10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2010

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

 For the transition period from ______to______.

CHINA INTELLIGENCE INFORMATION SYSTEMS INC.

 (Exact name of registrant as specified in the Charter)

Nevada	333-131017	98-0509797
(State or other jurisdiction of incorporation or organization)	(Commission File No.)	(IRS Employee Identification No.)

11th Floor Tower B1, Yike Industrial Base, Shunhua Rd,

High-tech Industrial Development Zone, Jinan, China 250101

 (Address of Principal Executive Offices)

86-(531) 55585742

 (Issuer Telephone number)

 CHINA VOIP & DIGITAL TELECOM INC.

(Former name, former address and former fiscal year if changed since last report)

Indicate by check mark whether the issuer (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 (229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes |_| No |_|

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

Large accelerated filer |_|Accelerated filer |_|

Non-accelerated filer |_|Smaller reporting company |X|

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

Yes [__] No  [X]

The number of shares outstanding of each of the issuer’s classes of common equity, as of November 11, 2010 is as follows:

Class of Securities	Shares Outstanding
Common Stock, $0.001 par value	69,791,489

CHINA INTELLIGENCE INFORMATION SYSTEMS INC.

FORM 10-Q

For the three and nine months ended September 30, 2010

TABLE OF CONTENTS

PART I— FINANCIAL INFORMATION
Item 1.	Financial Statements	3-13
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14-19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures	19
PART II— OTHER INFORMATION
Item 1.	Legal Proceedings	14
Item 1A.	Risk Factors	14
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	14
Item 3.	Defaults Upon Senior Securities	15
Item 4	(Removed and Reserved)	15
Item 5.	Other Information	15
Item 6.	Exhibits	15

PART 1 - FINANCIAL INFORMATION

Item 1.                                Financial Statements

TABLE OF CONTENTS

Unaudited Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009	3
Unaudited Consolidated Statements of Operations
for the three and nine month periods ended September 30, 2010 and 2009	4
Unaudited Consolidated Statements of Cash Flows                                                                                                                                       ;
for the nine month periods ended September 30, 2010 and 2009	5
Notes to Unaudited Consolidated Financial Statements	6-13

CHINA INTELLIGENCE INFORMATION SYSTEM INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS CHINA VOIP & DIGITAL TELECOM, INC. AND SUBSIDIARIES)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
	AS OF
	SEPTEMBER 30, 2010			DECEMBER 31, 2009
Assets
Current assets
Cash and cash equivalents	$	449,294		$	366,763
Accounts receivable, net		2,568,977			95,699
Inventories, net		625,329			580,598
Due from related parties		142,301			130,942
Loans receivable		406,633			2,917,707
Other current assets, net		1,053,459			394,592
Current assets of discontinued operations		-			47,054
Total Current Assets		5,245,993			4,533,356
Investment in Yinquan Holding		1,932,860			-
Long-term deposit & prepayment		107,007			33,898
Property & Equipment, net		1,434,249			1,261,620
Intangible Assets, net		4,010,966			505,687
Total Assets	$	12,731,075		$	6,334,561
Liabilities & Stockholders' Equity (Deficit)
Current Liabilities
Accounts payable	$	2,099,889		$	10,951
Short-term loans		2,538,033			2,852,045
Warrant Liability		-			2,163,195
Other payable		404,186			503,053
Accrued expenses and other current liabilities		776,060			992,474
Due to related parties		63,561			20,000
Convertible debt		-			3,379,630
Current liabilities of discontinued operations		-			5,497
Total Current Liabilities		5,881,729			9,926,845
Long-term loan		1,492,961			-
Total liabilities		7,374,690			9,926,845
Stockholders' Equity (Deficit)
Common Stock, par value $.001 per share, 75,000,000 shares authorized; 69,791,489 and 53,008,000 shares issued and outstanding as of September 30, 2010 and December 31, 2009		69,791			53,008
Additional paid-in-capital		7,459,247			3,408,515
Shares to be cancelled, 1,012,000 shares as of September 30, 2010 and 1,212,000 shares as of December 31, 2009		(1,012,000	)		(1,212,000	)
Other comprehensive income		1,011,724			786,416
Statutory reserves		228,633			228,633
Accumulated deficit		(2,401,010	)		(6,856,856	)
Total Stockholders' Equity (Deficit)		5,356,385			(3,592,284	)
Total Liabilities and Stockholders' Equity (Deficit)	$	12,731,075		$	6,334,561
The accompanying notes are an integral part of these unaudited consolidated financial statements.

3

CHINA INTELLIGENCE INFORMATION SYSTEM INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS CHINA VOIP & DIGITAL TELECOM, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH AND THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2010 AND 2009
(UNAUDITED)
				Three month periods ended September 30,						Nine month periods ended September 30,
				2010	_		2009	_		2010	_		2009
Revenues:
License sales			$	1,778,956		$	114,806		$	2,938,259		$	251,230
Consulting - Software development				820,297			-			1,354,865			-
Hardware sales				672,243			-			1,110,328			-
Training and other				117,180			21,414			193,543			170,400
	Net revenues			3,388,676			136,220			5,596,995			421,630
Cost of revenues:
License sales				811,932			56,140			1,662,623			101,409
Consulting - Software development				111,866			-			229,072			-
Hardware sales				478,404			-			979,645			-
Training and other				64,873			1,058			217,094			84,676
Cost of revenue				1,467,074			57,198			3,088,433			186,085
	Gross profit			1,921,602			79,021			2,508,562			235,544
Operating Expenses :
		Selling, general and administrative		144,592			1,090,105			1,871,847			1,265,667
		Depreciation and amortization		115,514			27,953			443,350			141,915
		Total operating expenses		260,106			1,118,058			2,315,197			1,407,582
	Gain/(Loss) from operations			1,661,496			(1,039,037)			193,365			(1,172,038)
Other income (expenses)
		Interest expense		(56,871)			(190,007)			(171,862)			(573,251)
		Amortization of convertible debt		-			(416,666)			-			(1,250,000)
		Change in derivative liability		(56,655)			1,107,691			(1,677,025)			(1,939,689)
		Gain (loss) on settlement of debt		(28,145)			-			2,606,095			-
		Cancellation of warrants		-			-			2,163,195			-
		Recovery of bad debts		1,086,061			-			1,086,061			-
		Other financial income (expense)		92,352			121,982			352,791			140,360
	Total other income/(expense)			1,036,742			623,000			4,359,255			(3,622,580)
	Loss from 27% Investment in Yinquan Holding			(7,851)			-			(7,851)			-
	Income (Loss) from continued operations			2,690,387			(416,037)			4,544,769			(4,794,618)
	Loss from Discontinued Operations			-			(395,931)			-			(1,110,402)
	Net Income (Loss)			2,690,387			(811,968)			4,544,769			(5,905,020)
Other comprehensive item:
	Foreign currency translation gain/(loss)			297,791			(20,421)			225,308			27,171
	Net comprehensive Income (Loss)		$	2,988,178		$	(832,389)		$	4,770,077		$	(5,877,849)
NET EARNINGS (LOSS) PER COMMON SHARE FROM CONTINUED OPERATIONS - BASIC & DILUTED			$	0.04		$	(0.01)		$	0.07		$	(0.09)
NET EARNINGS (LOSS) PER COMMON SHARE FROM DISCONTINUED OPERATIONS - BASIC & DILUTED			$	(0.00)		$	(0.01)		$	(0.00)		$	(0.02)
NET EARNINGS (LOSS) PER COMMON SHARE - BASIC & DILUTED			$	0.04		$	(0.02)		$	0.07		$	(0.11)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC & DILUTED				68,894,566			53,008,000			61,389,039			53,008,000
The accompanying notes are an integral part of these unaudited consolidated financial statements.

4

CHINA INTELLIGENCE INFORMATION SYSTEM INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS CHINA VOIP & DIGITAL TELECOM, INC. AND SUBSIDIARIES)
CONSOLIDATED CASH FLOW STATEMENTS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2010 AND 2009
(UNAUDITED)
			Nine Month Periods Ended September 30,
			2010	_		2009
Cash flows from operating activities:
	Net income  (loss)	$	4,544,769		$	(5,905,020)
	Adjustments to reconcile net income (loss) to net cash
	provided by (used in) operating activities:
	Amortization of beneficial conversion feature		-			1,250,000
	Change in derivative liability		1,677,025			1,939,689
	Depreciation and amortization		443,350			141,915
	Depreciation and amortization – discontinued operations		-			491,268
	Gain on settlement of debt		(2,606,095)			-
	Cancellation of warrants		(2,163,195)			-
	Reserve for bad debts		229,763			979,942
	Amortization of debt raising fee		-			109,491
	Reserve for inventory		40,543			-
	( Increase)/decrease in operating assets:
	Accounts receivable		(2,707,247)			110,543
	Recovery of bad debts		(1,086,061)
	Inventories		(73,484)			(151,811)
	Advances to suppliers		(86,869)			494,589
	Prepaid expenses and other assets		(504,055)			216,939
	Current assets of discontinued operations		47,054			(1,474,414)
	Increase/(decrease) in operating liabilities:
	Accounts payable		2,052,461			21,106
	Other payable		(112,827)			-
	Accrued expenses and other current liabilities		523,127			554,648
	Current liabilities of discontinued operations		5,497			(6,096)
	Net cash provided by (used in) operations		223,755			(1,227,211)
Cash flows from investing activities:
	Proceeds from (purchase of) property and equipment		(290,844)			(51,035)
	Proceeds from (payment of) interest bearing loan		2,527,035			(294,192)
	Acquisition of intangible assets		(2,688,714)			(2,617)
	Payment for software & rental deposit		(74,719)			-
	Investment in Shandong Yinquan		(1,932,860)			-
	Due from related party		42,805			(75,608)
	Net cash used in investing activities		(2,417,297)			(423,452)
Cash flows from financing activities:
	Proceeds from common stock issuance		4,131,000			-
	Proceeds on (payment of) short-term loan		(366,763)			1,869,544
	Payment of convertible debt		(3,000,000)
	Proceeds on long-term loan		1,467,050			-
	Net cash provided by financing activities		2,231,287			1,869,544
	Foreign currency translation effect		44,786			24,829
	Net increase in cash and cash equivalents		82,531			243,710
	Cash and cash equivalents, beginning balance		366,763			341,331
	Cash and cash equivalents, ending balance	$	449,294		$	585,041
SUPPLEMENTARY DISCLOSURE:
	Interest paid	$	-		$	117,670
	Income tax paid	$	-		$	-
NON-CASH INVESTING & FINANCING ACTIVITIES:
	Cashless exercise of options	$	53		$	-
	Common shares canceled	$	200,000		$	-
	The accompanying notes are an integral part of these unaudited consolidated financial statements.

