Edgar Filing: NINETOWNS INTERNET TECHNOLOGY GROUP CO LTD

NINETOWNS INTERNET TECHNOLOGY GROUP COMPANY LIMITED

/s/ Shuang Wang

Name: Shuang Wang

Title: Chief Executive Officer

Form 20-F

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

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

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

For the fiscal year ended December 31, 2011

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

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

Date of event requiring this shell company report

For the transition period from to

Commission file number: 000-51025

Ninetowns Internet Technology Group Company Limited

(Exact name of Registrant as specified in its charter)

Not Applicable

(Translation of Registrant’s name into English)

Cayman Islands

(Jurisdiction of incorporation or organization)

22nd Floor, Building No.1

Capital A Partners, No. 20 Gong Ti East Road

Chaoyang District Beijing 100020

The People’s Republic of China

(Address of principal executive offices)

Tommy Siu Lun Fork

Chief Financial Officer

Phone: +852-9021-9597

Facsimile: +852-2868-4483

Address: 22nd Floor, Building No.1, Capital A Partners,

No. 20 Gong Ti East Road, Chaoyang District Beijing 100020, China

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

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


Title of each class		Name of each exchange on which registered
American Depositary Shares, or ADSs, every ADS representing one ordinary share, par value HK$0.025 per share		NASDAQ Global Market LLC (NASDAQ Global Market)*
Ordinary shares, par value HK$0.025 per share		NASDAQ Global Market LLC (NASDAQ Global Market)*

*	Not for trading, but only in connection with the listing on the Nasdaq Global Market of the American Depositary Shares.

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

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

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report. 38,791,834 ordinary shares, par value HK$0.025 per share as of December 31, 2011

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

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ¨ Yes x No

Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer ¨		Accelerated filer ¨		Non-accelerated filer x

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


U.S. GAAP x		International Financial Reporting Standards as issued by the International Accounting Standards Board ¨		Other ¨

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ¨ Item 17 ¨ Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ¨ Yes ¨ No

TABLE OF CONTENTS


	Page
INTRODUCTION		1
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS		1

PART 1		1
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS		1
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE		1
ITEM 3. KEY INFORMATION		2
ITEM 4. INFORMATION ON THE COMPANY		30
ITEM 4A. UNRESOLVED STAFF COMMENTS		55
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS		56
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		74
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS		85
ITEM 8. FINANCIAL INFORMATION		86
ITEM 9. THE OFFERING AND LISTING		87
ITEM 10. ADDITIONAL INFORMATION		89
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		96
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES		96

PART II		99
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES		99
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS		99
ITEM 15. CONTROLS AND PROCEDURES		100
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT		100
ITEM 16B. CODE OF ETHICS		101
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES		101
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE		101
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS		101
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT		101
ITEM 16G. CORPORATE GOVERNANCE		102

PART III		102
ITEM 17. FINANCIAL STATEMENTS		102
ITEM 18. FINANCIAL STATEMENTS		102
ITEM 19. EXHIBITS		102

SIGNATURE		111

Introduction

This annual report on Form 20-F includes our audited consolidated financial statements for the years ended December 31, 2009, 2010 and 2011, and as of December 31, 2010 and 2011. References to “2009,” “2010”, “2011”, “2012” and “2013” are, where appropriate, references to the years ended or ending December 31, 2009, 2010, 2011, 2012 and 2013, respectively.

Discrepancies in tables between totals and sums of the amounts listed are due to rounding.

References to “China” or the “PRC” are to the People’s Republic of China, excluding Taiwan, Hong Kong and Macau. Facts and statistics in this annual report relating to the enterprise software and related services market, the PRC import/export industry and economic data are derived from various government and research publications.

Cautionary Note Regarding Forward-looking Statements

This annual report contains forward-looking statements that are based on our current expectations, assumptions, estimates and projections about us and our industry. All statements other than statements of historical fact in this annual report are forward-looking statements. These forward-looking statements can be identified by words or phrases such as “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “is/are likely to,” “may,” “plan,” “should,” “will,” or other similar expressions. The forward-looking statements included in this annual report relate to, among others:

•

our anticipated capital expenditures and our ability to fund such expenditures;

•

our expectations about growth in demand for our products and services;

•

acquisitions or investments in businesses, products or technologies that are complementary to our own;

•

our ability to adjust to technological change; and

•

our belief about the effects of government regulation on our business.

These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may turn out to be incorrect. Our actual results could be materially different from our expectations. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in Item 3.D “Key Information – Risk Factors” and other sections in this annual report.

The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.

PART I

Item 1. Identity of Directors, Senior Management and Advisors.

Not applicable.

Item 2. Offer Statistics and Expected Timetable.

Not applicable.

Item 3. Key Information.

A. Selected financial data

The following table shows selected consolidated financial information and other data for our business. You should read the following information in conjunction with our financial statements and the accompanying notes and Item 5 of this annual report, “Operating and Financial Review and Prospects.” The statement of operations data and cash flow data for the years ended December 31, 2009, 2010 and 2011, and the balance sheet data as of December 31, 2010 and 2011, are derived from our audited consolidated financial statements and related notes thereto, which are included in this annual report beginning on page F-1. These audited consolidated financial statements and the related notes thereto have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. generally accepted accounting principals, or U.S. GAAP.

The statement of operations data for 2007 and 2008, and the balance sheet data as of December 31, 2007, 2008 and 2009, are derived from our audited consolidated financial statements which have not been included in this annual report.


In thousands, except per share and per ADS data	For the years ended December 31,
In thousands, except per share and per ADS data	2007			2008			2009			2010			2011			2011⁽¹⁾
	RMB			RMB			RMB			RMB			RMB			US$
Selected statement of operations data:
Total net revenues:
Enterprise software and related customer maintenance services		77,327			84,965			58,387			49,650			61,014			9,694
Software development services		25,642			19,458			17,363			23,809			5,963			947
Food sales and services		—			94			3,889			5,448			8,239			1,309

		102,969			104,517			79,639			78,907			75,216			11,950

Cost of revenues:
Enterprise software and related customer maintenance services		—			—			—			—			—			—
Software development services		(17,748	)		(12,423	)		(11,552	)		(10,144	)		(2,281	)		(362	)
Food sales and services		—			(76	)		(6,308	)		(6,910	)		(8,452	)		(1,343	)

		(17,748	)		(12,499	)		(17,860	)		(17,054	)		(10,733	)		(1,705	)

Gross profit		85,221			92,018			61,779			61,853			64,483			10,245
Operating expenses:
Selling and marketing		(32,379	)		(21,942	)		(13,771	)		(16,663	)		(22,493	)		(3,574	)
General and administrative		(73,636	)		(75,523	)		(62,030	)		(89,531	)		(79,354	)		(12,608	)
Research and development		(25,026	)		(18,566	)		(17,373	)		(15,695	)		(11,042	)		(1,754	)
Allowance for doubtful accounts, net		(22,395	)		(2,881	)		(26,204	)		(2,585	)		6,841			1,087


In thousands, except per share and per ADS data	For the years ended December 31,
In thousands, except per share and per ADS data	2007			2008			2009			2010			2011			2011⁽¹⁾
	RMB			RMB			RMB			RMB			RMB			US$
Impairment of goodwill		(193,570	)		—			—			—			—			—

Total operating expenses		(347,006	)		(118,912	)		(119,378	)		(124,474	)		(106,048	)		(16,849	)
Government subsidies		1,015			—			—			—			—			—

Loss from operations		(260,770	)		(26,894	)		(57,599	)		(62,621	)		(41,565	)		(6,604	)
Interest income		13,885			7,026			4,274			3,686			1,922			305
Gain on sales of short-term investments		43,546			9,866			35,474			65,146			32,689			5,194
Change in fair value of marketable options		—			—			27,684			(18,211	)		7,252			1,152
Gain (loss) on investment under cost method		—			2,187			—			12,153			(3,373	)		(536	)
Income from equity method of investments		—			—			—			—			1,639			260
Other income		—			358			3,911			13,448			5,994			952

(Loss) income before income tax and non-controlling interests		(203,339	)		(7,457	)		13,744			13,601			4,558			723
Income tax expense		(3,130	)		(836	)		(4,100	)		(878	)		(1,048	)		(167	)

(Loss) income from continuing operations before non-controlling interests		(206,469	)		(8,293	)		9,644			12,723			3,510			556

Loss from discontinued operations, net of tax		(30,115	)		(166,802	)		(8,401	)		(398	)		—			—

Net (loss) income		(236,584	)		(175,095	)		1,243			12,325			3,510			556

Attributable to non-controlling interests-discontinued operations		6,053			5,483			89			—			15			2

Attributable to the Company		(230,531	)		(169,612	)		1,332			12,325			3,525			558

(Loss) income from continuing operations per share:
Basic		(5.90	)		(0.24	)		0.28			0.35			0.09			0.01

Diluted		(5.90	)		(0.24	)		0.28			0.34			0.09			0.01

Loss from discontinued operations per share:
Basic		(0.69	)		(4.61	)		(0.24	)		(0.01	)		—			—

Diluted		(0.69	)		(4.61	)		(0.24	)		(0.01	)		—			—

(Loss) income per share and ADS:
Basic		(6.59	)		(4.85	)		0.04			0.34			0.09			0.01

Diluted		(6.59	)		(4.85	)		0.04			0.33			0.09			0.01

Selected cash flow data:
Net cash (used in) provided by operating activities		(2,941	)		(33,881	)		(26,478	)		8,853			(62,994	)		(10,009	)
Net cash provided by (used in) investing activities		57,193			(37,366	)		(76,858	)		21,762			(224,784	)		(35,715	)
Net cash provided by financing activities		1,268			—			—			—			49,523			7,869


In thousands, except share, per share and per ADS data	As of December 31,
In thousands, except share, per share and per ADS data	2007		2008		2009		2010		2011		2011⁽¹⁾
	RMB		RMB		RMB		RMB		RMB		US$
Selected balance sheet data:
Cash and cash equivalents		649,863		576,642		473,448		500,618		257,345		40,888
Restricted cash		853		670		790		245		88		14
Short-term investments:
Trading securities		—		—		917		523		708		112
Available-for-sale securities		10,962		10,024		170,309		231,339		245,090		38,941
Trade receivables, net of allowance for doubtful accounts		37,446		33,943		18,121		2,042		3,921		623


Term deposits	26,000	28,000	25,000	8,154	5,088	808
Real estate property under development	—	—	—	—	305,469	48,534
Investments under equity method	—	—	—	—	230,579	36,635
Total assets	1,171,180	953,325	979,591	989,584	1,282,124	203,709
Deferred revenue	32,472	21,392	10,453	10,699	14,332	2,277
Deferred subsidies	—	—	—	—	240,240	38,170
Total liabilities	92,793	53,145	57,255	40,759	296,720	47,143
Net assets	1,078,387	900,180	922,336	948,825	985,404	156,566
Total equity of the Company	1,072,904	900,180	922,336	948,825	985,404	156,566
Number of ordinary shares outstanding	34,991,834	35,791,834	35,791,834	35,791,834	38,791,834	38,791,834

(i)	For the convenience of the reader, RMB amounts are expressed in U.S. dollars at the rate of RMB6.2939 to US$1.00, the noon buying rate in effect on December 31, 2011 as quoted by the Federal Reserve Bank of New York.

(ii)	In 2011, 3,000,000 of the Company’s ordinary shares were converted into American Depositary Shares to facilitate our employees’ cashless exercise of vested stock options and non-vested shares. 795,329 previously non-vested shares became vested in 2011.

(iii)

Certain reclassifications of previous reported amounts have been made to conform to the current period presentation. These reclassifications are primarily due to the presentation of (i) discontinued business-to-business operations and the discontinued catering business; and (ii) dividends received from investments under cost method.

Exchange Rate Information

Our business is primarily conducted in China and a substantial majority of our revenues are denominated in Renminbi. For all dates and periods through December 31, 2008, the exchange rates are based on the noon buying rate in The City of New York for cable transfers of Renminbi as certified for customs purposes by the Federal Reserve Bank of New York. For January 1, 2009 and all later dates and periods, the exchange rate refers to the exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board. Unless otherwise indicated, conversions of RMB into U.S. dollars in this annual report are based on the exchange rate, as of December 31, 2011, which was RMB6.2939 to US$1.00. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, the rates stated below, or at all. The PRC government imposes controls over its foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange and through restrictions on foreign trade. The following table sets forth information concerning exchange rates between the Renminbi and the U.S. dollar for the periods indicated.


	Noon Buying Rate
	Period End		Average⁽¹⁾		Low		High
	(RMB per US$1.00)
2007		7.2946		7.5806		7.8127		7.2946
2008		6.8225		6.9193		7.2946		6.7800
2009		6.8259		6.8295		6.8470		6.8176
2010		6.6000		6.7603		6.8330		6.6000
2011		6.2939		6.4475		6.6364		6.2939
Most recent Six Months
October 2011		6.3547		6.3708		6.3825		6.3547
November 2011		6.3765		6.3564		6.3829		6.3400
December 2011		6.2939		6.3482		6.3733		6.2939
January 2012		6.3080		6.3119		6.3330		6.2940
February 2012		6.2935		6.2997		6.3120		6.2935
March 2012		6.2975		6.3125		6.3315		6.2975
April 2012 (through April 20)		6.3080		6.3052		6.3150		6.2975

(1)	Annual averages are calculated by averaging the exchange rates on the last business day of each month. Monthly averages are calculated using the average of the daily rates during the relevant period.

On April 20, 2012, the exchange rate set forth in the H. 10 statistical release of the Federal Reserve Board was RMB6.3080 to US$1.00.

B. Capitalization and indebtedness

Not applicable.

C. Reasons for the offer and use of proceeds

Not applicable.

D. Risk factors

Risks Related to Our Business

We currently generate a majority of our total net revenues from either PRC government agencies or in connection with PRC government agency filings, and our failure to maintain a continued working relationship with certain PRC government agencies and, in particular, the PRC Inspections Administration, would result in the reduction or loss of substantially all of our total net revenues.

Sales of our enterprise software and related customer maintenance services and software development services that are either used by the State Administration for Quality Supervision and Inspection and Quarantine of the PRC, or the PRC Inspections Administration, or by regional PRC inspection and quarantine bureaus, have accounted for substantially all of our total net revenues. In the near future, we expect to generate a substantial portion of our total net revenues through (i) sales of enterprise software and related customer maintenance services and (ii) software development services that are used in connection with the PRC Inspections Administration filings. Net revenues from sales of enterprise software and related customer maintenance services for PRC Inspections Administration filings accounted for 73.3%, 62.9% and 81.1% of our total net revenues in 2009, 2010 and 2011, respectively.

We cannot assure you that we will be able to maintain our working relationship with the PRC Inspections Administration or other PRC government agencies in connection with new enterprise software or in relation to the continued use of our existing enterprise software. If the PRC Inspections Administration ceases to cooperate with us in researching and developing new enterprise software; ceases to use the electronic infrastructure that we helped develop and build; reduces its spending on, or commitment to, or ceases or slows down the implementation of, the digitization of its processes for data collection and administration; encourages our competitors or alternate means of data collection; or requires us to lower the prices of our products and services; then our market position, revenues and profitability would be materially and adversely affected. Furthermore, such a change in our relationship with the PRC Inspections Administration could result in the loss of what we perceive to be our first mover advantage in developing software products compatible with the systems implemented by the PRC Inspections Administration. The loss of such an advantage would result in slower growth and/or reduced sales, which would require us to increase our research and development and sales and marketing expenditures.

For example, Beijing iTowNet Cyber Technology Ltd., or iTowNet, has developed its own platform for providing software development services and now provides software development services directly to its customers, such as the PRC Inspections Administration, that are similar to the software development services that we provide to our customers. As a result, iTowNet became one of our competitors in our software development services business. Due to the fact that iTowNet is majority owned by the PRC Inspections Administration, our software development services relating to the PRC Inspections Administration could become obsolete, which would result in the reduction or loss of substantially all of our revenues from that business.

Our revenues would be adversely affected if the PRC Inspections Administration, or any other government agency to which our products relate, develops, endorses or adopts an alternative to our enterprise software.

Our business would be adversely affected if the PRC Inspections Administration or any other government agency or affiliate to which our products relate decides to develop its software and platform internally, endorses software provided by others or permits filings to be made online without independently produced software. In such case, we would not only face enhanced competition, but our software products and services relating to the PRC Inspections Administration or any such government agency or affiliate could become obsolete, which would result in the reduction or loss of substantially all of our revenues.

In August 2005, the PRC Inspections Administration selected our company as the winning bidder in connection with the PRC Inspections Administration’s request for proposals for the development of a software product that has certain basic functionalities similar to those of iDeclare.CIQ and iProcess.CIQ. The PRC Inspections Administration agreed to pay a one-time fee of RMB3.3 million to purchase the ownership of the software product that we developed. In February 2006, the PRC Inspections Administration commenced the distribution of the software products that our company developed, free-of-charge to end-users. As certain basic functionalities of the newly developed software products are similar to those of iDeclare.CIQ and iProcess.CIQ, the provision of such software products free-of-charge by the PRC Inspections Administration has had a material adverse effect on our results of operations.

We are in the process of diversifying our business focus to include other businesses in addition to the sales of our enterprise software and related customer maintenance services and the provision of software development services. Our new potential business ventures and limited operating history in such potential business ventures may make it difficult for you to evaluate our business, and our limited resources may affect our ability to manage the growth we expect to achieve.

We generated a significant portion of our total net revenues from the sales of our enterprise software and related customer maintenance services, and the provision of software development services in 2011. Currently, we are in the process of expanding our business focus from the development of software products and the provision of software development services to other potential business ventures, such as consumer goods and real estate. We anticipate that a material portion of our net revenue in the future will be derived from businesses that are not directly related to sales of our enterprise software and related customer maintenance services or the provision of software development services.

From 2006 to 2008, we focused on developing our business-to-business, or B2B, business and strategy. We launched our new B2B vertical search platform, tootoo.com in May 2007 through which we offered our B2B business and services. In March 2009, we announced our decision to wind down our B2B business in light of the recent major changes in the global economic environment.

In 2009, we expanded our research and development initiatives to focus on the development of our business-to-consumer, or B2C, e- commerce platform. In April 2010, we began offering our B2C e-commerce food and household products platform through our web portal. In addition, we focused on guaranteeing delivery of fresh produce from our warehouses directly to our customers located in a particular residential community in Beijing.

In April 2011, we expanded our business to focus on a new strategic initiative to invest in real estate development. We acquired land use rights for undeveloped land in Huainan, Dalian and Binzhou, China. We plan to develop mixed-use real estate projects on such properties.

In January 2012, we changed the construction planning of approximately 58,530 square meters land located in Lu Dong District, Beijing Economic Technological Development Area, or Yizhuang, from construction of self-use offices to development of mixed-use real estate projects for sale or rent. We acquired the land use rights of Yizhuang in 2008.

In June 2011, we entered into a series of agreements with respect to certain financing arrangements for the “Smarter Town” project to be developed by Huainan Huacheng Estate Co., Ltd., or Huainan Huacheng, our wholly-owned indirect subsidiary. Such agreements were terminated on February 9, 2012. We will continue the development of the “Smarter Town” project and may seek other alternative financing options in the future. As our B2C food related and real estate investment businesses are currently under

development, we may not successfully introduce either of them as one of our primary businesses. We do not have a significant operating history with respect to our B2C food related business and our real estate development business upon which you can evaluate our business and prospects. Furthermore, as part of our operation and expansion, we need to continue to develop and improve our staff training, financial and management controls and our reporting systems and procedures. We cannot assure you that we will be able to efficiently or effectively manage or grow our new businesses, and any failure to do so may limit our future growth and materially and adversely affect our business, financial condition and results of operations.

Our significant shareholders, related parties and management personnel have potential conflicts of interest with us, which may result in their taking corporate actions which you may not believe to be in your best interests or in the best interests of our company.

