a U.S. corporation only since our redomestication in 2012, we may not be able to demonstrate to the IRS the extent to which a distribution on our ordinary shares exceeds our current and accumulated earnings and profits (as determined under U.S. federal income tax principles), in which case all of such distribution will be treated as a dividend for U.S. federal income tax purposes.

Sale or Other Disposition

U.S. holders of our ordinary shares will recognize taxable gain or loss on any sale, exchange, or other taxable disposition of ordinary shares equal to the difference between the amounts realized for the ordinary shares and the U.S. holder’s tax basis in the ordinary shares. This gain or loss generally will be capital gain or loss. Under current law, non-corporate U.S. holders, including individuals, are eligible for reduced tax rates if the ordinary shares have been held for more than one year. The deductibility of capital losses is subject to limitations. A U.S. holder may be eligible to claim a foreign tax credit with respect to any PRC withholding tax imposed on gain from the sale or other disposition of ordinary shares. However, the foreign tax credit rules are complex, and their application in connection with Section 7874 of the Code and the U.S.-PRC Tax Treaty is not entirely clear at this time. U.S. holders should consult their own tax advisors with respect to any benefits they may be entitled to under the foreign tax credit rules and the U.S.-PRC Tax Treaty.

Unearned Income Medicare Contribution

Certain U.S. holders who are individuals, trusts or estates are required to pay an additional 3.8% Medicare tax on, among other things, dividends on and capital gains from the sale or other disposition of shares of stock for taxable years beginning after December 31, 2012. U.S. holders should consult their own advisors regarding the effect, if any, of this legislation on their ownership and disposition of our ordinary shares.

U.S. Federal Income Tax Consequences for Non-U.S. Holders

Distributions

The rules applicable to non-U.S. holders for determining the extent to which distributions on our ordinary shares, if any, constitute dividends for U.S. federal income tax purposes are the same as for U.S. holders. See “–U.S. Federal Income Tax Consequences for U.S. Holders– Distributions.”

Any dividends paid to a non-U.S. holder by us are treated as income derived from sources within the United States and generally will be subject to U.S. federal income tax withholding at a rate of 30% of the gross amount of the dividends, or at a lower rate provided by an applicable income tax treaty if non-U.S. holders provide proper certification of eligibility for the lower rate (usually on IRS Form W-8BEN or Form W-8BEN-E). Dividends received by a non-U.S. holder that are effectively connected with such holder’s conduct of a U.S. trade or business (and, if an income tax treaty applies, are attributable to a permanent establishment maintained by the non-U.S. holder in the U.S.) are exempt from such withholding tax, provided that applicable certification requirements are satisfied. In such case, however, non-U.S. holders will be subject to U.S. federal income tax on such dividends, net of certain deductions, at the rates applicable to U.S. persons. In addition, corporate non-U.S. holders may be subject to an additional branch profits tax equal to 30% or such lower rate as may be specified by an applicable tax treaty on dividends received that are effectively connected with the conduct of a trade or business in the United States.

If non-U.S. holders are eligible for a reduced rate of U.S. withholding tax pursuant to an applicable income tax treaty, such non-U.S. holders may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS.

Sale or Other Disposition

Except as described below for a reduced rate of U.S. withholding tax pursuant to an applicable income tax treaty, any gain realized by a non-U.S. holder upon the sale or other disposition of our ordinary shares generally will not be subject to U.S. federal income tax unless:

	•	the gain is effectively connected with the conduct of a trade or business in the United States by such non- U.S. holder, and, if an income tax treaty applies, is attributable to a permanent establishment maintained by such non- U.S. holder in the U.S.;
	•	the non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of the disposition, and certain other conditions are met; or
	•	CNIT is or has been a “U.S. real property holding corporation,” or USRPHC, for U.S. federal income tax purposes at any time during the shorter of the five-year period ending on the date of disposition or the period during which the holder has held our ordinary shares.

Non-U.S. holders whose gain is described in the first bullet point above will be subject to U.S. federal income tax on the gain derived from the sale, net of certain deductions, at the rates applicable to U.S. persons. Corporate non-U.S. holders whose gain is described in the first bullet point above may also be subject to the branch profits tax described above at a 30% rate or lower rate provided by an applicable income tax treaty. Individual non-U.S. holders described in the second bullet point above will be subject to a flat 30% U.S. federal income tax rate on the gain derived from the sale, which may be offset by U.S.-source capital losses, even though such non-U.S. holders are not considered to be residents of the United States.

A corporation will be a USRPHC if the fair market value of its U.S. real property interests equals or exceeds 50 percent of the aggregate of its real property interests (U.S. and non-U.S.) and its assets used or held for use in a trade or business. Because we do not currently own significant U.S. real property, we believe that we are not currently and will not become a USRPHC. However, because the determination of whether we are a USRPHC depends on the fair market value of our U.S. real property relative to the fair market value of our other business assets, there can be no assurance that we will not become a USRPHC in the future. Even if we become a USRPHC, however, as long as our ordinary shares are regularly traded on an established securities market, such ordinary shares will be treated as U.S. real property interests only if a non-U.S. holder actually or constructively holds more than 5% of such regularly traded ordinary shares at any time during the applicable period that is specified in the Code.

Foreign Account Tax Compliance

The Foreign Account Tax Compliance provisions of the Hiring Incentives to Restore Employment Act (generally referred to as “FATCA”), when applicable, will impose a U.S. federal withholding tax of 30% on certain “withholdable payments” (generally certain U.S.-source income, including dividends, and the gross proceeds from the sale or other disposition of assets producing U.S. source dividends or interest ) to foreign financial institutions and other non-U.S. entities that fail to comply with certain certification and information reporting (generally relating to ownership by U.S persons of interests in or accounts with those entities). The obligation to withhold under FATCA applies to, among other items, (i) U.S.-source dividend income that is paid on or after July 1, 2014 and (ii) to gross proceeds from the disposition of property that can produce U.S.-source dividends paid on or after January 1, 2017. Non-U.S. holders should consult their tax advisors concerning application of FATCA to our ordinary shares in their particular circumstances.

Information Reporting and Backup Withholding

Payments of dividends or of proceeds on the disposition of stock made to a holder of our ordinary shares may be subject to information reporting and backup withholding at a current rate of 28% unless such holder provides a correct taxpayer identification number on IRS Form W-9 (or other appropriate withholding form) or establishes an exemption from backup withholding, for example by properly certifying the holder’s non-U.S. status on a Form W-8BEN, Form W-8BEN-E or another appropriate version of IRS Form W-8. Payments of dividends to holders must generally be reported annually to the IRS, along with the name and address of the holder and the amount of tax withheld, if any. A similar report is sent to the holder. Pursuant to applicable income tax treaties or other agreements, the IRS may make these reports available to tax authorities in the holder’s country of residence.

Backup withholding is not an additional tax; rather, the U.S. income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund or credit may generally be obtained from the IRS, provided that the required information is furnished to the IRS in a timely manner.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

H. Documents on Display

We have filed this annual report on Form 20-F with the SEC under the Exchange Act. Statements made in this report as to the contents of any document referred to are not necessarily complete. With respect to each such document filed as an exhibit to this report, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference.

We are subject to the informational requirements of the Exchange Act as a foreign private issuer and file reports and other information with the SEC. Reports and other information filed by us with the SEC, including this report, may be inspected and copied at the public reference room of the SEC at 100 F Street, N.E., Washington D.C. 20549. You can also obtain copies of this report by mail from the Public Reference Section of the SEC, 100 F. Street, N.E., Washington D.C. 20549, at prescribed rates. Additionally, copies of this material may be obtained from the SEC’s Internet site at http://www.sec.gov. The SEC’s telephone number is 1-800-SEC-0330.

As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.

I. Subsidiary Information

Not applicable.

ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

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 of long-term debt outstanding as of December 31, 2015 and 2014 was $0 million and $0.2 million, respectively. A hypothetical 1.0% increase in the annual interest rates for all of our credit facilities under which we had outstanding borrowings at December 31, 2015 would decrease net income before income taxes by approximately $0.06million, or less than 1% for the year ended December 31, 2015. Management monitors the banks’ prime rates in conjunction with our cash requirements to determine the appropriate level of debt balances relative to other sources of funds. We have not entered into any hedging transactions in an effort to reduce our exposure to interest rate risk.

Foreign Exchange Risk

While our reporting currency is the U.S. dollar, 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 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 $3.74 million based on our outstanding revenues, costs and expenses, assets and liabilities denominated in RMB as of December 31, 2015. As of December 31, 2015, our accumulated other comprehensive income was $24.55 million. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk.

The value of RMB against the U.S. dollar and 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.

Inflation

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.

ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

A. Debt Securities

Not applicable.

B. Warrants and Rights

Not applicable.

C. Other Securities

Not applicable.

D. American Depositary Shares

We do not have any American Depositary Shares.

PART II

ITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITIES HOLDERS AND USE OF PROCEEDS

None.

ITEM 15.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

As required by Rule 13a-15(e), our management has carried out an evaluation, with the participation and under the supervision of our Chief Executive Officer, Mr. Jiang Huai Lin and our Interim Chief Financial Officer, Mr. Zhiqiang Zhao, of the effectiveness of the design and operation of our disclosure controls and procedures, as of December 31, 2015. Based upon, and as of the date of this evaluation, Mr. Lin and Mr. Zhao, determined that, as of December 31, 2015, our disclosure controls and procedures were not effective due to the material weaknesses in our internal control over financial reporting, which are described below.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management 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 Interim 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:

	(1)	pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

	(2)	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and

	(3)	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2015. 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, as a result of the material weaknesses described below, we determined that, as of December 31, 2015, our internal control over financial reporting was not effective based on those criteria.

A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual financial statements will not be prevented or detected in a timely basis.

As a result of our assessment, management identified the following control deficiencies that represent material weaknesses as of December 31, 2015 (1) we have a lack of qualified technical resources in place to properly evaluate significant and complex transactions in accordance with accounting principles generally accepted in the United States of America, and (2) we have insufficient systems and procedures in place to ensure effective supervision and monitoring of our annual financial statement close and preparation process.

Management believes that the material weaknesses identified above were the direct result of the departure of our Controller and Chief Financial Officer during the second half of 2015. We plan to take steps to remediate these material weaknesses as soon as practicable by implementing a plan to improve our internal control over financial reporting including, but not limited to, hiring additional internal staff and/or outside consultants experienced in US GAAP financial reporting as well as in SEC reporting requirements. Our management team will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements.

Our management does not believe that these material weaknesses had a material effect on our financial condition or results of operations or caused our financial statements as of and for the year ended December 31, 2015 to contain a material misstatement.

Attestation Report of the Registered Public Accounting Firm

Because the Company is a non-accelerated filer, this annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.

Changes in Internal Control Over Financial Reporting

Except as described above, there have been no changes in our internal control over financial reporting during the fiscal year ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16A.

AUDIT COMMITTEE FINANCIAL EXPERT

Our board of directors has determined that Mr. Remington C.H. Hu is an “audit committee financial expert” and that he is an “independent director” as defined by the rules and regulations of NASDAQ.

ITEM 16B.

CODE OF ETHICS

Our amended and restated code of ethics conforms to the rules and regulations of NASDAQ. The code of ethics applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer, and addresses, among other things, honesty and ethical conduct, conflicts of interest, compliance with laws, regulations and policies, including disclosure requirements under the federal securities laws, confidentiality, trading on inside information, and reporting of violations of the code. A copy of the code of ethics has been filed as Exhibit 14 to the annual report on Form 10-K of CITN filed on March 31, 2008. Our code of ethics is also posted on the corporate governance page of our website at www.chinacnit.com. During the fiscal year ended December 31, 2015, there were no waivers of our code of ethics.

ITEM 16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth the aggregate fees by categories specified below in connection with services rendered by our principal external auditors for the periods indicated.

		Fiscal Year Ended December 31,
		2015		2014
Audit Fees	$	220,000	$	300,000
Audit-Related Fees		-		9,496
Tax Fees		49,953		41,840
TOTAL	$	269,953	$	351,336

“Audit Fees” consisted of the aggregate fees billed for professional services rendered for the audit of our annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements.

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

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

Our Audit Committee pre-approves all auditing services and permitted non-audit services to be performed for us by our independent auditor, including the fees and terms thereof (subject to the de minimums exceptions for non-audit services described in Section 10A(i)(l)(B) of the Exchange Act that are approved by our Audit Committee prior to the completion of the audit). The percentage of services provided for which we paid audit-related fees, tax fees, or other fees that were approved by our Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X promulgated by the SEC was 100%.

ITEM 16D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

We have not asked for, nor have we been granted, an exemption from the applicable listing standards for our Audit Committee.

ITEM 16E.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Below is a table containing information about purchases made by us or by affiliated purchasers.

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	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2015 – January 31, 2015
February 1, 2015 – February 28, 2015
March 1, 2015 – March 31, 2015
April 1, 2015 – April 30, 2015
May 1, 2015 – May 31, 2015
June 1, 2015 – June 30, 2015	685,000	$4.188	685,000	$7.13 million
July 1, 2015 – July 31, 2015
August 1, 2015 – August 31, 2015
September 1, 2015 – September 30, 2015
October 1, 2015 – October 31, 2015
November 1, 2015 – November 30, 2015
December 1, 2015 – December 31, 2015

(1) In June 2015, we repurchased an aggregate of 685,000 ordinary shares from our employees in a privately negotiated transaction. On November 15, 2014, the Board of Directors authorized a $10 million share repurchase program over the next 12 months, in a manner consistent with market conditions and the interest of shareholders.

ITEM 16F.

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

None.

ITEM 16G.

CORPORATE GOVERNANCE

We are incorporated in the BVI and our corporate governance practices are governed by applicable BVI law, our memorandum and articles of association. In addition, because our ordinary shares are listed on NASDAQ, we are subject to NASDAQ's corporate governance requirements.

NASDAQ Listing Rule 5615(a)(3) permits a foreign private issuer like us to follow home country practices in lieu of certain requirements of Listing Rule 5600, provided that such foreign private issuer discloses in its annual report filed with the SEC each requirement of Rule 5600 that it does not follow and describes the home country practice followed in lieu of such requirement. Our BVI counsel, Maples and Calder, has provided a letter to NASDAQ certifying that under BVI law, we are not required to seek shareholders’ approval of any issuance of securities in connection with a transaction other than a public offering where such transaction involves the issuance of securities representing more than 20% of our total outstanding ordinary shares. In 2015, we followed home country practice with respect to the issuance of more than 20% of our total outstanding ordinary shares in connection with the Registered Direct Offering.

ITEM 16H.

MINE SAFETY DISCLOSURE

Not applicable.

PART III

ITEM 17.

FINANCIAL STATEMENTS

Not applicable.

ITEM 18.

FINANCIAL STATEMENTS

The full text of our audited consolidated financial statements begins on page F-1 of this annual report.

ITEM 19.

EXHIBITS

The list of exhibits in the Exhibit Index to this report is incorporated herein by reference.

SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

Date: April 26, 2016	CHINA INFORMATION TECHNOLOGY, INC.