5

CHINA INTELLIGENCE INFORMATION SYSTEMS INC.  AND SUBSIDIARIES

(FORMERLY KNOWN AS CHINA VOIP & DIGITAL TELECOM, INC. AND SUBSIDIARIES)

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1GENERAL

China Intelligence Information Systems Inc. (“the Company” or “We”), formerly, Crawford Lake Mining, Inc. and China VoIP & Digital Telecom Inc. acquired on August 17, 2006, all of the outstanding capital stock of Jinan YinQuan Technology Co. Ltd. (“Jinan YinQuan”) in exchange for the issuance of 40,000,000 shares of our common stock to the Jinan Shareholders and $200,000. Such shares are restricted in accordance with Rule 144 of the 1933 Securities Act. In addition, as further consideration for the acquisition, Apollo Corporation, the principal shareholder of the Company, agreed to cancel 11,750,000 post-split shares of its outstanding common stock. Based upon same, Jinan YinQuan became our wholly-owned subsidiary. Jinan YinQuan was established in JiNan in the People’s Republic of China (̶ 0;the PRC”) in 2001.  The exchange of shares with Jinan YinQuan has been accounted for as a reverse acquisition under the purchase method of accounting since the stockholders of the Jinan YinQuan obtained control of the consolidated entity.

On May 7, 2008 (the “Closing Date”), Jinan Yinquan completed the acquisition of 80% of Beijing Power Unique Technologies Co., Ltd. (“BPUT”), a company incorporated under the laws of the People’s Republic of China, in accordance with the Investment Agreement.  

On July 5, 2008, Jinan Yinquan acquired another 20% ownership of BPUT. BPUT therefore became 100% owned subsidiary of Jinan Yinquan on the same date.

The Company’s principal activities are developing and sales of computer software and hardware, digital video pictures system; and developing and sales of computer network and network audio devices.  Before July 2009, the Company was focused on the Voice Over Internet Phone (“VOIP”) technology related business. In July 2009, the VOIP business was discontinued by China government and the company transitioned to focus on providing virtualization solutions and services. Now, the Company also focuses on the cloud computing.

The virtualization business is primarily conducted through BPUT outside of the Shandong area, while Yinquan is primarily focusing on the Shangdong area.

NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

UNAUDITED INTERIM FINANCIAL INFORMATION

The accompanying unaudited consolidated financial statements have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and generally accepted accounting principles for interim financial reporting. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction wi th the audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K. The results of the nine months ended September 30, 2010 are not necessarily indicative of the results to be expected for the full year ending December 31, 2010.

Basis of Presentation

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America.  Our functional currency is the Chinese Renminbi; however the accompanying financial statements have been translated and presented in United States Dollars ($).

Use of Estimates

The preparation of financial statements in conformity with 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.  

Principle of Consolidation

The accompanying consolidated financial statements include the accounts of China Intelligence Information Systems Inc. (the “Company”) and its 100% wholly-owned subsidiary Jinan YinQuan Technology Co. Ltd. (“Jinan YinQuan”). It also includes Beijing Power Unique Technologies Co., Ltd. (“BPUT”), a 100% owned subsidiary of Jinan YinQuan. All significant inter-company accounts and transactions have been eliminated in consolidation.

Foreign Currency Translation

The Company uses the United States dollar ("U.S. dollars") for financial reporting purposes. The Company maintains books and records in their functional currency, being the primary currency of the economic environment in which the operations are conducted. In general, the Company translates the assets and liabilities into U.S. dollars using the applicable exchange rates prevailing at the balance sheet date, and the statement of income is translated at average exchange rates during the reporting period. Gain or loss on foreign currency transactions are reflected on the income statement. Gain or loss on financial statement translation from foreign currency are recorded as a separate component in the equity section of the balance sheet, as component of comprehensive income in accordance with SFAS No. 130 (ASC 220), “Reporting Comprehen sive Income” as a component of shareholders’ equity for the nine months periods ended September, 2010 and 2009, the foreign currency translation gain was $225,308 and $27,171 respectively.

Allowance for Doubtful Accounts

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. As of September 30, 2010 and December 31, 2009, the allowance for doubtful accounts for accounts receivable was $367,153 and $90,256, respectively.

Inventories

Inventories are valued at the lower of cost (determined on a weighted average basis) or market.  Management compares the cost of inventories with the market value and an allowance is made for writing down the inventories to their market value, if lower.  As of September 30, 2010 and December 31, 2009, the reserve for obsolescence of inventory was $150,177 and $147,121, respectively.   

Property, Plant & Equipment

Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives of:

Building                                                   20 years

Furniture and Fixtures                           5-10 years

Equipment                                               5-10 years

Vehicles                                                   10 years

Computer Hardware and Software         5 years

6

Software development cost

Software development costs incurred prior to the establishment of technological feasibility are expensed.  Software development costs incurred between the establishment of technological feasibility and product release are capitalized, if material, and amortized over the estimated economic life of the product, which is generally three years.

Equity investment

The equity method is used when the investor’s ownership interest gives it the ability to influence investee firm’s financial and operating policies. The appropriate percentage of a loss incurred by the investee is recognized immediately by the investor with the carrying value of the investment account also being reduced.

Impairment of Long-Lived Assets

The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with SFAS 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (ASC 360). SFAS 144 (ASC 360) requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal.

Revenue Recognition

The Company markets products primarily through its subsidiaries and alliance system integrators.  The Company’s products consist of virtualization technology related hardware, software, service and in-house developed software. The hardware includes serves, storage devices, virtualization desk-top devices and other hardware used during the virtualization projects implemented by the Company. The software indicates virtualization related software which is purchased from Vmware and Vizioncore. The services including software maintenance and update, product training and consulting services. Self-developed software is developed by the Company for satisfying diverse demands from clients which has nothing to do with the virtualization technology.

The Company’s revenue recognition policies are in compliance with the Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended by SOP 98-4 and SOP 98-9. Under which, software revenue is recognized at the delivery but service and the maintenance revenue is recognized over the period of service contract per percentage of completion method. The service and maintenance revenue is recognized based upon fair value method regardless of contract terms.

Hardware and Software Revenue

·   The Company recognizes revenue relating to hardware and software when all of the following criteria are met

·   Persuasive evidence of the arrangement exists

·   Delivery has occurred or the service has been provided and the Company has no remaining obligations The fee is fixed or determinable

·   Collectability is probable

Sales through system integrators are evidenced by a master distribution agreement, together with purchase orders or equivalent, on a transaction-by-transaction basis.

Service Revenue

Services revenues consist of software maintenance and professional services. The Company recognizes software maintenance revenues ratably over the contract period, which typically ranges from one to five years. Professional services include design, implementation, and training. Professional services are not considered essential to the functionality of the Company’s products as these services do not alter the product capabilities. Professional services engagements performed for a fixed fee, for which the Company is able to make reasonably dependable estimates of progress toward completion, are recognized on a proportional performance basis based on hours and direct expenses incurred. Professional services engagements that are on a time and materials basis are recognized based upon hours incurred. Revenues on all other professional se rvices engagements are recognized upon completion.

In-House Developed Software Revenue

There are two circumstances of the revenue recognition for in house developed software:

1.   Development cycle within one year

The Company recognizes revenue of internally development software when all of the following criteria are met:

·   Persuasive evidence of the arrangement exists

·   Delivery has occurred or the service has been provided and the Company has no remaining obligations The fee is fixed or determinable

·   Collectability is probable

2.   Development cycle is longer than one year

The revenue is recognized based on the percentage-of-completion method during the period of the contract.

Stock-Based Compensation

The Company accounts for stock based compensation in accordance with Statement No. 123R, Share-Based Payment (SFAS 123R) (ASC 718), which requires companies to measure and recognize compensation expense for all stock-based payments at fair value.

Advertising

Advertising expenses consist primarily of costs of promotion for corporate image and product marketing and costs of direct advertising. The Company expenses most of advertising costs as incurred, but amortize the new product image’s designing costs.

Basic And Diluted Earnings Per Share (EPS)

Earnings per share are calculated in accordance with the Statement of Financial Accounting Standards No. 128 (SFAS No. 128) (ASC 260), “Earnings per share”. Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Basic and diluted earnings per share were $0.07 and $(0.11) for the nine month p eriods ended September 30, 2010 and 2009, respectively.

Income Taxes

The Company utilizes SFAS No. 109 (ASC 740), "Accounting for Income Taxes," which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

The Company accounts for income taxes using an asset and liability approach which allows for the recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain.

The Company records a valuation allowance for deferred tax assets, if any, based on its estimates of its future taxable income as well as its tax planning strategies when it is more likely than not that a portion or all of its deferred tax assets will not be realized. If the Company is able to utilize more of its deferred tax assets than the net amount previously recorded when unanticipated events occur, an adjustment to deferred tax assets would increase the Company net income when those events occur. The Company does not have any significant deferred tax asset or liabilities in the PRC tax jurisdiction.

Accounting Changes and Error Corrections

In accordance with SFAS No. 154, “Accounting Changes and Error Corrections”, a change in accounting estimate, such as in a bad-debt allowance, a warranty liability, or the service life of an asset, is not an error.  These estimates were based on the best information available at the time. These changes will continue to be treated prospectively, as under APB 20. However, if a change in estimate affects several future periods and materially affects the current period, disclosure of the effect of the change on current income from continuing operations, net income and the corresponding earnings-per-share figures is required.

Statement of Cash Flows

In accordance with SFAS No. 95 (ASC 230), “Statement of Cash Flows,” cash flows from the Company’s operations is based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.

7

Recently Issued Accounting Standards

In October 2009, the FASB issued ASU No. 2009-13, Multiple-Deliverable Revenue Arrangements, under ASC No. 605.  The new guidance provides a more flexible alternative to identify and allocate consideration among multiple elements in a bundled arrangement when vendor-specific objective evidence or third-party evidence of selling price is not available.  ASU No. 2009-13 requires the use of the relative selling price method and eliminates the residual method to allocation arrangement consideration.  Additional expanded qualitative and quantitative disclosures are also required. The guidance is effective prospectively for revenue arrangements entered into or materially modified in years beginning on or after June 15, 2010. Management is currently evaluating the potential impact of ASU2009-13 o n our financial statements.

In January 2010, FASB issued ASU No. 2010-06 – Improving Disclosures about Fair Value Measurements. This update provides amendments to Subtopic 820-10 that requires new disclosure as follows: 1) Transfers in and out of Levels 1 and 2. A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. 2) Activity in Level 3 fair value measurements. In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number). This update provides amendments to Subtopic 820-10 that clarifies existing disclosures as follows: 1) Level of disaggregation. A reporting entity should provide fair value measurement disclosures for each class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. A reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities. 2) Disclosures about inputs and valuation techniques. A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. These disclosures are effective for fiscal years b eginning after December 15, 2010, and for interim periods within those fiscal years.  The adoption of this ASU did not have a material impact on its consolidated financial statements.