As of April 20, 2012, Shuang Wang, our Chief Executive Officer and a director of our company, or Mr. Wang, and Min Dong, our Senior Vice President of Legal Affairs, Administration and Human Resources and the spouse of Mr. Wang, or Ms. Dong, beneficially own 17.24% of our ordinary shares. Mr. Wang and Ms. Dong will have substantial influence over the management and policies of our company and the outcome of most corporate actions. In addition, we understand from publicly available information that Mr. Yong Ping Duan, or Mr. Duan, and Technology Pioneer Corp., or Technology Pioneer, beneficially own 18.23% and 7.91% of our American Depositary Shares, or ADSs, respectively. Mr. Duan and Technology Pioneer will also have substantial influence over the outcome of most corporate actions. As a result, Mr. Wang, Ms. Dong, Mr. Duan and Technology Pioneer have the power to take corporate actions which other shareholders may not believe are in their best interests or in the best interests of our company. There can be no assurance that Mr. Wang, Ms. Dong, Mr. Duan and Technology Pioneer will not cause our company to take such corporate actions.

Mr. Wang and Ms. Dong beneficially own 100.0% of Ninetowns Import & Export e-Commerce Co., Ltd., or Import & Export, which in turn owns a 49.0% equity interest in iTowNet, the operator of the PRC Inspections Administration’s data exchange platforms and electronic processing system. iTowNet is 51.0% owned by the PRC Inspections Administration and operates the data exchange platforms that interface between international trade enterprises using our enterprise software and the PRC Inspections Administration’s internal electronic processing systems. iTowNet receives a fee of RMB5 from the end-users for each submission made over its data exchange platforms. Mr. Wang is a non-executive director and the vice-chairman of the board of directors of iTowNet. Due to their ownership interest in iTowNet and Mr. Wang’s position as a director of iTowNet, the interests of Mr. Wang and Ms. Dong may also differ from those of our other shareholders. Mr. Xiaoguang Ren, who is our President, or Mr. Ren, is also a non- executive director of iTowNet. Mr. Bolin Wu, who is our General Manager, Research and Development and Chief Technology Officer, or Mr. Wu, is the sole supervisor of iTowNet. As the supervisor of iTowNet, Mr. Wu is responsible for overseeing the financial operations of iTowNet, the actions of its board of directors and senior management and their compliance with relevant laws and iTowNet’s charter documents.

iTowNet has developed its own platform for providing software development services and now provides software development services directly to its customers, such as the PRC Inspections Administration, that are similar to the software development services that we provide to our customers. As a result, iTowNet became one of our competitors in our software development services business. Due to the fact that iTowNet is majority owned by the PRC Inspections Administration, our software development services relating to the PRC Inspections Administration could become obsolete, which would result in the reduction or loss of substantially all of our revenues from that business.

A significant portion of our total net revenues are generated by our major customers, and the loss of all or part of our net revenues from any of these customers would result in a decline in our total net revenues and a significant increase in our sales and marketing expenditures.

As of April 20, 2012, we have franchise agreements with our four franchisees including (i) Beijing Ninetowns Zhi Fang Software Technology Co., Ltd., or Ninetowns Zhi Fang, (ii) Beijing Ninetowns Xin He Software Technology Co., Ltd., or Ninetowns Xin He, (iii) Guangzhou Ninetowns Wang Li Software Co., Ltd., or Ninetowns Wang Li and (iv) Shenzhen Ninetowns Enke Software Technology Co., Ltd., or Ninetowns Enke, who as a result of their purchases of enterprise software and related customer maintenance services for distribution to end-users, are also four of our largest customers. We currently do not have any distributor.

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Our net revenues from sales of our enterprise software and related customer maintenance services from Ninetowns Zhi Fang were approximately RMB16.9 million, RMB16.8 million and RMB25.3 million (US$4.0 million), which represented 20.7%, 21.0% and 33.7% of our total net revenues for 2009, 2010 and 2011, respectively.

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Our net revenues from sales of our enterprise software and related customer maintenance services from Ninetowns Xin He were approximately RMB17.4 million, RMB9.6 million and RMB12.3 million (US$2.0 million) , which represented 21.7%, 12.0% and 16.4% of our total net revenues for 2009, 2010 and 2011, respectively.

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Our net revenues from sales of our enterprise software and related customer maintenance services from Ninetowns Wang Li were approximately RMB9.3 million, RMB7.6 million and RMB8.6 million (US$1.4 million), which represented 11.6%, 9.5% and 11.4% of our total net revenues for 2009, 2010 and 2011, respectively.

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Our net revenues from sales of our enterprise software and related customer maintenance services from Ninetowns Enke were approximately RMB2.3 million, RMB1.5 million and RMB1.7 million (US$0.3 million) or 2.8%, 1.9% and 2.2% of our total net revenues in 2009, 2010 and 2011, respectively.

To our knowledge, none of our franchisees are PRC government agencies.

In the event one or more of our customers discussed above discontinues their businesses or their dealings with us, and we are unable to find an adequate replacement for such customer in a timely manner, we would suffer a decline in total net revenues and in turn would need to significantly increase our sales and marketing expenditures. Our trade receivables are significant and if customers fail to pay amounts owed, our profitability and financial position could decline.

As of December 31, 2011, our total net trade receivables amounted to approximately RMB3.9 million (US$0.6 million), which represented approximately 0.7% of our total current assets. As of December 31, 2011, we had an allowance for doubtful debts of approximately RMB4.4 million (US$0.7 million). If any of our franchisees or any of our other customers fails to pay, or delays payment on, all or part of these receivables, we would be required to make additional allowances for doubtful debts and our profitability and financial position could be affected.

In June 2011, we entered into certain debt repayment agreements with Ninetowns Zhi Fang, Ninetowns Xin He and Ninetowns Wang Li, or the Debt Repayment Agreements, pursuant to which:

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We waived certain due and unpaid receivables from Ninetowns Zhi Fang in the amount of RMB8.77 million (US$1.32 million). Ninetowns Zhi Fang agreed to pay certain other due and unpaid receivables in the amount of RMB3.4 million (US$515,000) to us by December 31, 2012, with 50% of such amount due by December 31, 2011 and the remaining 50% due by December 31, 2012.

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We waived certain due and unpaid receivables from Ninetowns Xin He in the amount of RMB6.46 million (US$979,000). Ninetowns Xin He agreed to pay certain other outstanding due and unpaid receivables in the amount of RMB3.6 million (US$545,000) to us by December 31, 2012, with 50% of such amount due by December 31, 2011 and the remaining 50% due by December 31, 2012.

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We waived certain due and unpaid receivables from Ninetowns Wang Li in the amount of RMB7.55 million (US$1.14 million). Ninetowns Wang Li agreed to pay certain other outstanding due and unpaid receivables in the amount of RMB2.5 million (US$379,000) to us by December 31, 2012, with 50% of such amount due by December 31, 2011 and the remaining 50% due by December 31, 2012.

The receivables we waived pursuant to the Debt Repayment Agreements had been fully provided for in our bad debt allowance in our financial statements. As of April 20, 2012, we believe that Ninetowns Zhi Fang, Ninetowns Xin He and Ninetowns Wang Li have materially complied with the terms of the Debt Repayment Agreements.

Our existing major shareholders have substantial control over us and could delay or prevent a change in corporate control, which could in turn reduce the market price of your ADSs.

Our executive officers, directors and shareholders with 5.0% or more shareholding of our company and their affiliates beneficially own approximately 55.16% of our outstanding ordinary shares. Such concentration of ownership might have the effect of delaying or preventing a change in control of our company which could in turn reduce the market price of our ADSs and the voting and other rights of our other shareholders.

Our failure to market our customer maintenance services to our existing users could impair our planned revenue growth.

We offer one year of customer maintenance services with our iDeclare.CIQ basic package, and charge a fee of RMB1,500 per licensee for customer maintenance services each year thereafter. In 2011, we offered customer maintenance service contracts to approximately 18,700 users, so that approximately 13% of the total number of users due for a maintenance contract renewal in 2011 paid for the renewal. However, we believe that not all of our users and potential users were accustomed to being charged for this type of service. In 2011, we recognized approximately RMB56.0 million (US$8.9 million) from the provision of customer maintenance services, including the fees we collected from the Pay-Per-Transaction users.

Our success in marketing customer maintenance services to our users depends in part on whether users require software updates. Software updates can implement modifications to forms, programs and information systems necessary to address changes imposed by the PRC Inspections Administration.

Therefore, the desirability and usefulness of our customer maintenance services is dependent in part on changes occurring in government policies. If we fail to market our customer maintenance services to, or to collect customer maintenance service fees from, our users in the future, our planned revenue growth could be impaired.

We currently depend on our iDeclare.CIQ product for a substantial majority of our total net revenues and our failure to develop or license additional enterprise software or a decline in demand for iDeclare.CIQ could materially reduce our total net revenues.

Sales of iDeclare.CIQ and related customer maintenance services accounted for approximately 73.3%, 62.9% and 81.1% of our total net revenues in 2009, 2010 and 2011, respectively. Any of the following events could materially reduce our total net revenues.

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any decrease in the demand for or price of iDeclare.CIQ or any increase in competition to iDeclare.CIQ, including but not limited to as a result of the PRC Inspections Administration’s and iTowNet’s endorsement of a comparable product,

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any failure by our company to develop additional enterprise software, any significant shift in our marketing efforts,

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any lasting or prolonged interruption that prevents our enterprise software from delivering data to government entities due to system failures or other factors,

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any other adverse development specific to iDeclare.CIQ, or

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a significant slowdown of China’s economy.

A substantial portion of our profits are derived from non-operating income. We cannot guarantee the sustainability of our non- operating income and our financial conditions may be adversely affected if our non-operating income decreases.

We received a substantial amount of income from our investment activities in 2011, including investment in publicly-listed securities in China’s A-Share stock markets and equity securities and call and put options in the U.S. capital markets. We generated approximately RMB35.5 million, RMB65.1 million and RMB32.7 million (US$5.2 million) of gains on sales of short term investments in 2009, 2010, 2011, respectively. We do not have professional investment expertise or employ professional investment

personnel. The success of our investments depends on factors that are not entirely within our control, including the performances and volatility of stock markets in China and U.S. Therefore, we cannot guarantee the sustainability of our gains on sales of short term investments. Should we lose money in our investment activities, our financial conditions may be significantly and adversely affected.

Competition could reduce our profit margins and revenues.

Companies that have expertise in marketing and providing government-related software products and services may begin to compete with us. There are companies that provide software products and services similar to ours. In addition, there are companies in China that provide such products and services to PRC government agencies other than the PRC Inspections Administration. In particular, there are regional software providers in China implementing systems for provincial branches of government agencies such as the Customs General Administration of the PRC, or PRC Customs. Furthermore, we are aware of one other software provider in China, Fujian Rongji Software Development Co., Ltd., or Rongji, that provides enterprise software for PRC Inspections Administration-related filings. We are also aware of several software developers that provide software development services to our customers, in particular to iTowNet. See Item 4 of this annual report, “Information on the Company — Business overview — Competition.” There can be no assurance that other companies will not pursue opportunities relating to the needs of international trade enterprises making government filings in China. Our competitors may have greater marketing, programming, research and development, capital and other resources than we do. These resources could enable our competitors to take aggressive action to gain market share. Additionally, we face competition from the free software distributed by the PRC Inspections Administration and from companies with established reputations and political relationships with PRC government agencies. If we do not compete effectively or if we experience any pricing pressure from our potential competitors, we may experience loss of market share and reduced profit margins and revenues.

Future acquisitions and investments could divert our management’s attention, which may have an adverse effect on our ability to manage our business and expose us to potential risks.

In 2009, we expanded our research and development initiatives to focus on the development of our B2C e-commerce platform. In April 2010, we began initially offering our B2C e-commerce food and household products platform through our web portal, www.tootoo.cn.

In 2011, we acquired certain land use rights in China and we intend to develop real estate projects in Huainan, Dalian, Binzhou and Beijing, China.

If we are presented with additional opportunities, we may acquire additional complementary companies, products or technologies, or invest in new businesses. Future acquisitions and investments and the subsequent integration of new companies, assets or business ventures would require significant time and attention from our management. The diversion of our management’s attention to integrate such acquisitions or investments and any difficulties encountered in any integration process could have a material adverse effect on our ability to manage our business and expose us to potential risks, including risks associated with the integration of new operations, technologies and personnel, unforeseen or hidden liabilities, the diversion of resources from our existing businesses and technologies, the inability to generate sufficient revenues to offset the costs and expenses of acquisitions and investments, and potential loss of, or harm to, our relationships with employees, customers and suppliers.

Our business depends substantially on the continuing efforts of our executive officers and our business may be severely disrupted if we lose their services.

Our success depends substantially on the expertise and experience of our executive officers, who have extensive skills in and knowledge about the international trade industry and the software industry in China. They also have established relationships with our major customers, our suppliers, government regulators and our shareholders. We do not maintain key-man life insurance for any of our executive officers. The loss of services of any or all of our executive officers in the absence of suitable replacements could have a material adverse effect on our operations and future profitability.

In addition, if any of our executive officers joins a competitor or forms a competing company, we may lose customers, suppliers, research and development expertise and employees and our relationship with the PRC Inspections Administration could be materially and adversely affected. Although all of our executive officers have entered into service agreements with us which contain confidentiality and non-competition provisions, it may be difficult to enforce such provisions in China in light of uncertainties relating to China’s legal system. See “— Risks related to doing business in China — The uncertain legal environment in China could limit the legal protections available to you and could adversely affect our ability to provide our products and services in China.”

Our inability to attract and retain experienced personnel may adversely affect our ability to create enterprise software for international trade enterprises or provide software development services to PRC government agencies.

Our success depends on our ability to attract, retain, train and motivate highly skilled employees, including experienced software engineers, technical personnel and sales and marketing personnel, all of whom are in great demand in China. In particular, we depend on software engineers who have expertise and experience in creating enterprise software for international trade enterprises as well as providing software development services to PRC government agencies. We also need to hire additional employees who are experienced in the B2C food related and real estate development businesses. We may not be able to attract or retain the key personnel that we need to achieve our business objectives. At times our ability to find and train new employees who have the requisite business experience may not meet the growing demands of our business. As the PRC economy continues to develop, demand for personnel with the skills that we require is expected to increase, which could raise our costs or make it impracticable for us to hire skilled or experienced personnel. Certain of our senior software engineers, technical officers or staff members are not bound by non-competition agreements and those who are not bound could decide to resign or work for our competitors at any time without any contractual restriction. The departure of any of these personnel could have a material adverse effect on our ability to create enterprise software for international trade enterprises, provide software development services to PRC government agencies or develop and expand our business.

If we continue to grant employee share options and other share-based compensation in the future, our net income could be materially and adversely affected.

We have the 2003 Plan, the Amended and Restated 2004 Plan, and the 2006 Share Incentive Plan, or collectively, the Plans. As of December 31, 2011, we granted options under the Plans with the right to purchase a total of 6,185,469 ordinary shares and we granted 3,259,979 non-vested shares, of which 1,634,491 unexercised options and 50,102 unvested non-vested shares had been returned to the pool of our share-based awards as a result of resignation from employment by former employees.

We account for compensation costs for certain share options using a fair-value based method and recognize expenses in our consolidated statement of operations in accordance with the relevant rules under U.S. GAAP, which may have a material and adverse effect on our reported earnings. Moreover, the additional expenses associated with share-based compensation may reduce the attractiveness of such incentive plan to us. However, if we reduce the scope of the Plans, we may not be able to attract and retain key personnel, as share options are an important employee recruitment and retention tool. If we grant employee share options or other share-based compensation in the future, our net income could be adversely affected.

Our failure to adequately manage our business expansion could result in deterioration in our results of operations and financial condition.

Our plans for expansion into new business opportunities are likely to continue to place a significant strain on our managerial, operational, financial and other resources. Our future success depends, in part, upon the ability of our senior management to manage our business expansion effectively. Such effective management requires us to implement additional management information systems, to develop further our operating, administrative, financial and accounting systems and controls and to maintain close coordination among our software design, software coding, accounting, finance, marketing, sales and operations organizations. Any failure to implement or improve systems or controls to manage our business expansion effectively could result in a deterioration in our results of operations and financial condition.

We often commence work on software development projects based on verbal agreements and if our customers do not pay us for these services, our working capital requirements and expenses may increase without a corresponding increase in net revenues, which would adversely affect our profitability.

As we believe is consistent with the practice of other software development companies in China engaged in government-related work, we often commence software development projects based on oral commitments from our customers. As a result, we may need to substantially increase our expenses without assurance that we will be paid for our software development services. Furthermore, we may not recognize any revenue from software development projects in any given period because we recognize revenue from such services only when a contract has been signed. If our customers do not pay us, or delay paying us, for our software development services, our working capital requirements and expenses may increase without a corresponding increase in net revenues, which would adversely affect our profitability.

Programming errors or flaws in our enterprise software or other product defects could decrease market acceptance of our software, which would reduce our revenues and profitability.

Software as complex as our enterprise software frequently contains undetected defects that may be identified at any point in the software’s life. There can be no assurance that, despite repeated testing, defects will not occur in existing or new software. Such defects could result in loss of or delay in receiving revenues, loss of market share, failure to achieve market acceptance, diversion of development resources, injury to our reputation or increased service and warranty costs. Any of the above consequences could adversely impact our business, results of operations and financial condition. Furthermore, our software development services typically involve working with sophisticated software, computing and networking systems. Our failure or inability to meet customer expectations or project milestones in a timely manner could also result in loss of revenues or delay in revenue recognition, loss of market share, failure to achieve market acceptance, injury to reputation and increased costs. Because our customers rely on our products and services for critical trade transactions, any significant defects or errors in our products or services might discourage our customers or potential customers from utilizing our products and services or result in tort or warranty claims. We do not maintain any insurance against product liability or legal claims. Any imposition of liability on us may adversely affect our business and increase our costs, resulting in reduced revenues and profitability.

We may not be able to adequately protect our intellectual property rights and others may claim that we have infringed on their intellectual property rights, which could cause us to be less competitive, may expose us to litigation and may negatively impact our business, results of operations and financial condition.

We rely on a combination of copyrights, trademarks and other methods to protect our intellectual property rights. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our technology. In addition, there can be no assurance that others will not independently develop comparable intellectual property. We cannot be certain that the steps we have taken will prevent misappropriations of our technology. From time to time, we may have to resort to litigation or other measures to try to enforce our intellectual property rights, which could result in substantial costs and diversion of our resources. We may be unable to enforce our intellectual property rights even through litigation or other measures, particularly in China. See “— Risks related to doing business in China — The uncertain legal environment in China could limit the legal protections available to you and could adversely affect our ability to provide our products and services in China.” In particular, we are aware of an online video game company in China whose name is substantially similar to our name in Chinese. We cannot assure you that such company will not take actions against us for trademark infringement. We have registered our trademark in the United States and we are in the process of registering our other trademarks in China under the food and beverage categories.

There can be no assurance that infringement or other claims will not be asserted or prosecuted against us in the future or that any past or future assertions or prosecutions will not materially and adversely affect our business, results of operations and financial condition. Any such claims, with or without merit, could be time-consuming, result in costly litigation and diversion of technical and management personnel or require us to develop non-infringing technology or enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to us, or at all. In the event of a successful claim of infringement

against us, our revenues may decrease and our expenses to obtain or develop non-infringing technology or to license the infringed or similar technology may increase. In addition, our failure or inability to develop non-infringing technology or license the infringed or similar technology on a timely basis may cause our business, results of operations and financial condition to be negatively affected. See Item 4 of this annual report, “Information on the Company — Business overview —Intellectual property rights.”

Any reduction of our preferential tax treatment as a PRC high and new technology enterprise could materially reduce our net income.

We receive from the PRC government a 14.0% rebate for value added tax on sales of software and software-related services, or VAT rebate. For our B2C food related business, the revenue from our self-grown goods is exempt from VAT. We cannot assure you that we will continue to enjoy this preferential tax treatment in the future, either due to a change in the PRC government’s tax policies or because a subsidiary or variable interest entity, or VIE, fails to satisfy the financial and operational criteria necessary to maintain its eligibility for such preferential tax treatment. Any reduction in our preferential tax treatment could materially reduce our net income.