	/s/ Jiang Huai Lin
	Jiang Huai Lin
	Chief Executive Officer

CHINA INFORMATION TECHNOLOGY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013

Contents	Page(s)
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-3
Consolidated Statements of Loss	F-4
Consolidated Statements of Comprehensive Loss	F-5
Consolidated Statements of Changes in Equity	F-6
Consolidated Statements of Cash Flows	F-7
Notes to Consolidated Financial Statements	F-8 - F-36

-F-1-

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
China Information Technology, Inc.

We have audited the accompanying consolidated balance sheets of China Information Technology, Inc. and its subsidiaries and variable interest entity (the “Company”) as of December 31, 2015 and 2014 and the related consolidated statements of loss, comprehensive loss, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2015 and 2014, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has reported recurring net losses as well as negative cash flows from operating activities. In addition, the Company has a working capital deficit as of December 31, 2015. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ GHP HORWATH, P.C.

Denver, Colorado
April 26, 2016

-F-2-

CHINA INFORMATION TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2015 AND 2014

Expressed in U.S. dollars (Except for share amounts)

	NOTES		December 31			December 31
			2015			2014
ASSETS

CURRENT ASSETS
Cash and cash equivalents		$	3,786,846		$	6,689,848
Restricted cash			868,317			11,153,170
Accounts receivable, net	2(f)		3,180,138			6,786,596
Bills receivable			-			358,273
Advances to suppliers			2,526,607			1,174,148
Inventories	8		2,141,093			3,959,031
Other current assets	16		8,113,861			10,773,310
Assets held for sale-current	9		-			13,032,000
Current assets from discontinued operations	15		13,272,186			30,349,676
TOTAL CURRENT ASSETS			33,889,048			84,276,052

Assets held for sale-noncurrent	9		-			20,270,434
Deposit for purchase of land use rights	11(a)		14,020,901			14,799,874
Property, plant and equipment, net	10		8,372,961			8,921,397
Intangible assets, net	11(b)		2,530,103			3,494,014
Goodwill	6		4,753,454			12,118,817
Deferred tax assets	14		460,237			4,270,042
Other non-current assets	16		2,065,000			-
Non-current assets from discontinued operations	15		-			31,255,179
TOTAL ASSETS		$	66,091,704		$	179,405,809

LIABILITIES AND EQUITY

CURRENT LIABILITIES
Short-term bank loans	12	$	15,272,986		$	51,823,869
Accounts payable			6,943,248			9,440,296
Bills payable	13		1,322,912			23,732,737
Advances from customers			2,651,156			1,183,733
Accrued payroll and benefits			396,026			938,086
Deposit for assets held for sale	9		-			13,032,000
Other payables and accrued expenses	18		4,570,298			6,952,957
Amounts due to related parties	7		141,972			851,262
Income tax payable			3,083,792			3,374,658
Derivative Liability – Warrants	17		1,156,386			-
Current liabilities from discontinued operations	15		-			28,989,570
TOTAL CURRENT LIABILITIES			35,538,776			140,319,168

Long-term bank loans	12		-			214,630
Amounts due to related parties	7		12,359			13,065
Deferred tax liabilities	14		86,332			66,951
Non-current liabilities from discontinued operations	15		-			213,186
TOTAL LIABILITIES			35,637,467			140,827,000

COMMITMENTS AND CONTINGENCIES

Ordinary shares, par $0.01; shares issued and outstanding, 2015; 120,000 shares; 2014: 475,000 shares	20		360,000			1,425,000

EQUITY
Ordinary shares, par $0.01; authorized capital 100,000,000 shares; shares issued and outstanding, 2015: 39,211,364 shares; 2014: 31,768,875 shares	20		416,546			335,271
Treasury stock, 2015: 1,402,448 shares; 2014: 717,448 shares	20		(7,117,500	)		(4,290,000	)
Additional paid-in capital			144,000,767			126,862,049
Reserve			13,812,095			14,755,946
Deficit earnings			(154,979,095	)		(142,910,476	)
Accumulated other comprehensive income			24,551,707			24,755,457
Total equity of the Company			20,684,520			19,508,247
Non-controlling interest			9,409,717			17,645,562
Total equity			30,094,237			37,153,809

TOTAL LIABILITIES AND EQUITY		$	66,091,704		$	179,405,809

The accompanying notes are an integral part of these consolidated financial statements

-F-3-

CHINA INFORMATION TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF LOSS

YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013

Expressed in U.S. dollars (Except for share amounts)

	NOTES		2015			2014			2013
Revenue – Hardware		$	4,953,139		$	22,628,612		$	46,114,109
Revenue – Software			3,200,905			10,366,560			2,923,397
Revenue - System integration			1,012,088			4,822,003			5,422,151
Revenue – Others			1,118,736			817,572			960,174
TOTAL REVENUE			10,284,868			38,634,747			55,419,831

Cost – Hardware			2,910,334			18,769,338			38,829,515
Cost - Software			1,267,834			4,086,717			1,559,861
Cost - System integration			1,745,647			4,480,388			4,733,815
Cost – Others			457,390			809,947			743,972
TOTAL COST			6,381,205			28,146,390			45,867,163

GROSS PROFIT			3,903,663			10,488,357			9,552,668


Administrative expenses			11,223,502			20,837,181			88,699,489
Research and development expenses			3,446,867			1,477,246			2,190,074
Selling expenses			2,661,545			4,240,097			4,893,234
Impairment of property, plant and equipment			4,616,679			827,319			29,976,990
Impairment of intangible assets and goodwill			8,918,427			7,015,727			2,008,249
LOSS FROM OPERATIONS			(26,963,357	)		(23,909,213	)		(118,215,368	)

Subsidy income			501,404			676,159			1,491,280
Gain on sale of assets	9		29,994,037			-			-
Other income (loss), net			776,233			(407,616	)		1,241,666
Interest income			76,716			408,121			447,586
Interest expense			(3,116,777	)		(5,858,770	)		(4,934,479	)
Warrant expense	17		(5,657,988	)		-			-

Loss from continuing operations before income taxes			(4,389,732	)		(29,091,319	)		(119,969,315	)

Income tax (expense ) benefit	14		(4,305,028	)		4,599,559			(1,731,145	)

Loss from continuing operations			(8,694,760	)		(24,491,760	)		(121,700,460	)
Less: Net (income) loss attributable to the non-controlling interest	3		(308,473	)		404,662			3,188,700
NET LOSS ATTRIBUTABLE TO THE COMPANY - continuing operations		$	(9,003,233	)	$	(24,087,098	)	$	(118,511,760	)

Discontinued operations (Note 15)
Income (loss) from discontinued operations before income taxes (including pretax gain on sale of Geo: $7.0 million in 2015 and pretax loss on sale of Zhongtian: $3.3 million in 2015)		$	1,667,853		$	(5,049,880	)	$	(340,167	)
Income tax expense			(168,882	)		(210,658	)		(165,400	)
Income (loss) from discontinued operations			1,498,971			(5,260,538	)		(505,567	)
Less: Net (income) loss attributable to the non-controlling interest			-			116,289			(219,496	)
NET INCOME ( LOSS) ATTRIBUTABLE TO THE COMPANY-discontinued operations		$	1,498,971			(5,144,249	)	$	(725,063	)
NET LOSS		$	(7,195,789	)		(29,752,298	)	$	(122,206,027	)
NET LOSS ATTRIBUTABLE TO THE COMPANY		$	(7,504,262	)		(29,231,347	)	$	(119,236,823	)


(Loss) earnings per share - Basic and Diluted
CONTINUING OPERATIONS
Basic	4	$	(0.26	)	$	(0.79	)	$	(4.33	)
Diluted	4	$	(0.26	)	$	(0.79	)	$	(4.33	)

DISCONTINUED OPERATIONS
Basic	4	$	0.04		$	(0.17	)	$	(0.03	)
Diluted	4	$	0.04		$	(0.17	)	$	(0.03	)

NET LOSS PER SHARE ATTRIBUTABLE TO THE COMPANY
Basic	4	$	(0.22	)	$	(0.96	)	$	(4.36	)
Diluted	4	$	(0.22	)	$	(0.96	)	$	(4.36	)

The accompanying notes are an integral part of these consolidated financial statements

-F-4

CHINA INFORMATION TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013

Expressed in U.S. dollars

		2015			2014			2013
Net loss	$	(7,195,789	)	$	(29,752,298	)	$	(122,206,027	)
Other comprehensive (loss) income:
Foreign currency translation gain (loss)		136,007			(373,040	)		3,935,119
Comprehensive loss		(7,059,782	)		(30,125,338	)		(118,270,908	)
Comprehensive (income) loss attributable to the non-controlling interest		(327,941	)		579,222			2,293,247
Comprehensive loss attributable to the Company	$	(7,387,723	)	$	(29,546,116	)	$	(115,977,661	)

The accompanying notes are an integral part of these consolidated financial statements

- F- 5 -

CHINA INFORMATION TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013

Expressed in U.S. dollars (Except for share amounts)

	Ordinary shares					Treasury Shares						Additional									Accumulated other			Non
	Par value $0.01					Par value $0.01						Paid-in						Retained			comprehensive			controlling
	Shares			Amount		Shares			Amount			Capital			Reserve			(Deficit)			income			interest			Total
																		Earnings
BALANCE AS AT JANUARY 1, 2013	27,591,839		$	286,326		(584,231	)	$	(1,011,091	)	$	101,261,307		$	14,532,587		$	5,804,023		$	21,811,064		$	21,329,717		$	164,013,933
Purchase of treasury shares (Note 20)	-			-		(641,080	)		(3,803,684	)		-			-			-			-			-			(3,803,684	)
Issuance of ordinary shares to employees for cash (Note 20)	3,000,000			30,000		-			-			8,970,000						-			-			-			9,000,000
Reclassification of ordinary shares to temporary equity (Note 20)	-			(7,250	)	-			-			(2,167,750	)					-			-			-			(2,175,000	)
Stock based compensation (Note 20)	-			-		-			-			6,900,000						-			-			-			6,900,000
Net loss for the year	-			-		-			-			-			-			(119,236,823	)					(2,969,204	)		(122,206,027	)
Foreign currency translation gain	-			-		-			-			-			-			-			3,259,162			675,957			3,935,119
Transfer to reserve (Note 19)	-			-		-			-			-			96,782			(96,782	)					-			-
Changes in Parent’s Ownership Interests in Zhongtian (Note 1)	-			-		-			-			-			-			211,410			-			(211,410	)		-
Purchase of shares by iASPEC from minority shareholders in Zhongtian (Note 1)	-			-		-			-			-			-			-			-			(381,420	)		(381,420	)
Changes in Parent’s Ownership Interests in Geo (Note 1)	-			-		-			-			-			-			(195,594	)		-			195,594			-
Capital injection by minority shareholders to Geo (Note 1)	-			-		-			-			705,087			-			-			-			2,016,442			2,721,529
BALANCE AS AT DECEMBER 31,2013	30,591,839		$	309,076		(1,225,311	)	$	(4,814,775	)	$	115,668,644		$	14,629,369		$	(113,513,766	)	$	25,070,226		$	20,655,676		$	58,004,450
Purchase of treasury stock (Note 19)	-			-		(76,368	)		(486,316	)		-			-			-			-			-			(486,316	)
Issuance of ordinary shares to employees for cash (Note 20)	920,757			9,208		-			-			3,673,820			-			-			-			-			3,683,028
Stock-based compensation (Note19)	-			-		-			-			81,615			-			-			-			-			81,615
Issuance of ordinary shares to acquire additional ownership from minority shareholders in Geo and Zhongtian (Notes 1 and 20)	439,503			4,395		-			-			1,753,618			-			-			-			(1,758,013	)		-
Issuance of ordinary shares for consulting services (Note 20)	50,000			500		-			-			205,500			-			-			-			-			206,000
Cancellation of ordinary shares	(584,231	)		(5,842	)	584,231			1,011,091			(1,005,249	)		-			-			-			-			-
Reclassification of temporary equity to ordinary shares (Note 20)	-			2,500		-			-			747,500			-			-			-			-			750,000
Ordinary shares issued for acquisition of Biznest (Notes 5 and 20)	1,543,455			15,434		-			-			5,736,601			-			-			-			-			5,752,035
Net loss for the year	-			-		-			-			-			-			(29,231,347	)					(520,951	)		(29,752,298	)
Foreign currency translation loss	-			-		-			-			-			-			-			(314,769	)		(58,271	)		(373,040	)
Transfer to reserve (Note 19)	-			-		-			-			-			126,577			(126,577	)		-			-			-
Changes in a Parent’s Ownership Interest in Geo (Note 1)	-			-		-			-			-			-			(4,533	)		-			4,533			-
Purchase of shares by iASPEC from minority shareholders in GEO (Note 1)	-			-		-			-			-			-			-			-			(61,698	)		(61,698	)
Changes in a Parent’s Ownership Interest in Zhongtian (Note 1)	-			-		-			-			-			-			(34,253	)		-			34,253			-
Purchase of shares by iASPEC from minority shareholders in Zhongtian (Note 1)	-			-		-			-			-			-			-			-			(649,967	)		(649,967	)
BALANCE AS AT DECEMBER 31,2014	32,961,323		$	335,271		(717,448	)	$	(4,290,000	)	$	126,862,049		$	14,755,946		$	(142,910,476	)	$	24,755,457		$	17,645,562		$	37,153,809
Purchase of treasury stock (Note 20)	-			-		(685,000	)		(2,827,500	)		-			-			-			-			-			(2,827,500	)
Reclassification of temporary equity to ordinary shares (Note 20)	-			3,550		-			-			1,061,450			-			-			-			-			1,065,000
Stock-based compensation (Note20)	51,875			519		-			-			101,763			-			-			-			-			102,282
Issued common stock (Note 20)	2,102,484			21,025		-			-			12,765,328			-			-			-			-			12,786,353
Issued warrant liability (Note 17)	-			-		-			-			(4,982,694	)		-			-			-			-			(4,982,694	)
Issuance of ordinary shares for consulting services (Note 20)	5,000			50		-			-			12,600			-			-			-			-			12,650
Common stock issued for warrants exercised (Notes 17 and 20)	5,613,130			56,131		-			-			8,885,358			-			-			-			-			8,941,489
Sale of Geo (Notes 1 and 15)	-			-		-			-			(705,087	)		(304,002	)		(2,139,719	)		(154,717	)		(8,563,205	)		(11,866,730	)
Sale of Zhongtian (Notes 1 and 15)	-			-		-			-			-			(639,849	)		(2,061,731	)		(165,572	)		(581	)		(2,867,733	)
Net loss for the year	-			-		-			-			-			-			(7,504,262	)		-			308,473			(7,195,789	)
Foreign currency translation loss	-			-		-			-			-			-			-			116,539			19,468			136,007
Dividend to minority shareholders in Geo (Note 1)	-			-		-			-			-			-			(362,907	)		-			-			(362,907	)
BALANCE AS AT DECEMBER 31,2015	40,733,812		$	416,546		(1,402,448	)	$	(7,117,500	)	$	144,000,767		$	13,812,095		$	(154,979,095	)	$	24,551,707		$	9,409,717		$	30,094,237

The accompanying notes are an integral part of these consolidated financial statements