In July 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” ASU No. 2010-20 amends the guidance with ASC Topic 310, “Receivables” to facilitate financial statement users’ evaluation of (1) the nature of credit risk inherent in the entity’s portfolio of financing receivables; (2) how that risk is analyzed and assessed in arriving at the allowance for credit losses; and (3) the changes and reasons for those changes in the allowance for credit losses. The amendments in ASU No. 2010-20 also require an entity to provide additional disclosures such as a rollforward schedule of the allowance for credit losses on a portfolio segment basis, credit quality indicators of financing receivables and the aging of past due financing receivables. The Company is required to adopt ASU No. 2010-20 as of December 15, 2010 and is currently evaluating the impact the new disclosure requirements will have on its financial statements and notes.

Reclassifications

Certain reclassifications have been made in prior years' financial statements to conform to classifications used in the current year.

NOTE 3   CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS

The Company's operations are carried out in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, by the general status of the PRC's economy. The Company's business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Financial instruments, which potentially subject to concentration of credit risk, consist of cash and cash equivalents as the same is not covered by insurance.

NOTE 4   DUE FROM RELATED PARTY

Due from related party amounted to $142,301 and $130,942 as of September 30, 2010 and December 31, 2009, respectively. It represents temporally advance to one Director of the Company for business development purpose.  The receivables are unsecured and non interest bearing.

NOTE 5   LOANS RECEIVABLE

Loans receivable are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees and costs.  The allowances were zero as of September 30, 2010 and December 31, 2009, respectively.  All of the loans receivable are due on demand and the company has not incurred any losses due to uncollectible receivable.

As of September 30, 2010 and December 31, 2009, the loans receivable comprise of the following:

	September 30, 2010			December 31, 2009
Loan to unrelated party A, interest free, due on demand, unsecured	$	-		$	870,599
Loan to unrelated party B, interest at 7.965% annually, unsecured		-			73,129
Loan to unrelated party Shandong Sanyi, interest free, due on demand, unsecured		121,188			292,517
Loan to unrelated party Shenzhen Xindun Investment Consulting Firm, interest free, due on demand, unsecured		298,592			-
Loan to unrelated party Wendeng, interest free, due on demand, unsecured					1,681,462
Other		(13,147	)		-
Total	$	406,633		$	2,917,707

NOTE 6   OTHER CURRENT ASSETS

As of September 30, 2010 and December 31, 2009, the other current assets comprise of the following:

	September 30, 2010			December 31, 2009
Security deposit for loans and business development	$	538,741		$	84,265
Advance to attorney		-			50,000
Advances to employees and others		302,624			158,038
Advance to suppliers		196,782			5,777
Prepayment		162,221			199,144
Total		1,200,368			497,224
Less: Provision for write off		(146,909	)		(102,632	)
Total other current assets, net	$	(1,053,459	)	$	394,592

8

NOTE 7 LONG TERM RENT DEPOSIT & PREPAID EXPENSES

The balances of long term prepaid expenses as of September 30, 2010 and December 31, 2009 are summarized as follows:

	September 30, 2010			December 31, 2009
Prepaid image design	$	51,806		$	46,978
Rent deposit		76,039
Less: Amortization (Image design)		(20,838	)		(13,080	)
Long term prepaid expenses, net	$	107,007		$	33,898

During the year ended December 31, 2008, Power Unique (BPUT), one of the subsidiaries of the Company, incurred $46,978 image designing fees for its new product.  In 2010, BPUT also incurred $4,828 Microsoft authorization fees for its new product.  Such cost will be amortized over five years.

The amortization expense for the next four years after September 30, 2010 is as follows:

Amortization for the next four years is as follows :
2010	$	2,870
2011		11,481
2012		11,481
2013		5,136
Total	$	30,968

The amortization expense for the nine months periods ended September 30, 2010 was $7,239.

NOTE 8   PROPERTY AND EQUIPMENT, NET

The balances of the Company property and equipment as of September 30, 2010 and December 31, 2009 are summarized as follows:

	September 30, 2010			December 31, 2009
Electronic Equipment	$	593,614		$	1,009,141
Vehicles		383,646			363,402
Furniture and fixture		59,553			175,632
Office Building		1,049,600			860,939
		2,086,414			2,409,114
Less: Accumulated depreciation		(515,932	)		(1,147,494	)
Less: Impairment in Electronic Equipment		(136,233	)
Property and Equipment, net	$	1,434,249		$	1,261,620

The depreciation expense for the nine month periods ended September 30, 2010 and 2009 was $116,099 and $337,961 respectively.

NOTE 9 LONG TERM INVESTMENT

On July 20, 2010, the Board of Jinan Yinquan approved the Investment to Shandong Yinquan Investment Holding Limited (Yinquan Holding). The initial capital contribution is $1,940,711 (RMB13,000,000), which takes account of 27% of the shareholder interest of Yinquan Holding. The main purpose of the investment is for Yinquan Holding to establish China Cloud Computing Science Park in Nanhai New Areas of Wendeng City. The city is located in Shandong Province. The investment was accounted for as an equity method investment as the Company has exercised significant influence over the operating and financial policies of Yinquan Holding.

The Company’s investment in equity for the period ended September 30, 2010 is as follows:

Initial investment in Yinquan Holding at cost	1,940,711
Net loss for the nine month period ended September 30, 2010	29,078
CIIS's interest (27%)	7,851
Net book value at September 30, 2010	1,932,860
Net loss for the three month period ended September 30, 2010	29,078
CIIS's interest (27%)	7,851
Net book value at September 30, 2010	1,932,860

A summary of financial information for Yinquan Holding is as follows:
	September 30, 2010
Assets	$  4,211,005
Liabilities	30,358
Equity	4,180,647
Company's equity @ 27%	$  1,932,860

NOTE 10   INTANGIBLE ASSET

Intangible asset mainly comprised of a set of software in Jinan YinQuan acquired from third parties and a set of software from Power Unique. Those sets of software acquired from third parties are used for the core technology of the Company’s software business.  They are amortized over a life of five years. Intangible assets comprised of following at September 30, 2010 and December 31, 2009:

	September 30, 2010			December 31, 2009
Software, cost	$	5,596,389		$	761,839
Less: Accumulated Amortization		(591,493	)		(256,152	)
Less: Impairment		(993,930	)
Intangible asset, net	$	4,010,966		$	505,687

The amortization expenses for the next four years after September 30, 2010 are as follows:

Amortization for the next four years is as follows :
2010	$	332,297
2011	1,322,152
2012		1,322,152
2013	1,036,124
Total	$	4,010,966

9

The amortization expense for the nine month periods ended September 30, 2010 and 2009 was $324,294 and $288,732, respectively.

NOTE 11   SHORT TERM LOANS

As of September 30, 2010 and December 31, 2009, the Company had short-term loans balanced at $2,538,033 and $2,852,045, respectively. The short terms loans comprised of the following:

The Company has an approved line of credit up to the amount of $746,480 and $0 from Qilu Bank as of September 30, 2010 and December 31, 2009 respectively. The line of credit expires on April 9, 2011. The line is secured by Shandong Wuerde Security Company with a flexible interest rate which equals to 30% above the benchmark interest rate set up by the People’s Bank of China. The Company used the full line of credit as of September 30, 2010.

The Company has an approved line of credit up to the amount of $447,888 and $658,164 from China CITIC Bank as of September 30, 2010 and December 31, 2009 respectively.  The line, expiring on June 3, 2011, is secured by Shandong Kexin Security Company with a flexible interest rate which equals to the benchmark interest rate of People’s Bank of China. The Company used the full line of credit as of September 30, 2010 and December 31, 2009.

The Company has a short-term loan in the amount of $597,184 and $0 from China Construction Bank as of September 30, 2010 and December 31, 2009 respectively. The loan has a one year term that expires on March 10, 2011. The loan is unsecured with a flexible interest rate which equals to 10% above the benchmark interest rate set up by the People’s Bank of China.

The Company has a short-term loan in the amount of $746,480 and $0 from China Industrial and Commercial Bank as of September 30, 2010 and December 31, 2009 respectively. The loan is unsecured with a flexible interest rate which equals to 5% above the benchmark interest rate set up by the benchmark interest rate of People’s Bank of China, $298,592 expires on March 30, 2011 and 447,888 expire on March 16, 2011.

For the nine months periods ended September 30, 2010 and 2009, the Company had interest expense of $171,862 and $383,244, respectively.

NOTE 12 – LONG-TERM LOAN

The Company has an approved line of credit up to the amount of $1,492,961 from Jinan Runfeng Rural Cooperation Bank as of September 30, 2010. The line is un-secured with a flexible interest rate which equals to 5% above the benchmark interest rate set up by the benchmark interest rate of People’s Bank of China. The Company used the full line of the credit as of September 30, 2010 and December 31, 2009.

NOTE 13 – SENIOR SECURITY NOTE

On December 21, 2007, the Company issued a senior debenture to Castlerigg Master Investments Ltc. in the amount of $5,000,000 that accrues interest at 8.75% per annum and is due on December 21, 2010. In addition, the Company also issued to Castlerigg three series of warrants, titled Series A Warrant, Series B Warrant and Series C Warrant (collectively the “Warrants”) to purchase 21,459,038 shares of the Company’s common stock. The Warrants are exercisable at price per share of $.5627 and are subject to economic anti-dilution protection.  The Series A Warrant is exercisable for 8,885,730 shares of the Company’s common stock and expires the date eighty four (84) months after the earlier of (A) such time as all of the Registrable Securities (as defined in the Registration Rights Agreement) are available for resal e pursuant to an effective Registration Statement and (B) two (2) years after December 21, 2007.  The Series B Warrant is exercisable for 6,220,011 shares of the Company’s common stock and expires on the date on which the Notes issued pursuant to the Securities Purchase Agreement are no longer issued and outstanding.  The Series C Warrant is exercisable for 6,353,297 shares of the Company’s common stock and expires on the date sixty (60) months after the first time the Company elects a Company Optional Redemption.

The Company shall initially reserve out of its authorized and unissued Common Stock a number of shares of Common Stock for each of the Notes equal to 130% of the Conversion Rate with (i) issuable upon conversion of the Notes, (ii) upon exercise of the Warrants, without taking into account any limitations on the Conversion of the Notes or exercise of the Warrants set forth in the Notes and Warrants, respectively) and (iii) as Interest Shares pursuant to the terms of the Notes. As of December 31, 2009, the Company did not have enough authorized and unissued common stock to reserve 130% shares. This amount is due subject to default.

Per EITF 00-19, paragraph 4, these convertible debentures do not meet the definition of a “conventional convertible debt instrument” since the Company does not have sufficient unissued authorized share capital. The Company is required to increase the authorized share capital which is not within the control of the Company. Therefore, the convertible debenture is considered “non-conventional,” which means that the conversion feature must be bifurcated from the debt and shown as a separate derivative liability.  This beneficial conversion liability was calculated to be nil on March 31, 2010 and December 31, 2009. In addition, since the Company does not have enough number of unissued authorized shares of common stock, it is assumed that the Company could never have enough authorized and unissued shares t o settle the conversion of the warrants into common stock.  Therefore, the warrants issued in connection with this transaction have been reported as liability at December 31, 2009 in the accompanying balance sheet with a fair value of $2,163,195.