On March 16, 2007, the National People’s Congress adopted the 2008 PRC Enterprise Income Tax Law, or the New Income Tax Law, which went into effect on January 1, 2008. The New Income Tax Law imposes a unified income tax rate of 25% for domestic and foreign enterprises. New and High Technology Enterprise will enjoy a favorable tax rate of 15%. The New Income Tax Law also provides a five-year transitional period for those enterprises established before March 16, 2007, which enjoy a favorable income tax rate less than 25% under the previous income tax laws, to gradually change their rates to 25%. In addition, the New Income Tax Law provides grandfather treatment for enterprises which were qualified as “New and High Technology Enterprises” under the previous income tax laws and were established before March 16, 2007, if they continue to meet the criteria for New and High Technology Enterprises after January 1, 2008.

The New and High Technology Enterprise status allows qualifying enterprises to be eligible for a preferential 15% tax rate for three years. At the conclusion of the three year period, the qualifying enterprise has the option to renew its New and High Technology Enterprise status for an additional three years if such enterprise’s business operations continue to qualify for New and High Technology Enterprise status. At the conclusion of the renewed period, the enterprise would have to go through a new application process to renew its New and High Technology Enterprise status. As of December 2011, we received certifications of New and High Technology Enterprise status for Beijing Ninetowns Ports Software and Technology Co., Ltd., or Ninetowns Ports, and Guangdong Ninetowns Technology Co., Ltd., or Guangdong Ninetowns, which qualify them for the preferential 15% tax rate for tax year 2011.

Under the New Income Tax Law, if the PRC subsidiaries and the VIE wish to qualify for a preferential rate for years commencing on or after January 1, 2008, they need to qualify as a “High and New Technology Enterprise Strongly Supported by the State” under the new rules. Until the PRC subsidiaries and the VIE receive official approval for this new status, they are subject to the statutory 25% tax rate. As the New Income Tax Law and its implementation rules only recently went into effect, there are uncertainties on their future interpretation and implementation.

Furthermore, under the New Income Tax Law, a “resident enterprise”, which includes an enterprise established outside of the PRC with management located in the PRC, is subject to PRC income tax. If the PRC tax authorities subsequently determine that the Company and its subsidiaries registered outside the PRC should be deemed a resident enterprise, the Company and its subsidiaries registered outside the PRC will be subject to the PRC income tax at a rate of 25%.

There are significant uncertainties under the New Enterprise Income Tax Law, or the New EIT Law, which became effective on January 1, 2008, regarding our PRC enterprise income tax liabilities, such as tax on dividends paid to us by our PRC subsidiaries. The New EIT Law also contains uncertainties regarding possible PRC withholding tax on dividends we pay to our shareholders outside of China and gains realized from the transfer of our shares by our shareholders outside of China.

We are a holding company incorporated in the Cayman Islands, which indirectly holds, through New Take Limited., or New Take and Shielder Limited., or Shielder, which are Hong Kong companies, our equity interest in our PRC subsidiaries. The New EIT Law and its implementation rules, both of which became effective on January 1, 2008, provide that China-sourced income of foreign enterprises, such as dividends paid by a PRC subsidiary to its overseas

parent, is normally subject to PRC withholding tax at a rate of 10.0%, unless there are applicable treaties that reduce such rate. Under a special arrangement between China and Hong Kong, such dividend withholding tax rate is reduced to 5.0% if a Hong Kong resident enterprise owns over 25.0% of the PRC company distributing the dividends. As New Take and Shielder, are Hong Kong companies and own 90.0% of Beijing New Take Electronic Commerce Limited, or Beijing New Take, and Beijing Ninetowns Times Electronic Commerce Limited, or Ninetowns Times, respectively, dividends that Beijing New Take and Ninetowns Times pay New Take and Shielder, respectively, are subject to a withholding tax at the rate of 5.0%, provided that New Take and Shielder and our company are not considered to be PRC tax resident enterprises. Furthermore, according to the Circular regarding the Implementation of Dividend-related Provisions in the Tax Treaty issued by the State Administration of Taxation on February 22, 2009, if the main purpose of an offshore arrangement is to obtain a preferential tax treatment, the PRC tax authorities have the discretion to adjust the preferential tax rate enjoyed by the relevant offshore entity. As New Take and Shielder are intermediate holding companies and not engaged in any commercial activities in Hong Kong, the tax authorities may regard the main purpose of New Take and Shielder as obtaining a lower withholding tax rate of 5.0%. As a result, the tax authorities could levy a higher withholding tax rate to dividends received by New Take and Shielder from Beijing New Take and Ninetowns Times.

Furthermore, the implementation rules of the New EIT Law provide that, (i) if the enterprise that distributes dividends is domiciled in the PRC, or (ii) if gains are realized from transferring equity interests of enterprises domiciled in the PRC, then such dividends or capital gains are treated as China-sourced income. It is unclear how “domicile” will be interpreted. It may be interpreted as the jurisdiction where the enterprise is a tax resident. Therefore, if we and New Take and Shielder are considered as PRC tax resident enterprises for tax purposes, any dividend we pay to our shareholders outside of China or ADS holders as well as gains realized by such shareholders or ADS holders from the transfer of our shares or ADSs will be regarded as China-sourced income and as a result be subject to PRC withholding tax at a rate of up to 10.0%.

The Chinese tax authorities have clarified that distributions made out of pre-January 1, 2008 retained earnings is not subject to the withholding tax. Tax expense for the year ended December 31, 2009 includes an estimated withholding tax related to dividends in excess of pre-January 1, 2008 retained earnings paid by our Chinese subsidiaries to our overseas holding companies.

Additionally, under the New EIT Law, enterprises established under the laws of foreign countries or regions whose “de facto management bodies” are located within the PRC are considered resident enterprises and is generally subject to the enterprise income tax, or EIT, at the rate of 25.0% on its global income. However, the New Income Tax Law does not define the term “de facto management bodies.” Under the implementation rules to the Enterprise Income Tax Law, a “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and other assets of an enterprise. In addition, the tax circular mentioned above details that certain Chinese-invested enterprises will be classified as “resident enterprises” if the following are located or resident in China: senior management personnel and departments that are responsible for daily production, operation and management; financial and personnel decision making bodies; key properties, accounting books, company seal, and minutes of board meetings and shareholders’ meetings; and half or more of the senior management or directors having voting rights. Certain members of our board of directors and our management are currently located in the PRC and if they remain located in the PRC after the effective date of the New EIT Law, we may be considered to be a resident enterprise and therefore may be subject to the EIT at the rate of 25.0% on our global income in the PRC.

We face uncertainty from the Circular on Strengthening the Administration of Enterprise Income Tax on Non-PRC Resident Enterprise’ Share Transfers (“SAT Circular No. 698”) issued by the PRC State Administration of Taxation, effective as of January 1, 2008

Pursuant to SAT Circular No. 698, except for the purchase and sale of equity through a public securities market, where a non-resident enterprise transfers the equity interests of a PRC resident enterprise indirectly by disposition of the equity interests of an overseas holding company, or an Indirect Transfer, and the overseas holding company is located in a tax jurisdiction that has an effective tax rate less than 12.5% or does not tax foreign income of its residents, the non-resident enterprise, being the transferor, must report this Indirect Transfer to the appropriate tax authority of the PRC resident enterprise. Using a “substance over form” approach, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such as

Indirect Transfer may be subject to PRC tax at a rate of up to 10%. SAT Circular No. 698 also provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price lower than the fair market value, the relevant tax authority has the power to make a reasonable adjustment to the taxable income of the transaction.

There is uncertainty as to the application of SAT Circular No. 698. For example, while the term “Indirect Transfer” is not clearly defined, it is understood that the PRC tax authorities have jurisdiction to request information from a wide range of foreign entities having no direct contact with China. Moreover, the PRC tax authorities have not promulgated any formal provisions or formally declared or stated how to calculate the effective tax rates in foreign tax jurisdictions, and the process and format of the reporting of an Indirect Transfer to the appropriate tax authority of the relevant PRC resident enterprise remain unclear. In addition, there are no formal declarations with regard to how to determine whether a foreign investor has adopted an abusive arrangement in order to reduce, avoid or defer PRC tax. SAT Circular No. 698 may be determined by the tax authorities to be applicable to transactions in which non-resident investors were involved, if any of such transactions were determined by the tax authorities to lack reasonable commercial purpose. As a result, we may become at risk of being taxed under SAT Circular No. 698 and may be required to expend valuable resources to comply with SAT Circular No. 698 or to establish that we should not be taxed under SAT Circular No. 698, which may have a material adverse effect on our business, financial condition, results of operations and growth prospects.

Changes in PRC policies on dividend distribution may materially and adversely affect our business and results of operations and dividends payable by us to our foreign investors.

Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income signed on August 21, 2006, or the Hong Kong Tax Treaty, a company incorporated in Hong Kong, such as our subsidiaries New Take and Shielder, are subject to withholding income tax at a rate of 5% on dividends it receives from its PRC subsidiaries if it holds a 25% or more interest in that particular PRC subsidiary at the time of the distribution, or 10% if it holds less than a 25% interest in that subsidiary. In addition, the PRC State Administration of Taxation promulgated the Administrative Measures for Non-resident Enterprises to Enjoy Treatments under Tax Treaties (for Trial Implementation) on October 27, 2009, or Circular 601, which provides that tax treaty benefits will be denied to “conduit” or shell companies without business substance, and a beneficial ownership analysis will be used based on a “substance-over-form” principle to determine whether or not to grant tax treaty benefits. It is unclear at this early stage whether Circular 601 applies to dividends from our PRC subsidiaries paid to us through our Hong Kong subsidiary. It is possible however, that under Circular 601, our subsidiaries New Take and Shielder would not be considered as the “beneficial owner” of any such dividends, and that such dividends would as a result be subject to income tax withholding at the rate of 10% rather than the favorable 5% rate applicable under the Hong Kong Tax Treaty.

If our currently available tax benefits relating to the withholding income tax on the dividends received from New Take and Shielder become unavailable as a result of the changes in the tax arrangement between the PRC and Hong Kong as mentioned above or for any other reason, our financial condition and results of operations could be adversely affected.

We may have to constrain our business activities to avoid being deemed an investment company under the U.S. Investment Company Act of 1940.

The United States Investment Company Act of 1940, or the 1940 Act, provides generally that a company is an investment company that is required to register as such under the 1940 Act and comply with its regulations if: (i) the company is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities; or (ii) more than 40% of the value of the company’s total assets is represented by investment securities as defined therein. The 1940 Act contains substantive regulations with respect to investment companies, including restrictions on their capital structure, operations, transactions with affiliates and other matters that would be incompatible with our operations. We may therefore have to incur significant costs and management time to avoid investment company status and may suffer other adverse consequences if we are deemed to be an investment company under the 1940 Act.

A substantial portion of our assets may or are likely to be considered investment securities for purposes of the 1940 Act. These assets include fixed time deposits and short- and long-term investments. Although we believe that we do not currently fall within the definition of an investment company under the 1940 Act, we may not be able to conduct or significantly expand our business activities in relation to these types of assets in the future, and there is no assurance that we will not be deemed an investment company under the 1940 Act in the future.

It is likely that we are considered a passive foreign investment company for 2011, which could lead to additional taxes for U.S. holders of ADSs.

Special U.S. federal income tax rules apply to U.S. holders of shares of a non-U.S. corporation that is classified as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. The determination of our PFIC status principally depends upon the composition of our assets, including goodwill, and the amount and nature of our income, from time to time. The amount of goodwill depends in part on the market value of our ADSs or ordinary shares, which may be especially volatile in a technology-related enterprise. We have limited control over these variables. Accordingly, there can be no assurance that we would not be considered a PFIC for any taxable year.

It is likely that we are classified as a PFIC for 2011. As a result, U.S. holders of shares may be subject to United States federal income tax consequences that are less favorable than those that would apply if we were not a PFIC.

For example, gain from the sale of our shares may be ineligible for preferential capital gains rates and may be subject to an interest charge. Please see Item 10 of this annual report, “Additional Information — Taxation — United States federal income taxation.”

The success of our B2C food related business depends on our ability to identify and respond to constantly changing consumer preferences.

The e-commerce and retail industries are subject to changing consumer preferences. Consequently, we must stay abreast of emerging lifestyles and consumer trends, and anticipate trends that appeal to existing and potential customers. Shifts in consumer preferences or eating habits away from organic food products may materially affect our business if we do not adjust our product offerings promptly and appropriately. In addition, our continued success depends, in general, on the economic conditions, disposable income and consumer confidence in the areas in which we sell our products, all of which can affect discretionary consumer spending. Adverse changes in these factors would reduce our total net revenues from our B2C food related business and limit our pricing, which will reduce our profitability.

We may fail to obtain, or may experience material delays in obtaining or renewing, necessary qualification certificates and government approvals for our real estate development operations, which would adversely affect our business.

The real estate industry in China is highly regulated. Real estate developers in China must abide by various laws and regulations, including implementation rules promulgated by local governments to enforce these laws and regulations. As a precondition to engaging in real estate development in China, a property developer must obtain a qualification certificate and renew it on an annual basis unless the rules and regulations allow for a longer renewal period. According to the current PRC regulations on qualification of property developers, a newly established property developer must first apply for a provisional qualification certificate with a one-year validity, which can be extended for a maximum of two years. If the newly established property developer fails to commence a property development project within the one-year period when the provisional qualification certificate is in effect, it will not be allowed to extend its provisional qualification certificate. More established property developers must also apply for renewal of their qualification certificates on an annual basis. It is mandatory under government regulations that developers fulfill all statutory requirements before obtaining or renewing their qualification certificates. We may not be able to obtain the qualification certificates in a timely manner, or at all, as and when they become due to expire. If we do not possess valid qualification certificates, the government may refuse to issue pre-sale and other permits necessary for our property development business. In addition, the government may impose a penalty on us and our project companies for failure to comply with the relevant licensing requirements. If we are unable to meet the relevant requirements, and therefore are unable to obtain or renew the qualification certificates or pass the annual verification, our future business and financial condition could be materially and adversely affected.

We develop our real estate projects through project companies. These project companies must also hold valid qualification certificates to be able to conduct their businesses. As of April 20, 2012, Beijing Ninetowns Software Co., Ltd., or Ninetowns Software, Huainan Huacheng, Dalian Aviation Changzheng Technology Development Co., Ltd., or Dalian Changzheng and Binzhou Ruichen Real Estate Development Co., Ltd., or Binzhou Ruichen, have obtained the Provisional Qualification Certificate. We cannot assure you that our project companies will be able to obtain, extend or renew the qualification certificates. If our project companies do not possess valid qualification certificates, the PRC Government may refuse to issue pre-sale and other permits necessary for our property development business. In addition, the PRC Government may impose a penalty on us and our project companies for failure to comply with the licensing requirements. The occurrence of any of the above events may have a material adverse effect on our future business, financial condition and operating results.

Before commencing, and during the course of, the development of a project, we also need to apply for various licenses, permits, certificates and approvals, including land use rights certificates, construction site planning permits, construction work planning permits, construction permits, pre-sale permits and completion acceptance certificates. We need to satisfy various requirements to obtain these certificates and permits. As of April 20, 2012, Ninetowns Software has obtained the land use rights certificate, construction site planning permit for Yizhuang; Huainan Huacheng has obtained the land use rights certificate for the “Smarter Town” project in Huainan; Dalian Changzheng has obtained the land use rights certificate and construction site planning permit for both Phrase I and Phase II of the project in Dalian, and obtained the construction work planning permit for Phrase I; Binzhou Ruichen has obtained the land use rights certificates for approximately 57,027 square meters of the project in Binzhou. To date, we are still in the process of applying for other certificates and permits, and we cannot guarantee that we will not encounter serious delays or difficulties in this process. In the event that we fail to obtain the necessary certificates and permits for any of our projects, or a serious delay occurs, we may not be able to maintain our development schedule and our future business and cash flows may be adversely affected. We may also be forced to forfeit land to the government if we fail to comply with statutory development deadlines imposed under land grants or the terms of the land use rights grant contracts.

It is difficult to evaluate our results of operations and future prospects due to our limited operating history in the real estate development industry.

We expanded our business to focus on investment in real estate development in 2011, initially in Huainan, Dalian, Binzhou and Beijing, China. Accordingly, we have a limited operating history in the real estate development industry from which you can evaluate our business and future prospects. We may not be able to continue our growth at rates similar to those at which we have recently grown, if at all, because, among other reasons, we may not be able to maintain the current level of business operations or to expand our business operations into other geographic regions in future periods. As a result, our historical operating results may not provide a meaningful basis for evaluating our business, results of operations and financial condition. Accordingly, you should not rely on our results of operations for any prior periods as an indication of our future performance.

Our joint ventures could result in unforeseen expenses or disruptive effects on our business.

In 2011, we formed several joint ventures with our partners and we may continue to pursue joint venture opportunities. Any joint venture that we pursue may be accompanied by a number of risks. We may not be in a position to exercise sole decision-making authority regarding the joint ventures. We may not be able to control the quality of products produced by the joint venture. Depending on the terms of the joint venture agreement, we may need the consent of our joint venture partner(s) for the joint venture to take certain actions, such as the payment of distributions. In addition, our joint venture partners and the joint venture themselves may hold different views or have different interests from ours, and therefore may compete in the same market with us, in which case our interest and future development may be materially adversely affected.

We rely on third-party contractors.

Substantially all of our real estate project construction and related work are outsourced to third-party contractors. We are exposed to risks that the performance of our contractors may not meet our standards or specifications. Negligence or poor work quality by contractors may result in defects in our buildings or residential units, which could in turn cause us to suffer financial losses, harm our reputation or expose us to third-party claims. We work

with multiple contractors on different projects and we cannot guarantee that we can effectively monitor their work at all times. Although our construction and other contracts contain provisions designed to protect us, we may be unable to successfully enforce these rights and, even if we are able to successfully enforce these rights, the third-party contractor may not have sufficient financial resources to compensate us. Moreover, the contractors may undertake projects from other property developers, engage in risky undertakings or encounter financial or other difficulties, such as supply shortages, labor disputes or work accidents, which may cause delays in the completion of our property projects or increases our costs.

We may be required to vacate our principal offices as a result of a third party lawsuit against the developer of our principal offices.

We signed a Pre-sale Contract for Commodity House in Beijing Municipality with Beijing Hengfu Square Development Company Limited, or Hengfu, to purchase a total of 7,992 square meters in Capital A Partners, which is where our principal offices are located. As of April 20, 2012, we have not obtained the ownership certificate of our principal offices as a result of a third-party lawsuit against Capital A Partners’ developer.

We were notified that Hengfu was sued by an unrelated third party for Hengfu’s alleged failure to pay certain debts owed to such third party. We understand that in January 2010, the Beijing First Intermediate People’s Court, or the Court, promulgated a public order to seize Capital A Partners. As a result of such lawsuit and seizure, the Court may require us to vacate our principal offices so that the Court can order the sale of Capital A Partners. Even though we believe that the likelihood of the Court’s sale of Capital A Partners is remote, we may have to relocate our principal offices if the Court does sell Capital A Partners, which may affect our business.

Risks related to our industry

The software industry is subject to rapid changes in technology and our failure to develop and introduce new enterprise software could reduce our market competitiveness and ability to generate revenues.

The software industry is characterized by rapid technological changes and evolving customer, industry and government standards. Our future success depends, to a large extent, on our ability to keep pace with technological advances in a timely and cost-effective manner by improving our existing enterprise software or developing new enterprise software that addresses changing customer requirements. Our development of new enterprise software or the enhancement of our existing enterprise software entails substantial investments in research and development, which we expect to fund with our cash flow from operations and our available cash. Nevertheless, there can be no assurance that our research and development efforts will result in the successful introduction of new enterprise software or the enhancement of our existing enterprise software, nor that any of such new or enhanced enterprise software will be accepted by the market. The success of our new enterprise software is dependent on several factors, including differentiation of our enterprise software from products of our competitors and market acceptance. There can be no assurance that we will be successful in developing and marketing new enterprise software that responds to competitive and technological developments and changing customer needs.