- F- 6 -

CHINA INFORMATION TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013

Expressed in U.S. dollars

		2015			2014			2013
OPERATING ACTIVITIES
Net loss	$	(7,195,789	)	$	(29,752,298	)	$	(122,206,027	)
Adjustments to reconcile net loss to net cash used in operating activities from continuing operations:
(Income) loss from discontinued operations,
net of income taxes		(1,498,971	)		5,260,538			505,567
Provision for losses on accounts receivable and other current assets		2,659,499			6,398,463			67,038,645
Impairment of intangible assets and goodwill		8,918,427			7,015,727			2,008,249
Provision for obsolete inventories		274,663			3,808,307			881,916
Depreciation		1,665,257			2,135,644			7,839,674
Amortization of intangible assets and land use rights		876,237			917,780			1,227,743
(Gain) loss on sale of property and equipment and land use rights		(30,005,007	)		(6,550	)		79,197
Loss on disposal of inventories		-			476,597			-
Stock-based payment compensation for consulting services		98,483			120,167			-
Stock-based compensation		102,282			81,615			6,900,000
Impairment of property, plant and equipment		4,616,679			827,319			29,976,990
Change in deferred income tax		3,761,084			(4,603,763	)		1,836,586
Warrant expense		5,657,988			-			-
Changes in operating assets and liabilities, net of effects of business acquisitions and dispositions:
(Increase) decrease in accounts receivable		2,914,918			(1,497,285	)		3,957,348
Decrease in inventories		1,546,570			6,019,174			657,081
Decrease (increase) in other receivables and prepaid expenses		(1,089,481	)		(3,435,388	)		(3,759,271	)
Decrease (increase) in advances to suppliers		(1,708,552	)		5,781,743			(2,209,123	)
(Increase) decrease in restricted cash		9,566,303			(1,515,573	)		1,013,285
Increase (decrease) in amounts due to/from related parties		(1,088,001	)		1,126,768			538,537
(Decrease) increase in other payables and accrued expenses		(2,736,926	)		(3,808,563	)		3,150,366
(Decrease) increase in advances from customers		1,598,944			(2,017,504	)		315,628
(Decrease) increase in accounts payable and bills payable		(24,134,831	)		(6,018,929	)		(10,354,585	)
Increase (decrease) in income tax payable		(118,973	)		171,552			(41,816	)
Net cash used in continuing operations		(25,319,197	)		(12,514,459	)		(10,644,010	)
Net cash used in operating activities from discontinued operations		(595,404	)		(115,066	)		(733,530	)
Net cash used in operating activities		(25,914,601	)		(12,629,525	)		(11,377,540	)

INVESTING ACTIVITIES
Deposit (paid) received for assets held-for sale		(20,717	)		13,024,000			-
Deposit refunded for land use rights		-			3,355,088			1,437,368
Cash acquired in Biznest acquisition		-			67,506			-
Proceeds from sale of property and equipment		55,101			6,561			226,109
Consideration paid for acquisition of Biznest		(1,488,969	)		(5,951,968	)		-
Investment in Geo		-			(128,901	)		-
Capitalized and purchased software development costs		(66,870	)		(1,353,028	)		(95,162	)
Purchases of property and equipment		(3,004,209	)		(529,053	)		(1,721,113	)
Investment in Zhongtian		-			(638,723	)		(378,144	)
Cash received for sale of assets held for sale		45,052,000			-			-
Net cash (used in) provided by investing activities from continuing operations		40,526,336			7,851,482			(530,942	)
Net cash (used in) provided by investing activities from discontinued operations		1,558,581			(1,530,773	)		(2,697,359	)
Net cash provided by (used in) investing activities		42,084,917			6,320,709			(3,228,301	)

FINANCING ACTIVITIES

Borrowings under short-term loans		44,584,103			58,862,064			92,580,008
Common stock issued for cash		12,786,353			3,683,028			9,000,000
Decrease (increase) in restricted cash in relation to bank borrowings		543,300			256,427			(610,153	)
Borrowings under long-term loans		-			-			350,534
Repayment of short-term loans		(79,952,564	)		(56,153,075	)		(87,876,246	)
Repurchase of ordinary shares		(1,310,184	)		(1,290,000	)		(3,000,000	)
Repayment of long-term loans		(97,751	)		(94,279	)		(147,923	)
Cash paid to warrant holders		(542,806	)		-			-
Net cash (used in) provided by financing activities from continuing operations		(23,989,549	)		5,264,165			10,296,220
Net cash (used in) provided by financing activities from discontinued operations		(147,237	)		1,131,223			4,422,085
Net cash (used in) provided by financing activities		(24,136,786	)		6,395,388			14,718,305
Effect of exchange rate changes on cash and cash equivalents		564,125			19,027			223,130

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(7,402,345	)		105,599			335,594
CASH AND CASH EQUIVALENTS, BEGINNING		11,189,191			11,083,592			10,747,998
CASH AND CASH EQUIVALENTS, ENDING	$	3,786,846		$	11,189,191		$	11,083,592
Less cash and cash equivalents from discontinued operations	$	-		$	4,499,343		$	5,038,900
CASH AND CASH EQUIVALENTS FROM CONTINUING OPERATIONS, end of period	$	3,786,846		$	6,689,848		$	6,044,692


Supplemental disclosure of cash flow information:
Cash paid during the year

Income taxes	$	188,932		$	382,741		$	405,948
Interest	$	3,769,498		$	6,593,549		$	5,537,477

Supplemental disclosure of significant non-cash transactions:

In 2013, the Company repurchased a total of 641,080 shares of the Company’s ordinary shares in exchange for $3 million in cash and $0.8 million included in other payables that was paid in cash in 2014.

In 2014, the Company granted an aggregate of 439,503 ordinary shares under its 2013 Equity Incentive Plan at a price of $4.00 per share to certain individuals in exchange for their respective ownership in Geo and Zhongtian.

In 2014, the Company issued 50,000 restricted ordinary shares for consulting services from June 4, 2014 to June 3, 2015. The fair value of these shares was approximately $206,000 at the date of grant, based on the quoted market price of the Company’s ordinary shares, resulting in $120,000 recorded as consulting fees and $86,000 recorded as prepaid expenses as of December 31, 2014, which was fully amortized in 2015.

In 2014, the Company issued a total of 1,543,455 ordinary shares valued at approximately $5.8 million in connection with the acquisition of Biznest. In addition, the Company agreed to pay Biznest $7.5 million in cash, of which approximately $1.5 million was recorded in payables as of December 31, 2014, which was paid in cash in 2014.

In 2015, the Company repurchased a total of 685,000 shares of the Company’s ordinary shares in exchange for $1.31 million in cash, repayment other receivables of $1.13 million and $0.39 million included within other payables that was paid in cash in 2016.

In 2015, the Company issued a total of 2,102,484 ordinary shares to certain institutional investors at the price of $6.44 per share. Gross proceeds from the Offering were approximately $13.54 million. The Company paid of a total of $0.75 million in placement agency fees, legal fees and other related expenses, resulting in $12.79 million net proceeds received by the Company.

-F-7-

1. ORGANIZATION, PRINCIPAL ACTIVITIES AND MANAGEMENT'S PLANS

China Information Technology Inc., together with its subsidiaries (the "Company" or "CNIT"), is a provider of integrated Cloud-Application-Terminal (“CAT”) solutions including public information distribution platform, elevator safety management system, cloud-based new media terminal, as well as education-use apps and platform in the People’s Republic of China ("PRC"). The Company’s total solutions include software licensing, specialized software, hardware, systems integration, and related services. These services are provided through the Company’s wholly-owned PRC subsidiaries, Information Security Technology International Co., Ltd. ("IST"), and its subsidiary, Dongguan Information Security Technology (China) Co., Ltd. ("IST DG"), TopCloud Software Co., Ltd., ("TopCloud "), and Information Security IoT Tech. Co., Ltd. ("ISIOT ), and through the Company’s variable interest entity ("VIE"), iASPEC Geo Information Technology Co., Ltd. ("iASPEC"), and its subsidiaries, iASPEC Bocom IoT Technology Co. Ltd. ("Bocom"), Shenzhen Taoping Internet Tech. Co., Ltd. (“Taoping”), and Shenzhen Biznest Internet Tech. Co., Ltd. (“Biznest”), and the Company’s wholly-owned Hong Kong subsidiaries Information Security Software Investment Limited (“ISSI”), Information Security Tech. International Co. Ltd. (“IST HK”), and HPC Electronics (China) Co., Limited (“HPC”).

On November 6, 2015, iASPEC entered into an equity transfer agreement with certain individual and entity purchasers (the “Transferees”), pursuant to which, iASPEC sold all of its equity ownership of Wuda Geoinformatics Co., Ltd. ( “Geo”), which constituted approximately 54.89% of the total capital stock of Geo, for an aggregate purchase price of RMB 91.338 million (approximately $14.7 million) (the “Geo Purchase Price”). Control of Geo was legally transferred to the Transferees on December 4, 2015 (Note 15). Pursuant to the transfer agreement, the Transferees agreed to pay the Geo Purchase Price in four installments by March 30, 2016, which has been paid in full.

On November 9, 2015, iASPEC entered into an equity transfer agreement with an entity purchaser (the “Transferee”), pursuant to which, iASPEC sold all of its equity ownership of Shenzhen iASPEC Zhongtian Software Co., Ltd. (“Zhongtian”), which constitutes 100% of total capital stock of Zhongtian for an aggregate of RMB 30 million (approximately $4.8 million) (the “Zhongtian Purchase Price”). Control of Zhongtian was legally transferred to the Transferee on November 9, 2015, (Note 15). Pursuant to the transfer agreement, the Transferee agreed to pay the Zhongtian Purchase Price in three installments by May 31, 2016, of which $4.55 million has been paid.

As disposals of Geo and Zhongtian represent a strategic shift in the Company’s strategy that will have a major effect on the Company’s operations and financial results, the operations of two companies’ have been presented as “discontinued operations” in the Company’s consolidated financial statements. See Note 15.

As of April 21, 2016, the Special Committee is still in the process of reviewing and evaluating the proposal and there can be no assurance that the proposal will be approved until such process is completed.

-F-8-

Management Service Agreement

iASPEC is a VIE of the Company. To comply with PRC laws and regulations that restrict foreign ownership of companies that provide public security information technology and Geographic Information Systems software operating services to certain government and other customers, the Company operates the restricted aspect of its business through iASPEC.

Pursuant to the terms of a management service agreement by and among IST, iASPEC and its shareholders, dated July 1, 2007 ("MSA"), iASPEC granted IST a ten-year, exclusive, royalty-free, transferable worldwide license to use and install certain iASPEC software, along with copies of source and object codes relating to such software. In addition, 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 has the right to designate two Chinese citizens to serve as senior managers of iASPEC, to serve as a majority on iASPEC’s Board of Directors, and to assist in managing the business and operations of iASPEC. In addition, both iASPEC and IST will require the affirmative vote of a majority of the Company’s Board of Directors, including at least one non-insider director, for certain material actions, as defined, with respect to iASPEC.

Option Agreement

In connection with the MSA, on July 1, 2007, IST also entered into an immediately exercisable purchase option agreement (the "Option Agreement") with iASPEC and its shareholders, pursuant to which the iASPEC shareholder granted IST or its designee(s) an exclusive, irrevocable option to purchase, from time to time, all or a part of iASPEC’s shares or iASPEC’s assets from the iASPEC shareholder for $1,800,000 in the aggregate. The option may not be exercised if the exercise would violate any applicable laws and regulations in the PRC or cause any license or permit held by, and necessary for the operation of iASPEC, to be cancelled or invalidated. The Option Agreement will terminate on the date IST exercises its purchase option and acquires all the shares or assets of iASPEC pursuant to the terms of the Option Agreement. The Option Agreement may be rescinded by IST upon 30 days’ notice without costs to terminate. The Option Agreement does not have renewal provisions.

Equity Transfer Agreement

On July 1, 2008, Mr. Jiang Huai Lin, the Chief Executive Officer (“CEO”) of the Company, (“Mr. Lin”), entered into an equity transfer agreement (the "Equity Transfer Agreement") with Mr. Jin Zhu Cai ("Mr. Cai"), the then owner of a 24% minority interest (the “Minority Interest”) in iASPEC, pursuant to which Mr. Lin purchased the Minority Interest from Mr. Cai for a total consideration of RMB60 million (approximately $8.72 million). The transaction was closed in September 2008 and as a result, Mr. Lin became the sole owner of iASPEC.

Amended and Restated MSA

The Amended and Restated MSA was entered into as of December 13, 2009, by and among IST, iASPEC and iASPEC’s sole shareholder, Mr. Lin. Pursuant to the Amended and Restated MSA, IST will provide management and consulting services to iASPEC, under the following terms:

	•	iASPEC agreed that IST will be entitled to receive ninety five percent (95%) of the Net Received Profit, as defined, of iASPEC during the term of the Agreement. iASPEC is obligated to calculate and pay the Net Received Profit due to IST no later than the last day of the first month following the end of each fiscal quarter; Mr. Lin, agreed to enter into a pledge agreement with IST to pledge all of his equity interests in iASPEC as security for his and iASPEC’s fulfillment of their respective obligations under the MSA, and to register the pledge agreement with the local AIC (Administration for Industry and Commerce). After the Amended and Restated MSA was executed on December 13, 2009, based on the advice of the Company’s PRC legal counsel, in January 2010 all the parties to the agreement decided not to enter into a pledge agreement.

	•	Mr. Lin confirmed his status as the sole iASPEC shareholder and his assumption of all of the obligations of the iASPEC shareholder under the agreement, including a confirmation of his continuing obligation under a written guaranty, executed by the then iASPEC shareholders; and

	•	Based on iASPEC’s needs for its development and operation, IST has the right, from time to time, at its sole discretion, to provide iASPEC with capital support.

-F-9-

•

IST agreed that it will not interfere in any business of iASPEC covered by iASPEC’s PRC State Secret related Computer Information System Integration Certificate, including but not limited to, seeking access to relevant documents regarding such business, provided, however, that iASPEC agreed that it will cooperate with the requests of the Company as necessary to comply with the Company’s reporting obligations to the Securities and Exchange Commission. (“SEC”).

The Amended and Restated MSA amended certain terms of the original Management Service Agreement which became effective on July 1, 2007 and has a term of 30 years unless otherwise earlier terminated by the parties by one of the following means:

	•	Either iASPEC or IST may terminate the Amended and Restated MSA immediately (a) upon the material breach by the other of its obligations and the failure of such party to cure such breach within 30 working days after written notice from the non-breaching party; or (b) upon the filing of a voluntary or involuntary petition in bankruptcy by the other or of which the other is the subject, or the insolvency of the other, or the commencement of any proceedings placing the other in receivership, or of any assignment by the other for the benefit of creditors; or

	•	The Amended and Restated MSA may be terminated at any time by IST upon 90 calendar days’ written notice delivered to all other parties.

Upon any effective date of any termination of the Amended and Restated MSA: (a) IST will cease providing management services to iASPEC; (ii) IST will deliver to iASPEC all chops and seals of iASPEC; (iii) IST will deliver to iASPEC all of the financial and other books and records of iASPEC, including any and all permits, licenses, certificates and other proprietary and operational documents and instruments; (iv) the senior managers who are recommended by IST and elected as directors of iASPEC will resign from the Board of Directors of iASPEC in a lawful way; and (v) the software license that iASPEC granted to IST according to the Amended and Restated MSA will terminate unless otherwise agreed by the parties. In addition, any amounts owing from any party to any other party on the effective date of any termination under the terms of the Amended and Restated MSA will continue to be due and owing despite such termination.