On January 5, 2010, the Company entered into a Securities Redemption and Pay-off Agreement (the “Settlement Agreement”) with Castlerigg Master Investments, Ltd. (the “Investor”).  The Settlement Agreement sets forth certain terms with respect to the satisfaction by the Company of obligations owed to the Investor under various agreements entered into between the Company and the Investor (the “Financing Agreements”).  

Pursuant to the Settlement Agreement, the Investor has agreed to accept $3,000,000 from the Company in exchange for the redemption of the 2008 Note and the 2008 Warrants, but only upon the terms and conditions expressly set forth in the Settlement Agreement, including the Company’s completion of certain conditions precedent set forth in Section 3 of the Settlement Agreement (the “Conditions”).  Upon the satisfaction of the Conditions and the closing of the Settlement Agreement, (i) the Company shall pay to the Investor $3,000,000, (ii) the Investor and the Company will release each other from all claims related to the Financing Agreements as of the date of the Settlement Agreement, (iii) the Investor will transfer and convey to the Company the 2008 Note and 2008 Warrants, and (iv) the Company shall redeem from the Investor the 2008 Note and the 2008 Warrants.

Prior to the closing of the Settlement Agreement, the Investor is converting a portion of the 2008 Note for 1,000,000 shares of the Company’s Common Stock pursuant to the terms of the 2008 Note.  The issuance of these shares is one of the Conditions required to be completed prior to closing.

On April 14, 2010, the Company entered into an Amended and Restated Securities Redemption and Pay-off Agreement (the “Amended and Restated Settlement Agreement”) to amend and restate the Settlement Agreement to, among other things, extend the termination date specified therein in consideration for a payment by the Company to the Investor of $50,000 on the date of the Amended and Restated Settlement Agreement.

Pursuant to the Amended and Restated Settlement Agreement, the Investor has agreed to accept $2,950,000 from the Company in exchange for the redemption of the 2008 Note and the 2008 Warrants, but only upon the terms and conditions expressly set forth in the Amended and Restated Settlement Agreement, including the Company’s completion of certain conditions precedent set forth in Section 3 of the Amended and Restated Settlement Agreement (the “Conditions”). Upon the satisfaction of the Conditions and the closing of the Amended and Restated Settlement Agreement, (i) the Company shall pay to the Investor $2,950,000, (ii) the Investor and the Company will release each other from all claims related to the Securities Purchase Agreement, as amended, the 2008 Note and the 2008 Warrants as of the date of the Amended and Restated S ettlement Agreement, (iii) the Investor will transfer and convey to the Company the 2008 Note and 2008 Warrants and (iv) the Company shall redeem from the Investor the 2008 Note and the 2008 Warrants.

In addition, pursuant to the Amended and Restated Settlement Agreement, since January 5, 2010, the Company shall have duly delivered to the Investor an aggregate of 1,100,000 shares of Common Stock pursuant to the Conversion Notice. The issuance of these shares is one of the Conditions required to be completed prior to closing.

On July 29, 2010, the Company entered into a Second Amended and Restated Securities Redemption and Pay-Off Agreement (the “Second Amended and Restated Settlement Agreement”) with), to extend the termination date in consideration for a payment by the Company to the Investor of an aggregate of  $850,000.

The Company paid the $2,150,000 balance due under the Settlement Agreement, as amended, on August 16, 2010 in exchange for the redemption of the 2008 Note and the 2008 Warrants. The Investor and the Company released each other from all claims related to the Securities Purchase Agreement, as amended, the 2008 Note and the 2008 Warrants. In addition, pursuant to the Settlement Agreement, as amended, since January 5, 2010, the Company delivered to the Investor an aggregate of 1,100,000 shares of Common Stock pursuant the terms of the 2008 Note.  Under the Settlement Agreement, as amended, the Investor will also return the shares of common stock and original certificate of trademarks that were pledged in 2007.

As a result of the redemption of the convertible debt and cancellation of series A,B,C and D warrants, the company recorded a gain on settlement of debt amounted to $2,634,240, a non-operating income of $2,163,195 for cancellation of warrants and a BCF expense of $1,620,370 for the nine month period ended September 30, 2010.

10

NOTE 14  OTHER PAYABLE

As of September 30, 2010 and December 31, 2009, other payable consisted of the following:

	September 30, 2010		December 31, 2009
Payable for sponsorship	$	-	$	140,967
Payable for office purchase		159,271		156,031
Others		244,915		206,055
Total	$	404,186	$	503,053

The payable for office purchase represents the amount for the company’s purchased of office space in Yike Building.

NOTE 15  ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities as of September 30, 2010 and December 31, 2009 are summarized as follows:

	September 30, 2010		December 31, 2009
Accrued staff payroll and welfare	$	26,984	$	21,415
Tax payables		490,411		169,596
Interest payable		-		750,000
Accrued expenses		11,287		20,297
Deposits		247,378		31,165
Total	$	776,060	$	992,474

NOTE 16   DUE TO RELATED PARTIES

Due to related party of $63,561 as of September 30, 2010 and December 31, 2009 represents $20,000 payable to former beneficial owner of Crawford Lake Mining Inc. and $43,561 payable to the CEO of the Company. The payables are unsecured, non interest bearing and payable on demand.

NOTE 17  STATUTORY RESERVES

Statutory reserves are made on an annual basis.  As stipulated by the Company Law of the People’s Republic of China (PRC) executed on 2006, net income after taxation can only be distributed as dividends after appropriation has been made for the following:

1. Making up cumulative prior years’ losses, if any;

2.Allocations to the “Statutory surplus reserve” of at least 10% of income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the Company’s registered capital;

3.Allocations of 5-10% of income after tax, as determined under PRC accounting rules and regulations, to the Company’s “Statutory common welfare fund”, which is established for the purpose of providing employee facilities and other collective benefits to the Company’s employees; (The reserve is no more  required for the foreign invested enterprises since 2006); and

4. Allocations to the discretionary surplus reserve, if approved in the shareholders’ general meeting.

According to the new Company Law of the People’s Republic of China (PRC) executed in 2006, the Company is not required to reserve the “Statutory common welfare fund”. Accordingly, the Company did not reserve the common welfare fund in 2010.

In accordance with the Chinese Company Law, the company has to allocate 10% of its net income after tax to surplus. The statutory reserves are made on an annual basis.  As a result, Jinan Yinquan and Power Unique will allocate the reserve funds at the 2010 year end.  For the nine months period ended September 30, 2010, the Company did not allocate any reserve funds.

Balances of Statutory reserves as of September 30, 2010 and December 31, 2009 are as follows:

Net loss of operation in PRC in 2009	$	(334,264	)
Reserve rate of statutory fund		10	%
Amount reserved in 2010	$	-
Balance of statutory reserve at December 31, 2009	$	228,633
Change during 2010		-
Balance of statutory reserve at September 30, 2010	$	228,633

NOTE 18   SHARES TO BE CANCELLED

Pursuant to the term sheet, on July 18, 2007, the Company issued 1.2 million shares to Downshire Capital Inc. and its assigned parties as first installment for financing assistance. While according to the term sheet, $3 million USD should be received by the company before August 15, 2007, otherwise, Downshire Capital and its designed investors need to return the 1.2 million shares and the Registrant will cancel it accordingly.

As of August 21, 2007, Downshire Capital Inc. was not able to complete the financing before closing deadline according to the termsheet signed with the Registrant on July 17, 2007. After further negotiation, both parties could not reach further agreement to extend the termsheet and the termsheet was terminated accordingly.  The stock transfer agent of the Company has put restriction on the stock to trade. The Company requested its stock transfer agent to cancel the shares. 200,000 shares were cancelled as of September 30, 2010.  However, Downshire Capital Inc. did not return the remaining certificates to stock transfer agent as of September 30, 2010. The remaining one million shares have been classified as “Shares to be cancelled” in the accompanying financial statements.

NOTE 19  INCOME TAXES

The Company is registered in the State of Nevada and has operations in primarily two tax jurisdictions – the PRC and the United States. For the operation in the PRC and the U.S., the Company has incurred net accumulated operating losses for income tax purposes. The Company believes that it is more likely than not that these net accumulated operating losses will not be utilized in the future.  The Company has no net deferred tax assets as of September 30, 2010 and December 31, 2009.

The operation in PRC is approved as hi-tech software company and enjoys 15% income tax rate pursuant to State Tax notice No. 2007(63) and No. 2008(21) because being a foreign invested company.

For the nine months periods ended September 30, 2010 and 2009, the Company did not incur any income tax expense for both periods.  Income for the nine months ended September 30, 2010 is offset by net operating loss carryforwards.

11

The following is a reconciliation of the provision for income taxes at the U.S. federal income tax rate to the income taxes reflected in the Statement of Operations:

	September 30, 2010	September 30, 2009
Tax expense (credit) at statutory rate – federal	34%	34%
State tax expense net of federal tax	6%	6%
Valuation allowance	(40%)	(40%)
Foreign income tax – PRC	15%	15%
Net operating loss carryforward offset	(15%)	(15%)
Tax expense at actual rate	0%	0%

The Company utilizes ASC 740 (SFAS No. 109), “Accounting for Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

’Consolidated pre-tax income (loss) consists of the following:

	Nine month periods ended September 30,
	2010			2009
US operations		$	2,625,665		$	3,902,055
Foreign operations			1,919,104			(9,807,075	)
		$	4,544,769			(5,905,020	)

The Components of the provision for income taxes are as follows:

	Nine month periods ended September 30,
	2010		2009
Current:
Federal		$		$
Foreign
Deferred:
Federal
Foreign
Provision for income taxes	$-			$	-

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate as of September 30, 2010 and 2009:

For the nine month period ended September 30, 2010	China				United States
	15%				34%				Total
		_		_		_		_
Pretax income (loss)	$2,625,665			$	1,919,104			$	4,544,769
Expected income tax expense (benefit)	892,726		15%		287,866		34%		1,180,592
Net operating loss carryforwards	(892,726)		(15%)		(287,866)		(34%)		(1,180,592)
Change in valuation allowance on deferred tax asset from US tax benefit
Actual tax expense	$             -		0%	$	-		0%	$	-
For the nine month period ended September 30, 2009	China				United States
	15%				34%
Pretax income (loss)	($9,807,075)			$	3,902,055			$	5,905,020
Expected income tax expense (benefit)	(1,471,061)		15%		1,326,699		34%		(144,363)
Net operating loss carryforwards	1, 471,061		(15%)		(1,326,699)		(34%)		144,363
Change in valuation allowance on deferred tax asset from US tax benefit
Actual tax expense	$               -		0%	$	-		0%	$	-

Although the Company did not have any operating income in the U.S. for the nine month periods ended September 30, 2010 and 2009, respectively, it incurred various general & administrative expenses in the U.S. Accordingly, the Company’s U.S. operations have deferred taxes in the form of net operating losses (“NOLs”). However due to the uncertainty that some or all of the deferred tax assets will not be realized in the coming years, the Company recorded a full valuation allowance against its nominal deferred tax assets and thus had no deferred tax on a net basis for the nine month periods ended September 30, 2010 and 2009, respectively.