Our failure to develop and introduce new enterprise software successfully on a timely basis or to achieve market acceptance could reduce our market competitiveness and ability to generate net revenues. In addition, the widespread adoption of new Internet, networking or telecommunication technologies or standards or other technological changes could require substantial expenditures by us to modify or adapt our products and services. To the extent that a method other than submission by Internet is adopted to enable trusted and secure communications with the PRC Inspections Administration and other trade-related PRC government agencies, sales of our existing and planned enterprise software products will be adversely affected and our enterprise software could be rendered unmarketable or obsolete. Such consequences would have a negative impact on our business, results of operations and financial condition.

Government policies, standards, rules and regulations may force us to implement changes to our existing enterprise software or change how we provide products and services to our customers, which could increase our expenses and decrease our profitability.

The software industry in China and the regulatory environment has been and continues to be subject to uncertainty. Although the PRC government adopted policies to encourage the development of the PRC electronic government, or e-government, industry through the “Three Digitizations Project,” there can be no assurance that policies and the government’s standards, rules and regulations relating to the e-government software industry, such as the Regulations for the Protection of Computer Software, will not be implemented, interpreted or revised in a manner that may force us to implement changes to our existing enterprise software or change how we provide products and services to our customers, which could increase our expenses and decrease our profitability. See Item 4 of this annual report, “Information on the Company — Business overview — Regulation” for a discussion of the laws and regulations that apply to our company. We cannot accurately predict the circumstances that would cause the PRC government to implement, interpret or revise its policies in such a manner. Nevertheless, the PRC government could adopt measures to more closely regulate the use of the Internet or the software industry in China in order to enhance the government’s control over the Internet or over the content of software being distributed in China.

For example, we may be subject to potential liability for selling software that is subsequently deemed to be illegal by the relevant PRC regulatory authorities for having non-approved technology. These potential liabilities may include fines, product confiscation and criminal sanctions. We cannot assure you that our business, financial condition and results of operations will not be negatively affected by the application of these regulations.

Furthermore, China and the United States may afford different patent protection to software programs. For example, there are jurisdictional variations in the enforcement of patent rights in China because most patent infringement disputes are resolved by courts at the municipal or provincial level or by local administrative authorities for patent affairs, which may be subject to varying local economic and political influences in rendering their decisions. By contrast, all patent disputes in the United States are reviewable by a single federal circuit court, which generally provides greater uniformity to the adjudication of patent disputes. We cannot predict whether the PRC authorities would centralize the enforcement or adjudication of patent rights in the future or how such centralized enforcement or adjudication would affect our rights. If the PRC authorities further de-centralize the regulation of the software industry, or centralize its enforcement or adjudication policy in a way that is detrimental to our company, we may be forced to implement changes to our existing enterprise software or change how we provide products and services to our customers, which could increase our expenses and decrease our profitability.

The PRC real estate market is volatile as it continues to evolve. We operate subject to the risks associated with the PRC real estate industry. We cannot guarantee that our real estate development business will generate significant total net revenues or be profitable.

The real estate market in the PRC is subject to social, political, economic, legal and other factors as it continues to evolve. The lack of a mature and active secondary market for private properties and the limited amount of mortgage loans available to individuals are examples of factors that inhibit demand for residential properties. We believe that the real estate development business depends on the growth of the urban middle and upper middle classes in the PRC. A significant downturn in the PRC economy could adversely affect such demand, as well as the demand for the retail, office and residential properties we plan to develop.

The PRC property market is volatile and may experience undersupply or oversupply and property price fluctuations. The central and local governments frequently adjust monetary and other economic policies to prevent and curtail the overheating of the economy. Such policies may lead to changes in market conditions, including price instability and imbalance of supply and demand in respect of office, residential, retail, entertainment and cultural properties.

The process of acquiring development and land use rights and developing land involves significant risks as we may be required to commit material financial and managerial resources in acquiring such rights and in constructing the property development infrastructure, which generally takes several years, before the property development project generates any revenue. Similarly, we may pre-sell or sell developed properties at below expected sales prices and may experience delays in selling developed properties due to, among other things, the supply and demand of comparable properties and the cyclical nature of the property industry in the PRC. We may need to delay or change the structure of property developments after we have begun to explore them and may lose deposits paid to participate in the land tender process or fail to recover expenses and construction costs already incurred. We may even be required to pay penalties and/or compensation to the government authorities and purchasers as a result.

Furthermore, any of our anticipated development projects may become unprofitable if we incur additional construction and other development costs due to increases in interest rates or material, labor or other costs over and above the market price at which we are able to sell our property projects and pass on such cost increases to our customers. We may fail to complete the construction of a property on schedule or at all, due to a variety of factors including shortages of materials, equipments, technical skills and labor, adverse weather conditions, natural disasters, labor disputes, disputes with contractors, accidents, changes in the PRC government’s policies, changes in market conditions and delays in obtaining the requisite licenses, permits and approvals from the relevant authorities, which may adversely affect our ability to generate total net revenues or the profitability of our real estate development business.

There is fierce competition among real estate developers for land and property. If we fail to compete effectively against our competitors, our future business and financial position may be adversely affected. A large number of property developers including overseas and leading Hong Kong property developers have been undertaking property development and investment projects in the PRC for many years. As we grow our business lines to include real estate development business, we may compete with large real estate developers for the acquisition of land and property investment opportunities.

In April 2004, the PRC Government imposed a six-month moratorium on conversion of agricultural land into construction land for non-agricultural purposes to help reduce land supply and thereby prevent overheating of the PRC property market. In June 2004, the PRC Government issued further policies with the objective of reducing the number of property projects that involve redevelopment or relocation of existing residents. In March 2005, the PRC Government issued a regulation to help stabilize housing prices and to reinforce the administration of land supply. In November 2009, the PRC Government circulated a supplement to the Catalogue of Construction Project Restricted and Prohibited of 2006 version, which sets forth a ceiling for the size of land that may be granted by a local government. In March 2010, the PRC government carried out policies to reinforce the control and supervision over the land supply and in September of the same year, the PRC government issued another policy to propel the enforcement of the policy of March 2010. These policies contributed to an increase in competition for land among real estate developers.

Competition among property developers may result in increased costs for acquiring land for development, increased costs for raw materials, shortages of skilled contractors, oversupply of properties, decrease in property prices in certain parts of the PRC, a slowdown in the rate at which new property developments will be approved and/or reviewed by the relevant government authorities and increases in administrative costs for hiring or retaining qualified personnel, any of which may adversely affect our business and financial position. Our competitors will likely have greater financial resources than are available to us, as well as greater economies of scale and broader brand recognition and may therefore be in a better position than us in acquiring land. If we fail to compete effectively as our competitors, our future business and financial position may be adversely affected.

Risks related to doing business in China

Adverse economic, political, social or legal developments or a decrease in domestic demand in China could result in a reduction in international trade activities involving China, which could in turn reduce the demand for our products and services.

All of our total net revenues have been, and are for the foreseeable future expected to be, derived from the PRC market and substantially all of our operating assets are located in China. Accordingly, our operating results and financial condition are largely subject to economic, political, social and legal developments in China as well as changes in the demand for our enterprise software and software development services by international trade enterprises and PRC government agencies in China. There can be no assurance that such developments will not adversely affect our performance and profitability.

We cannot predict the future direction of the economic reform measures that have been adopted by the PRC government or the effects these measures may have on our business, results of operations or financial position. Many laws and regulations governing economic matters implemented by the PRC government are at an early stage

of development and their interpretation and enforcement involve more uncertainties than in most countries belonging to the Organization for Economic Cooperation and Development, or OECD. In addition, the PRC economy differs from the economies of most countries belonging to the OECD. These differences include:

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economic structure;

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level of government involvement in the economy;

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level of development;

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level of capital reinvestment;

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control of foreign exchange;

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methods of allocating resources; and

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balance of payments position.

As a result of these differences, our business may not develop in the same way or at the same rate as might be expected if the PRC economy were similar to those of other OECD member countries.

In addition, there can be no assurance that any growth in the PRC economy will be steady or that any slowdown will not have a negative effect on our business; that deflation will not reoccur in the PRC economy in the foreseeable future; or that the level of international trade to and from China will not cease to grow at historical rates or even decrease, which could negatively impact demand for our enterprise software. Finally, our results of operations and financial condition could be negatively affected by adverse changes in government monetary policies, import/export polices and regulations, tax regulations or policies and regulations affecting the software industry. In recent years, the PRC government implemented a number of measures, such as raising bank reserves against deposit rates, to place additional limitations on the ability of commercial banks to make loans, in order to slow growth in certain segments of the PRC economy it believed to be overheating. These actions, as well as future actions and policies of the PRC government, could result in a reduction in international trade activities involving China, which could in turn reduce the demand for our products and services.

The uncertain legal environment in China could limit the legal protections available to you and could adversely affect our ability to provide our products and services in China.

We conduct our business entirely through our operating subsidiaries and certain VIE incorporated in China. Our subsidiaries are generally subject to laws and regulations applicable to foreign investment in China and, in particular, laws applicable to wholly foreign-owned enterprises. The PRC legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases have little precedential value. In the late 1970s, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters. However, these laws, regulations and legal requirements are relatively new and are evolving rapidly, and their interpretation and enforcement involve uncertainties. These uncertainties could limit the legal protections available to foreign investors and entities, including you and us, such as the right of foreign-invested enterprises to hold licenses and permits such as customs-related business licenses and permits, software licenses and licenses and approvals necessary to provide services to government enterprises. As the PRC legal system matures, changes in its legislation or interpretation of its legislation may adversely affect our ability to provide our products and services in China.

If the PRC government determines that the VIE structure for operating our business does not comply with PRC government restrictions on foreign investment in the telecommunications industry, we could face severe penalties.

Various regulations in China currently restrict or prevent foreign-invested entities from engaging in the telecommunications services, including Internet-related businesses such as B2B and B2C e-commerce. Because of these restrictions, our B2B operations in the PRC have been conducted through our VIE, Beijing Ronghe Tongshang Network Technology Limited, or Ronghe Tongshang, which is a PRC company that is effectively controlled by our subsidiary, Beijing Ninetowns Suitable Estate Co., Ltd., formerly known as Beijing Ninetowns Network and Software Co., Ltd., or Ninetowns Suitable Estate, through a series of contractual arrangements.

A circular issued by Ministry of Industry and Information Technology (formerly the Ministry of Information Industry), or MIIT, in July 2006, or the MIIT circular, reiterated the regulations on foreign investment in the telecommunications businesses. Under this circular, a domestic company that holds a license for the provision of Internet information service, or an ICP license, or a license to conduct any value-added telecommunications business in China, is prohibited from leasing, transferring or selling the license to foreign investors in any form, and from providing any assistance, including providing resources, sites or facilities, to foreign investors to conduct value-added telecommunications businesses in China.

Furthermore, the relevant trademarks and domain names that are used in the value-added telecommunications business must be owned by the local ICP license holder or its shareholders. The circular further requires each ICP license holder to have the necessary facilities for its approved business operations and to maintain such facilities in the regions covered by its license. In addition, all value-added telecommunications service providers are required to maintain network and information security in accordance with the standards set forth under relevant PRC regulations. Due to a lack of interpretative materials from the regulators, it is uncertain whether MIIT would consider our corporate structures and contractual arrangements as a kind of foreign investment in telecommunications services. Therefore, it is unclear what impact this circular will have on us or the other Chinese Internet companies that have adopted the same or similar corporate structures and contractual arrangements as ours.

In the opinion of our PRC counsel, Commerce & Finance Law Offices, (i) the ownership structure and the business and operation model of each of Ninetowns Suitable Estate and our VIE are in compliance with applicable PRC laws and regulations in all material aspects, and (ii) each contract that Ninetowns Suitable Estate entered into with our VIE and its shareholders is valid and binding, and will not result in any violation of PRC laws or regulations currently in effect. However, there are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including the MIIT circular discussed above. Accordingly, we cannot assure you that the PRC regulatory authorities will ultimately take a view that is consistent with the opinion of our PRC counsel.

If we are found to be in violation of any existing or future PRC laws or regulations, including the MIIT circular, the relevant regulatory authorities would have broad discretion in dealing with such violation, including levying fines, confiscating our income, revoking Ronghe Tongshang’s business or operating licenses, requiring us to restructure the relevant ownership structure or operations, and requiring us to discontinue all or any portion of our related operations. Any of these actions could cause significant disruption to our business operations.

Ninetowns Suitable Estate’s contractual arrangements with Ronghe Tongshang and its shareholders may not be as effective in providing control over them and such shareholders may have potential conflicts of interest with us.

We do not have ownership interest in our VIE and we conduct substantially all of our B2C e-commerce operations through contractual arrangements that Ninetowns Suitable Estate entered into with Ronghe Tongshang and its shareholders. Such contractual arrangements are designed to provide us with effective control over our VIE. We depend on our VIE to hold and maintain certain licenses necessary for our B2C e-commerce businesses. Our VIE also owns all of the necessary intellectual properties, facilities, employees and other assets relating to the operation of our B2C e-commerce business.

Contractual arrangements may not be as effective in providing us with control over our VIE as direct ownership. If we had direct ownership of our VIE, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of our VIE, which in turn could effect changes, subject to any applicable fiduciary obligations, at the management level. Due to our VIE structure, we have to rely on contractual rights to effect control and management of our VIE, which exposes us to the risk of potential breach of contract by the shareholders of our VIE. In addition, as our VIE is jointly owned by its shareholders, it may be difficult for us to change our corporate structure if such shareholders refuse to cooperate with us.

The shareholders of our VIE may breach, or cause our VIE to breach, the contracts for a number of reasons. For example, their interests as shareholders of our VIE and the interests of our company may conflict and we may fail to resolve such conflicts; the shareholders may believe that breaching the contracts will lead to greater economic

benefit for them; or the shareholders may otherwise act in bad faith. If any of the foregoing were to happen, we may have to rely on legal or arbitral proceedings to enforce our contractual rights, including specific performance or injunctive relief, and claiming damages. Such arbitral and legal proceedings may cost us substantial financial and other resources, and result in disruption of our business, and we cannot assure you that the outcome will be in our favor.

In addition, as all of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC, they would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could further limit our ability to enforce these contractual arrangements. Furthermore, these contracts may not be enforceable in China if PRC government authorities or courts take a view that such contracts contravene PRC laws and regulations or are otherwise not enforceable for public policy reasons. In the event we are unable to enforce these contractual arrangements, we may not be able to exert effective control over our VIE, and our ability to conduct our business may be materially and adversely affected.

The laws and regulations governing the telecommunications industry in China are evolving and subject to future changes. We may fail to obtain or maintain all applicable permits and approvals.

The telecommunications industry in China is highly regulated by the PRC government. Various regulatory authorities of the PRC central government, such as the State Council, the MIIT, the General Administration of Press and Publication, the Ministry of Culture and the Ministry of Public Security, are empowered to issue and implement regulations governing various aspects of the telecommunications industry.

We are required to obtain applicable permits, approvals from or registration with different regulatory authorities in order to operate our websites. If we fail to maintain any of our permits, approvals or registrations or to apply for permits, approvals or registrations on a timely basis, we may be subject to various penalties, including fines and the discontinuation or restriction of our operations.

As the telecommunications industry is at an early stage of development in China, new laws and regulations may be adopted from time to time to require additional licenses and permits other than those we currently have, and address new issues that arise. In addition, substantial uncertainties exist regarding the interpretation and implementation of current and any future PRC laws and regulations applicable to the telecommunications industry. We cannot assure you that we could obtain timely, or at all, required licenses or any other new license required in the future. We cannot assure you that we will not be found in violation of any current PRC laws or regulations should their interpretations change, or that we will not be found in violation of any future PRC laws or regulations.

Landlords for some of our leased properties may not possess valid title to their properties and we could be forced to vacate such properties should their title be challenged.

PRC law requires that lessors of properties possess title certificates to the leased properties. We currently have two leases for properties that we use as employee housing in Guangdong Province, China. None of the lessors can provide copies of their title certificates to us. If there are disputes over the ownership of any of these leased properties for which the lessors do not possess title certificates, our leases may be deemed invalid by the PRC courts and we may be forced to vacate these properties.

The recurrence of SARS, H5N1 influenza, or avian influenza, or H1N1 influenza, or swine flu, may result in a reduction in business activity in and related to Asia, which could have an adverse effect on our total net revenues, growth and profits.

In early 2003, several economies in Asia, including Hong Kong and China, were affected by the outbreak of Severe Acute Respiratory Syndrome, or SARS. Several confirmed or suspected SARS cases were reported in early 2004 in Beijing and Anhui Province in China. In addition, lethal outbreaks of avian influenza infection among poultry were reported by several countries in Asia, including China in 2005. In March 2007, February 2008, and early 2009, several fatal cases of avian influenza were reported in various provinces across China. In April 2009, lethal outbreaks of swine flu were reported by several economies around the world, including Hong Kong and various provinces across China. In early June 2009, the World Health Organization declared the outbreak to be a pandemic,

while noting that most of the illnesses were of moderate severity. The PRC Ministry of Health has reported several hundred deaths caused by the swine flu. If there is a recurrence of an outbreak of SARS, avian influenza or swine flu, it may adversely affect our total net revenues, growth and profits. For instance, a recurrence of SARS, avian influenza, swine flu or any other epidemic may reduce the level of economic activity in affected areas and negatively impact international trade activities involving China, which could have a negative impact on our business. In addition, health or other government regulations may require temporary closure of our offices, government offices or the offices of our customers, which will severely disrupt our business operations and have a material adverse effect on our total net revenues, growth and profits.

Restrictions on currency exchange may limit our ability to receive and use our revenues to, among other things, pay dividends and make distributions.

Because almost all of our future revenues will be in the form of Renminbi, any future restrictions on currency exchanges may limit our ability to use revenues generated in Renminbi to fund future business activities outside China or to make dividend or other payments in U.S. dollars. There are significant restrictions on the convertibility of the Renminbi, including the restriction that foreign-invested enterprises may only buy, sell and/or remit foreign currencies after providing valid commercial documents at banks authorized to conduct foreign exchange business. In addition, conversion of Renminbi for capital account items, including direct investment and loans, is subject to approval of the State Administration of Foreign Exchange of the PRC, or SAFE, and companies are required to open and maintain separate foreign exchange accounts for capital account items. We cannot be certain that the PRC regulatory authorities will not impose more stringent restrictions on the convertibility of the Renminbi, especially with respect to foreign exchange transactions.

The value of our ordinary shares and our ADSs, and the value of your investment in our company, may decrease due to changes in the foreign exchange rate between U.S. dollars and Renminbi.

The value of our ordinary shares and our ADSs will be affected by the foreign exchange rate between U.S. dollars and Renminbi. For example, to the extent that we need to convert U.S. dollars into Renminbi for our operational needs and if the Renminbi appreciates against the U.S. dollar at that time, our financial condition and the price of our ordinary shares and our ADSs may be adversely affected. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of declaring dividends on our ordinary shares or for other business purposes and the U.S. dollar appreciates against the Renminbi, the U.S. dollar equivalent of our earnings from our subsidiaries and VIE in China would be reduced.

The value of your investment in our ADSs may fluctuate with the foreign exchange rate between the U.S. dollar and the Renminbi, because the value of our business is largely denominated in Renminbi, while our ADSs are traded in U.S. dollars.

PRC regulations relating to offshore investment activities by PRC residents may increase our administrative burden and restrict our overseas and cross-border investment activity. If our shareholders who are PRC residents fail to make any required applications and filings under such regulations, we may be unable to distribute profits and may become subject to liability under PRC law.