The Amended and Restated MSA does not have renewal provisions. We expect that the parties to the Amended and Restated MSA will negotiate to extend the term of the agreement before its expiration.

The substance of the Amended and Restated MSA and the Option Agreement is to:

	•	Allow the Company to utilize the business licenses, contacts, permits and other resources of iASPEC in order for the Company to be able to expand its operations and business model;

	•	Provide the Company with effective control over all of iASPEC’s operations; and allow the shareholders of iASPEC an opportunity to monetize a portion of their investment through the $1.8 million purchase option.

Non-controlling interest transactions

On September 10, 2013, iASPEC purchased additional equity interests in Zhongtian for a total of RMB2.34 million (approximately $0.38 million). As a result, the equity interest owned by iASPEC in Zhongtian was increased from 78.21% to 83.72% and resulted in approximately $0.21 million of Zhongtian’s equity being reclassified from non-controlling interest.

On August 30, 2013, a minority shareholder disposed of its interest in Geo totaling RMB 7 million (approximately $ 1.13 million). In addition, during 2013 various individuals shareholders injected capital in Geo totaling of RMB21.50 million (approximately $3.53 million) and four individual shareholders contributed patent rights valued at RMB2 million (approximately $0.32 million) which reinforced Geo’s operating business. As a result of the capital increase, Geo’s minority interest increased from 47.46% to 49.63% while the equity interest owned by iASPEC in Geo was decreased from 52.54% to 50.37%, and resulted in approximately $0.20 million of Geo’s equity being reclassified to non-controlling interest with iASPEC still remaining as the controlling shareholder in Geo thereafter.

On September 18, 2013, Information Security Technology (PRC) Co., Ltd ("IST"), our wholly-owned subsidiary, and iASPEC entered into an equity transfer agreement, pursuant to which iASPEC agreed to transfer 100% of equity interests in Topcloud, to IST, for a purchase price of RMB53.98 million (approximately $8.84 million).

-F-10-

On October 22, 2013, Information Security International Investment and Development Limited ("ISIID"), our wholly-owned subsidiary, and iASPEC entered into an equity transfer agreement, pursuant to which ISIID agreed to transfer 100% of equity interests in Bocom, to iASPEC, for a purchase price of RMB50.0 million (approximately $8.19 million).

On April 30, 2014, the Company issued various minority shareholders of Geo 318,794 shares of restricted CNIT ordinary shares valued at $4.00 per share under the Company’s 2013 Equity Incentive Plan. Instead of using cash, those Geo shareholders opted for using their ownership in Geo shares to pay for the CNIT restricted shares through Geo’s parent company, iASPEC. They transferred the Geo shares they owned to iASPEC, and iASPEC in turn recorded the corresponding amount as an interest-free payable to the Company, which was eliminated in consolidation against additional paid-in capital of the Company. Consequently, iASPEC’s ownership in Geo increased from 50.37% to 54.89%, resulting in approximately $4,500 of Geo’s equity being reclassified to controlling interest and iASPEC still remaining as the controlling shareholder in Geo thereafter. In addition, iASPEC paid those Geo shareholders $61,698 of cash for the difference between the value of the CNIT restricted shares issued and that of the Geo shares that iASPEC received.

On April 30, 2014, the Company issued various minority shareholders of Zhongtian 120,709 shares of restricted CNIT ordinary shares valued at $4.00 per share under the Company’s 2013 Equity Incentive Plan. Instead of using cash, those Zhongtian shareholders opted for using their ownership in Zhongtian to pay for the CNIT restricted shares through Zhongtian’s parent company, iASPEC. They transferred the Zhongtian shares they owned to iASPEC, and iASPEC in turn recorded the corresponding amount as an interest-free payable to the Company, which was eliminated in consolidation against additional paid-in capital of the Company. Consequently, iASPEC’s ownership in Zhongtian increased from 83.72% to 99.99%, resulting in approximately $34,000 of Zhongtian’s equity being reclassified to controlling interest. In addition, iASPEC paid those Zhongtian shareholders $649,967 of cash for the difference between the value of the CNIT restricted shares issued and that of the Zhongtian shares that iASPEC received.

On March 19, 2015, a profit plan distribution was approved by Geo’s board of directors. As a result, a total cash dividend of approximately $0.8 million (RMB 5 million) was distributed to the shareholders of Geo, and on March 27, 2015, iAPSEC received a $0.44 million cash dividend, and the minority shareholders of Geo received a $0.36 million cash dividend.

In November 2015, as noted above, iASPEC sold its equity ownership holdings in Geo and Zhongtian.

Management’s Plans

For the years ended December 31, 2015 and 2014, the Company reported negative cash flows from operations of $25.91 million and $12.63 million, respectively. Net cash used in operating activities in 2015 significantly increased as $22.41 million of cash was used for payment of outstanding bills payable, which resulted in the bills payable at December 31, 2015 being significantly reduced to $1.32 million as of December 31, 2015. In addition, the Company had a working capital deficiency of $1.65 million as of December 31, 2015, compared to a working capital deficiency of $56 million at December 31, 2014. Continuing the Company’s business transformation, management has developed its 2015 business plan which will continue to be executed in 2016, encompassing six strategies: 1) redirect the Company’s resources to selling high-margin software solutions; 2) reinforce stringent cash collection policies to shorten the Company’s days of sales outstanding; 3) streamline the Company’s purchase order management process to reduce inventory; 4) control the Company’s cost structure; 5) obtain additional government subsidies for developing new and innovative cloud-based software solutions; and 6) reduce the Company’s short-term debt burden. As of December 31, 2015, by using the proceeds from sale of certain real estate and plant assets, the Company has significantly reduced its short-term debt burden to $15.27 million, down from $51.82 million at the end of 2014. In addition, in the fourth quarter of 2015, the Company completed its sales of iASPEC’s 100% equity holding of Zhongtian and 54.89% equity holding of Geo, which provided cash inflows to the Company of approximately $4.8 million and $14.74 million, respectively. A total of $6.27 million related to these sales was received in 2015 and $13.02 million was received in 2016. In addition, starting from April 2016, the Company began receiving an annual rental fee of $380,000 from certain third parties for leasing of its office facility located in Nanshan Industrial Park, Shenzhen. As of April 21, 2016, the Company had $0.76 million additional availability under its credit facilities. In addition, the Company believes it has the ability, if needed, to obtain additional credit lines from local banks to provide capital needs by using the title of its office facility as collateral. Management believes that the Company’s current cash and cash equivalents, cash flows from the sales of Zhongtian and Geo, anticipated cash flows from operations in 2016, and additional availability under its borrowing facilities will be sufficient to meet the Company’s operating and financial obligations for the remainder of 2016.

-F-11-

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Consolidation

The consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles. The consolidated financial statements include the accounts of the Company, its subsidiaries and its VIE for which the Company is the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

(b) Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ from those estimates.

The majority of the Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy. The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation.

(d) Cash and Cash Equivalents

The Company considers all highly liquid investments purchased and cash deposits with financial institutions with original maturities of three months or less to be cash equivalents (Level 1). The Company had no cash equivalents as of December 31, 2015 or 2014.

The Company maintains its cash accounts at credit worthy financial institutions and closely monitors the movements of its cash positions. As of December 31, 2015 and 2014, approximately $3.79 million and $6.69 million of cash, respectively was held in bank accounts in the PRC.

(e) Restricted Cash

Restricted cash as of December 31, 2015 and 2014 consists of security deposits in bank accounts in the PRC that serve as collateral for the Company’s revolving working capital facility, which are included in short-term loans, bills payable, as well as letter of credit facilities.

(f) Accounts Receivable, Bills Receivable and Concentration of Risk

The Company evaluates the creditworthiness of all of its customers individually before accepting them and continuously monitors the recoverability of accounts receivable. If there are any indicators that a customer may not make payment, the Company may consider making provision for non-collectability for that particular customer. At the same time, the Company may cease further sales or services to such customer. The following are some of the factors that the Company considers in determining whether to discontinue sales or record an allowance:

-F-12-

•	the customer fails to comply with its payment schedule;
•	the customer is in serious financial difficulty;
•	a significant dispute with the customer has occurred regarding job progress or other matters;
•	the customer breaches any of the contractual obligations;
•	the customer appears to be financially distressed due to economic or legal factors;
•	the business between the customer and the Company is not active; and
•	other objective evidence indicates non-collectability of the accounts receivable.

The Company considers the following factors when determining whether to permit a longer payment period or provide other concessions to customers:

•	the customer’s past payment history;
•	the customer’s general risk profile, including factors such as the customer’s size, age, and public or private status;
•	macroeconomic conditions that may affect a customer’s ability to pay; and
•	the relative importance of the customer relationship to the Company’s business.

Bills receivable represent bank undertakings that essentially guarantee payment of amounts thereunder. The undertakings are provided by banks upon receipt of collateral deposits from the Company’s customers or debtors. Bills receivable can be sold at a discount before maturity, which is typically within three months.

The Company’s top five customers accounted for 50% of accounts receivable as of December 31, 2015, of which two customers accounted for greater than 10% or more of accounts receivable. The Company’s top five customers accounted for 54% of accounts receivable as of December 31, 2014, of which one customer accounted for greater than 10% or more of accounts receivable.

For the years ended December 31, 2015, 2014 and 2013, the Company’s top five customers accounted for 21%,17% and 21% of revenue respectively, and no single customer accounted for 10% or more of total revenue. The allowance for doubtful accounts at December 31, 2015 and 2014, totaled $5.03 million and $4.48 million respectively, representing management’s best estimate.

Accounts receivable as at December 31, 2015 and 2014 are as follows:

		December 31,			December 31,
		2015			2014
Accounts Receivable	$	8,209,245		$	11,270,917
Bad Debt Provision		(5,029,107	)		(4,484,321	)
Accounts Receivable – Net	$	3,180,138		$	6,786,596

The following table describes the movements in the allowance for doubtful accounts during the years ended December 31, 2015 and 2014:

Balance at January 1, 2014	$	58,587,659
Increase in allowance for doubtful accounts		7,385,502
Amounts written off as uncollectible		(59,208,806	)
Amounts recovered during the year		(1,828,813	)
Foreign exchange difference		(451,221	)
Balance at December 31, 2014	$	4,484,321
Increase in allowance for doubtful accounts		1,166,764
Amounts recovered during the year		(379,731	)
Foreign exchange difference		(242,247	)
Balance at December 31, 2015	$	5,029,107

-F-13-

(g) Advances to Suppliers

Advances to suppliers represent cash deposits for the purchase of inventory items from suppliers.

(h) Advances from Customers

Advances from customers represent cash received from customers as advance payments for the purchase of the Company’s products.

i) Fair Value and Fair Value Measurement of Financial Instruments

Management has estimated that the carrying amounts of non-related party financial instruments approximate fair values for all periods presented due to their short-term maturities. The carrying amount of long-term debt approximates fair value because of its variable interest rate. The fair value of the amounts due from (to) related parties is not practicable to estimate due to the related party nature of the underlying transactions.

Fair Value Accounting

Financial Accounting Standards Board (FASB) Accounting Standards Codifications (ASC) 820-10 “Fair Value Measurements and Disclosures”, establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). As required by FASB ASC 820-10, assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The three levels of the fair value hierarchy under FASB ASC 820-10 are described below:

Level 1	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2	Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3	Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

As of December 31, 2015, the Company measured the fair value of its derivative liability related to warrants using level 3 inputs. Refer to Note 17.

As of December 31, 2015 and 2014, goodwill, property, plant and equipment, and purchased software were measured at fair value on a non-recurring basis using level 3 inputs, which resulted in impairment charges being recorded on certain assets. Refer to Notes 6, 10 and 11(b) for impairment detail.

(j) Inventories

Inventories are valued at the lower of cost or market price. Market price 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.

The Company performs 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. Any inventory impairment results in a new cost basis for accounting purposes.

For the years ended December 31, 2015, 2014 and 2013, approximately 63%, 32% and 31%, respectively of total inventory purchases were from five unrelated suppliers and four suppliers accounted for greater than 10% of total inventory purchases in 2015, and no single supplier accounted for greater than 10% of total inventory purchases in 2014 and 2013.

(k) Derivative liability - Warrants

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is determined and re-assessed at the end of each reporting period, in accordance with FASB ASC Topic 815, “Derivatives and Hedging”. This guidance affects the accounting for warrants issued acquire the Company’s ordinary shares that contain provisions to protect holders from a decline in the stock price, referred to as down-round protection. Down-round provisions reduce the exercise price of a warrant if a company either issues equity shares for a price that is lower than the exercise price of the warrants, issues convertible instruments with a conversion price per equity share that is less than the exercise price of the warrants, or issues new warrants or options that have a lower exercise price. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. The Company generally uses a binomial or lattice model to value the warrants at inception and subsequent valuation dates. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

-F-14-

(l) Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated amortization and depreciation. Amortization and depreciation is provided over the assets’ an estimated useful lives, using the straight-line method. Estimated useful lives of property, plant and equipment are as follows:

Office buildings		20-50 years
Plant and machinery		3-20 years
Electronics equipment, furniture and fixtures		3-5 years
Motor vehicles		5 years
Purchased software		3-10 years

Maintenance and repairs costs are expensed as incurred, whereas significant renewals and betterments are capitalized.

(m) Land use rights

All land in the PRC is owned by the PRC government. The government in the PRC, according to the PRC law, may sell the right to use the land for a specified period of time. Thus, all of the Company’s land purchases in the PRC are considered to be leasehold land under operating lease arrangements and are stated at cost less accumulated amortization and any recognized impairment loss. The cost of the land use right is amortized on a straight-line basis over the beneficial period of 46 years.

(n) Intangible assets

Intangible assets represent technology and customer base intangible assets acquired in connection with business acquisitions, and software development costs capitalized by the Company’s subsidiaries.

Intangible assets are amortized using the straight-line method over the following estimated useful lives:

Software development costs		2-5 years
Technology		5 years
Trademarks		20 years
Customer base		2 years

(o) Goodwill

ASC 350-30-50, “Goodwill and Other Intangible Assets”, requires the testing of goodwill and indefinite-lived intangible assets for impairment at least annually. The Company tests goodwill for impairment in the fourth quarter each year or earlier if an indicator of impairment exists.

Under applicable accounting guidance, the goodwill impairment analysis is a two-step test. The first step of the goodwill impairment test involves comparing the fair value of each reporting unit with its carrying amount including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired; however, if the carrying amount of the reporting unit exceeds its fair value, the second step must be performed to measure potential impairment.

-F-15-

The second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated possible impairment. If the implied fair value of goodwill exceeds the goodwill assigned to the reporting unit, there is no impairment. If the goodwill assigned to a reporting unit exceeds the implied fair value of goodwill, an impairment charge is recorded for the excess.

(p) Long-Lived Assets

Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Recoverability of assets to be held and used is determined by comparing their carrying amount with their net undiscounted future cash flows. If such assets are considered to be impaired, the impairment to be recognized is measured by how much the carrying amount exceeds the fair value of the assets. Assets held for disposal, if any, are reported at the lower of the carrying amount or fair value less costs to sell.