	September 30, 2010		_	September 30, 2009
Total Deferred Tax Assets	$	175,643		$	242,130
Less : Valuation Allowance		(175,643)			(242,130)
Net Deferred Tax Asset	$	-		$	-

12

NOTE 20  OPERATING LEASE

The Power Unique leases its office space in Beijing China under an operating lease starting from January 25, 2008 and expiring January 24, 2012.  Jinan YinQuan’s office lease expired in May 2008 and the company purchased the office space in June 2008.  Jinan YinQuan does not incur any rent expense.

Rent expense under the operating leases was approximately $78,180 and $33,034 during the nine month periods ended September 30, 2010 and 2009, respectively.

The rent expenses for the next four years after September 30, 2010 are as follows:

2010	$	95,240
2011		400,460
2012		378,916
2013		203,081
Total	$	1,077,699

Power Unique signed a lease to rent four units with total 1,246.25 square meters of office space in Yuanyang Guanghua Center on June 8, 2010. Two of the units have a three-year term starting from August 2010 to August 2013.  The other two units have 33-month lease term starting in November 2010.

NOTE 21 DISCONTINUED OPERATIONS

Due to China government restriction in July 2009, the Company discontinued VOIP business in 2009 and transitioned to focus on providing virtualization solutions and services.  As a result, the Company does not have any discontinued operations in 2010. The Company recorded loss from discontinued operations amounting to $1,110,402 for the nine month period ended September 30, 2009.

Note 22 GOING CONCERN

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the company as a going concern.  However, the Company has accumulated deficit of $2,401,010 and $6,856,856 as of September 30, 2010 and December 31, 2009, respectively. In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying consolidated balance sheet is dependent upon continued operations of the company, which in turn is dependent upon the Company’s ability to raise additional capital, obtain financing and succeed in its future operations, The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and clas sification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Management has taken certain restructuring steps to provide the necessary capital to continue its operations. These steps included: 1) to continue actively seeking additional funding and restructure the acquired subsidiaries to increase profits and minimize the liabilities; 2) seek governmental funds support.

Note 23 SUBSEQUENT EVENTS

On July 20, 2010, the Board of Jinan Yinquan approved the Investment to Shandong Yinquan Investment Holding Limited (Yinquan Holding). The initial investment was RMB13,000,000 (27% of the shareholder interest) and the total investment amount is RMB17,500,000, which takes account of 33.3% of the shareholder interest of Yinquan Holding. The main purpose of the investment is for Yinquan Holding to establish China Cloud Computing Science Park in Nanhai New Areas of Wendeng City. The city is located in Shandong Province.

In October 2010, the remaining RMB4,500,000 investment was received by Shandong Yinquan Investment Holding Limited.

Upon the majority vote of the shareholders on June 28, 2010, the shareholders approved an increase in the total number of authorized share of common stock that may be issued by the Company to two hundred and fifty million  (250,000,000)  shares of stock with a par value of one tenth of one cent  ($0.001). A Certificate of Amendment was filed with the Secretary of State of Nevada on November 10, 2010 with respect to the increase in the number of authorized shares of common stock.

13

Item 2.                                Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q, including the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements that are based on the beliefs of our management, and involve risks and uncertainties, as well as assumptions, that, if they ever materialize or prove incorrect, could cause actual results to differ materially from those expressed or implied by such forward-looking statements. The words “believe,” “expect,” “anticipate,” “project,” “targets,” “optimistic,” “intend,” “aim,” “will” or similar expressions are intended to identify forward-looking statements. All statements, other than statements of historical fact , are statements that could be deemed forward-looking statements, including statements regarding new and existing products, technologies and opportunities; statements regarding market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in China; any statements of belief or intention; any of the factors and risks mentioned in the “Risk Factors” sections of our Annual Report on Form 10-K for the year ended December 31, 2009 and subsequent SEC filings, and any statements of assumptions underlying any of the foregoing. All forward-looking statements included in this report are based on information available to us on the date of this report. We assume no obligation and do not intend to update these forward-looking statements, except as required by law.

BUSINESS OVERVIEW

China Intelligence Information Systems Inc. (“the Company”), formerly known as China VoiP Digital & Telecom Inc., acquired, on August 17, 2006, all of the outstanding capital stock of Jinan Yinquan Technology Co. Ltd. (“Jinan Yinquan”) in exchange for the issuance of 40,000,000 shares of our common stock to Jinan Yinquan’s shareholders and $200,000. Such shares are restricted in accordance with Rule 144 of the Securities Act. In addition, as further consideration for the acquisition, Apollo Corporation, the principal shareholder of the Company, agreed to cancel 11,750,000 post-split shares of its outstanding common stock. As a result, Jinan Yinquan became our wholly-owned subsidiary.

Jinan Yinquan is an equity joint venture established in Jinan in the People’s Republic of China (“the PRC”) in 2001. The exchange of shares with Jinan Yinquan has been accounted for as a reverse acquisition under the purchase method of accounting since the stockholders of the Jinan Yinquan obtained control of the consolidated entity. Accordingly, the merger of the two companies has been recorded as a recapitalization of Jinan Yinquan, with Jinan Yinquan being treated as the continuing entity. The historical financial statements presented are those of Jinan Yinquan. The continuing company has retained December 31 as its fiscal year end. The financial statements of the legal acquirer are not significant; therefore, no pro forma financial information is submitted.

On May 7, 2008 (the “Closing Date”), Jinan Yinquan completed the acquisition of Beijing PowerUnique Technologies Co., Ltd. (“BPUT”), a company incorporated under the laws of the PRC, in accordance with the Investment Agreement. On the Closing Date, pursuant to the terms of the Investment Agreement, Jinan Yinquan invested RMB4,000,000 to BPUT; and BPUT transferred 80% of the shares and ownership interests of BPUT to Jinan Yinquan. On the Closing Date, Jinan Yinquan became the controlling shareholder of BPUT. BPUT is a privately held software company in Beijing specializing in enterprise application software research and development. It creates reliable, secure as well as efficient information technology platforms for enterprise clients. BPUT is committed to providing the highest quality solutions to enterprises in b oth information security and virtual technology.

Jinan Yinquan’s principal activities were developing and sales of computer software and hardware and digital video pictures system and developing and sales of computer network and network audio devices, parts and low value consumables (exclusive of the business not obtained the license). After completing the acquisition of BPUT, the Company was focusing on the Voice over Internet Phone (“VoIP”), information security and virtualization technology related business.  In 2008, Jinan Yinquan launched a new communication platform based on its VoIP technology. The new platform, International Business Communication Center (IBCC), includes telephone, fax, Email, SMS, conference calling and video conferencing together with OA and CRM software, in a single integrated package.  However, on July 5, 2009, due to th e political riot in Urumqi, the capital of the Xinjiang Uygur Autonomous region, the Chinese government issued an order to block VoIP services. As of the filing of this report, the Chinese government has not removed the order to resume services. The Company’s telecom service business suffered tremendously. The Company did not anticipate that the government would issue this order, nor did the Company expect such a long duration of the suspension of VoIP services. As a result, on February 5, 2010, the Company announced that it has discontinued its entire VoIP business and is focusing on providing integral virtualization solutions and services in China.

The virtualization business is primarily conducted through BPUT outside of Shandong area, while Jinan Yinquan is primarily focusing on Shangdong area. Currently, both Jinan Yinquan and BPUT are the leaders in applied virtual technology field in China. In May 2008, BPUT became an official Technology Alliance Partner (TAP) of VMware (NYSE: VMW). VMware is the global leader in virtualization solutions from the desktop to the data center. Customers of all sizes rely on VMware to reduce capital and operating expenses, ensure business continuity, strengthen security and go green. VMware has more than 100,000 customers worldwide and all Fortune 100 enterprises are using the mature virtual technology of VMware. The alliance partnership allows BPUT to leverage VMware’s advanced virtual technology in the information security products marketpl ace in order to broaden its product offerings and strengthen its competitive advantage.

After Jinan Yinquan launched both the virtualization application technology in 2008, its virtualization technology was endorsed as the designated virtualization application technology product for the 11th National Games of the PRC (the “National Games”).  Jinan Yinquan implemented the virtualization technology in the National Games dedicated data center. The virtualization technology significantly reduced system purchases and operating costs. It also improved the reliability and manageability of the system and safeguard the information used during the National Games.

CORPORATE STRUCTURE

On December 31, 2009, the Board of China Intelligence Information Systems Inc. approved the resolution that decided to acquire 100% shareholder interest of Shandong Honest Management Consulting Co., Ltd., ( “Honest”), a company incorporated and operated under the laws of the People’s Republic of China, at the price of RMB35,464,934.21 (Approx. $5,187,055). After the acquisition, which was effective on August 3, 2010, Honest   became the wholly-owned subsidiary of China Intelligence Information Systems Inc.

On December 31, 2009, the Board of the Company approved the transfer of its 100% shareholder interest of Jinan Yinquan to Honest at the price of RMB34,464,934.21 (Approx. $5,040,797). After the transfer, which was effective on August 24, 2010, Jinan Yinquan became the wholly-owned subsidiary of Honest. Honest retains the right to manage Jinan Yinquan and continue to develop its business operations. The purpose of this transfer is foster the development of Jinan Yinquan in China, since the Chinese government offers stronger support to local companies.

On August 18, 2010, the shareholders of Jinan Yinquan approved the transfer by Li Kunwu of his 1% interest in Jinan Yinquan to BPUT at a price of RMB291, 774.16. The Agreement was signed by Li Kunwu and BPUT on August 18, 2010 and was consummated on August 24, 2010.

On September 13, 2010, the shareholders of BPUT approved the transfer by  Jinan Yinquan of its  9.09% shareholder interest of BPUT to Honest at a price of RMB1,000,000. The Agreement was signed by Jinan Yinquan and Honest on September 20, 2010, and was consummated on September 20, 2010.

Based on the foregoing transactions, the Company became the sole shareholder o f Honest, which, in turn, is the sole shareholder of Jinan Yinquan and BPUT.

14

The corporation structure of the Company is as follows:

On July 20, 2010, the Board of Jinan Yinquan approved the Investment to Shandong Yinquan Investment Holding Limited (Yinquan Holding). The total investment amount is RMB13,000,000, which takes account of 27% of the shareholder interest of Yinquan Holding. The main purpose of the investment is for Yinquan Holding to establish China Cloud Computing Science Park in Nanhai New Areas of Wendeng City. The city is located in Shandong Province.