In October 2005, SAFE issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fund — Raising and Return Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or Notice 75, which took effect on November 1, 2005. Notice 75 supersedes prior SAFE regulations promulgated in January and April of 2005. Notice 75 requires PRC residents to register with the relevant local SAFE branch in connection with their establishment or control of an offshore entity established for the purpose of overseas equity financing involving onshore assets or equity interests held by them. The term “PRC residents” as used in Notice 75 includes PRC citizens as wells as other persons who habitually reside in the PRC for economic benefit. Such PRC residents are required to complete amended registrations with the relevant SAFE branch upon (i) injection of equity interests or assets of an onshore enterprise into the offshore entity, (ii) subsequent overseas equity financing by such offshore entity, or (iii) any material change in the shareholding or capital of the offshore entity, such as changes in share capital, share transfers and long term equity or debt investments, and providing security. PRC residents who have already incorporated or gained control of offshore entities that made onshore investments in the PRC before Notice 75 was promulgated was required to register with the relevant local SAFE branch on or before March 31, 2006. In addition, such PRC residents are required to repatriate into China all of their dividend profits or capital gains from their shareholdings in the offshore entity within 180 days of their receipt of such profits or gains.

The registration and amendment procedures set forth by Notice 75 are prerequisites for other approval and registration procedures necessary for capital inflow from the offshore entity, such as inbound investment or shareholders loans, or capital outflow to the offshore entity, such as the payment of profits or dividends, liquidating distributions, equity sale proceeds or the return of funds upon a capital reduction.

A number of terms and provision in Notice 75 remain unclear. Because of uncertainty over how Notice 75 will be interpreted and implemented, we cannot predict how it will affect our business operations or future strategies. For example, our present and prospective PRC subsidiaries’ or VIE’s ability to conduct foreign exchange activities, such as remitting dividends and foreign- currency denominated borrowings, may be subject to compliance with Notice 75 requirements by our PRC resident shareholders. Despite our efforts to fully comply with the SAFE regulations, we cannot assure you that we will obtain, or receive waivers from, any necessary approvals or not be found in violation of the SAFE regulations or any other related foreign exchange regulations. In particular, we cannot assure you that we will be able to cause all our present or prospective PRC resident shareholders to comply with all SAFE regulations. A failure by our PRC resident shareholders to comply with Notice 75 or our inability to secure required approvals or registrations may subject us to fines or legal sanctions, limit our subsidiaries’ ability to make distributions or pay dividends, restrict our overseas or cross-border investment activities or affect our ownership structure, any of which could affect our business and prospects.

All participants in our existing equity compensation plans who are PRC citizens may be required to register with SAFE. We may also face regulatory uncertainties that could restrict our ability to adopt additional equity compensation plans for our directors, employees and other parties under PRC law.

In December 2006, the PBOC promulgated the Administrative Measures for Individual Foreign Exchange, which set forth the requirements for foreign exchange transactions by PRC individuals under either current accounts or capital accounts. In January 2007, SAFE issued the Implementation Rules of the Administrative Measures for Individual Foreign Exchange, which, among other things, specified approval requirements for certain capital account transactions such as a PRC citizen’s participation in the employee stock ownership plans or stock option plans of an overseas publicly listed company. On March 28, 2007, SAFE promulgated the Processing Guidance on Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Ownership Plans or Stock Option Plans of Overseas-Listed Companies Hui Zong Fa [2007] No. 78, Circular 78. On 20 February 2012, SAFE issued a new Circular on Domestic Individuals’ Participation in Share-based Incentive Plans of overseas Listed Companies (Hui Fa [2012] No. 7), or Circular 7, to replace Circular 78. Under Circular 7, PRC citizens who participate in share-based incentive plans of an overseas publicly listed company are required, through a qualified PRC domestic agent or PRC subsidiary of such overseas publicly listed company, to register with the SAFE and complete certain other procedures. We believe that the registration and approval requirements contemplated in Circular 7 will be burdensome and time consuming.

If it is determined that our equity compensation plans are subject to Circular 7, failure to comply with such provisions may subject us and the participants of our equity compensation plans who are PRC citizens to fines and legal sanctions and prevent us from being able to grant equity compensation to our personnel, which is currently a significant component of the compensation of many of our PRC employees. In that case, our business operations may be materially adversely affected.

Risks related to our ADSs and ordinary shares

Your ability to participate in any future rights offerings may be limited, which may cause dilution to your holdings.

We may from time to time distribute rights to our shareholders, including rights to acquire our securities. Under the deposit agreement, the depositary will not offer you those rights unless the distribution to ADS holders of both the rights and any related securities are either registered under the U.S. Securities Act of 1933, as amended, or the Securities Act, or exempt from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings.

The future sales by our directors, officers and our current shareholders of a substantial number of our ordinary shares could result in the supply of our ADSs in the public market exceeding demand, which in turn could lower the market price of our ADSs.

If our shareholders sell substantial amounts of our ordinary shares or ADSs, including those issued upon the exercise of outstanding options, in the public market, the market price of our ADSs could fall. Such sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. If any existing shareholder or shareholders sell a substantial amount of ordinary shares, the supply of our ADSs in the public market may exceed demand, which in turn could lower the market price for our ADSs and thus the value of your investment could be adversely affected.

The market price for our ADSs may be volatile, and the value of your investment in our ADSs may decrease.

The market price for our ADSs may be highly volatile and subject to wide fluctuations in response to the factors set forth elsewhere in this section, as well as:

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actual or anticipated fluctuations in our quarterly or semi-annual operating results;

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actual or anticipated fluctuations in the market price of Internet and PRC-related companies;

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announcements of new products or services by us or our competitors;

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conditions in the international trade industry; and

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announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments.

In particular, the performance and fluctuation of the market prices of other PRC technology companies that have listed their securities in the United States may affect the trading and price volatility of our ADSs. In recent years, a number of PRC companies have listed their securities, or are preparing to list their securities, in the United States. Some of these securities have experienced significant volatility, including significant price declines in connection with or in the periods following their initial public offerings. The trading performances of these companies’ securities may affect the investor sentiment towards PRC companies listed in the United States in general, which may impact the trading performance of our ADSs. These broad market and industry factors may significantly affect the market price and volatility of our ADSs.

You may not be able to exercise your right to vote.

The SEC generally exempts foreign private issuers such as our company from its proxy solicitation requirements. As a holder of ADSs, you may instruct the depositary of our ADSs to vote the ordinary shares underlying your ADSs, but only if we ask the depositary to ask for your instructions. Otherwise, you will not be able to exercise your right to vote unless you withdraw the ordinary shares. However, you may not know about the meeting enough in advance to withdraw the shares. If we ask for your instructions, the depositary will notify you of the upcoming vote and arrange to deliver our voting materials to you. We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your ordinary shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise your right to vote and there may be nothing you can do if the ordinary shares underlying your ADSs are not voted as you request.

We and the depositary may amend the deposit agreement at any time without your consent, and by doing so may change your rights thereunder in a manner with which you disagree.

We may agree with the depositary to amend the deposit agreement without your consent for any reason. If you continue to hold your ADRs after being notified of such amendment, you will be deemed to have agreed to such amendment. In the event you disagree with any such amendment, your only recourse may be to sell your ADSs.

You may not receive distributions on ordinary shares or any value for them if it is illegal or impractical to make them available to you and these restrictions may reduce the value of your ADSs.

The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses. However, the depositary is not required to do so if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. We have no obligation to register ADSs, ordinary shares, rights or other securities under U.S. securities laws. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive the distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may reduce the value of your ADSs.

You may be subject to limitations on transfer of your ADSs.

Your ADSs represented by the ADRs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems it expedient to do so in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary thinks it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

We have not adopted any policy regarding the closing of our books relating to our ADSs, nor is there any provision under Cayman Islands law or New York law, or the deposit agreement, that would prevent the transferability of ADSs. Under the deposit agreement, however, the depository may close its books for our ADR facility from time to time at its discretion, which may prevent you from transferring your ADSs when you wish to do so.

If our subsidiaries are restricted from paying dividends and other distributions to us, our primary source of funds would decrease.

We are a holding company, and we rely on dividends from our Chinese subsidiaries and servicing, licensing and other fees paid to our Chinese subsidiaries by our Chinese affiliated entities and their subsidiaries, including servicing any debt we may incur. If our subsidiaries incur debts on their own behalf in the future, the instruments governing the debts may restrict their ability to pay dividends or make other distributions to us, which in turn would limit our ability to pay dividends on our ordinary shares. PRC regulations permit payment of dividends only out of accumulated profits as determined in accordance with PRC accounting standards and regulations. Our subsidiaries in China are also required to set aside a portion of their after-tax profits according to PRC accounting standards and regulations to fund certain reserve funds that are not distributable as cash dividends.

Other than restrictions imposed by PRC law as set forth under Item 8 of this annual report, “Financial Information — Consolidated statements and other financial information — Dividend policy,” and except as set forth below, our subsidiaries in China are not currently subject to any restriction that would prevent them from paying any dividend or any other form of distribution to us, but there can be no assurance that PRC legal restrictions will not prevent the payment of dividends or distributions in the future.

Relevant PRC laws and regulations permit payments of dividends by our PRC subsidiaries only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. In addition, the statutory general reserve fund, which requires annual appropriations of 10% of net after-tax income should be set aside prior to payment of any dividends until the cumulative amount of such reserves reaches 50% of its registered capital. As a result of these and other restrictions under PRC laws and regulations, our PRC subsidiaries and affiliates are restricted in their ability to transfer a portion of their net assets to us either in the form of dividends, loans or advances. The restricted portion amounted to approximately 59.2% of our total consolidated net assets as of December 31, 2011.

Even though we currently do not require any such dividends, loans or advances from our PRC subsidiaries, we may in the future require additional cash resources from our PRC subsidiaries due to changes in business conditions, to fund future acquisitions or developments, or merely to declare and pay dividends or distributions to our shareholders, although we currently have no intention to do so.

Pursuant to the New EIT Law, which went into effect on January 1, 2008, dividends payable by a foreign invested enterprises, or FIEs, to its foreign investors are subject to a 10% withholding tax, unless the foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. The Cayman Islands, where we are incorporated, does not have a tax treaty with China. Although the New EIT Law contemplates the possibility of exemptions from withholding taxes for China-sourced income of FIEs, the Chinese tax authorities have not promulgated any related implementation rules and it remains unclear whether we would be able to obtain exemptions from Chinese withholding taxes for dividends distributed to us by our Chinese subsidiaries.

You may face difficulties in protecting your interests, and our ability to protect our rights through the U.S. federal courts may be limited, because we are incorporated under Cayman Islands law.

Our corporate affairs are governed by our amended and restated memorandum and articles of association, the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) and the common law of the Cayman Islands. The rights of shareholders to take action against the directors and actions by minority shareholders are to a large extent governed by the common law of the Cayman Islands. Cayman Islands law in this area may not be as established and may differ from provisions under statutes or judicial precedent in existence in the United States. As a result, our public shareholders may face different considerations in protecting their interests in actions against our management, directors or our controlling shareholders than would shareholders of a corporation incorporated in a jurisdiction of the United States.

The rights of shareholders and the responsibilities of management, members of the board of directors and controlling shareholders under Cayman Islands law, such as in the areas of fiduciary duties, are different from those applicable to a company incorporated in a jurisdiction of the United States. For example, the Cayman Islands courts are unlikely:

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to recognize or enforce against us judgments of courts of the United States based on certain civil liability provisions of U.S. securities laws; and

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in original actions brought in the Cayman Islands, to impose liabilities against us based on certain civil liability provisions of U.S. securities laws that are penal in nature.

As a result, our public shareholders may have more difficulty in protecting their interests in connection with actions taken by our management, members of our board of directors or our controlling shareholders than they would as public shareholders of a U.S. company.

Our ability to protect our rights through the U.S. federal courts may be limited because we are incorporated under Cayman Islands law.

Cayman Islands companies may not have standing to initiate a derivative action in a federal court of the United States. As a result, our ability to protect our interests if we are harmed in a manner that would otherwise enable us to sue in a United States federal court may be limited.

Your ability to bring an action against us or against our directors and officers, or to enforce a judgment against us or them, will be limited because we are incorporated in the Cayman Islands, a substantial portion of our operations are in China and the majority of our directors and officers reside outside of the United States.

We are incorporated in the Cayman Islands, and we conduct substantially all of our operations through our operating subsidiaries and VIE in China. Most of our directors and officers reside outside of the United States and substantially all of the assets of those persons are located outside of the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the U.S. securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers. For more information regarding the relevant laws of the Cayman Islands and China, see Item 10 of this annual report, “Additional Information — Taxation — United States federal income taxation — Enforceability of civil liabilities.”

We may be at risk of securities class action litigation.

In the past, securities class action litigation has been brought against companies following declines in the market price of their securities. If we are faced with such litigation, it could result in substantial costs and a diversion of our management’s attention and resources, which could have a material adverse effect on our business, results of operation, financial condition and the trading price of our ADSs.

We are required to implement additional controls and procedures in finance and accounting systems to satisfy U.S. reporting requirements. Failure to complete the required assessment as to the adequacy of our internal control over financial reporting could result in the loss of confidence in the reliability of such controls, which may adversely affect the trading price of our ADSs.

As a public reporting company, we are required to comply with the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the Securities and Exchange Commission, including expanded disclosures and accelerated reporting requirements. Compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and other requirements may increase our costs and require additional management resources. We have been continuously upgrading and implementing additional controls and procedures in our finance and accounting systems and will need to continue to do so as we grow our business and organization and to satisfy new reporting requirements. If we are unable to complete the required assessment as to the adequacy of our internal control over financial reporting, investors could lose confidence in the reliability of our internal controls over financial reporting, which could adversely affect the trading price of our ADSs.

Our management has determined that our internal control over financial reporting as at December 31, 2011 was effective. However, it is possible that we or our independent registered public accounting firm may identify other significant deficiencies or material weakness in future periods. Such results could cause our investors to lose confidence in the reliability of our internal controls over financial reporting, which could adversely affect the trading price of our ADSs. Furthermore, we anticipate that we will continue to incur increased costs and devote significant management resources to comply with Section 404 of the Sarbanes-Oxley Act of 2002.

Our ordinary shares or ADSs may be deemed as penny stock, which imposes significant restrictions on broker-dealers recommending our securities for purchase.

The SEC’s regulations define “penny stock” to include securities that have a market price of less than US$5.00 per share, subject to certain exceptions. These regulations include the following requirements: broker-dealers must deliver, prior to the transaction, a disclosure schedule prepared by the SEC relating to the penny stock market; broker-dealers must disclose the commissions payable to the broker-dealer and its registered representative; broker-dealers must disclose current quotations for the securities; if a broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealers presumed control over the market; and a broker-dealer must furnish its customers with monthly statements disclosing recent price information for all penny stocks held in the customer’s account and information on the limited market in penny stocks. Additional sales practice requirements are imposed on broker-dealers who sell penny stocks to persons other than established customers and accredited investors. For these types of transactions, the broker-dealer must make a special suitability determination for the

purchaser and must have received the purchaser’s written consent to the transaction prior to sale. If our ordinary shares or ADSs become subject to these penny stock rules, these disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for our securities, if such trading market should ever develop. Accordingly, this may result in a lack of liquidity in our ordinary shares or ADSs, and investors may be unable to sell our securities at prices considered reasonable by them.

Item 4. Information on the Company.

A. History and development of the Company

Our predecessor, Beijing Ninetowns Technology Group Limited, or Ninetowns Technology, a “share cooperative enterprise” formed under PRC law on March 22, 1995, focused on the research and development of software related to the declaration process, in addition to selling the computer hardware and accessories.

We were incorporated in the Cayman Islands on February 8, 2002 as Ninetowns Digital World Trade Technology Holdings Limited. We changed our name to “Ninetowns Digital World Trade One Technology Holdings Limited” on June 14, 2002 and then to “Ninetowns Digital World Trade Holdings Limited” on April 7, 2003.

On November 9, 2004, we effected a 4-for-1 split of our ordinary shares in preparation for our initial public offering.

On December 3, 2004, we listed our ADSs on the Nasdaq Global Market, under the symbol “NINE.” On December 8, 2004, we completed the initial public offering of our ADSs, each of which represented one ordinary share.

On September 27, 2006, we changed our name to “Ninetowns Internet Technology Group Company Limited.”

In December 2010, Ninetowns Suitable Estate acquired a 29.7% interest in Shouchuang Caifu Gengyin (Tianjin) Equity Investment Fund Limited Partnership.

On February 24, 2011, Ninetowns Ports acquired 70% of the equity interest in Dalian Changzheng, a limited liability company originally established by Aviation Wanyuan Industry Co., Ltd., or Aviation Wanyuan, in China for RMB 117 million (US$18 million). Dalian Changzheng has been included in the consolidated financial statements of the Company in the fiscal year ended December 31, 2011.

On March 10, 2011, we dissolved Shanghai Tootoo.

On March 16, 2011, Huainan Ninetowns Suitable Estate Co., Ltd., or Huainan Suitable Estate, a PRC company with a registered capital of RMB10 million was established by Ninetowns Ports. On June 28, 2011, in relation to the “2011 Zhongcheng Trust Huainan Investment Trust Plan”, or the Investment Trust Plan, Zhongcheng Trust Co., Ltd., or Zhongcheng entered into a capital increase agreement, or the Capital Increase Agreement, with Ninetowns Ports and Huainan Suitable Estate. Zhongcheng and Ninetowns Ports agreed to increase the registered capital of Huainan Suitable Estate by RMB90 million, from RMB10 million to RMB100 million. After the capital increase in July 2011, 10% of Huainan Suitable Estate’s total registered capital was held by Ninetowns Ports and 90% was held by Zhongcheng.

On March 30, 2011, Huainan Huacheng, a PRC company with a registered capital of RMB8 million was established. Huainan Huacheng is wholly-owned by Huainan Suitable Estate. In September 2011, Huainan Suitable Estate increased the registered capital of Huainan Huacheng from RMB8 millilon to RMB20 million. In November 2011, Huainan Huacheng transferred RMB80 million from additional paid in capital to registered capital, thus the registered capital increased from RMB20 million to RMB100 million.

On April 7, 2011, Huainan Huacheng acquired the land use rights for approximately 141,000 square meters of undeveloped land in Huainan, Anhui Province, China from the Huainan Land Resource Bureau. The total consideration was approximately RMB258 million (US$39 million). Ninetowns intends to develop a mixed-use real estate project tentatively named “Smarter Town” on such land.

On April 11, 2011, Dalian Changzheng acquired the land use rights for approximately 20,970 square meters of undeveloped land in Dalian High and New Technology Industry Park from the Dalian Land Resource Bureau for RMB280 million (US$43 million), of which Ninetowns Ports contributed approximately RMB 153 million ($23.5 million) and Aviation Wanyuan contributed approximately RMB 127 million (US$19.5 million).

On April 22, 2011, Beijing Ronghe Zhihui Network Software Services Co., Ltd., or Beijing Ronghe Zhihui, a PRC company with a registered capital of RMB50 million was established. Beijing Ronghe Zhihui is wholly-owned by Ninetowns Suitable Estate.

On August 5, 2011, Beijing Ronghe Tongshang Electronic Business Co., Ltd., or Ronghe Tongshang Electronic, a PRC company with a registered capital of RMB10 million was established. Ronghe Tongshang Electronic is wholly-owned by Ronghe Tongshang.

On August 30, 2011, Beijing Sky acquired 100% of the equity interest in Beijing Huaixiang Modern Agriculture Technology Co., Ltd., or Huaixiang Modern Agriculture, a limited liability company originally established on November 8, 2004 in China with a registered capital of RMB1 million, for RMB2.2 million.

On September 29, 2011, we established Shouchuang Caifu Ninetowns (Tianjin) Equity Investment Fund Partnership (Limited Partnership), or Shouchuang Caifu Ninetowns, a PRC limited partnership, with Shouchuang Huaxia (Tianjin) Equity Investment Fund Management Co., Ltd., or Shouchuang Huaxia and Shouchuang Gengyin. Beijing Ronghe Zhihui contributed RMB53 million in exchange for a 72.60% equity interest in Shouchuang Caifu Ninetowns.

On December 20, 2011, Shouchuang Caifu Ninetowns acquired 99% of the equity interest in Binzhou Ruichen, a limited liability company originally established on September 8, 2009 in China with a registered capital of RMB10 million, for RMB9.9 million.

In January 2012, we changed the construction planning of Yizhuang to mixed-use real estate project development. We acquired the land use rights of Yizhuang in 2008 and Yizhuang was originally approved for office construction for self-use.