(q) Revenue Recognition

The Company generates its revenues primarily from three sources, (1) hardware sales, (2) software license and software sales, and (3) system integration services. The Company’s revenue recognition policies are in accordance with SEC Staff Accounting Bulletin No. 104, "Revenue Recognition", FASB ASC No. 605-35 "Construction-Type and Production-Type Contracts" ("FASB ASC 605-35"), and FASB ASC No. 605-25 “Multiple-Element Arrangements” (“FASB ASC 605-25”).

Hardware

Hardware revenues are generated primarily from the sale of display technology products and are recognized only when persuasive evidence of an arrangement exists, delivery has occurred and upon receipt of customers’ acceptance, the price to the customer is fixed or determinable in accordance with the contract, and collectability is reasonably assured. In November 2014, the Company began outsourcing production of hardware to its OEM partners. The Company also shifted to its OEM partners after-sale support of hardware products sold to its private-sector customers. For hardware products sold to the Company’s public sector customers, the Company remains responsible for providing after-sale support due to contractual requirements specific to the public sector. Hardware sales are classified on the “Revenue-hardware” line on the Company’s consolidated statement of loss.

Software license

In the private sector, the Company’s customers pay an upfront software license fee for the right of using the Company’s proprietary Cloud-Application-Terminal platform. For software license arrangements that do not require significant modification or customization of the underlying software, the Company recognizes software license revenues when: (1)the Company enters into a legally binding arrangement with a customer for the license of software; (2)the Company delivers the products; (3) the sale price is fixed or determinable and free of contingencies or significant uncertainties; and (4) collection is probable. Revenues from software license contracts are classified on the “Revenue-Software” line on the Company’s consolidated statement of loss.

When the Company’s private sector customers purchase software licenses, they also pay a monthly maintenance service fee to access the Company’s continued software updates and support. Such software maintenance fees are recognized ratably during contract terms and are classified on the “Revenue-Software” line on the Company’s consolidated statement of loss. An increasing number of the Company’s customers in the private sector are choosing to subscribe to the Company’s Cloud-Application-Terminal platform as a service instead of paying upfront license fees. Consequently the Company generates software-as-a-service (SaaS) revenues selling its Cloud-based Technology platform as a monthly subscription service. The Company’s SaaS revenues are generally recognized ratably over the contract term commencing with the date its service is made available to customers and all other revenue recognition criteria have been satisfied. Customers typically subscribe to SaaS offerings on a three-to-five-year basis and in return obtain access to the Company’s display terminals deployed on their premises and to the Company’s cloud-based software hosted on their server via the Internet. Although the duration of some of the Company’s SaaS contracts are longer than 75% of the economic life of the hardware equipment, because in the PRC payment collection beyond any three-year term is highly uncertain, the Company has chosen to recognize its SaaS revenues ratably over the contract term. Revenues from SaaS contracts are classified on the “Revenue-Software” line on the Company’s consolidated statement of loss.

-F-16-

Software sales

In the public sector, customers pay the Company a fixed price to design and develop software products specifically customized for their needs. Software development projects usually include developing software, integrating various isolated software systems into one, and testing the system. The design and build services, together with the integration of the various elements, are generally determined to be essential to the functionality of the delivered software, and accordingly revenue is recognized using the percentage of completion method of accounting in accordance with FASB ASC 605-35. The percentage of completion for each contract is estimated based on the ratio of direct labor hours incurred to total estimated direct labor hours. Revenues from software development contracts do not include either hardware or system integration, and are classified on the “Revenue-Software” line on the Company’s consolidated statement of loss.

System integration services

System integration revenues are generated from fixed-price contracts which combine both customized software development and integration, and non-customized hardware. System integration projects usually include the purchase of hardware, developing software, and integrating various systems into one, and testing the system. Accordingly, system integration revenues contain multiple deliverables consisting of two separate units of account (1) software development and integration, and (2) hardware, both of which are clearly outlined in contracts executed with customers. Revenue from the software element is recognized using the percentage of completion method of accounting outlined above under software development contracts. Revenue from the hardware element is recognized when all four revenue recognition criteria are met, as outlined above under hardware revenues, which generally occurs upon customer acceptance. The hardware component of system integration projects consists of standard products and requires only minor modification and an insignificant amount of labor to meet customers’ needs. Collectively, revenues from system integration projects are recognized using percentage of completion based on the ratio of costs incurred to total estimated costs, and are classified on the “Revenue-System Integration” line on the Company’s consolidated statement of loss.

The Company accounts for system integration projects in accordance with FASB ASC 605-25. To determine the selling price of each unit of account included within the system integration contracts, the Company uses vendor-specific objective evidence (VSOE) for the software component, and third-party evidence for the hardware component. In addition, the Company provides post contract support (PCS), which includes telephone technical support that is not essential to the functionality of the software or hardware elements. Although VSOE does not exist for PCS, because (1) the PCS fees are included in the total contract amount, (2) the PCS service period is for less than one year, (3) the estimated cost of providing PCS is not significant, and (4) unspecified upgrades enhancements offered are minimal and infrequent; the Company recognizes PCS revenue after delivery and customer acceptance.

Contract periods are usually less than six months, and typical contract periods for PCS are 12 months.

Customers are billed in accordance with contract terms, which typically require partial payment at the signing of the contract, partial payment at delivery and customer acceptance dates, with the remainder due within a stated period of time not exceeding 12 months. Occasionally, the Company enters into contracts which allow a percentage (generally 5%) of the total contract price to be paid one to three years after completion of a system integration project. Revenues on these extended payments are recognized upon completion of the terms specified in the contract and when collectability is reasonably assured.

No rights of return are allowed except for non-conforming products, which have been insignificant based on historical experiences. If non-conforming products are returned due to software issues, the Company will provide upgrades or additional customization to suit customers’ needs. In cases where non-conformity is a result of integrated hardware, the Company returns the hardware to the original vendor for replacement.

-F-17-

(r) Treasury Stock

The Company repurchases its ordinary shares from time to time in the open market and holds such shares as treasury stock. The Company applies the “cost method” and presents the cost to repurchase such shares as a reduction in equity. During the years ended December 31, 2015, 2014 and 2013, the Company repurchased total of 685,000, 76,368 and 641,080 ordinary shares, respectively.

(s) Stock-based compensation

The Company applies ASC No. 718, “Compensation-Stock Compensation”, which requires that share-based payment transactions with employees, such as share options, be measured based on the grant date fair value of the equity instrument and recognized as compensation expense over the requisite service period, with a corresponding addition to equity. Under this method, compensation cost related to employee share options or similar equity instruments is measured at the grant date based on the fair value of the award and is recognized over the period during which an employee is required to provide service in exchange for the award, which generally is the vesting period.

During the years ended December 31, 2015, 2014 and 2014, the Company recognized approximately $102,000, $82,000 and $6.9 million, respectively of compensation expense.

(t) Foreign Currency Translation

The functional currency of the US and BVI companies is the United States dollar. The functional currency of the Company’s Hong Kong subsidiaries is the Hong Kong dollar.

The functional currency of the Company’s wholly-owned PRC subsidiaries and its VIE is the Chinese Renminbi Yuan, (“RMB”). RMB is not freely convertible into foreign currencies. The Company’s PRC subsidiaries’ and their VIE’s financial statements are maintained in the functional currency. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet date. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transactions. Exchange gains or losses arising from foreign currency transactions are included in the determination of net loss for the respective periods.

For financial reporting purposes, the financial statements of the Company have been translated into United States dollars. Assets and liabilities are translated at exchange rates at the balance sheet dates, revenue and expenses are translated at 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 other comprehensive loss, a component of equity.

The exchange rates adopted are as follows:

	December 31,	December 31,
	2015	2014
Year-end exchange rate	6.4893	6.1387
Average yearly exchange rate	6.2150	6.1425

The average yearly exchange rate adopted for the year ended December 31, 2013 was 6.1881.

No representation is made that the RMB amounts could have been, or could be, converted into United States dollars at the rates used in translation.

(u) Subsidy Income

Subsidy income mainly represents income received from various local governmental agencies in China for developing high technology products in fields designated by the government as new and highly innovative. We have no continuing obligation under the subsidy provision.

-F-18-

(v) Income Taxes

Income taxes are provided on an asset and liability approach for financial accounting and reporting of income taxes. 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. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion, or all of, 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 expense.

The Company applies the provisions of ASC No. 740 “Income Taxes” (“ASC 740”), which clarifies the accounting for uncertainty in income taxes recognized by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides accounting guidance on de-recognition, classification, interest and penalties, and disclosure.

(w) Discontinued Operations

“Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” was effective for the Company during the year ended December 31, 2015. The amendments contained in this update change the criteria for reporting discontinued operations and enhance the reporting requirements for discontinued operations. Under the revised standard, a discontinued operation must represent a strategic shift that has or will have a major effect on an entity’s operations and financial results. Examples could include a disposal of a major line of business, a major geographical area, a major equity method investment, or other major parts of an entity. The revised standard also allows an entity to have certain continuing cash flows or involvement with the component after the disposal. Additionally, the standard requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The Company accounted for the sale of Geo and Zhongtian during 2015 as a discontinued operation pursuant to this standard. Refer to Note 15 for additional details.

(x) Segment reporting

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.

The Company reports financial and operating information in the following two segments:

(a)	Cloud-based Technology (CBT) segment — The CBT segment is the Company’s current and future focus for corporate development. It includes the Company’s cloud-based products and services sold to private sectors including new media, healthcare, education, and residential community management. In this segment, the Company generates revenues from the sales of hardware and total solutions of hardware integrated hardware with proprietary software and content. Starting in the fourth quarter of 2014, the Company also began to generate additional revenue from monthly software licensing and Software-as-a Service (SaaS) fees.

(b)	Traditional Information Technology (TIT) segment —The TIT segment includes the Company’s project-based technology products and services sold to the public sector. The solutions the Company has sold primarily include Geographic Information Systems (GIS), Digital Public Security Technology (DPST), and Digital Hospital Information Systems (DHIS).In this segment, the Company generates revenues from sales of software and system integration services.

(y) Sales, use and other value-added taxes

Revenue is recorded net of applicable sales, use and value-added taxes.

-F-19-

(z) Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09) "Revenue from Contracts with Customers." ASU 2014-09 supersedes the revenue recognition requirements in "Revenue Recognition (Topic 605)", and requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and is to be applied retrospectively. Early adoption is permitted to the effective date of December 31, 2016. The Company is currently in the process of evaluating the impact of the adoption of ASU 2014-09 on the consolidated financial statements.

In August 2014, the FASB issued new guidance which requires an entity to evaluate whether there are conditions or events, in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the financial statements are available to be issued when applicable), and to provide related footnote disclosures in certain circumstances. The new standard is effective for annual periods ending after December 15, 2016, and for annual and interim periods thereafter. Early application is permitted. The Company has not yet adopted this guidance and is currently evaluating the impact of the adoption of the new guidance on its consolidated financial statements.

In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”. This guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. The guidance becomes effective for annual reporting periods beginning after December 15, 2016 with early adoption permitted. The Company applied this guidance to its current year ended December 31, 2015 consolidated financial statements and retroactively reclassified its balance sheet as of December 31, 2014. Adoption of this guidance had no material impact on the results of operations or financial position.

In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330) Simplifying the Measurement of Inventory”, which changes the measurement from lower of cost or market to lower of cost and net realizable value. The guidance requires prospective application for reporting periods beginning after December 15, 2016 and permits adoption in an earlier period. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

The Company has considered all other recently issued accounting pronouncements and does not believe that the adoption of such pronouncements will have a material impact on the consolidated financial statements.

3. VARIABLE INTEREST ENTITY

The Company is the primary beneficiary of iASPEC, pursuant to the Amended and Restated MSA, and iASPEC qualifies as a variable interest entity of the Company subject to consolidation. Accordingly, the assets and liabilities and revenues and expenses of iASPEC have been included in the accompanying consolidated financial statements. In the opinion of management, (i) the ownership structure of the Company, and the VIEs are in compliance with existing PRC laws and regulations; (ii) the contractual arrangements with the VIEs and its shareholder are valid and binding, and do not result in any violation of PRC laws or regulations currently in effect; and (iii) the Company’s business operations are in compliance with existing PRC laws and regulations in all material respects.

However, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations. 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. Accordingly, the Company cannot be assured that PRC regulatory authorities will not ultimately take a contrary view to its opinion with respect to the contractual arrangements with its VIEs. Because all of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. If the VIEs or their respective shareholders fail to perform their respective obligations under the contractual arrangements of which they are a party, the Company may have to incur substantial costs and resources to enforce its rights under the contracts and rely on legal remedies under PRC law, which may not be sufficient or effective. Under PRC law, rulings by arbitrators are final, parties cannot appeal the arbitration results in courts, and the prevailing parties may only enforce the arbitration awards in PRC courts through arbitration award recognition proceedings, which would cause the Company to incur additional expenses and delays. As a result, uncertainties in the PRC legal system could limit the Company’s ability to enforce these contractual arrangements. In the event the Company is unable to enforce these contractual arrangements, it may not be able to exert effective control over the VIEs, and its ability to conduct its business may be negatively affected.

-F-20-

In addition, if the PRC government determines that the Company is not in compliance with applicable laws, it may revoke the Company’s business and operating licenses, require the Company to discontinue or restrict its operations, deconsolidate the Company’s interests in the VIEs, restrict its right to collect revenues, require it to restructure its operations, impose additional conditions with which it may not be able to comply, impose restrictions on its business operations or on its customers, or take other regulatory or enforcement actions against the Company that could be harmful to its business. The Company believes that the contractual arrangements with its VIEs are in compliance with current PRC laws and are legally enforceable. In the opinion of management, the likelihood of loss in respect to the Company’s current ownership structure or the contractual arrangements with VIEs is remote based on current facts and circumstances.

In order to facilitate iASPEC’s expansion and also to provide financing for iASPEC to complete the acquisition of Geo, the Company advanced RMB38 million (approximately $5.4 million) to iASPEC in two installments in 2007 and 2008, to increase iASPEC’s registered capital. In order to comply with PRC laws and regulations, the advance was made to Mr. Lin, iASPEC’s then majority shareholder, who, upon the authority and direction of the Board of Directors, forwarded the funds to iASPEC. The Company has recorded the advance of these funds as an interest-free loan to iASPEC, which was eliminated against additional capital of iASPEC in consolidation. The increase in iASPEC’s registered capital does not affect IST’s exclusive option to purchase iASPEC’s assets and shares under the MSA.

For the years ended December 31, 2015, 2014 and 2013, net income of $ 308,473, net loss of $404,662, and net loss of $3,188,700 respectively, have been attributed to non-controlling interest from continuing operations in the consolidated statements of loss of the Company.

Government licenses, permits and certificates represent substantially all of the unrecognized revenue-producing assets held by the VIEs. Recognized revenue-producing assets held by the VIEs consist of property, plant and equipment, and intangible assets.

The VIE’s assets and liabilities were as follows for the years ended December 31, 2015 and 2014:

		December 31,			December 31,
		2015			2014
Current assets from discontinued operations	$	13,272,186		$	30,349,676
Total current assets		27,860,566			50,304,042
Property, plant and equipment		2,930,365			2,573,014
Intangible assets		2,431,599			3,418,735
Non-current assets from discontinued operations		-			31,255,179
Total assets		41,439,773			83,714,511
Intercompany payable to the WFOE		28,347,903			26,278,635
Current liabilities from discontinued operations		-			28,989,570
Total current liabilities		42,249,136			75,772,143
Non-current liabilities from discontinued operations		-			213,186
Total liabilities		42,249,136			75,985,329
Total equity		(809,363	)		7,729,182

4. LOSS PER SHARE

Basic loss per share is computed by dividing loss available to common shareholders by the weighted-average number of ordinary shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised or converted into ordinary shares, or resulted in the issuance of ordinary shares that shared in the earnings of the entity.