Upon the majority vote of the shareholders on June 28, 2010, the shareholders approved a change in the name of the Company to China Intelligence Information Systems Inc. and an increase in the total number of authorized share of common stock that may be issued by the Company to two hundred and fifty million (250,000,000) shares of stock with a par value of one tenth of one cent ($0.001).  No other class of stock is authorized.  A Certificate of Amendment to the Articles of Incorporation was filed with the Secretary of State of Nevada on July 26, 2010 with respect to the change of the Company’s name and a Certificate of Amendment was filed with respect to the increase in the authorized shares of common stock on November 10, 2010.

OPERATIONS

Since 2008, the Company’s integral virtualization solutions and services have obtained strong support from the Chinese governments, and the Company has several breakthroughs in the virtualization field. Currently, the Company’s main businesses are to:

1.	Develop and Promote Server Virtualization Technology.
2.	Provide Virtual Desktop Infrastructures (VDI).

3.	Provide Disaster Tolerance Backup and Management Technology under Virtualization Infrastructure.
4.	Provide Information Technology Outsourcing services of virtualization products and technology (ITO).

5.   Offer Info-security Storage Products.

In addition, the Company achieved several VMware certifications including:

·	VMware Technology Alliance Partner (TAP)
·	VMware Community Source (VCS)

·	VMware Premier Partner (VPN)
·	VMware Authorized Training Center (VATC)

· VMware Authorized Consultant (VAC)

Jinan Yinquan and BPUT are also the VIP partners with Vizioncore. We have completed the localization of Vizioncore’s software in China. Jinan Yinquan is focusing on virtualization marketing in the Shandong area. BPUT’s focus is on the large enterprise client market and also exploring markets in Sichuan, Hebei, Beijing, Tianjin and Liaoning. Cooperating with two of the largest virtualization vendors in the world, we provide a full range of solutions to our clients and are capable of developing new virtualization-related products based on a client’s specific needs. We also have the option to charge long-term recurring service fees for after-product sales.

15

RESULTS OF OPERATIONS

Three Months Ended September 30, 2010 Compared to Three Months Ended September 30, 2009

Revenues.  During the three months ended September 30, 2010, we recorded revenues of $3,388,676, an increase of $3,252,456, or 2,388% compared to $136,220 during the same period of 2009.

	Three months ended September 30,
	2010		2009
Revenues:
License sales	$	1,778,956	$	114,806
Consulting - software development		820,297
Hardware sales		672,243
Training and other		117,180		21,414
Total	$	3,388,676	$	136,220

During the third quarter, we had a strong revenue increase compared to the first and second quarters of 2010.  In the first six months of 2010, we incurred a large sum of expenses given our significant effort to obtain new customers and contracts for our virtualization business.  We officially transitioned from a VoIP products and services provider to a firm specializing in virtualization solutions and services in 2010.  The increase of expenses in the first six months of  2010 resulted from this transition but our revenue growth was relatively small compared to the increase in expenses during this period. .

In the third quarter of 2010, our efforts from the first six months of 2010 resulted in our execution of several contracts and implementation of customized solutions for the clients.  The completion of a number of virtualization projects caused our revenues to increase so substantially in the three months ended September 2010.  As we continue to expand our operations and offer more unique solutions and services to more customers, our expected revenues are also expected to be strong in the three months ended December 31, 2010 and in 2011.

Cost of Revenues.  Cost of revenues during the three-month ended September 2010 was approximately $1,467,074, an increase of $1,409,876 or 2,465%, compared to $57,198 during the same period of 2009, as a result of the continued marketing expansion strategy of the new virtualization business. The increased cost is comparable to our increased revenues during the three months ended September 30, 2010.

	Three months ended September 30,
	2010		2009
Cost of Revenues:
License sales	$	811,932	$	56,140
Consulting - software development		111,866		-
Hardware sales		478,404		-
Training and other		64,873		1,058
Total	$	1,467,074	$	57,198

Gross Profit.  The gross profit was $1.9 million during the third quarter 2010, an increase of $1,842,581 or 2,332%, compared to $79,021 during the same period of 2009. The increased gross profit from the quarter was due to significant increased revenues from the operation of our virtualization business.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $144,592, declined $945,513, or 87% during the three months ended September 30, 2010, compared to $1,090,105 during the same period of 2009.   The Company had a large bad debt expense in the nine months ended September 30, 2009.

Depreciation and Amortization Expenses.  Depreciation and amortization expenses were $115,514 during the three month periods ended September 30, 2010, an increase of $87,561, or 313%, compared to $27,953 during the same period of 2009.  Higher depreciation and amortization expenses in the third quarter of 2010 were driven by the increases in fixed and intangible assets associated with the operation of our virtualization business.

Operating Profit (Loss).  We recorded an operating profit of $1,661,496, an increase of $2,700,533 during the three months ended September 30, 2010, compared to operating loss of $1,039,037 during the same period of 2009. The operating profit in 2010 was driven by higher revenue derived from the new virtualization business. Significant growth of net revenues during the three months ended September 30, 2010 was more than enough to offset the increases in cost of revenue and the selling, general and administrative costs in the period.

Other Income (expense). Other income primarily included the interest expense of $56,871, an expense in change in derivative liability of $56,655, a loss in settlement of debt of $28,145 and other income of $92,352 during the three months ended September 30, 2010.  In the three months ended September 30, 2010, we recorded an income of $1,086,061 from change of accounting estimate due to bad debt recovery.

Loss from Equity Investment. During the three months ended September 30, 2010, Yinquan purchased a 27% of equity interest in Shandong Yinquan Holdings.  The loss from the 27% investment was $7,851 during the third quarter.

Net Income (Loss).  As a result of the factors described above, our net income increased approximately $3.5 million, to approximately $2.7 million or $0.04 per share (basic and diluted) in the three months ended September 30, 2010 from a net loss of approximately $0.8 million, or ($0.01) per share (basic and diluted) for the same period of 2009.

Nine Months Ended September 30, 2010 Compared to Nine Months Ended September 30, 2009

Revenues .   During the nine months ended September 30, 2010, we recorded revenues of $5,596,995, an increase of $5,175,365, or 1,227%, compared to $421,630 during the same period of 2009. The revenue increase was mainly driven by a number of virtualization projects completed during the nine month ended September 30, 2010.  We have seen a strong improvement in our virtualization business and expect to see continued strong revenues in the three months ended December 31, 2010 and in 2011.

	Nine months ended September 30,
	2010		2009
Revenues:
License sales	$	2,938,259	$	251,230
Consulting - Software development		1,354,865		-
Hardware sales		1,110,328		-
Training and other		193,543		170,400
Total	$	5,596,995	$	421,630

16

Cost of Revenues. Cost of revenues was $3,088,433 during the nine month ended September 30, 2010, an increase of $2,902,348, or 1,560%, compared with $186,085 in the same period of 2009 as a result of the increased purchases of virtualization components for our customized solutions.

	Nine months ended September 30,
	2010		2009
Cost of Revenues:
License sales	$	1,662,623	$	101,409
Consulting - Software development		229,072		-
Hardware sales		979,645		-
Training and other		217,094		84,676
Total	$	3,088,433	$	186,085

Gross Profit.  The gross profit was $2,508,562 during the nine months ended September 30, 2010, an increase of $2,273,018, or 965% compared with $235,544 in the same period in 2009.  The increased gross profit from the quarter was due to sharply increased revenues in our virtualization business.

Selling, General and Administrative Expenses.  Selling, general and administrative expenses increased $606,180 or 48% to $1,871,847 during the nine month ended September 30, 2010, compared with $1,265,667 during the same period of 2009, as a result of the continued marketing expansion strategy of the new virtualization business.

Depreciation and amortization expenses increased by $301,435, or 212%, to $443,350 during the nine months ended September 30, 2010, compared to $141,915 in the same period of 2009. Higher depreciation and amortization expenses in the period were attributed to the increases in fixed and intangible assets associated with the operation of virtualization business.

Operation Profit (Loss).  We had an operating profit of $193,365 during the nine months ended September 30, 2010, an increase of $1,365,403 compared to an operating loss of $1,172,038 during the same period of 2009.  The operating profit was driven by higher revenue that is more than offset the costs related to our virtualization business in 2010.

Other Income (Expense).  Other income primarily included interest expense of $171,862, a gain on settlement of debt of $2,606,095, change in derivative liability expense of $1,677,025, and a gain on the cancellation of warrants of $2,163,195 during the nine months period ended September 30, 2010, as a result of redemption of the convertible debt previously issued in December of 2007. Other income (net) was $4,359,255 during the nine months ended September 30, 2010, compared to the other expense (net) of $3,622,580 during the same period of 2009.  In the nine months ended September 30, 2010, we recorded an income of $1,086,061 from bad debt recovery.

Loss from Equity Investment. During the nine months ended September 30, 2010, Yinquan recorded a loss of $7,851 from its 27% of equity interest in Shandong Yinquan Holdings.

Net Income (Loss).Net income increased $10,449,789 to approximately $4.5 million, or $0.07 per share (basic and diluted) in the nine months ended September 30, 2010 from net loss of approximately $5.9 million , or ($0.11) per share (basic and diluted) for the same period of 2009. The increased net income in 2010 was mainly due to higher operating profit as well as the increased other income associated with the settlement of convertible debt and cancellation of warrants.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2010, the Company's cash was $449,294, an increase of $82,531, or 23% as compared to $366,763 as of December 31, 2009. We had a working capital deficit of $635,736 as of September 30, 2010, compared to a working capital deficit of $5,393,489 as of December 31, 2009.

Net Cash Provided by Operating Activities

Cash provided by operating activities was $223,755 during the nine months ended September 30, 2010, compared to cash used in operating activities of $1,227,211 for the same period in 2009. The net income of $4,544,769 was more than enough to offset the total cash used adjustments of $4,321,013 during the nine months ended September 30, 2010. Cash used in operating activities during the same period of 2009 mainly consisted of a change of derivative liability of $1,939,689, advances to suppliers of $494,589, inventory of ($151,811) and accrued expenses and other current liabilities of $554,648, a change in beneficial conversion feature of $1,250,000, a depreciation and amortization of $141,915, and a provision for bad debt of $979,942.

Net Cash Used in Investing Activities

Cash flows used in investing activities was $2,417,297 during the nine months ended September 30, 2010, compared to $423,452 during the same period of 2009. Cash used in investing activities during the nine months ended September 30, 2010 mainly consisted of purchase of property and equipment of $290,844, due to related party of $42,805, cash received from interest bearing loan of $2,527,035, payment for rent deposit of $74,719, purchase of intangible assets of $2,688,714 and equity investment in Yinquan Holding of $1,932,860. Cash used in investing activities during the nine months ended September 30, 2009 mainly consisted of purchase of property and equipment of $51,035, purchase of intangible assets of $2,617, due from related party of $75,608 and cash for payment for interest bearing loan of $294,192.