On March 28, 2012, as a result of the termination of the Investment Trust Plan, Zhongcheng transferred 90% equity interest in Huainan Suitable Estate to Ninetowns Ports and Huainan Suitable Estate became a wholly owned subsidiary of Ninetowns Ports.

In June 2011, we entered into certain debt repayment agreements with Ninetowns Zhi Fang, Ninetowns Xin He and Ninetowns Wang Li, or the Debt Repayment Agreements pursuant to which:

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We waived certain due and unpaid receivables from Ninetowns Xin He in the amount of RMB6.46 million (US$979,000). Ninetowns Xin He agreed to pay certain other outstanding due and unpaid receivable in the amount of RMB3.6 million (US$545,000) to us by December 31, 2012, with 50% of such amount due by December 31, 2011 and the remaining 50% due by December 31, 2012.

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We waived certain due and unpaid receivables from Ninetowns Wang Li in the amount of RMB7.55 million (US$1.14 million). Ninetowns Wang Li agreed to pay certain other outstanding due and unpaid receivable in the amount of RMB2.5 million (US$379,000) to us by December 31, 2012, with 50% of such amount due by December 31, 2011 and the remaining 50% due by December 31, 2012.

The receivables we waived pursuant to the Debt Repayment Agreements had been fully provided in our bad debt allowance in our financial statements. As of April 20, 2012, we believe that Ninetowns Zhi Fang, Ninetowns Xin He and Ninetowns Wang Li have materially complied with the terms of the Debt Repayment Agreements.

We conduct our business in China through our eleven PRC subsidiaries. As of April 20, 2012, our PRC subsidiaries include (i) Beijing New Take, (ii) Ninetowns Times, (iii) Ninetowns Ports, (iv) Guangdong Ninetowns, (v) Ninetowns Suitable Estate, (vi) Dongguan Ninetowns, (vii) Ninetowns Software, (viii) Dalian Changzheng, (ix) Beijing Ronghe Zhihui, (x) Huainan Suitable Estate and (xi) Huainan Huacheng. We also have equity investments in (a) Shouchuang Caifu Gengyin, (b) Shouchuang Caifu Ninetowns and (c) Binzhou Ruichen. Furthermore, we effectively control our VIE, Ronghe Tongshang, through a series of contractual agreements entered into in 2006, 2007 and 2009.

Our principal executive offices are located at 22nd Floor, Building No. 1, Capital A Partners, No. 20 Gongti East Road, Chaoyang District Beijing 100020, People’s Republic of China. Our telephone number in China is (86 10) 65899922. We have appointed CT Corporation System, 111 Eighth Avenue, New York, NY 10011, as our agent for service of process in the United States.

Our capital expenditures for 2009, 2010 and 2011, which totaled approximately RMB10.8 million, RMB4.9 million and RMB6.5 million (US$1.0 million), respectively, consisted primarily of purchases of property and equipment, as well as other fixed assets. We paid deposits of RMB2.1 million and RMB2.6 million (approximately US$0.4 million) for the acquisition of property and equipment in 2010 and 2011, respectively. We expect to incur capital expenditures in 2012 of approximately RMB2.8 million (US$0.4 million) to purchase equipment and software products to support our new software development projects and development of our new business initiatives and services. We expect to use our cash flow from operations and our available cash to fund such capital expenditures to execute our business strategy.

B. Business overview

Enterprise software and related maintenance services and software development

We are a leading PRC software company that enables enterprises and trade-related PRC government agencies to streamline the import/export process in China. We believe we are a leader in our market based on revenues and market share. We achieve this by leveraging our international trade expertise and our insight into the needs and procedures of trade-related PRC government agencies. To date, we have focused on providing enterprise software and related services for the completion over the Internet of the declaration process. In order to secure our market position, we assisted in designing and building, and continue to help maintain and upgrade, the electronic systems of the PRC Inspections Administration that enable our enterprise software to process electronic declarations over the Internet. We have pioneered the implementation of enterprise software that enables, among other things:

(i)	electronic application to the PRC Inspections Administration for an Origin Certificate;

(ii)	electronic application to the PRC Inspections Administration for goods inspection;

(iii)

electronic transfer of various import/export documents between the local inspection agency branch office where an international trade enterprise is located and the branch office at the discharging port or station through which the relevant goods are being imported into or exported from the PRC; and

(iv)	electronic transfer of documents from the PRC Inspections Administration to PRC Customs.

Our enterprise software products consist of standardized, easy-to-install applications that simplify the declaration and approval process for international trade enterprises. Our enterprise software automates and facilitates the processing of the required import/export declarations and approvals in a cost-efficient, user-friendly and legally-compliant manner over the Internet, utilizing an electronic infrastructure we helped build that links together numerous branch offices of the PRC Inspections Administration.

Through our software development services, we assist in the development and maintenance of (i) the software systems used to process electronic filings by the PRC Inspections Administration and (ii) the data exchange platforms which serve as the interface between such systems and our enterprise software users. The infrastructure used by the PRC Inspections Administration in the declaration process was developed as a result of the collaborative efforts of our company and the PRC Inspections Administration. We and the PRC Inspections Administration used shared knowledge in connection with the implementation at the PRC Inspections Administration of a PRC e-government initiative widely known as the “Three Digitizations Project.” The “Three Digitizations Project” became particularly active following China’s accession into the World Trade Organization, or WTO, and seeks to enhance the transparency of the administration and improve the internal organization and workflow management of PRC

government agencies. The PRC Inspections Administration infrastructure we helped implement includes internal electronic processing systems and data exchange platforms, operated by iTowNet, that interface between international trade enterprises using our enterprise software and the PRC Inspections Administration’s internal electronic processing system. We believe e-government initiatives relating to import/export processes will continue to be an important factor in PRC international trade as China becomes more fully integrated into the WTO.

In August 2005, the PRC Inspections Administration selected our company as the winning bidder in connection with the PRC Inspections Administration’s request for proposals for the development of a software product that has certain basic functionalities similar to those of iDeclare.CIQ and iProcess.CIQ. The PRC Inspections Administration agreed to pay a one-time fee of RMB3.3 million to purchase the ownership of the software product that we developed. The development of such software product was completed in December 2005 and the PRC Inspections Administration commenced to distribute such software products free-of-charge to end-users in February 2006. The distribution of free software products had a significant adverse effect on our business, our results of operations and profitability.

In May 2007, the PRC Inspections Administration selected our company as one of the winning bidders in connection with the PRC Inspections Administration’s request for proposals for servicing the free import/export e-filing software provided by the PRC Inspections Administration. In 2008, we believe that the PRC Inspections Administration decreased its efforts to promote its free software and we believe there is uncertainty surrounding the PRC Inspections Administration’s future promotional plans for its free software. Our financial outlook from maintenance servicing of the free software product has been negatively impacted for the reasons stated above. As a result, we revised the financial performance assumptions of our business-to-government, or B2G division, which incorporates our enterprise software and related customer maintenance services and software development services reporting units, and re-assessed the goodwill in connection with our pre-IPO acquisitions. Accordingly, we recorded a one-time non-cash goodwill impairment charge of RMB 193.6 million in the fiscal year 2007.

In 2010 and 2011, we derived 62.9% and 81.3% of our total net revenues from sales of enterprise software and related customer maintenance services and 30.2% and 8.0% from software development services. Specifically, we recognized net revenues from sales of our enterprise software and related customer maintenance services of RMB58.4 million, RMB49.7 million and RMB61.0 million (US$7.9 million) in 2009, 2010 and 2011, respectively. We believe there were approximately 142,300, 143,500 and 145,100 licensees of our enterprise software as of December 31, 2009, 2010 and 2011, respectively.

B2C e-commerce

In 2009, we expanded our research and development initiatives to focus on development of our B2C e-commerce platform. In April 2010, we began offering our B2C organic food and other household products platform through our web portal, www.tootoo.cn. In addition, we focused on guaranteeing delivery of fresh produce from our warehouses directly to our customers located in a number of residential Communities in Beijing. As our B2C food related business is still under development, it is uncertain whether we will successfully establish it as one of our primary businesses.

We have been offering our “guaranteed fresh” delivery services to a number of residential communities in Beijing. We utilize carefully planned delivery routes and various state-of-the-art refrigeration equipment and specially equipped vehicles to achieve “Unbroken Cold Chain Logistics” for our fresh food delivery service. We are able to efficiently control product storage and movement at a low cost through the use of our proprietary product tracking system, warehouse management system and delivery data management system, all of which are supported by advanced information technology. In 2011, we achieved an increase in revenue and number of orders, which further affirms the market potential for our organic food and other household products. The positive market reception was encouraging and we expect to focus on future developing this business.

Real estate development

In April 2011, we expanded our business to focus on a new strategic initiative to invest in real estate development.

We acquired the land use rights for a plot of undeveloped land located in Huainan, Anhui province of China, which consists of approximately 141,000 square meters. The purchase price was RMB1,830 per square meter, or approximately RMB258 million (US$39 million) in total. We intend to develop a mixed-use real estate project tentatively named “Smarter Town” on such land. We also intend to (i) design, develop, construct, market and sell certain retail and residential units, (ii) design and construct an “Internet of Things” exhibition park, and (iii) design and construct a community hospital on such land. In June 2011, our subsidiaries entered into a series of agreements with respect to certain financing arrangements for the “Smarter Town” project to be developed by Huainan Huacheng.

We also acquired land use rights for two plots of undeveloped land located in Dalian, Liaoning province of China through Dalian Changzheng, our 70%-owned subsidiary. The two plots consist of approximately 20,790 square meters. The purchase price was RMB13,350 per square meter, or approximately RMB280 million (US$43 million) in total. We commenced the first phase of a mix-use development project on this site in December 2011.

In June 2011, in order to finance the costs and expenses related to the “Smarter Town” project, Zhongcheng organized and offered the Investment Trust Plan. Pursuant to the terms of the Investment Trust Plan, Zhongcheng issued (i) 150,000,000 preferred trust units for RMB150 million to certain investors and (ii) 160,000,000 ordinary trust units to Ninetowns Ports, a wholly-owned indirect subsidiary of the Company, in exchange for the assignment of certain creditor’s rights for RMB160 million in Huainan Huacheng. To inject the funds raised under the Investment Trust Plan to Huainan Huacheng, the project company of the “Smarter Town” project, Zhongcheng and Ninetowns Ports entered into a capital increase agreement pursuant to which Zhongcheng made a capital investment of RMB150 million to Huainan Suitable Estate, a wholly-owned subsidiary of Ninetowns Ports and the sole shareholder of Huainan Huacheng. As a result of such investment, Zhongcheng obtained 90% equity interest of Huainan Suitable Estate. The funds injected to Huainan Suitable Estate were later injected to Huainan Huacheng through a capital increase by Huainan Suitable Estate.

In February 2012, Ninetowns Ports proposed to terminate the Investment Trust Plan due to the delay in the development schedule of the “Smarter Town” project. The proposed termination of the Investment Trust Plan was approved on the meeting of the investors who subscribed the preferred trust units of the Investment Trust Plan and Ninetowns Ports held on February 3, 2012. As a result of such termination, Zhongcheng transferred the equity interest that it held in Huainan Suitable Estate to Ninetowns Ports for no consideration. In addition, Huainan Huacheng repaid the debt of RMB160 million plus interest of approximately RMB13 million to Zhongcheng. We will continue the development of the “Smarter Town” project and may seek other alternative financing options in the future.

In 2011, we entered into a partnership with Shouchuang Huaxia and Shouchuang Gengyin to invest in the development of a residential real estate project located in Binzhou, Shandong Province, China. Ninetowns Suitable Estate holds 29.7% interest in Shouchuang Gengyin. On December 20, 2011, Shouchuang Caifu Ninetowns acquired 99% of the equity interest in Binzhou Ruichen, a limited liability company originally established on September 8, 2009 in China with a registered capital of RMB10 million, for RMB9.9 million.

In 2012, we aim to continue our efforts in expanding our B2C food related business by enhancing our competitive advantages and upgrading our products and services. We plan to leverage our existing quality control related expertise and experience to expand our product offerings as future opportunities present themselves. Specifically, we believe our “Unbroken Cold Chain Logistics” could give us a unique advantage in the e-commerce and service industries due to the superb quality of our products and services. We also intend to participate in real estate development projects that involve three product models (i) intelligent residential communities, (ii) smarter senior living communities and (iii) e-commerce bio-system industrial parks, primarily in third-tier and fourth-tier cities in China. We expect to focus on the development projects that we have acquired and also explore other real estate related opportunities, for instance, by cooperating with local governments and real estate investment funds. We intend to increase our revenues primarily by leveraging and strengthening our market reputation, enhancing value for our clients through broader product offerings and improved customer services, expanding our client base through increased marketing, maintaining our leadership in technical and industry knowledge and pursuing selective strategic acquisitions, collaborations and investments. However, given the uncertain impact on our business resulting from the distribution and promotion of free software products by the PRC Inspections Administration to end-users and the uncertainties related to expansion into new businesses, we cannot predict the growth in our revenues, if there are any at all.

Advantages of our enterprise software products

Our enterprise software primarily facilitates declaration processing in a cost-efficient and user-friendly manner over the Internet, utilizing data exchange platforms that we helped build. The key advantages of our products are:

Ease of deployment

Our enterprise software consists of standardized programs that can be easily installed onto most computers from a CD-ROM or through the Internet and be fully operational in less than 30 minutes. Our enterprise software is broadly applicable to all international trade enterprises seeking to complete the declaration process electronically and does not require customization. We helped build the PRC Inspections Administration’s internal electronic processing systems and the data exchange platforms within the PRC Inspections Administration offices. We have leveraged our experience and expertise with these data exchange platforms, which interface between international trade enterprises and the PRC Inspections Administration’s own internal electronic processing systems, to design enterprise software with optimal compatibility with the PRC Inspections Administration’s systems and internal requirements. We intend to continue to help maintain and upgrade the data exchange platforms. Given our knowledge of such data exchange platforms and our role in continuing to maintain and upgrade such systems, we believe we are in a unique position to provide enterprise software that is easy to deploy, fully integrated and optimally compatible with the PRC Inspections Administration’s systems and internal requirements.

Fast, efficient and accurate transfers

Our enterprise software eliminates the need for the manual preparation and submission of paperwork in the declaration process and can reduce the time required to complete the declaration process from approximately two or more days to as quick as one hour. Our enterprise software enables nearly immediate submission of electronic filings and notice of most submission errors, allowing for fast and accurate submissions. In addition, demands on staff time are reduced and the risk of delayed responses from the PRC Inspections Administration due to delivery failures is minimized because transmissions to and feedback from the PRC Inspections Administration are delivered electronically. Furthermore, since data is submitted in electronic format, there is reduced risk of error and delay related to the PRC Inspections Administration’s inability to read or accurately copy required data. The electronic forms contained in our enterprise software are regularly updated, ensuring that all required information is submitted to the PRC Inspections Administration.

Reduction of costs associated with declaration filings

We believe our enterprise software significantly reduces the costs associated with the PRC Inspections Administration filings and that the increased efficiency and accuracy derived from using our enterprise software results in reduced need for staff to complete the declaration process. In addition, there is a reduction in travel expenses traditionally associated with making declarations in person at the PRC Inspections Administration. Furthermore, faster processing can result in reduced transportation time for goods, which is particularly important for perishable goods and reduces an importer’s or exporter’s working capital allocated to inventory.

Convenience of filing anytime and from anywhere over the Internet

Traditionally, an international trade enterprise would send a representative to a PRC Inspections Administration branch office in China during business hours to make a declaration filing. The PRC Inspections Administration branch office would then process and forward the documentation to the PRC Inspections Administration branch office at the port or station through which the relevant goods were being imported into or exported from China. Our enterprise software allows international trade enterprises to make declaration filings with the PRC Inspections Administration electronically over the Internet. Declarations can be made at any time, whether the PRC Inspections Administration’s branch offices are open for business or not, and from anywhere in the world through a computer on which our enterprise software is installed and which is connected to the Internet. In addition, our enterprise software and the electronic systems we helped build allow the PRC Inspections Administration branch office processing the electronic filing to electronically transmit various import/export documents to the PRC Inspections Administration branch office at the relevant import or export port or station. This system increases the efficiency and accuracy of communications between the PRC Inspections Administration’s branch offices and saves time and expense for the PRC Inspections Administration.

User-friendly software

Our user-friendly enterprise software simplifies the declaration process. Our users benefit from an interface that requires very little training and is updated regularly to reflect revisions to the regulations related to the declaration process. Our enterprise software has auto-correction functions that automatically detect errors and suggest corrections. We also offer additional software functions that our users can purchase to expand their software capabilities as their business requires.

Products and services

In 2010 and 2011, we derived 62.9% and 81.3% of our total net revenues from sales of enterprise software and related customer maintenance services, 30.2% and 8.0% of our total net revenues from the provision of software development services.

The products and services we offered in 2011 included the following:

Enterprise software

We sell two enterprise software products: (i) iDeclare.CIQ and (ii) iQM.

iDeclare.CIQ series

Commercially introduced in August 2000, the iDeclare.CIQ series of products enables international trade enterprises to complete the declaration process electronically over the Internet. We initially offered the iDeclare.CIQ basic package, which included two separate software functions, for a one-time license fee of RMB6,800, including one year of customer maintenance services. In September 2001, we started to offer the current iDeclare.CIQ basic package, which includes six separate software functions, for a one-time license fee of RMB4,500, including one year of basic customer maintenance services. In September 2006, we also developed Ninetowns Network Quality Supervision Software v1.0, the newest version of software in the iDeclare.CIQ series. We charge RMB1,500 for each additional year of customer maintenance services, which includes a number of value-added services in addition to the basic maintenance services, such as site visits to carry out maintenance procedures and automatic updates of software relating to changes in codes associated with goods, countries and regions and changes to import/export regulations. In 2009, 2010 and 2011, we generated RMB57.8 million, RMB49.6 million and RMB61.0 million (US$9.7 million), respectively, of net revenues from sales of the iDeclare.CIQ basic package and related customer maintenance services (including the per transaction fees as described below), which represented a substantial portion of our net revenues from sales of enterprise software in each of those periods.

We also provide a Pay-Per-Transaction option to our customers who do not want to pay the annual maintenance fees. Net revenues from sales of enterprise software included RMB28.7 million, RMB30.9 million and RMB38.8 million (US$6.2 million) of such per use fees, representing 49.1%, 62.3% and 63.6% of our net revenues for sales of enterprise software in 2009, 2010 and 2011, respectively.

We offer trial versions of our new software functions to existing users until we commercially launch such software functions. Once commercially launched, these new software functions are not offered as part of the iDeclare.CIQ basic package and a user must pay additional fees in order to use the new software functions.

Our iDeclare.CIQ product series users include a variety of international trade enterprises operating in a wide range of businesses. They include the PRC branch offices of multinational trading companies that might purchase multiple copies of iDeclare.CIQ, as well as smaller PRC companies focused on niche businesses that might buy only one copy of iDeclare.CIQ. We rely mainly on our franchisees to sell our iDeclare.CIQ product series.

Our iDeclare.CIQ product series allows users to submit encrypted applications to the PRC Inspections Administration for examination, comment and approval over the Internet. In addition, iDeclare.CIQ is capable of generating electronic documents with information inter-linking ability to efficiently replicate documents required for

international trade transactions. Such documents include invoices for export, packaging forms, bills, customs clearing forms and approval forms for special goods. Additional software functions are designed for easy installation and incorporation into the iDeclare.CIQ product series. When a customer purchases and installs a new module, new tabs and folders appear in the existing user interface, allowing customers to add new software functions while maintaining a familiar and easy-to-use environment.

Currently, the iDeclare.CIQ product series has three main applications: (i) Origin Certificate processing, (ii) declaration processing and (iii) registration and permit processing.

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The Origin Certificate processing application allows users to apply for and obtain over the Internet an Origin Certificate, which is a required document showing the place of origin of goods imported or exported. iDeclare.CIQ’s Origin Certificate processing application has five software functions that allow an international trade enterprise to obtain Origin Certificates. The different software functions relate to the import/export regulations of different countries and can help an enterprise determine if it qualifies for favorable tariffs between China and a second country. To date, all five software functions have been included in the iDeclare.CIQ product series.