Components of basic and diluted loss per share were as follows for the years ended December 31, 2015, 2014 and 2013:

		2015			2014			2013
Net loss attributable to the Company	$	(7,504,262	)	$	(29,231,347	)	$	(119,236,823	)
Weighted average outstanding ordinary shares-Basic		34,483,100			30,601,209			27,356,504
Weighted average outstanding ordinary shares-Diluted		34,483,100			30,601,209			27,356,504

Loss per share:
Basic	$	(0.22	)	$	(0.96	)	$	(4.36	)
Diluted	$	(0.22	)	$	(0.96	)	$	(4.36	)

-F-21-

CONTINUING OPERATIONS		2015			2014			2013
Net loss attributable to the Company	$	(9,003,233	)	$	(24,087,098	)	$	(118,511,760	)
Weighted average outstanding ordinary shares-Basic		34,483,100			30,601,209			27,356,504
Weighted average outstanding ordinary shares-Diluted		34,483,100			30,601,209			27,356,504

Loss per share:
Basic	$	(0.26	)	$	(0.79	)	$	(4.33	)
Diluted	$	(0.26	)	$	(0.79	)	$	(4.33	)

DISCONTINUED OPERATIONS		2015		2014			2013
Net income (loss) attributable to the Company	$	1,498,971	$	(5,144,249	)	$	(725,063	)
Weighted average outstanding ordinary shares-Basic		34,483,100		30,601,209			27,356,504
Weighted average outstanding ordinary shares-Diluted		35,382,895		30,601,209			27,356,504

Loss per share:
Basic	$	0.04	$	(0.17	)	$	(0.03	)
Diluted	$	0.04	$	(0.17	)	$	(0.03	)

Warrants for the purchase of 1,425,416, 200,000, and 200,000 shares were not included in the 2015, 2014 and 2013 calculations as their effect would have been anti-dilutive.

As the Company reported income from discontinued operations in 2015, 899,795 shares underlying 98,741 series B warrants (Note 17) were included in diluted calculation.

5. BUSINESS ACQUISITION

On October 14, 2014, the Company acquired 100% of the equity interests of Shenzhen Biznest Internet Technology Co., Ltd, or Biznest, for a total purchase price with a fair value of approximately $12.7 million. Approximately $7.5 million of the purchase price was paid in cash and approximately $0.7 million of the Company’s previously recorded accounts payable to the previous owner of Biznest were forgiven. Approximately $1.5 million of the cash payment was included in payables as of December 31, 2014, which was subsequently paid in February 2015. The balance of the purchase price was paid through the issuance of 1,543,455 ordinary shares of the Company valued at approximately $5.8 million.

The following table summarizes the purchase price allocation for Biznest and the amounts of the assets acquired and liabilities assumed which were based on their estimated fair values at the acquisition date:

Cash and cash equivalents	$	67,506
Advances to suppliers		406,273
Other receivables		308,158
Property, plant, and equipment		2,478,165
Identifiable intangible assets		3,600,746
Goodwill		6,152,243
Accounts payable		(223,030	)
Salary payable		(108,535	)
Other payables		(9,493	)
	$	12,672,033

-F-22-

The operating results of Biznest have been included in the Company’s consolidated financial statements since October 14, 2014, the acquisition date. Intangible assets represent software development costs with an estimated useful life of 5 years. Goodwill, which has been allocated to the Company’s CBT segment, is not expected to be deductible for tax purposes. Goodwill arising from the transaction is attributable primarily to expected operating synergies and assembled workforce of Biznest. See Note 6.

The following unaudited pro forma information shows the results of continuing operations for the years ended December 31, 2014 and 2013, as if the acquisition of Biznest had been completed at the beginning of the respective periods. The unaudited pro forma information is based on estimates and assumptions which management believes are reasonable. It is not necessarily indicative of the consolidated results in future periods or the results that would have been realized for 2014 and 2013.

For the year ended December 31, 2014

		Historical
							Pro Forma
		CNIT			Biznest		Adjustments			Pro Forma

Revenue	$	38,634,747		$	2,457,139	$	(2,457,139	)	$	38,634,747
(Loss) income from operations-continuing operations		(29,091,319	)		210,619		(780,619	)		(29,661,319	)
Net (loss)income-continuing operations		(24,087,098	)		211,526		(780,619	)		(24,656,191	)
Weighted Average Number of Shares:
Basic and Diluted-continuing operations		30,601,209					1,234,764			31,835,973

Loss per share
Basic and Diluted-continuing operations		(0.79	)							(0.78	)

For the year ended December 31, 2013

		Historical
								Pro Forma
		CNIT			Biznest			Adjustments			Pro Forma

Revenue	$	55,419,831		$	168,670		$	(168,670	)	$	55,419,831
(Loss) income from operations-continuing operations		(119,969,315	)		(746,529	)		26,529			(120,689,315	)
Net (loss) income –continuing operations		(118,511,760	)		(746,519	)		26,529			(119,231,750	)
Weighted Average Number of Shares:
Basic and Diluted-continuing operations		27,356,504						1,543,455			28,899,959

Loss per share
Basic and Diluted-continuing operations		(4.33	)								(4.13	)

The pro forma adjustments represent the amortization of the intangible assets and the depreciation of property, plant and equipment arising upon the acquisition of Biznest, as well as the elimination of Biznest’s revenue and loss (income) from operations, as the Company was Biznest’s only customer.

6. GOODWILL

Goodwill by segment at December 31, 2015 and 2014 is as follows:

-F-23-

		December 31,					Exchange rate						December 31,
		2014		Transfer			adjustment			Impairment			2015
CBT Segment	$	9,210,122	$	(3,057,879	)	$	(332,350	)	$	(1,066,439	)	$	4,753,454
TIT Segment		2,908,695		3,057,879			1,885,414			(7,851,988	)		-
Total	$	12,118,817	$	-		$	1,553,064		$	(8,918,427	)	$	4,753,454

In accordance with FASB ASC Topic 350, management reviews goodwill impairment annually or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. Management used the discounted cash flow method to estimate the fair value of its reporting units. Determining the fair value of a reporting unit involves the use of significant estimates and assumptions, such as revenue growth rate, gross profit rate, and discount rate.

Based on the impairment test performed in 2015, step one of the test results indicated that the carrying amount of the TIT and CBT segments exceeded their fair value, and therefore an impairment of goodwill was probable. Management then determined the implied fair value of goodwill for the TIT and CBT segments. As a result, the Company recognized a goodwill impairment loss of $7.85 million and $1.07 million in the TIT and CBT segment in 2015, respectively.

Based on the impairment test performed in 2014, step one of the test results indicated that the carrying amount of the TIT segment exceeded its fair value, and therefore an impairment of goodwill was probable. Management then determined the implied fair value of goodwill for the TIT segment. As a result, the Company recognized a goodwill impairment loss of $4.68 million in the TIT segment in 2014.

7. RELATED PARTY BALANCES AND TRANSACTIONS

(a) Related party balances

As of December 31, 2015 and 2014, amounts due from/to related parties consist of:

		December 31,		December 31,
		2015		2014
Due to related party
- Shareholder	$	154,331	$	864,327

Due to related party

The balance due to shareholder represents the balance of $141,972 and $851,262 personal loans from Mr. Lin, and $12,359 and $13,065 of payables due to Mr. Zhixiong Huang, Chief Operating Officer of the Company as of December 31, 2015 and 2014, respectively. The advance from Mr. Lin is due on December 26, 2016 with interest free and the advance from Mr.Zhixiong Huang is interest free and is not expected to be paid in 2016.

(b) Rental expenses - related party

iASPEC and Bocom lease office spaces in a building personally owned by Mr. Lin. Consequently, the Company paid Mr. Lin approximately $170,000, $263,915 and $153,101 of rental expenses during the years ended December 31, 2015, 2014 and 2013, respectively.

Zhongtian leases office space in a building personally owned by Mr. Lin. Consequently, the Company paid Mr. Lin approximately $ 160,166, $ 67,114 and $ 90,314 of rental expenses during the years ended December 31, 2015, 2014 and 2013, respectively. These amounts are included within discontinued operations.

-F-24-

8. INVENTORIES

As of December 31, 2015 and 2014, inventories consist of:

		December 31,		December 31,
		2015		2014
Raw materials	$	100,880	$	561,371
Work in Process		43,746		125,483
Finished goods		302,729		890,138
Installations in process		1,693,738		2,382,039
Balance at December 31, 2015	$	2,141,093	$	3,959,031

As of December, 31, 2015, 2014 and 2013, impairment for obsolete inventories was approximately $275,000, $3,808,000 and $882,000, respectively. Impairment charges on inventories are included with general and administrative expenses.

9. ASSETS HELD FOR SALE

Assets held for sale are reported at the lower of the carrying amount or fair value less costs to sell. Depreciation expense is not recognized on assets held for sale. In November 2014, the Company signed an agreement to sell the following assets to an unrelated third party for RMB375.0 million (approximately US$61.2 million):

		December 31,
		2014
Property, plant and equipment	$	20,430,446
Land use rights, net		12,871,988
Total		33,302,434
Less: current portion		(13,032,000	)
Noncurrent portion	$	20,270,434

As of December 31, 2014, the Company had received a $13.03 million deposit under the agreement which is classified on the balance sheet as a deposit for assets held for sale as of December 31, 2014. In September 2015, the Company completed the sale and title transferred to the buyer upon payment in full of all amounts due under the contract. The Company recorded a pre-tax gain on the sale of $30 million.

10. PROPERTY, PLANT AND EQUIPMENT

As of December 31, 2015 and 2014, property, plant and equipment consist of:

		December 31,
		2015			2014
Office buildings	$	580,863		$	5,259,585
Plant and machinery		724,948			-
Electronic equipment, furniture and fixtures		16,318,202			12,027,525
Motor vehicles		817,725			1,221,681
Purchased software		3,179,938			2,940,349
		21,621,676			21,449,140
Less: accumulated depreciation		(13,248,715	)		(12,527,743	)
	$	8,372,961		$	8,921,397

Depreciation expense for the years ended December 31, 2015, 2014 and 2013 was approximately $1.67 million, $2.14 million and $7.84 million, respectively.

Management regularly evaluates property, plant and equipment for impairment if an event occurs or circumstances change that would potentially indicate that the carrying value of the property, plant and equipment and exceeded its fair value. Management utilizes the discounted cash flow method to estimate the fair value of the property, plant and equipment.

-F-25-

Based on the discounted cash flow method, management determined that approximately $4.62 million, $0.83 million and $29.98 million of property, plant and equipment were impaired during the years ended December 31, 2015, 2014 and 2013.

11. LAND USE RIGHTS AND INTANGIBLE ASSETS

(a) Deposits for purchase of land use rights

As of December 31, 2015 and 2014, deposits for the purchase of land use rights represent deposits for purchase of land use rights in Dongguan City of approximately $14.02 million (RMB90.76 million) and $14.80 million (RMB90.76million) by IST, respectively.

(b) Intangible assets

As of December 31, 2015 and 2014, intangible assets consist of:

		December 31,			December 31
		2015			2014
Software development costs	$	4,328,566		$	4,575,753
Trademarks		946,421			932,765
Sub-Total		5,274,987			5,508,518
Less: accumulated amortization		(2,744,884	)		(2,014,504	)
Intangible assets, net	$	2,530,103		$	3,494,014

Amortization expense for the years ended December 31, 2015, 2014 and 2013 was approximately $0.88 million, $0.92 million and $1.23 million, respectively.

Based on the discounted cash flow method, management determined approximately $0 million, $2.33 and $2.01 million of intangible assets was impaired during the years ended December 31, 2015, 2014 and 2013.

Estimated amortization for the next five years is as follows:

2016	$	864,813
2017		854,204
2018		747,570
2019		61,910
2020		1,606
Total	$	2,530,103

12. BANK LOANS

(a) Short-term bank loans

		December 31,		December 31,
		2015		2014
Secured short-term loans	$	15,058,189	$	51,726,194
Add: amounts due within one year under long-term loan contracts		214,797		97,675
Total short-term bank loans	$	15,272,986	$	51,823,869

(1) Detailed information of secured short-term loan balances as of December 31, 2015 and 2014 were as follows:

-F-26-

		December 31,		December 31,
		2015		2014
Secured by IST, iASPEC, Mr. Lin and collateralized by plants	$	-	$	32,580,000
Guaranteed by ISIOT		2,311,500		5,701,500
Guaranteed by iASPEC and Mr. Lin		-		4,048,912
Collateralized by land and office buildings and guaranteed by IST		-		3,258,000
Secured by iASPEC’s trade receivables		-		1,629,000
Collateralized by land and office buildings and guaranteed by iASPEC and ISIOT		-		2,443,500
Guaranteed by High-tech Investment Company⁽ⁱ⁾		-		814,500
Guaranteed by High-tech Investment Company and Mr. Lin⁽ⁱ⁾		-		741,195
Guaranteed by CNIT and IST		-		372,422
Guaranteed by ISIOT and Mr. Lin		3,082,000		-
Guaranteed by IST and Mr. Lin		3,837,089		-
Guaranteed by IASEPC, ISIOT and Mr. Lin		5,827,600		-
Secured by Bocom’s trade receivables and guaranteed by the Company		-		137,165
Total	$	15,058,189	$	51,726,194

(i) High-tech Investment Company is a third party.

(b) Long-term bank loans

		December 31,			December 31,
		2015			2014
Secured long-term loans	$	214,797		$	312,305
Less: amounts due within one year under long-term loan contracts		(214,797	)		(97,675	)
Total long-term bank loans	$	-		$	214,630

As of December 31, 2015, the Company had short-term bank loans of $15.06 million, among which $3.08 million was repaid by the Company in March 2016, and the remaining $11.98 million matures on various dates from July 14, 2016 to December 2, 2016. The short-term bank loans can be extended for another year by the bank without additional charges to the Company upon maturity. In addition, the long-term loan of $0.2 million was fully paid in February 2016, and as a result, the Company reclassified it under short-term loans in the December 31, 2015 consolidated balance sheet. The bank borrowings are in the form of credit facilities. Amounts available to the Company from the banks are based on the amount of collateral pledged or the amount guaranteed by the Company’s subsidiaries. These borrowings bear interest rates ranging from 1.8% to 7.8% per annum. The weighted average interest rate on short term debt is approximately 6.74%, 7.74% and 7.05% for the years ended December 31, 2015, 2014 and 2013, respectively.

13. BILLS PAYABLE

The Company has $10.71 million and $29.87 million of total available borrowing facilities for bills payable with various banks as of December 31, 2015 and 2014, of which $9.39 million and $6.14 million were unutilized as of December 31, 2015 and 2014, respectively. The funds borrowed under these facilities are generally repayable within 1 year. Bills payable are non-interest bearing and generally repaid within 1 year.