Net Cash Provided by Financing Activities

Cash flows provided by financing activities were $2,231,287 during the nine months ending September 30, 2010, as compared to $1,869,544 during the nine months ending September 30, 2009.  We received the proceeds from common stock issuance of $4,131,000, we paid $3,000,000 to satisfy our obligations for convertible debt (in the original principal amount of $5,000,000) and we received a long-term loan of $1,467,050 as of September 30, 2010.

Private Placements –

On May 24, 2010, the Company and Digital Telecom Inc entered into the Stock Purchase Agreements to sell 3,000,000 shares to each of three investors, for an aggregate of 9,000,000 shares of the Company’s common stock for $0.27 per share for an aggregate purchase price of $2,430,000.

On May 25, 2010, the Company entered into a Stock Purchase Agreement with one investor to sell 1,000,000 shares of  Common Stock for $0.27 per share for an aggregate purchase price of $270,000.  The Company received $100,000 in cash for the investment and $170,000 in the subscription receivable.

Pursuant to Stock Purchase Agreements with three investors dated July 15, 2010, (the “July 15 Investors”), the Company sold 5,300,000 shares (each investor purchased 3,000,000, 500,000 and 1,800,000 shares respectively) of the Company’s common stock, par value $0.001 per share, for $0.27 per share for an aggregate purchase price of $1,431,000.  

Settlement with Castlerigg Master Investments, Ltd. –

Effective January 11, 2010, Castlerigg Master Investments, Ltd. (the “Investor”) agreed to accept $3,000,000 from the Company in exchange for the redemption of a promissory note (the “2008 Note”) in the original principal amount of $5,000,000 and redemption of certain warrants (the “2008 Warrants”).  Pursuant to the Amended and Restated Redemption and Pay-off Agreement dated as of April 14, 2010, the Company paid the Investor $50,000. On July 29, 2010, the Company and the Investor  entered into a Second Amended and Restated Securities Redemption and Pay-Off Agreement (the “Second Amended and Restated Settlement Agreement”), pursuant to which  the Company paid the Investor $800,000  The balance of $2,150,000 was paid on August 16, 2010. Pursuant to the Settlement Agreement, as amended, the Investor also converted a portion of the 2008 Note for 1,100,000 shares of the Company’s Common Stock pursuant to the terms of the 2008 Note.  Under the Settlement Agreement, as amended, the Investor also returned the shares of common stock and released its security interest in certain trademarks that were pledged in 2007.

As of September 30, 2010, the Company had short-term loans in the aggregate of $2,538,033, which consisted of several fully drawn lines of credit and other short term borrowings.

We had net income of $4,544,769 during the nine months ended September 30, 2010, compared to net loss of $5,905,020 during the same period of 2009.   Management believes that the Company’s profitability and recent infusions of equity capital will help ensure our continued operations for the next 12 months, but there can be no assurance that our profitability will continue.

17

CRITICAL ACCOUNTING POLICIES

In preparing our financial statements, we make estimates, assumptions and judgments that can have a significant impact on our net revenue, operating income or loss and net income or loss, as well as on the value of certain assets and liabilities on our balance sheet. We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. Senior management has discussed the development and selection of these critical accounting policies and their disclosure in this Report with our Board of Directors.  We believe the following critical accounting policies involve the most complex, difficult and subjective estimates and judgments: revenue recognition; allowance for doubtful acc ounts; income taxes; stock-based compensation; asset impairment

Revenue Recognition

The Company's revenue recognition policies are in compliance with Staff accounting bulletin (“SAB”) 104 (ASC 605), Revenue Recognition and ASC 985-605, Software Revenue Recognition. Generally, revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as advances from customers.

The Company recognizes revenue from the sale of hardware and software when a non-cancelable, non-contingent agreement has been signed, the hardware and software products have been delivered, no uncertainties exists surrounding product acceptance, fees from the agreement are fixed and determinable and collection is probable.  Any revenues from software arrangements with multiple elements are allocated to each element of the arrangement based on the relative fair values using specific objective evidence as defined in the standards.  If no such objective evidence exists, revenues from the arrangements are not recognized until the entire arrangement is completed and accepted by the customer.  Once the amount of the revenue for each element is determined, the Company recognizes revenues as each element is complete d and accepted by the customer.  For arrangements that require significant production, modification or customization of software, the entire arrangement is accounted for by the percentage of completion method, in conformity with the standards.

Revenue from maintenance agreements is deferred and recognized ratably over the term of the maintenance agreement, which typically ranges from one to three years.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts to reduce amounts to their estimated realizable value. A considerable amount of judgment is required when we assess the realization of accounts receivables, including assessing the probability of collection and the current credit-worthiness of each customer. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, an additional provision for doubtful accounts could be required. We initially record a provision for doubtful accounts based on our historical experience, and then adjust this provision at the end of each reporting period based on a detailed assessment of our accounts receivable and allowance for doubtful accounts. In estimating the provision for doubtful accounts, we consider: (i) the aging of the accounts receiv able; (ii) trends within and ratios involving the age of the accounts receivable; (iii) the customer mix in each of the aging categories and the nature of the receivable; (iv) our historical provision for doubtful accounts; (v) the credit worthiness of the customer; and (vi) the economic conditions of the customer's industry as well as general economic conditions, among other factors.

Income Taxes

We account for income taxes in accordance with SFAS No. 109, ACCOUNTING FOR INCOME TAXES. SFAS 109 prescribes the use of the liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we establish a valuation allowance. To the extent we establish a valuation allowance, or increase or decrea se this allowance in a period, we increase or decrease our income tax provision in our statement of operations. If any of our estimates of our prior period taxable income or loss prove to be incorrect, material differences could impact the amount and timing of income tax benefits or payments for any period.

The Company operates in several countries. As a result, we are subject to numerous domestic and foreign tax jurisdictions and tax agreements and treaties among the various taxing authorities. Our operations in these jurisdictions are taxed on various bases: income before taxes, deemed profits and withholding taxes based on revenue. The calculation of our tax liabilities involves consideration of uncertainties in the application and interpretation of complex tax regulations in a multitude of jurisdictions across our global operations.

We recognize potential liabilities and record tax liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. The tax liabilities are reflected net of realized tax loss carry forwards. We adjust these reserves upon specific events; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is different from our current estimate of the tax liabilities. If our estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities would result in tax benefits being recognized in the period when the contingency has been resolved and the liabilities are no longer necessary.

Changes in tax laws, regulations, agreements and treaties, foreign currency exchange restrictions or our level of operations or profitability in each taxing jurisdiction could have an impact upon the amount of income taxes that we provide during any given year.

Stock-Based Compensation

The Company accounts for stock based compensation in accordance with Statement No. 123R, Share-Based Payment (SFAS 123R) (ASC 718), which requires companies to measure and recognize compensation expense for all stock-based payments at fair value.

Asset Impairment

We periodically evaluate the carrying value of other long-lived assets, including, but not limited to, property and equipment and intangible assets, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flows from such asset is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Significant estimates are utilized to calculate expected future cash flows utilized in impairment analyses. We also utilize judgment to determine other factors within fair value analyses, including the applicable discount rate.

RECENT ACCOUNTING PROUNCEMENTS

In October 2009, the FASB issued ASU No. 2009-13, Multiple-Deliverable Revenue Arrangements, under ASC No. 605.  The new guidance provides a more flexible alternative to identify and allocate consideration among multiple elements in a bundled arrangement when vendor-specific objective evidence or third-party evidence of selling price is not available.  ASU No. 2009-13 requires the use of the relative selling price method and eliminates the residual method to allocation arrangement consideration.  Additional expanded qualitative and quantitative disclosures are also required. The guidance is effective prospectively for revenue arrangements entered into or materially modified in years beginning on or after June 15, 2010. The adoption of this ASU did not have a material impact on it s consolidated financial statements.

In January 2010, FASB issued ASU No. 2010-01- Accounting for Distributions to Shareholders with Components of Stock and Cash. The amendments in this Update clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in EPS prospectively and is not a stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings Per Share). The amendments in this update are effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis. The adoption of this ASU did not have a material impact on its consolidated financial statements.

In January 2010, FASB issued ASU No. 2010-02 – Accounting and Reporting for Decreases in Ownership of a Subsidiary – a Scope Clarification. The amendments in this Update affect accounting and reporting by an entity that experiences a decrease in ownership in a subsidiary that is a business or nonprofit activity. The amendments also affect accounting and reporting by an entity that exchanges a group of assets that constitutes a business or nonprofit activity for an equity interest in another entity. The amendments in this update are effective beginning in the period that an entity adopts SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements – An Amendment of ARB No. 51.” If an entity has previously adopted SFAS No. 160 as of the date the amendments in this update are included in the Acc ounting Standards Codification, the amendments in this update are effective beginning in the first interim or annual reporting period ending on or after December 15, 2009. The amendments in this update should be applied retrospectively to the first period that an entity adopted SFAS No. 160. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

18

In January 2010, FASB issued ASU No. 2010-06 – Improving Disclosures about Fair Value Measurements. This update provides amendments to Subtopic 820-10 that requires new disclosure as follows: 1) Transfers in and out of Levels 1 and 2. A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. 2) Activity in Level 3 fair value measurements. In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number). This update provides amendments to Subtopic 820-10 that clarifies existing disclosures as follows: 1) Level of disaggregation. A reporting entity should provide fair value measurement disclosures for each class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. A reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities. 2) Disclosures about inputs and valuation techniques. A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. These disclosures are effective for fiscal years b eginning after December 15, 2010, and for interim periods within those fiscal years.  The adoption of this ASU did not have a material impact on its consolidated financial statements.

In February 2010, FASB issued ASU No. 2010-9 Subsequent Events (Topic 855) –Amendments to Certain Recognition and Disclosure Requirements. This update addresses certain implementation issues related to an entity’s requirement to perform and disclose subsequent-events procedures, removes the requirement that public companies disclose the date of their financial statements in both issued and revised financial statements. According to the FASB, the revised statements include those that have been changed to correct an error or conform to a retrospective application of U.S. GAAP. All of the amendments in this update are effective upon issuance, except for the use of the issued date for conduit debt obligors.  That amendment is effective for interim and annual reporting periods ending after June 15, 2010. The adoption of t his ASU did not have a material impact on the Company’s consolidated financial statements.

In March 2010, FASB issued ASU No. 2010-10 –Amendments for Certain Investment Funds. This update defers the effective date of the amendments to the consolidation requirements made by FASB Statement 167 to a reporting entity’s interest in certain types of entities. The deferral will mainly impact the evaluation of reporting enterprises’ interests in mutual funds, private equity funds, hedge funds, real estate investment entities that measure their investment at fair value, real estate investment trusts, and venture capital funds. The ASU also clarifies guidance in Statement 167 that addresses whether fee arrangements represent a variable interest for all service providers and decision makers. The ASU is effective for interim and annual reporting periods in fiscal year beginning after November 15, 2009. The adoption of thi s ASU did not have a material impact on the Company’s consolidated financial statements.