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The declaration processing application allows users to declare their imported or exported goods for inspection by the PRC Inspections Administration, which typically involves a general inspection of the goods, the packaging material and the shipping container. To date, the declaration for inspection of goods has been included in the iDeclare.CIQ product series. A package inspection function and container inspection function are new software functions available only in trial versions; we expect to charge our users a fee to use each of these software functions when they are launched commercially.

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The registration and permit processing application allows users to register goods to be imported or exported and to apply for a permit for such import/export transaction. This application is currently used when animals, plants or related products are imported or exported. The registration and permit processing application is a new function and is only available in a trial version; we expect to charge our users a fee to use this function when it is launched commercially. See Item 5 of this annual report, “Operating and Financial Review and Prospects — Research and development.”

Our iDeclare.CIQ product series transmits all user submissions to the PRC Inspections Administration electronically in an encrypted format over the data exchange platforms operated by iTowNet. iTowNet receives a fee for each submission made over its platforms. Once received by the PRC Inspections Administration, such transmissions are examined and electronically approved or returned to the user for revision.

The table below sets forth the benefits of electronic filings, as compared to paper filings:


Traditional paper-based filing method		iDeclare.CIQ electronic filing method

declaration form filled manually		electronic input minimizes mistakes arising from illegible handwriting

declaration form physically submitted to the PRC Inspections		submission of electronic declaration form reduces cost and

Administration		time

long waiting time in the process of declaration		no physical queue-up for submission required

incomplete information or mistakes in declaration form cause delay, stress and additional costs		built-in error detection function helps prevent omissions and mistakes

iQM series

Our iQM product series was introduced in 2007. The most recently launched version of our iQM product series is used by international trade enterprises to collect, analyze, monitor, correct and track product quality-related data from the raw material stages to final production. Our iQM product series is also used to provide disqualification alerts and assist with order processing and laboratory management.

Our iQM product series provides the following functions to our enterprise customers: (i) the declaration of electronic supervision data, (ii) enterprise quality management, (iii) a mobile business platform and (iv) statistics and quality analyses. Our iQM product series is a production quality management application that connects enterprises and the electronic supervision system of the PRC Inspections Administration via the Internet. Our product focuses on “live” production procedures at our enterprise customers’ facilities by utilizing real-time data collection and supervision of the main aspects of production procedures, including information regarding management of raw materials, certain production procedures, monitoring of finished goods and storage management, all in accordance with the requirements of the Hazard Analysis Critical Control Point, or HACCP, and ISO 9001 quality management systems. HACCP is a process control system which identifies where potential hazards may occur in the food production process chain and implements stringent preventative measures. ISO 9001 is one among a series of documents that define certain requirements for quality management system standards. Since all of the data collected using our iQM product series can be transferred directly to the PRC Inspections Administration, our iQM product series significantly improves the efficiency level for governmental inspection of enterprises that use our product and the overall efficiency of the export process.

Currently, our iQM product series is available only in Guangdong Province, China on a trial basis and the available versions of our products are industry-specific, ranging from toys and food processing, aquatic and livestock breeding and vegetation planting. We recognized RMB0.6 million, RMB0.1 million and RMB10,769.2 (US$1,711) in net revenues from sales of iQM and related software maintenance services in 2009, 2010 and 2011, respectively. In the short term, we do not expect any significant change in net revenue from sale of iQM and will maintain services to existing customers.

Software development services

We provide software development services to PRC government agencies, their related entities and their third party service providers in order to enhance electronic data exchange, processing and monitoring capabilities. Our software development services consist of the design, development and maintenance of, and enhancement to: (i) the internal software systems used by PRC government agencies and their related entities to process electronic filings made with our enterprise software, and (ii) the data exchange platforms which serve as the interface between such systems and users of our enterprise software.

We generally recognize revenue from software development services based on a percentage of the work that is completed and do not recognize any revenue until a contract is signed with customers.

Production and hardware design

In the past, the principal steps involved in production of our enterprise software are duplicating CDs, printing boxes and related materials such as user manuals, and assembling and shipping our final products. We had production arrangements with several outside contractors under which they provide all necessary outsourced production services related to our enterprise software. Currently, we generally distribute our iDeclare enterprise software through the Internet and therefore incur minimal outsourcing costs and costs associated with packaging and shipping of software.

Businesses under development

B2C food related Business

In April 2010, we began offering B2C organic food and other household products through our web portal, www.tootoo.cn. Our B2C food related business is still under development, which means it is uncertain whether we will successfully establish it as one of our primary businesses.

Real Estate Development Business

In April 2011, we expanded our business to focus on real estate development. We acquired land use rights for undeveloped land in Huainan, Dalian, Binzhou and Beijing, China. We plan to develop mix-use and residential use real estate projects on these properties.

We acquired the land use rights for a plot of undeveloped land of approximately 141,000 square meters located in Huainan, which is located in the Anhui province of China. We intend to develop a mixed-use real estate project tentatively named “Smarter Town” on such land. We also intend to (i) design, develop, construct, market and sell certain retail and residential units, (ii) design and construct an “Internet of Things” exhibition park, and (iii) design and construct a community hospital on such land. We are still in the process of construction planning of our Huainan project.

Dalian Changzheng, a company in which Ninetowns Ports is a 70% shareholder, acquired land use rights for two pieces of undeveloped land located in Dalian High and New Technology Industry Park. Collectively, the two pieces of land consist of approximately 20,970 square meters. We commerced the first phase of a mix-use development project on this site in December 2011. The two pieces of land are permitted for commercial and residential use. The commercial land use rights and the residential land use rights will expire in 40 years and 70 years, respectively. Phase I of our Dalian project involves land of approximately 14,810 square meters with a gross floor area, or GFA, of approximately 76,390 square meters, on which we plan to construct office buildings and residential buildings. The construction work of Phase I started in December 2011. Phase II of our Dalian project involves land of approximately 6,161 square meters with a GFA of approximately 30,191 square meters. We are still in the process of the construction planning of Phase II.

Shouchuang Caifu Ninetowns acquired 99% of the equity interest in Binzhou Ruichen, a limited liability company established in Binzhou, Shandong Province, China. Binzhou Ruichen intends to acquire land use rights for a piece of land consisting of approximately 79,140 square meters for residential use located in Binzhou, Shandong Province, China. The land use rights will expire in 70 years. The funding of the Binzhou project will be mainly secured by the Binzhou Ruichen through commercial bank loans. Shouchuang Caifu Ninetowns has the right, but not the obligation, to provide further funding to the Project Company. We are still in the process of construction planning of our Binzhou project.

In January 2012, we changed the construction planning of Yizhuang to mixed-use real estate development. We plan to construct offices and R&D centers with a GFA of up to 101,816 square meters in Yizhuang.

Seasonality

There is no particular seasonal fluctuation in our sales except that net revenues from sales of our enterprise software in the first quarter are typically lower than in other quarters. This is primarily due to decreased business activities throughout China before, during and after the Chinese New Year holidays, which occur in January or February each year. In addition, net revenues from software development services are typically higher in the third and fourth quarters of each year because our software development contracts are usually signed during that time. However, we cannot predict when our software development contracts will be signed in the future, or if they will be signed at all.

Our future revenues and results of operations may fluctuate significantly due to a combination of factors, including:

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acceptance of our products and services in China;

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the strength of our relationships with the PRC Inspections Administration, the PRC Customs and other PRC government agencies;

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our ability to attract and retain users;

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our ability to develop new software products and services;

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PRC government regulation of software sales, development, e-commerce and real estate; and

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general economic conditions in China.

Quality

We are committed to delivering enterprise software and services of consistently superior quality to our customers. We believe our commitment to quality and our total quality management system are key elements to our operation as a leading provider of enterprise software to international trade enterprises and trade-related PRC government agencies.

On August 3, 2004, we were awarded the ISO 9001:2000 Quality Management System Recognition Certificate. ISO 9001:2000 is a worldwide quality management system certification program regarding management system standards administered by the International Organization for Standardization. The certificate is renewable every three years and our current certificate is valid until July 22, 2013. Our enterprise software has also been endorsed by the PRC Inspections Administration for electronic customs declaration.

Sales and marketing

We have implemented our sales and marketing initiative in three phases. In the first phase, we relied mainly on direct sales of new software products to international trade enterprises. In the second phase, we used authorized distributors to reach additional international trade enterprises. In the third phase, we helped third parties establish franchisees to sell our software products. Our intention is to continue to use a focused strategy designed to further enhance our brand name and acquire new customers by recruiting franchises, who will use the “Ninetowns” brand name in the sales and marketing of our enterprise software.

Direct sales and marketing

We re-defined our regional markets and changed our business model from direct sales to a regional franchise model.

As of December 31, 2011, we had a sales and marketing force consisting of approximately 28 people, serving mainly the southern regions of China for our enterprise software. Our sales and marketing representatives also perform customer maintenance services.

Our annual sales targets are set by our general manager of sales and marketing according to regional sales plans and are reviewed quarterly. We have an incentive-based sales scheme whereby salespersons are rewarded based on achievement of sales targets.

Sales by our franchisees

It is our current strategy to expand our franchisee network to undertake marketing, distribution and service activities using the “Ninetowns” brand name. As of December 31, 2011, we have four franchisees, Ninetowns Enke, Ninetowns Zhi Fang, Ninetowns Xin He and Ninetowns Wang Li.

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Our franchise relationship with Ninetowns Enke began in February 2004. Ninetowns Enke is also our sales agent for sale of after sales maintenance services for our enterprise software to our customers. In January 2012, we entered into a new franchise agreement with Ninetowns Enke for our software product, iQs under the iProcess.CIQ series. Our franchise agreement with Ninetowns Enke for iQs expires on December 31, 2012 and does not contain any minimum sales commitment. In January 2012, we also entered into a new franchise agreement with Ninetowns Enke for our software product, iDeclare.CIQ basic package. Our franchise agreement with Ninetowns Enke for iDeclare.CIQ expires on December 31, 2012 and does not contain any minimum sales commitment.

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Our relationship with Ninetowns Zhi Fang began in 2005. In January 2012, we entered into new franchise agreements with Ninetowns Zhi Fang and its affiliate, Beijing Ninetowns Zhi Fang Software Technology Co., Ltd. Shanghai Branch, or Ninetowns Zhi Fang Shanghai Branch, for our software product, iQs under the iProcess.CIQ series. Our franchise agreements with Ninetowns Zhi Fang and Ninetowns Zhi Fang Shanghai Branch for iQs expire on December 31, 2012 and do not contain any minimum sales commitment. In January 2012, we also entered into new franchise agreements with Ninetowns Zhi Fang and Ninetowns Zhi Fang Shanghai Branch, for our software product, iDeclare.CIQ basic package. Our franchise agreements with Ninetowns Zhi Fang and Ninetowns Zhi Fang Shanghai Branch for iDeclare.CIQ expire on December 31, 2012 and do not contain any minimum sales commitment.

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Our relationship with Ninetowns Xin He began in 2006. In January 2012, we entered into a new franchise agreement with Ninetowns Xin He for our software product, iQs under the iProcess.CIQ series. Our franchise agreement with Ninetowns Xin He for iQs expires on December 31, 2012 and does not contain any minimum sales commitment. In January 2012, we also entered into a new franchise agreement with Ninetowns Xin He for our software product, iDeclare.CIQ basic package. Our franchise agreement with Ninetowns Xin He for iDeclare.CIQ expires on December 31, 2012 and does not contain any minimum sales commitment.

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Our relationship with Ninetowns Wang Li began in 2006. In January 2012, we entered into a new franchise agreement with Ninetowns Wang Li for our software product, iQs under the iProcess.CIQ series. Our franchise agreement with Ninetowns Wang Li for iQs expires on December 31, 2012 and does not contain any minimum sales commitment. In January 2012, also we entered into a new franchise agreement with Ninetowns Wang Li for our software product, iDeclare.CIQ basic package. Our franchise agreement with Ninetowns Wang Li for iDeclare.CIQ expires on December 31, 2012 and does not contain any minimum sales commitment.

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Our franchisees provide customer maintenance services to our enterprise software users. We intend to focus on establishing new franchisee arrangements in the future.

For 2009, 2010, and 2011 net revenues from the sale of enterprise software and related customer maintenance services generated by our franchisees amounted to approximately RMB 45.9 million, RMB35.4 million and RMB47.9 million (US$7.6 million), respectively.

In June 2011, we entered into certain debt repayment agreements with Ninetowns Zhi Fang, Ninetowns Xin He and Ninetowns Wang Li, or the Debt Repayment Agreements, pursuant to which:

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We waived certain due and unpaid receivables from Ninetowns Zhi Fang in the amount of RMB8.77 million (US$1.30 million). Ninetowns Zhi Fang agreed to pay certain other due and unpaid receivables in the amount of RMB3.4 million (US$515,000) to us by December 31, 2012, with 50% of such amount due by December 31, 2011 and the remaining 50% due by December 31, 2012.

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We waived certain due and unpaid receivables from Ninetowns Xin He in the amount of RMB6.46 million (US$979,000). Ninetowns Xin He agreed to pay certain other outstanding due and unpaid receivable in the amount of RMB3.6 million (US$545,000) to us by December 31, 2012, with 50% of such amount due by December 31, 2011 and the remaining 50% due by December 31, 2012.

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We waived certain due and unpaid receivables from Ninetowns Wang Li in the amount of RMB7.55 million (US$1.14 million). Ninetowns Wang Li agreed to pay certain other outstanding due and unpaid receivable in the amount of RMB2.5 million (US$379,000) to us by December 31, 2012, with 50% of such amount due by December 31, 2011 and the remaining 50% due by December 31, 2012.

Customers

In 2011, our customers for sales of enterprise software and related customer maintenance services include our franchisees and international trade enterprises that we sell our software to directly. Our users are engaged in a wide variety of import and export activities in China. For 2009, 2010 and 2011, our four largest enterprise software customers, which consisted of our franchisees, accounted for approximately 77.5%, 71.3% and 78.5%, respectively, of our net revenues from sales of enterprise software and related customer maintenance services.

Our customers for software development services include the PRC Inspections Administration and other third party customers.

Most of our customers for B2C e-commerce business are individuals and a small number of B2C e-commerce customers are companies.

Customer maintenance services for enterprise software

We believe our ability to provide customer maintenance services is one of the key factors to building user loyalty. We offer one year of free customer maintenance services with our iDeclare.CIQ basic package, and charge a fee of RMB 1,500 for customer maintenance services each year thereafter.

The free customer maintenance services we provide in connection with our software products generally include:

•

after-sales software maintenance;

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help-desk via telephone; and

•

non-specific enhancement of the software on a when-and-if-available basis.

The paid customer maintenance services we provide in connection with our software products generally include:

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site visits to carry out maintenance procedures;

•

support via facsimile and email;

•

updates and enhancement to the software through the Internet and our website;

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automatic updates of software relating to changes in codes associated with goods, countries and regions and changes to import/export software; and

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training for new updates to our enterprise software.

Our franchisees also provide customer maintenance services, including help-desk support via telephone or e-mail, site visits for maintenance procedures and software training.

Each of our technical support centers functions as a call center that responds to calls from customers located in the surrounding areas. As of December 31, 2009, 2010 and 2011, we had together with our four franchisees, 133, 124 and 102 customer service and technical support personnel, respectively.

Competition

We believe there are only two enterprise software products, namely our iDeclare.CIQ product series and “Easy Inspection” offered by Rongji, that have been endorsed by the PRC Inspections Administration. We are not aware of any other products or services which compete with our enterprise software. Therefore, we believe we only have one competitor engaged in providing enterprise software to international trade enterprises for transactions with the PRC Inspections Administration. In addition, we face competition from the PRC Inspections Administration’s free software product.

We compete with several software developers in bidding for software development projects. In particular, we compete against eGrid, which is a related party of our company and historically, one of our major customers in our software development business, to provide software development services to iTowNet. iTowNet has developed its own platform for providing software development services and now provides software development services directly to its customers, such as the PRC Inspections Administration, that are similar to the software development services that we provide to our customers. As a result, iTowNet became one of our competitors in our software development services business.

We believe that the principal factors upon which we compete are:

•

reputation in the market;

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understanding of the needs of PRC international trade-related government agencies, such as the PRC Inspections Administration, as well as endorsements from such agencies;

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the quality of our products and services;

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responsiveness to the needs of users;

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installed base of international trade enterprise customers;

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cost-effectiveness; and

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distribution network.

We believe that we compete favorably with respect to the above-listed factors.

Intellectual property rights

We rely on a combination of nondisclosure, confidentiality and other contractual arrangements with the PRC Inspections Administration, certain of our directors, employees and customers, as well as PRC privacy and trade secret laws, to protect and limit the distribution of the proprietary software and processes we have developed in connection with our products and services.

As of December 31, 2011, we had registered 46 software copyrights and 22 trademarks in China and one registered trademark for our name “Ninetowns” in the United States. We have abandoned our plan for application for registering trademarks in Hong Kong.

If we fail to adequately protect our intellectual property rights or proprietary technology or if we become involved in litigation relating to our intellectual property rights or proprietary technology, our business could be harmed. Any actions we take may not be adequate to protect our rights and other companies may develop technologies that are similar or superior to our proprietary technology.

Although we believe that our products and services do not infringe on the intellectual property rights of others and that we have all rights needed to use the intellectual property employed in our business, it is possible that we could in the future become subject to claims alleging infringement of third party intellectual property rights. Any such claims could subject us to costly litigation and may require us to pay damages and develop non-infringing intellectual property or acquire licenses to the intellectual property that is the subject of the alleged infringement.

We are aware of an online video games company in China whose Chinese name is substantially similar to ours and which may therefore infringe on our trademark.

Regulation

Regulation relating to food safety

On February 28, 2009, the National People’s Congress issued the Food Safety Law of the People’s Republic of China, or the Food Safety Law, to assure food safety and safeguard people’s health and life, which became effective from June 1, 2009. On July 20, 2009, the State Council promulgated the Regulation on the Implementation of the Food Safety Law, or the Regulation, and the Regulation became effective on the same day. According to the Food Safety Law and the Regulation, the State implements a licensing system for food production and trading, any organization or individual engaged in food production or trading activities shall obtain the food production license or food distribution license.

Under the Food Safety Law, any food producer or trader engaged in food production or trading activities without a license, shall have any and all illegal benefits confiscated by the relevant authorities and be subjected to a fine up to 10 times the total value of the commodity.

Regulation relating to Road Transport

On April 30, 2004, the State Council promulgated the Regulation on Road Transport, or the Regulation. According to the Regulation, the State implements a licensing system for road transport, any organization or individual engaged in goods road transport shall obtain the road transport operating license.

Under the Regulation, any road transport operator engaged in road transport activities without a license, shall have operation suspended, any and all illegal benefits confiscated, be subjected to a fine and shall face criminal charges if their acts constitute crimes.

Regulation relating to the Internet Information Service

On September 25, 2000, the State Council promulgated the Regulation on Internet Information Services of the People’s Republic of China, or the Regulation, as amended on January 8, 2011. According to the regulation, Internet information service is divided into two categories: profitable Internet information service and non-profitable Internet information service, and the State established a licensing system for profitable Internet information service and a filing system for non-profitable Internet information service. Under the Regulation, any organization or individual engaged in profitable Internet information service shall obtain a license for value-added telecommunication services, or the Service License (ICP license).

Under the Regulation, those who violate the Regulation by providing profitable Internet information service without obtaining the Service License or by providing service not contained in the Service License shall be ordered to redress their violations and their illegal income be confiscated. A penalty shall be imposed. In a serious case, the website shall be ordered to close.

Regulation relating to the Animal Epidemic Prevention

On January 1, 1998, the National People’s Congress issued the Law of The People’s Republic of China on Animal Epidemic Prevention, or the Law, amended on August 30, 2007, which became effected in January 1, 2008. On January 21, 2010, the Ministry of Agriculture promulgated the measures on examining the requirements for animal epidemic prevention, or the Measures, which became effected on May 1, 2010. In accordance with the Law and the Measures, any organization or individual engaged in raising animals shall obtain a certificate of animal epidemic prevention.