14. INCOME TAXES

Pre-tax income (loss) from continuing operations for the years ended December 31, 2015, 2014 and 2013 was taxable in the following jurisdictions:

		2015			2014			2013
PRC	$	3,397,483		$	(27,612,320	)	$	(112,313,262	)
Others		(7,787,215	)		(1,478,999	)		(7,656,053	)
Total income (loss) before income taxes	$	(4,389,732	)	$	(29,091,319	)	$	(119,969,315	)

-F-27-

United States

Because of the domestication transaction in 2012 by which CNIT BVI became the parent of our group, under Section 7874 of the Internal Revenue Code of 1986, as amended, the Company is treated for U.S. federal tax purposes as a U.S. corporation and, among other consequences, is subject to U.S. federal income tax on its worldwide income. It is management’s intention to reinvest all the income attributable to the Company earned by its operations outside the U.S. Accordingly, no U.S. corporate income taxes are provided in these consolidated financial statements.

BVI

Under the current laws of the BVI, dividends and capital gains arising from the Company’s investments in the BVI are not subject to income taxes.

Hong Kong

Under the current laws of Hong Kong, ISSI, ISSID and HPC are subject to a profit tax of 16.5% .

PRC

Income tax (benefit) expense from continuing operations consists of the following:

		2015		2014			2013
Current taxes	$	543,944	$	4,204		$	(105,440	)
Deferred taxes		3,761,084		(4,603,763	)		1,836,585
Income tax expense (benefit)	$	4,305,028	$	(4,599,559	)	$	1,731,145

Income tax expense recorded in 2015 primarily relates to the utilization of deferred tax assets relating to net operating loss carry forwards offset with taxable income recorded relating to the sale of assets held for sale discussed in Note 9.

		2015			2014			2013
PRC statutory tax rate		25%			25%			25%
Computed expected income tax (benefit) expense	$	(1,097,433	)	$	(7,272,830	)	$	(29,992,329	)
Tax rate differential benefit from tax holiday		(1,771,273	)		1,753,640			11,616,499
Permanent differences		6,039,892			1,471,243			6,557,923
Increase (decrease) in valuation allowance		601,779			(914,667	)		11,622,164
Non-deductible tax loss		532,063			363,055			1,914,013
Other differences		-			-			12,875
Income tax (benefit) expense	$	4,305,028		$	(4,599,559	)	$	1,731,145

The significant components of deferred tax assets and deferred tax liabilities were as follows as of December 31, 2015 and December 31, 2014:

		December 31, 2015						December 31, 2014
		Deferred			Deferred			Deferred			Deferred
		Tax			Tax			Tax			Tax
		Assets			Liabilities			Assets			Liabilities
Allowance for doubtful accounts	$	1,810,234		$	-		$	908,528		$	-
Loss carry-forwards		631,424			-			3,852,864			-
Fixed assets		111,803			(221,530	)		132,164			(129,317	)
Inventory valuation		1,323,187			-			1,163,733			-
Salary payable		16,618			-			31,959			-
Intangible assets		128,183			135,198			20,133			62,366
Gross deferred tax assets and liabilities		4,021,449			(86,332	)		6,109,381			(66,951	)

Valuation allowance		(3,561,212	)		-			(1,839,339	)		-

Total deferred tax assets and liabilities	$	460,237		$	(86,332	)	$	4,270,042		$	(66,951	)

-F-28-

The Company has net operating loss carry forwards totaling RMB 30 million ($4.68 million) as of December 31, 2015, substantially all of which were from PRC subsidiaries and will expire on various dates through December 31, 2020.

iASPEC, ISIOT, IST,IST DG and Topcloud are all governed by the Income Tax Laws of the PRC, and are approved as high-technology enterprises subject to PRC enterprise income tax (“EIT”) at 15%, while Biznest are subject at 12.5% EIT.

As a wholly-owned foreign investment enterprise, IST is entitled to enjoy a two-year tax exemption, followed by a 50% exemption for three years thereafter as approved by PRC tax authorities. Under the EIT Law, companies that were previously exempt from taxes or that had concessional rates are to retain their preferences until the original expiration date. IST was subject to PRC EIT at 12% in 2011. EIT exemptions claimed by IST may become payable if IST were to dissolve within the next 10 years. However, management believes that the PRC tax authorities will not request payment of any such amounts. IST had a 15% tax rate in 2013, 2014 and 2015.

The Company recognizes that virtually all tax positions in the PRC are not free of some degree of uncertainty due to tax law and policy changes by the State. However, the Company cannot reasonably quantify political risk factors and thus must depend on guidance issued by current State officials.

Based on all known facts and circumstances and current tax law, the Company has recorded $433,000 and $0 of unrecognized tax benefits as of December 31, 2015 and 2014, respectively. The Company believes that the total amount of unrecognized tax benefits as of December 31, 2015, if recognized, would not have a material effect on its effective tax rate. The Company further believes that there are no tax positions for which it is reasonably possible, based on current Chinese tax law and policy, that the unrecognized tax benefits will significantly increase or decrease over the next 12 months producing, individually or in the aggregate, a material effect on the Company’s results of operations, financial condition or cash flows.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. Any accrued interest or penalties associated with any unrecognized tax benefits was not significant for the years ended 2015, 2014 and 2013.

Since the Company intends to reinvest its earnings to further expand its businesses in the PRC, the PRC subsidiaries do not intend to declare dividends to their parent companies in the foreseeable future. The Company’s foreign subsidiaries are in a cumulative deficit position. Accordingly, the Company has not recorded any deferred taxes on the cumulative amount of any undistributed deficit earnings. It is impractical to calculate the tax effect of the deficit at this time.

15. DISCONTINUED OPERATIONS

In 2015, the Company disposed of two of iASPEC’s subsidiaries (Zhongtian and Geo) by sale of equity ownership to third parties. As a result, the operations of Zhongtian and Geo are reflected within “discontinued operations” in the Company’s consolidated statements of operations for all periods presented.

The significant items included within discontinued operations are as follows:

		Year Ended December 31,
		2015			2014			2013
Revenue	$	24,904,321		$	29,522,952		$	20,725,553
Cost of revenue		15,040,537			17,541,786			13,003,077
Total operating expenses		9,856,344			18,031,318			8,883,686
Operating income (loss) from discontinued operations		7,440			(6,050,152	)		(1,161,210	)
Net gain on sale of Geo and Zhongtian		3,699,088			-			-
Other (loss) income		(2,038,675	)		1,000,272			821,043
Income (loss) from discontinued operations before income taxes		1,667,853			(5,049,880	)		(340,167	)
Provision for income taxes		(168,882	)		(210,658	)		(165,400	)
Income (loss) from discontinued operations, net of income taxes	$	1,498,971		$	(5,260,538	)	$	(505,567	)

-F-29-

Assets and liabilities of discontinued operations included within the Consolidated Balance Sheets are comprised of the following:

		December 31,
		2015		2014
Cash and cash equivalents	$	-	$	4,499,343
Restricted cash		-		780,328
Accounts receivable, net of allowance for doubtful accounts		-		17,027,082
Advances to suppliers		-		2,426,697
Amounts due from related parties		-		109,406
Inventories		-		1,459,415
Other receivables and prepaid expenses		13,272,186		4,047,405
Current assets of discontinued operations	$	13,272,186	$	30,349,676

Long-term investments		-		2,648,378
Property, plant and equipment, net		-		3,881,787
Intangibles and other assets, net		-		11,965,326
Goodwill		-		12,014,413
Deferred tax assets		-		745,275
Non-current assets of discontinued operations	$	-	$	31,255,179

Short-term bank loans		-		10,860,974
Accounts payable		-		11,370,469
Bills payable		-		495,444
Advances from customers		-		1,570,911
Accrued payroll and benefits		-		2,078,685
Other payables and accrued expenses		-		2,237,657
Income tax payable		-		375,430
Current liabilities of discontinued operations	$	-	$	28,989,570

Deferred tax liabilities		-		213,186
Non-current liabilities of discontinued operations	$	-	$	213,186

Included within other receivables at December 31, 2015 is $13.27 million due from the sale of Zhongtian and Geo. Of this amount, the Company has received $13.02 million through April 21, 2016.

16. OTHER CURRENT (NON-CURRENT) ASSETS

(a) As of December 31, 2015 and 2014, other currents assets consist of:

		December 31,		December 31
		2015		2014
Advances to unrelated third-parties	$	7,412,911	$	7,963,454
Advances to employees		375,253		2,089,332
Installation contract deposits		67,722		315,400
Other current assets		257,975		405,124
	$	8,113,861	$	10,773,310

-F-30-

(b) As of December 31, 2015 and 2014, other non-currents assets consist of:

		December 31,	December 31
		2015	2014
Advances to unrelated third-parties	$	2,065,000	-

The advances to unrelated parties are non-interest bearing. As of April 25, 2016, approximately $1.11 million of these advances were collected.

Installation contract deposits are made from time-to-time by the Company to demonstrate capital and resources in connection with bidding on certain projects. Such amounts are refundable upon the grant of the contract.

17. WARRANTS LIABILITY

In May 2015, in connection with the closing of an equity offering in which the Company issued 2,102,484 ordinary shares at a price of $6.44 per share, the Company also issued Series A and Series B warrants to purchase an aggregate of 1,576,863 ordinary shares of the Company.

Series A warrants

Series A warrants were issued in connection with the equity offering to purchase an aggregate of 525,621 ordinary shares at an exercise price of $7.73 per share. The Series A warrants have a term of three years and are exercisable by the holders at any time after the date of issuance before the expiration date. A holder of the Series A warrants has the right to exercise its warrants on a cashless basis if a registration statement or prospectus is not available for the issuance of the ordinary shares issuable upon exercise of the warrants. None of the Series A warrants have been exercised.

Series B warrants

Series B warrants were issued in connection with the offering to purchase an aggregate of 1,051,242 ordinary shares at an exercise price of $7.09 per share. The Series B warrants are exercisable by the holders at any time after the date of issuance, and expire six months after the date on which they are first exercisable. A holder of the Series B warrants also has the right to exercise its warrants on a cashless basis if a registration statement or prospectus is not available for the issuance of the ordinary shares issuable upon exercise of the warrants. In addition, commencing on the 40th day after the issuance date of the Series B warrants, holders may exercise the Series B warrants in whole or in part and, in lieu of making cash payment upon such exercise and in lieu of making a cashless exercise, elect to receive upon such exercise the net number of ordinary shares determined according the formula specified in the Series B warrant agreement; provided, that if the applicable market price of the ordinary shares is less than $4.00 (as adjusted for share splits, share distributions, recapitalizations or similar events) and the Company has previously delivered a Net Cash Settlement Notice (as defined in the Series B warrant agreement) to the holder that has not been withdrawn, then the Company will pay the holder a certain amount in cash in addition to such number of ordinary shares, in each case according to a formula specified in the Series B warrant agreement. Subsequent to the issuance of the Series B warrants, the Company extended the expiration date of the Series B warrants through March 15, 2016. A total of 952,501 Series B warrants were exercised in exchange for 5,613,130 ordinary shares in 2015 and 98,741 Series B warrants were exercised in exchange for 899,795 ordinary shares subsequent to December 31, 2015 and no Series B warrants remain outstanding as of the current date.

Both the Series A and Series B warrants contain down-round protection upon the issuance of any ordinary shares, securities convertible into ordinary shares or certain other issuances at a price below the then-existing exercise price of the warrants, with certain exceptions. In addition, the Series B warrants contain provisions that could require cash payments to the holders of the warrants or payment in additional ordinary shares. Therefore, the Company's Series A and Series B warrants are classified as liabilities.

The Company recognizes the warrants liability at their respective fair values at inception and on each reporting date. The Company utilized a binomial option pricing model (“BOPM”) and a Monte-Carlo simulation to develop its assumptions for determining the fair value of the warrants. Changes in the fair value of the derivative warrant liabilities and key assumptions at the issue date and each reporting date are as follows:

-F-31-

		Series A			Series B
		Warrants			Warrants			Total
Balance at December 31, 2014	$	-		$	-		$	-
Fair value at warrants liability at issuance date		1,075,500			3,907,194			4,982,694
Exercise of warrants and resulting reclassification to equity at fair value		-			(8,941,489	)		(8,941,489	)
Cash paid to warrant holders		-			(542,806	)		(542,806	)
Adjustment resulting from the change in the fair value for the reporting period		(918,969	)		6,576,956			5,657,987

Balance at December 31, 2015	$	156,531		$	999,855		$	1,156,386

		Series A		Series B
		Warrants		Warrants
December 31, 2015:
Annual volatility		89.55%		150.85
Risk-free rate		1.268%		0.56%
Dividend rate		0.00%		0.00%
Contractual term		2.4years		0.2years
Closing price of ordinary shares	$	1.68	$	1.68
Conversion/exercise price	$	7.73	$	7.09
Origination:
Annual volatility		88%		92%
Risk-free rate		1%		0.09%
Dividend rate		0.00%		0.00%
Contractual term		3 years		0.5years
Closing price of ordinary shares	$	3.85	$	3.85
Conversion/exercise price	$	7.73	$	7.09

The warrants liability is considered a Level 3 liability on the fair value hierarchy as the determination of fair values includes various assumptions about future activities, stock price, and historical volatility inputs. Significant unobservable inputs for the Level 3 warrants liability include (1) the estimated probability of the occurrence of a down round financing during the term over which the related warrants are exercisable, (2) the estimated magnitude of the down round and (3) the estimated magnitude of any net cash fractional share settlement.

18. OTHER PAYABLES AND ACCRUED EXPENSES

As of December 31, 2015 and 2014, other payables and accrued expenses consist of:

		December 31,		December 31
		2015		2014
Advances from unrelated third-parties	$	1,889,818	$	3,174,701
Biznest acquisition payable		-		1,548,202
Tax (Other than income tax) payable		1,202,185		854,801
Unrecognized tax benefits		433,000		-
Repurchase common stock payable		392,771		-
Amount due to employees		249,895		681,352
Other current liabilities		402,629		693,901
	$	4,570,298	$	6,952,957

19. RESERVE AND DISTRIBUTION OF PROFIT

In accordance with relevant PRC regulations and the Articles of Association of our PRC subsidiaries, our PRC subsidiaries are required to allocate at least 10% of their annual after-tax profits determined in accordance with PRC statutory financial statements to a statutory general reserve fund until the amounts in said fund reaches 50% of their registered capital. As of December 31, 2015, the balance of general reserve is $13.81 million.

Under applicable PRC regulations, the Company may pay dividends only out of the accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. As the statutory reserve funds can only be used for specific purposes under PRC laws and regulations, the general reserves are not distributable as cash dividends.

-F-32-

Our after-tax profits or losses with respect to the payment of dividends out of accumulated profits and the annual appropriation of after-tax profits as calculated pursuant to PRC accounting standards and regulations do not result in significant differences as compared to after-tax earnings as presented in our consolidated financial statements. However, there are certain differences between PRC accounting standards and regulations and U.S. generally accepted accounting principles, arising from different treatment of items such as amortization of intangible assets and change in fair value of contingent consideration arising from business combinations.

20. EQUITY

(a) Issuance of new shares

In 2015, the Company issued a total of 2,102,484 ordinary shares to certain institutional investors at the price of $6.44 per share. Gross proceeds from the offering were approximately $13.54 million. The Company paid a total of $0.75 million in placement agency fees, legal fees and other related expenses, resulting in $12.79 million net proceeds received by the Company. In addition to the ordinary shares issued, the Company issued warrants to purchase and aggregate of 1,576,863 ordinary shares of the Company. Refer to Note 17 above.