In March 2010, FASB issued ASU No. 2010-11 –Scope Exception Related to Embedded Credit Derivatives. Embedded credit-derivative features related only to the transfer of credit risk in the form of subordination of one financial instrument to another are not subject to potential bifurcation and separate accounting as clarified by recently issued FASB guidance. Other embedded credit-derivative features are required to be analyzed to determine whether they must be accounted for separately. This update provides guidance on whether embedded credit-derivative features in financial instruments issued by structures such as collateralized debt obligations (CDOs) and synthetic CDOs are subject to bifurcation and separate accounting. The guidance is effective at the beginning of a company’s first fiscal quarter beginning after June 15, 201 0. The Company does not expect the adoption of this ASU to have a material impact on the Company’s consolidated financial statements.

In October 2009, the FASB issued ASU 2009-13, “Multiple-Deliverable Revenue Arrangements”, now codified under FASB ASC Topic 605, “Revenue Recognition”, (“ASU 2009-13”). ASU 2009-13 requires entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. The amendments eliminate the residual method of revenue allocation and require revenue to be allocated using the relative selling price method. ASU 2009-13 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. Management is currently evaluating the potential impact of ASU2009-13 on our financial statements.      

OFF-BALANCE SHEET ARRANGEMENTS

We have never entered into any off-balance sheet financing arrangements and have never established any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.

Item 3.                                Quantitative and Qualitative Disclosures about Market Risks

Not applicable to smaller reporting company.

Item 4T.                      Controls and Procedures

Evaluation of Disclosure Controls and Procedures 

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the latest fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.                                Legal Proceedings

Currently we are not aware of any litigation pending or threatened by or against the Company.

Item 1A.                      Risk Factors

Not applicable to smaller reporting company.

Item 2.                                Unregistered Sales of Equity Securities and Use of Proceeds

Pursuant to Stock Purchase Agreements with three investors dated July 15, 2010, (the “July 15 Investors”), the Company sold 5,300,000 shares (each investor purchased 3,000,000, 500,000 and 1,800,000 shares respectively) of the Company’s common stock, par value $0.001 per share, for $0.27 per share for an aggregate purchase price of $1,431,000.  

On May 1, 2010, we entered into engagement letter with an individual to issue 530,000 shares for compensation as the placement agent in connection with the private placement to the July 15 Investors. All of the shares were issued on September 30, 2010.

The issuance of the shares of Common Stock described in the preceding paragraphs is exempt from registration under the Securities Act of 1933 (the “Act”) by reason of the exemption provided by Section 4(2) of the Act for a transaction not involving a public offering.

19

Item 3.                                Defaults Upon Senior Securities

As previously disclosed in the Company's Form 10-Q filed on August 14, 2008 and the Current Report Form 8-K filed on October 10, 2008, we received event of default redemption notices dated July 25, 2008 (the "July Default Notice") and dated October 6, 2008 (the “October Default Notice” collective, with the July Default Notice, the “Default Notices”) respectively from an accredited investor (the “Investor”) with respect to the amended and restated terms of the Securities Purchase Agreement and related transaction documents dated December 21, 2007 (the “Financing Transaction”).  Both the July Default Notice and the October Default Notice stated that we were in default for failure to: (1) cause the Initial Registration Statement to be declared effective by the SEC on or prior to June 18, 2008 and (2) make the required Registration Delay Payments to the Investor on or prior to the applicable Payment Date.  We agreed to enter into the Amended Agreement (as defined below) and all related documents as a direct response to resolve the Default Notices and as an inducement for the Investor to issue us a formal withdrawal of the Default Notices.  Upon closing of the above Amended Agreement, the Investor agreed to withdraw the Default Notices and we will no longer be in default under the Financing Transaction and Amended Agreement.

On December 8, 2008, we entered into an Amendment and Exchange Agreement (the “Amended Agreement”) with the Investor in the Financing Transaction.  The Financing Transaction is disclosed in more detail in the Form 8-K filed on December 26, 2007.  In connection with the Amended Agreement, we agreed to exchange the note and warrants issued in the Financing Transaction for (i) an amended and restated senior secured convertible note in the principal amount of $5,000,000 (the "2008 Note"), which is convertible into Common Stock, (ii) an amended and restated Series A Warrant in the form, which is exercisable into 23,062,731 shares of Common Stock (the "Exchanged Series A Warrant "), (iii) an amended and restated Series B Warrant which is exercisable into 16,143,911 shares of Common Stock (the "Exchanged Series B Warrant"), (iv) an amended and restated Series C Warrant, which, subject to certain conditions, shall be exercisable to 16,489,852 shares of Common Stock (the "Exchanged Series C Warrant") and (v) a new Series D Warrant which is exercisable into 7,500,000 shares of Common Stock (the "Exchanged Series D Warrant,” and together with the Exchanged Series A Warrant, Exchanged Series B Warrant and Exchanged Series C Warrant, the “2008 Warrants”).

Pursuant to the Amended Agreement, we agreed to adjust the Conversion Price (as defined in the Exchanged Note) and the exercise prices of the Exchanges Series A Warrant, the Exchanged Series B Warrant and the Exchanged Series C Warrant to $0.2168. Accordingly, the Exchanged Series A Warrant is exercisable into 23,062,731 shares of Common Stock of the Company, the Exchanged Series B Warrant is exercisable into 16,143,911 shares of Common Stock of the Company, and the Exchanged Series C Warrant, subject to certain conditions, shall be exercisable into 16,489,852 shares of Common Stock of the Company.  Further, we amended the Expiration Date of the Series A Warrant and Series B Warrant to June 8, 2014, which is 78 months after the date of Amendment Date (as defined in the Exchanged Series A Warrant and the Exchanged Series B Warran t), and restated the expiration date of the Exchanged Series C Warrant to 78 months after the first time the Company elects a Company Optional Redemption (as defined in the Exchanged Note).

We also issued a new Series D Warrant, which can be exercised into 7,500,000 shares of the Common Stock of the Company with an exercise price of $0.2168 per share and expires on June 8, 2014.  There is also a cashless exercise feature that permits the Investor to exercise the warrant on a cashless basis if a registration statement covering the shares underlying the Series D Warrant is not in effect.  The Amended Agreement does not grant the Investor any additional registration rights so there is no requirement for us to register the shares underlying the Series D Warrant.

As disclosed in Form 10-K filed on March 31, 2009, we received an Investor Redemption Notice (the “Notice”) from the Investor on December 21, 2008, stating that they selected to redeem one third of the principal ($5,000,000) after one year of the investment since December 21, 2007 according to the Amendment Agreement. The Company received the Notice and was under discussion with the Investor to seek a consummate solution for the Company was not available to render the required amount before December 31, 2008, the deadline for the redemption. The issue would incur default for the Company and it was uncertain if we can get a resolution finally.  

As disclosed in From 8-K filed on June 30, 2009, we received an Event of Default Redemption Notice (the " Default Notice") from the Investor with respect to the certain Amended and Restated Senior Secured Convertible Note issued by the Company to the Investor on or about December 21, 2007, as amended December 8, 2008 (the “Financing Transaction”) on June 22, 2009. The Default Notice stated that we are in default for failure to (1) pay the Redemption Amount of $1,703,025.33 by no later than December 30, 2008;  (2) make timely payment of the interest covering the Calendar Quarter ended March 31, 2009; and (3) make required share conversion within two business days after getting the Conversion Notice; The total amount of the Default Redemption was calculated as $66,703,289. The Company did not believe that any of the events specified in the Notice constituted a default under the Note.  

As the Company previously reported in the January 11, 2010 Form 8-K (with regard to the Securities Redemption and Pay-off Agreement, the “Settlement Agreement”), the Investor agreed to accept $3,000,000 from the Company in exchange for the redemption of the 2008 Note and the 2008 Warrants, but only upon the terms and conditions expressly set forth in the Settlement Agreement (the “Conditions”).  

As previously disclosed in the Company’s Form 8-K filed on August 13, 2010, in April and July 29, 2010, the Company and the Investor entered into two Amended and Restated Securities Redemption and Pay-Off Agreements, pursuant to which the Company and the Investor agreed to extend the termination date in consideration for a payment by the Company to the Investor of an aggregate of $850,000.

The Company paid the $2,150,000 balance due under the Settlement Agreement, as amended, on August 16, 2010 in exchange for the redemption of the 2008 Note and the 2008 Warrants. The Investor and the Company released each other from all claims related to the Securities Purchase Agreement, as amended, the 2008 Note and the 2008 Warrants. In addition, pursuant to the Settlement Agreement, as amended, since January 5, 2010, the Company delivered to the Investor an aggregate of 1,100,000 shares of Common Stock pursuant the terms of the 2008 Note.  Under the Settlement Agreement, as amended, the Investor also returned the shares of common stock that were pledged in 2007.

Item 4.                                  (Removed and Reserved)

Item 5.                                Other Information

N/A

Item 6.                                Exhibits

(a) Exhibits

Exhibit Number	Description of Exhibit
31.1*	Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d 14(a), promulgated under the Securities and Exchange Act of 1934, as amended
31.2*	Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a), promulgated under the Securities and Exchange Act of 1934, as amended
32.1*	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer)
32.2*	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer)

*Filed herewith

20

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CHINA INTELLIGENCE INFORMATION SYSTEMS INC.
By:	/s/ Li Kunwu
	Li Kunwu
	Chief Executive Officer (Principal Executive Officer)
	Date:   November 22, 2010

By:	/s/ Li Kunwu
	Li Kunwu
	Chief Financial Officer (Principal Accounting and Financial Officer)
	Date:  November 22 , 2010

EX-31.1

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Li Kunwu, certify that:

1. I have reviewed this Form 10-Q for the period ended September 30, 2010, of China Intelligence Information Systems Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the board of directors of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 22, 2010	/s/ Li Kunwu
	Li Kunwu, Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of

Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of China Intelligence Information Systems Inc.  a Nevada corporation (the "Company"), does hereby certify, to such officer's knowledge, that:

The Quarterly Report on Form 10-Q for the period ended September 30, 2010 (the "Form 10-Q") of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided China Intelligence Information Systems Inc. and will be retained by China Intelligence Information Systems, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Date: November 22, 2010	/s/ Li Kunwu
	Li Kunwu, Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of

Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers China Intelligence Information Systems Inc., a Nevada corporation (the "Company"), does hereby certify, to such officer's knowledge, that:

The Quarterly Report on Form 10-Q for the period ended September 30, 2010 (the "Form 10-Q") of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided China Intelligence Information Systems, Inc.and will be retained by China Intelligence Information Systems, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Date: November 22, 2010	/s/ Li Kunwu
	Li Kunwu, Chief Financial Officer