(b) Repurchase of common shares

On October 4, 2013, the Company announced a $9 million share repurchase program. Repurchases may be in open-market transactions or through privately negotiated transactions. The timing and extent of any purchases will depend upon market conditions, the trading price of the Company’s ordinary shares and other factors, and are subject to the restrictions relating to volume, price and timing under applicable laws, including but not limited to, Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended. The Company’s Board of Directors will review the share repurchase program periodically, and may authorize adjustment of its terms and size accordingly. During the years ended December 31, 2015, 2014 and 2013, a total of 685,000, 76,368 and 641,080 ordinary shares of the Company were repurchased in accordance with the program at a cost of $2,827,500, $486,316 and $3,803,684, respectively.

On September 11, 2013, the Board of Directors of the Company adopted the 2013 Equity Incentive Plan, or the 2013 Plan, pursuant to which the Company may offer up to five million ordinary shares as equity incentives to its directors, employees and consultants. Such number of shares is subject to adjustment in the event of certain reorganizations, mergers, combinations, recapitalizations, stock splits, stock dividends, or other change in the corporate structure of the Company affecting the shares issuable under the 2013 Plan. As of December 31, 2015, the Company had issued 4.41 million shares of restricted stock to our officers and employees under the 2013 Plan.

On November 15, 2013, the Company granted eligible employees a total of 3,000,000 ordinary shares of the Company as compensation under the 2013 Equity Incentive Plan. The fair value of these shares was approximately $15.90 million at the date of the grant, based on the quoted market price of the Company’s ordinary shares. The employees paid the Company $9 million in cash resulting in approximately $6.90 million being recorded as the compensation for services provided in 2013.

For the purpose of acquiring the shares from the Company, certain employees have entered into loan contracts with local banks. The Company has agreed to guarantee the employee’s repayment of these bank loans in the event of a default. Of the 3,000,000 shares issued to employees, a total of 725,000 shares were purchased from the Company using proceeds from these guaranteed bank loans. In December 2014, the Company loaned a total of $1.47 million to these employees in order to for them to repay their respective bank loans. Since the Company has guaranteed these loans, the Company classified $2.175 million, of the total proceeds received as “temporary equity” in the accompanying balance sheet. In May 2015, the liability of these employees to the Company was repaid through either selling a certain numbers of their shares back to the Company or through repayment of cash to the Company. As a result, during 2015 and 2014, $1.065 million and $0.75 million, respectively, was reclassified to “permanent equity”.

On April 30, 2014, the Company granted eligible employees a total of 920,757 restricted shares as compensation under the 2013 Equity Incentive Plan. The fair value of these shares was approximately $3.76 million at the date of the grant, based on the quoted market price. The employees paid the Company approximately $3.68 million in cash, resulting in approximately $0.08 million being recorded as the compensation for services provided in 2014.

-F-33-

On April 30, 2014, the Company issued various minority shareholders of Geo 318,794 shares of restricted CNIT stock valued at $4.00 per share under the Company’s 2013 Equity Incentive Plan. Instead of using cash, those Geo shareholders opted for using their ownership in Geo shares to pay for the CNIT restricted shares through Geo’s parent company, iASPEC. They transferred the Geo shares they owned to iASPEC, and iASPEC in turn recorded the corresponding amount as an interest-free payable to the Company, which was eliminated in consolidation against additional paid-in capital of the Company. Consequently, iASPEC’s ownership in Geo increased from 50.37% to 54.89%, resulting in approximately $4,500 of Geo’s equity being reclassified to controlling interest and iASPEC still remaining as the controlling shareholder in Geo thereafter. In addition, iASPEC paid those Geo shareholders $61,698 of cash for the difference between the value of the CNIT restricted shares issued and that of the Geo shares that iASPEC received.

On April 30, 2014, the Company issued various minority shareholders of Zhongtian 120,709 shares of restricted CNIT stock valued at $4.00 per share under the Company’s 2013 Equity Incentive Plan. Instead of using cash, those Zhongtian shareholders opted for using their ownership in Zhongtian to pay for the CNIT restricted shares through Zhongtian’s parent company, iASPEC. They transferred the Zhongtian shares they owned to iASPEC, and iASPEC in turn recorded the corresponding amount as an interest-free payable to the Company, which was eliminated in consolidation against additional paid-in capital of the Company. Consequently, iASPEC’s ownership in Zhongtian increased from 83.72% to 99.99%, resulting in approximately $34,000 of Zhongtian’s equity being reclassified to controlling interest. In addition, iASPEC paid those Zhongtian shareholders $649,967 of cash for the difference between the value of the CNIT restricted shares issued and that of the Zhongtian shares that iASPEC received.

On June 25, 2014, the Company issued 50,000 restricted shares as payable in a lump sum for one year consulting fee from June 2014 to June 2015. The fair value of these shares was approximately $206,000 at the date of the grant, based on the quoted market price of the Company’s ordinary shares, resulting in approximately $120,000 being recorded as consulting expense in 2014, and approximately $86,000 being recorded as prepaid expenses as of December 31, 2014 which was fully amortized in 2015.

In 2015, the Company granted eligible employees a total of 51,875 shares of the Company’s common stock under the Company’s Equity Incentive Plan as compensation. The fair value of these shares was approximately $102,000, based on the quoted market price, as the compensation was for services provided in 2015.

In 2015, the Company issued 5,000 restricted shares of ordinary shares in exchange for a consulting fee. The fair value of these shares was approximately $13,000 at the date of the grant, based on the quoted market price of the Company’s ordinary shares, resulting in approximately $13,000 being recorded as consulting fee in 2015.

21. CONSOLIDATED SEGMENT DATA

Selected information by segment is presented in the following tables for the years ended December 31, 2015, 2014 and 2013.

		2015		2014		2013
Revenues⁽¹⁾
TIT Segment	$	2,970,952	$	13,024,506	$	7,699,309
CBT Segment		7,313,916		25,610,241		47,720,522
	$	10,284,868	$	38,634,747	$	55,419,831

⁽¹⁾Revenues by operating segments exclude intercompany transactions.

		2015			2014			2013
Loss from operations:
TIT Segment	$	(2,593,743	)	$	(7,675,174	)	$	(72,465,226	)
CBT Segment		(22,238,917	)		(14,876,016	)		(45,416,341	)
Corporate and others⁽²⁾		(2,130,697	)		(1,358,023	)		(333,801	)
Loss from operations		(26,963,357	)		(23,909,213	)		(118,215,368	)
Corporate other (expenses) income, net		31,271,674			268,543			2,732,946
Corporate interest income		76,716			408,121			447,586
Corporate interest expense		(3,116,777	)		(5,858,770	)		(4,934,479	)
Corporate warrant expense		(5,657,988	)		-			-
Loss from continuing operations before income taxes		(4,389,732	)		(29,091,319	)		(119,969,315	)

Income tax benefit (expense)		(4,305,028	)		4,599,559			(1,731,145	)

Loss from continuing operations		(8,694,760	)		(24,491,760	)		(121,700,460	)
Income (loss) from discontinued operations, net of taxes		1,498,971			(5,260,538	)		(505,567	)
Net loss		(7,195,789	)		(29,752,298	)		(122,206,027	)

Net loss attributable to the non-controlling interest		(308,473	)		520,951			2,969,204
Net loss attributable to the Company	$	(7,504,262	)	$	(29,231,347	)	$	(119,236,823	)

⁽²⁾Includes non-cash compensation, professional fees and consultancy fees for the Company.

-F-34-

Non-cash employee compensation by segment as of December 31, 2015, 2014 and 2013 are as follows:

		2015		2014		2013
Non-cash employee compensation:
TIT Segment	$	-	$	81,615	$	575,000
CBT Segment		-		-		6,325,000
Corporate and others		102,282		-		-
	$	102,282	$	81,615	$	6,900,000

Depreciation and amortization by segment for the years ended December 31, 2015, 2014 and 2013 are as follows:

		2015		2014		2013
Depreciation and amortization:
TIT Segment	$	90,379	$	420,556	$	3,492,732
CBT Segment		2,332,037		2,513,790		5,470,520
Corporate and others		119,078		119,078		104,165
	$	2,541,494	$	3,053,424	$	9,067,417

		2015		2014		2013
Provisions for losses on accounts receivable:
TIT Segment	$	910,824	$	3,102,627	$	36,383,487
CBT Segment		1,748,675		3,287,604		30,655,158
Corporate and others		-		8,232		-
	$	2,659,499	$	6,398,463	$	67,038,645

		2015		2014		2013
Inventory (recovery) provision:
TIT Segment	$	226,943	$	308,683	$	(51,509	)
CBT Segment		47,720		3,499,624		933,425
	$	274,663	$	3,808,307	$	881,916

		2015		2014		2013
Impairment of intangible assets and goodwill
TIT Segment	$	7,851,987	$	4,685,843	$	-
CBT Segment		1,066,440		2,329,884		2,008,249
	$	8,918,427	$	7,015,727	$	2,008,249

		2015		2014		2013
Impairment of property, plant and equipment
TIT Segment	$	-	$	-	$	14,024,289
CBT Segment		4,616,679		827,319		15,952,701
	$	4,616,679	$	827,319	$	29,976,990

Total assets by segment as at December 31, 2015, 2014 and 2013 are as follows:

		2015		2014
Total assets
TIT Segment	$	19,803,442	$	30,120,023
CBT Segment		32,651,184		86,444,794
Corporate and others		364,892		1,236,137
Assets from discontinued operations		13,272,186		61,604,855
	$	66,091,704	$	179,405,809

-F-35-

22. COMMITMENTS AND CONTINGENCIES

iASPEC and Bocom lease offices, employee dormitories and factory space in Shenzhen in the PRC, under lease agreements that will expire on various dates through December 2017. For the years ended December 31, 2015, 2014 and 2013, the rental expense was approximately $219,000, $282,000 and $202,000, respectively. Future minimum lease payments under these lease agreements are as follows:

2016	$	108,720
2017		71,150
Total	$	179,870

On July 9, 2010, the Company entered into an agreement with the municipal government of Dongguan City, to purchase a land use right for a piece of land of 101,764 square meters at a consideration of approximately $23.68 million (RMB 153.6 million) to be paid in cash in installments. As of December 31, 2015, the Company has paid deposits of approximately $14.00 million (RMB90.20 million), net of refunds received to date.

22. CONCENTRATIONS

For the years ended December 31, 2015, 2014 and 2013, no customer accounted for greater than 10% revenue. However, for the year ended December 31, 2015, 2014 and 2013, 21%, 17% and 21%, respectively, of the Company’s revenues from continuing operations were derived from its five largest customers.

At December 31, 2015, accounts receivables were due from 480 customers. Of these, two customers accounted for over 10% of the total accounts receivable. At December 31, 2014, accounts receivable were due from 370 customers and one customer accounted for over 10% of the total accounts receivable.

-F-36-

EXHIBIT INDEX

Exhibit No.		Description
1.1		Amended and Restated Memorandum and Articles of Association of the registrant (incorporated by reference to Exhibit 1.1 to the Annual Report on Form 20-F filed by the registrant on April 15, 2014)
4.1		Agreement and Plan of Merger and Reorganization, dated June 20, 2012, by and among the registrant, CITN and China Information Mergerco Inc. (incorporated by reference to Annex A to the Registration Statement on Form F-4 filed by the registrant on June 21, 2012)
4.2		Amended and Restated Management Services Agreement, dated as of December 13, 2009, among Information Security Technology (China) Co., Ltd., iASPEC Software Co., Ltd. and Jiang Huai Lin (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed by CITN on December 17, 2009)
4.3		Guaranty, dated August 1, 2007, by Jiang Huai Lin and Jin Zhu Cai (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by CITN on August 6, 2007)
4.4		Purchase Option Agreement, dated August 1, 2007, among Information Security Technology (China) Co., Ltd., iASPEC Software Co., Ltd., Jiang Huai Lin and Jin Zhu Cai (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed by CITN on August 6, 2007)
4.5		First Amendment to Stock Purchase Agreement, dated August 26, 2011, by and among China Information Technology Holdings Limited, HPC Electronics (China) Company Limited, Rita Kwai Fong Leung and CITN (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by CITN on August 30, 2011)
4.6		Equity Transfer Agreement, dated May 5, 2011, between Kwong Tai International Technology Ltd. and iASPEC Software Company, Ltd. (English Translation) (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by CITN on May 12, 2011)
4.7		Form of Employment Agreement (English Translation) (incorporated by reference to Exhibit 10.7 to the Annual Report on Form 10-KSB filed by CITN on April 16, 2007)
4.8		Form of Independent Director Agreement (incorporated by reference to Exhibit 10.1 to the Registration Statement on Form F-4 filed by the registrant on June 21, 2012)
4.9		Form of Indemnification Agreement (incorporated by reference to Exhibit 10.2 to the Registration Statement on Form F-4 filed by the registrant on June 21, 2012)
4.10		English Translation of Form of Employee Incentive Stock Purchase Agreement (incorporated by reference to Exhibit 4.1 to the Registration Report on Form 6-K furnished by the registrant on September 27, 2013)
4.11		China Information Technology, Inc. 2013 Equity Incentive Plan (incorporated by reference to Exhibit 4.1 to the Registration Report on Form 6-K furnished by the registrant on September 17, 2013)
4.12		Equity Transfer Agreement, dated September 16, 2014, by and among the Company, iASPEC and Shenzhen Yunchao Software Internet Co. Ltd. (incorporated by reference to Exhibit 4.1 to the Report on Form 6-K furnished by the registrant on September 23, 2014)
4.13		Form of Warrant (incorporated by reference to Exhibit 4.1 to the Report on Form 6-K furnished by the registrant on May 21, 2015)
4.14		Form of Purchase Agreement, dated May 20, 2015, between the Company and the Investors named therein (incorporated by reference to Exhibit 10.1 to the Report on Form 6-K furnished by the registrant on May 21, 2015)
4.15		Placement Agency Agreement, dated May 7, 2015, between the Company and FT Global Capital, Inc. (incorporated by reference to Exhibit 10.2 to the Report on Form 6-K furnished by the registrant on May 21, 2015)
4.16		Form of Standstill Agreement between the Company and the Holder named therein (incorporated by reference to Exhibit 4.1 to the Report on Form 6-K furnished by the registrant on September 24, 2015)
4.17		Form of Standstill Agreement between the Company and the Holder named therein (incorporated by reference to Exhibit 4.1 to the Report on Form 6-K furnished by the registrant on October 7, 2015)

Exhibit No.		Description
8.1*		List of the registrant’s subsidiaries
11.1		Amended and Restated Code of Ethics, adopted on December 25, 2007 (incorporated by reference to Exhibit 14 to the Annual Report on Form 10-K filed by CITN on March 31, 2008)
12.1*		Certifications of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-1(a)
12.2*		Certifications of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-1(a)
13.1*		Certifications of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2*		Certifications of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1*		Consent from GHP Horwath, P.C., Independent Registered Public Accounting Firm.
101*		Interactive data files pursuant to Rule 405 of Regulation S-T

_________________________

*Filed herewith.