Under the Law, those who violate the Law by raising animals without obtaining the certificate of animal epidemic prevention shall be ordered to redress their violations and be subjected to a fine.

Regulation relating to the Real Estate Industry

Establishment of a Real Estate Development Enterprise

Pursuant to the PRC Urban Real Estate Law, or the Urban Real Estate Law, promulgated by the Standing Committee of NPC, which became effective on January 1, 1995 and was revised on August 30, 2007 and August 27, 2009, a “real estate developer” refers to an enterprise which engages in the development and sale of real estate for profit-making purposes. Under the Regulations on Administration of Development of Urban Real Estate, or the Development Regulations, promulgated by the State Council on July 20, 1998, an enterprise engaging in real estate development must satisfy the following requirements in addition to other enterprise establishment conditions provided in the relevant laws and administrative regulations:

•

its registered capital must be RMB1 million or more; and

•

it must have four or more full-time professional real estate/construction technicians and two or more full-time accounting officers, each of whom must hold the relevant qualification certificate. The authorities at provincial level, autonomous region level or municipalities under the direct administration of central PRC governments may impose more stringent requirements regarding the registered capital and professional qualifications of real estate enterprises.

To establish a real estate development enterprise, the developer must apply for registration with the department of industry and commerce administration of the PRC Government at or above the county level, which should, in examining the application for the registration, seek the views of the real estate development authority at the relevant level. The developer must also report its establishment to the department of real estate development in the location of its registration within 30 days of receipt of its business license.

A foreign investor intending to engage in real estate development may establish an equity joint venture, a contractual cooperative joint venture or a wholly foreign owned enterprise in accordance with the PRC laws and regulations regarding foreign-invested enterprises. However, a foreign investor is only allowed to establish an equity joint venture or contractual cooperative joint venture for the development of a whole land lot.

On May 25, 2009, the State Council issued the Notice on Adjusting Capital Ratio of Fixed Asset Investment Projects, which sets out the minimum capital ratio for ordinary residential property development projects and social security housing development projects as 20%, and the minimum capital ratio for other property development projects as 30%.

Qualification of a Real Estate Developer

Under the Provisions on Administration of Qualifications of Real Estate Developers, or the Provisions on Administration of Qualifications, promulgated by the Ministry of Construction on March 29, 2000, a real estate developer must apply for registration of its qualifications. An enterprise may not engage in property development without a qualification classification certificate for real estate development. The Ministry of Construction is in charge of monitoring the qualifications of all real estate developers within the PRC, and local real estate development authorities at or above the county level are in charge of monitoring the qualifications of local real estate developers. Under the Provisions on Administration of Qualifications, real estate developers are divided into four classes:

•

Class 1 qualification is subject to preliminary examination by the construction authorities at the provincial level and the final approval of the Ministry of Construction. A Class 1 real estate developer is not restricted as to the scale of its real estate projects and may undertake a real estate development anywhere in the country.

•

Class 2, 3 or 4 qualifications and provisional qualifications are regulated by the construction authorities at the provincial level and may be subject to delegation to lower level governmental authorities. A real estate developer of the Class 2 qualification or lower may undertake a project with a GFA of less than 250,000 square meters, detailed business scope of the developer of the Class 2 qualification or lower is determined by the construction authorities at the provincial level.

Under the Provisions on Administration of Qualifications, the real estate development authorities will examine applications for registration of qualifications submitted by real estate developers by mainly considering their registered capital and financial condition, the length of time they have conducted real estate development business, the professional personnel they employ, the performance and operating results from their past real estate operations and their quality control systems. A real estate developer that passes the qualification examination will be issued a qualification certificate of the relevant class by the qualification examination authority. A developer of any qualification classification may only engage in the development and sale of real estate within its approved scope of business and may not engage in business which is limited to another higher classification. The real estate development authorities perform annual inspections of qualified developers. Developers who fail to meet the qualification requirements or which operate in breach of the requirements may have their qualification classification certificates degraded or revoked.

For a newly established real estate developer, which passes the qualification examination, the real estate development authority will issue a provisional qualification certificate within 30 days of receipt by the authority of the relevant application for filing. The provisional qualification certificate will be effective for one year from its date of issuance and may be extended for not more than two additional years with the approval of the real estate development authority. The real estate developer must apply to the real estate development authority within one month before the expiration of its provisional qualification certificate for a formal qualification classification certificate. Any failure to obtain the required provisional or formal qualification certificate may result in a fine ranging from RMB50,000 to RMB100,000 and, if such failure is not rectified, the developer’s qualification certificate or business license will be revoked.

Acquisition of Land Use Rights

Under the Foreign Investment Catalog, foreign investments are restricted in the development of a whole land lot, construction, operation or transacting in the secondary real estate market, or acting as real estate intermediaries or agents of high-quality hotels, houses, premium office buildings, international conference centers and large theme parks in China; and foreign investments are permitted in other real estate developments. According to the Interim Provision on Approving Foreign Investment Project promulgated by NDRC in October 2004, approval of NDRC is required for foreign investment projects with total investment of US$ 100 million or more within the category of encouraged or permitted foreign investments and those with total investment of US$50 million or more within the category of foreign investments subject to restrictions. Other foreign investments in China will require only local approval. Specifically, the local authorities may examine and approve foreign investment projects with total investment less than US$ 100 million within the category of encouraged or permitted foreign investments and those with total investment less than US$50 million within the category of foreign investment subject to restrictions.

Under the Interim Regulations of the People’s Republic of China on Grant and Assignment of the Use Right of State-owned Urban Land, or the Interim Regulations on Grant and Assignment, promulgated by the State Council in May 1990, China adopted a system to grant and assign the rights to use state-owned land. A land user must pay a land premium to the state as consideration for the grant of the right to use a land site within a specified period of time, and the land user may assign, lease out, mortgage or otherwise commercially exploit the land use rights within the terms of use. Under the Urban Real Estate Law and the Interim Regulations on Grant and Assignment, the land administration authority at the city or county level may enter into a land grant contract with the land user to provide for the grant of land use rights. The land user must pay the land premium as provided by the land grant contract. After payment in full of the land premium, the land user may register the land use rights for a site intended for real estate development. Land use rights may be obtained through grant, except for land intended for purposes subject to premium-free allocation by the PRC government pursuant to the PRC laws and regulations. Government-allocated land is not allowed to be transferred unless the transfer is approved by the relevant PRC Government authorities and the land premium as determined by the relevant PRC Government authorities has been paid.

When carrying out the feasibility study for a property project, the construction entity or the developer must make a preliminary application for construction on the relevant site to the relevant land administration authorities in accordance with the Measures for Administration of Examination and Approval for Construction Land promulgated by the Ministry of Land and Resources in March 1999 and the Measures for Administration of Preliminary Examination of Construction Project Land promulgated by the Ministry of Land and Resources in July 2001, as amended in October 2004 and November 2008. After receiving the preliminary application, the land administration authorities will carry out preliminary examinations of various aspects of the construction project in compliance with the overall zoning plans and land supply policy of the government, and will issue a preliminary approval in respect of the project site if its examination proves satisfactory. The land administration authorities at the relevant city or county will sign a land grant contract with the land user and issue an approval to the construction entity or the developer.

Under the Urban Real Estate Law, those who have obtained the land use rights by assignment must develop the land in accordance with the use and period of commencement as prescribed by the contract for the land-use right assignment. According to the Measures on the Disposal of Idle Land promulgated by the Ministry of Land and Resources on April 28, 1999, a parcel of land can be defined as idle land under any of the following circumstances:

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after obtaining the land-use rights, the development and construction of the land has not begun within the time limit for commencement of the development as stipulated without the consent of the people’s government the originally approved the use of the land;

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the land grant contract or the approval for construction does not prescribe the date of starting the development and construction, and the development and construction of the land has not begun at the expiry of one year from the day when the land grant contract became effective or when the land authorities issued the approval letter;

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the development and construction of the land has begun, but the area developed and constructed is less than one third of the total area to be developed and the invested amount is less than 25% of the total amount of investment, and development and construction has been continuously suspended for one year without approval; or

•

other circumstances prescribed by laws and regulations.

County-level municipal administrative authorities may, with regard to an identified piece of idle land, give notice to the land user and issue a proposal on disposing the idle land, including, but not limited to, extending the time period for development and construction (provided that it is no longer than one year), changing the use of the land, arranging for temporary use and ascertaining the new land user by competitive bidding, public auction or listing-for-sale. The county-level land administrative authorities may, after the original review and approval authority has approved the proposal, arrange for the implementation of the proposal. With respect to any land obtained by assignment and within the scope of city planning, if the construction work has not yet started after one year from the granting of the relevant approvals, a fine for idle land at 20% of the assignment price may be imposed on the land user. If the construction work has not begun after two years have elapsed, the right to use the land can be taken back by the state without any compensation. However, the above sanctions may not apply if the delay in commencement of construction is caused by force majeure or acts of government or indispensable preliminary work before commencement of construction.

On September 8, 2007, the MLR promulgated the Notice on Strengthening the Handling of Idle Land. This Notice provides the principles of dealing with idle land. The Grant of State-owned Land Use Right can only be transferred after the payment of compensation for land, settlement and completion of the land development at an earlier stage. The notice also prescribes that the State- owned Land Use Right Certificate shall not be issued before the land grant premium for acquisition of land has been paid in full, nor be issued separately according to the ratio of payment of land grant premium.

On January 3, 2008, the State Council issued a Notice on Promoting the Economic Use of Land with respect to the collection of additional land premium, establishment of a land utilization priority planning scheme and the formulation of a system for assessing the optimal use of land and other measures. The notice calls for the full and effective use of existing construction land and the preservation of farm land. The notice also emphasized the enforcement of the current rules on assessing idle land fees at a rate equal to 20% of the land premium for any land left idle for over one year but less than two years. The notice also establishes an additional land premium surcharges on idle land and authorizes the Ministry of Land and Resources to formulate regulations to implement such surcharges. The notice further urges financial institutions to exercise caution when they process loan applications from property developers that have failed to commence construction, to complete development of at least one-third of the land area or to invest at least 25% of the total investment within one year of the construction date provided in the land grant contract. The notice indicated that the relevant governmental authorities will formulate and issue additional rules and regulations on these matters.

The Ministry of Land and Resources issued a Notice on Restricting the Administration of Construction Land and Promoting the Use of Approved Land in August 2009, which reiterates the above rules on idle land.

Political, legal, economic and social considerations in China

Since 1979, many laws and regulations dealing with economic matters with respect to general foreign investment have been promulgated in China. In 1982, the PRC National People’s Congress amended the PRC Constitution to authorize foreign investments and guarantee the “lawful rights and interests” of foreign investors in China. In 2004, the PRC Constitution was further amended to recognize the right to private property for all PRC citizens. Subsequent legislation has enhanced significantly the protection afforded to foreign and domestic investors and allowed more active control of investors over their private enterprises in China. In the last two decades, the PRC government has introduced substantial economic and legal reforms. However, the legal system of the PRC is still underdeveloped when compared to the systems of advanced western nations. The implementation and interpretation of existing laws may therefore be uncertain.

Foreign investment policies

According to the Foreign Investment Industry Policy Guidelines promulgated on March 4, 2002, as amended on November 30, 2004 and on October 31, 2007, foreign investors are encouraged to invest in the development and manufacturing of software products. No restrictions or prohibition is currently imposed on the foreign ownership of businesses engaged in the development and production of software products in China.

New regulation relating to the administration of an office

In April 2006, State Administration of Industry and Commerce, Ministry of Commerce, State General Custom and SAFE jointly promulgated “Implementation Opinion on Certain Issues about Application of Laws on Administration of Approval and Registration for Companies with Foreign Investment”, or the Opinion. According to the Opinion, the registration requirements for companies with foreign investment apply to companies registered under the PRC Company Law, as amended on October 27, 2005 and effective on January 1, 2006, and the Regulations on Administration of Companies, amended on December 18, 2005, except otherwise stipulated by the laws and regulations specifically governing companies with foreign investment. According to the Opinion, the registration of offices established by companies with foreign investment is required to cease. The Opinion also provides that the procedures of variation or renewal for the offices that have been registered will not be carried out. Once the operating term of an office expires, the procedure of “cancellation of registration” will be implemented. If necessary, such company can choose to establish a branch office.

In the opinion of our PRC counsel, Commerce & Finance Law Offices, the ownership structures, businesses and operations of our subsidiaries and VIE in China comply with applicable PRC laws, rules and regulations in all material aspects. In addition, our PRC counsel has confirmed that no consent, approval or license, other than those already obtained, is required for such present ownership structures, businesses and operations in order for us to comply with existing PRC laws rules and regulations.

Regulation of the software industry

Software copyright

The State Council of the PRC, or the State Council, promulgated the Regulations for the Protection of Computer Software, or the Software Protection Regulations, on December 20, 2001, and such regulations became effective on January 1, 2002 as amended on January 8, 2011. The Software Protection Regulations were promulgated, among other things, to protect the copyright of computer software in China. According to the Software Protection Regulations, computer software that is independently developed and exists in a physical form will be protected. However, such protection does not apply to any ideas, mathematical concepts, processing and operation methods used in the development of software products.

Under the Software Protection Regulations, PRC citizens, legal persons and organizations enjoy copyright protection for computer software they develop, regardless of whether the software has been published. In addition, foreigners or any person without a nationality enjoy copyright protection of computer software they develop, if such computer software was first distributed in China.

Under the Software Protection Regulations, software copyright holders enjoy the rights of publication, authorship, modification, duplication, issuance, lease, transmission on the information network, translation, licensing and transfer. The software copyright comes into being on the day of completion of its development. In the case of software developed by legal persons and other organizations, the protection period is 50 years and ends on the thirty-first day of December of the fiftieth year from the date the software product was first published. However, the Software Protection Regulations will not protect the software if it has never been published within 50 years since the completion of development. A written license contract is required to license the right to use the software copyright and a written assignment contract is required for transfer of any software copyright.

Enforcement actions available under the Software Protection Regulations against infringements of copyright include, among other things, cessation of the infringement, elimination of the effects, apology, compensation for losses and other civil responsibilities. Disputes regarding infringements of software copyright can be mediated. In addition, the parties may apply for arbitration in accordance with the arbitration provision set forth in the copyright contract or the arbitration agreement otherwise entered into between or among the parties. If the parties do not have an arbitration agreement, they can resolve the dispute through the PRC courts.

Software copyright registration

Pursuant to the Copyright Law of the PRC, or the Copyright Law, which was adopted at the 15th Meeting of the Standing Committee of the Seventh National People’s Congress on September 7, 1990 and effective from June 1, 1991 as amended on February 26, 2010, works including computer software developed by PRC citizens, legal persons or other entities without legal personality, whether published or not, are protected under the Copyright Law. On February 20, 2002, the State Copyright Administration of the PRC promulgated the Measures Concerning Registration of Computer Software Copyright Procedures, or the Registration Procedures, to implement the Regulations for the Protection of Computer Software and to promote the development of China’s software industry. The Registration Procedures apply to the registration of software copyrights and software copyright exclusive licensing contracts and assignment contracts. The registrant of a software copyright will be the copyright owner and the natural person, legal person or other organization in whom the software copyright becomes vested through succession, assignment or inheritance.

Pursuant to the Registration Procedures, the software to be registered must (i) have been independently developed or (ii) significantly improve in its function or performance after modification from the original software, with the permission of the original copyright owner. If the software being registered is developed by more than one person, the copyright owners may nominate one person to handle the copyright registration process on behalf of the other copyright owners. If the copyright owners fail to reach an agreement with respect to the registration, any of the copyright owners may apply for registration but the names of the other copyright owners must be recorded on the application.

The parties to a software copyright assignment contract or exclusive licensing contract may apply to the Copyright Protection Center of the PRC, or the CPC, for registration of such contracts. In registering a contract, the following materials must be submitted: (1) a completed contract registration form; (2) a copy of the contract; and (3) the applicant’s identification documents.

The CPC will complete its examination of an accepted application within 60 days of the date of acceptance. If an application complies with the requirements of the Software Protection Regulations and the Registration Procedures, a registration will be granted, a corresponding registration certificate will be issued and the registration will be publicly announced.

Software products registration

On March 1, 2009, the MIIT issued the new Measures Concerning Software Products Administration, which became effective on April 10, 2009, to regulate and administer software products and promote the development of the software industry in China.

Pursuant to the new Measures Concerning Software Products Administration, software products are required to be registered and filed with the MIIT or the provincial software industry authorities. Before the provincial software industry authorities issue software products registration numbers and software products registration certificates to the applicants, the application materials should be filed with the MIIT and the software products should be announced without objection for a seven-day period. To produce software products in China, the software production units should have the copyright of the software or are licensed to produce such software products. If the software products are sold through a distribution agent, there must be a contract between the software developer and the agent, and between the agent and its sub-agents, if any, specifying the distribution rights, distribution territory and distribution terms as well as the technical services to be provided by the distribution agent. The MIIT and other relevant departments may carry out supervision and inspection over the development, production, operation and import/export activities of software products in China.

Policies to encourage the development of software and integrated circuit industries

On June 24, 2000, the State Council issued Certain Policies to Encourage the Development of Software and Integrated Circuit Industries, or the Policies, to encourage the development of the software and integrated circuit industries in China and to enhance the international competitiveness of the PRC information technology industry. The Policies encourage the development of the software and integrated circuit industries in China through various methods, including:

(i)	encouraging investment in the software industry and providing or assisting software enterprises to raise capital overseas;

(ii)

providing tax incentives, including a tax rebate for taxpayers who sell self-developed software products, before 2010, the amount of the 17.0% statutory value added tax that exceeds 3.0%, will be refunded immediately when paid. There is a full exemption from the PRC enterprise income tax, or EIT, for two years starting from the first profit-making year of operations and a 50.0% relief from the PRC EIT for the following three years for recognized newly established enterprises that are engaged in the software industry. The software enterprises of particular importance pursuant to the state stipulations, which do not enjoy any tax exemption benefit in a given year, will be subject to a reduced EIT rate of 10.0% in that year. Moreover, software enterprises that import certain equipment for the development of their self-developed software, with limited exemptions, are also entitled to the exemption of import related value-added tax;

(iii)

providing government support, such as government funding in the development of software technology;

(iv)	providing preferential treatment, such as credit facilities with low interest rates to enterprises that export software products;

(v)	taking various strategies to ensure the software industry has sufficient expertise; and

(vi)	implementing measures to enhance intellectual property protection in China.

Regulation of foreign exchange and dividend distribution

Foreign exchange

The principal regulations governing foreign exchange in China are the Foreign Exchange Control Rules (1996), as amended in 1997 and 2008. On June 20, 1996, the People’s Bank of China promulgated the Administration Rules of Settlement, Sale and Payment of Foreign Exchange, or the FX Administration Rules, which became effective on July 1, 1996.

Under the FX Administration Rules, Renminbi is generally freely convertible for trade and service-related foreign exchange transactions, but not for foreign direct investment, foreign loans or issuance of securities outside China unless the prior approval of SAFE is obtained.

Pursuant to the FX Administration Rules, foreign investment enterprises in China generally may purchase foreign exchange without the approval or review of SAFE for trade and service-related foreign exchange transactions by providing commercial documents evidencing these transactions. They may also retain foreign exchange, subject to a cap approved by SAFE, under current account items. However, the relevant PRC government authorities may limit or eliminate the ability of foreign investment enterprises to purchase and retain foreign currencies in the future. Foreign investment enterprises are permitted to distribute their profits or dividends in foreign currencies out of their foreign exchange accounts or exchange Renminbi for foreign currencies through banks authorized to conduct foreign exchange business.

Dividend distribution

The principal PRC regulations governing the distribution of dividends by our wholly foreign-owned enterprises are (i) The Wholly Foreign-Owned Enterprise Law (1986), as amended in 2000; and (ii) Implementation Regulations under the Wholly Foreign-Owned Enterprise Law (2001); and (iii) the Company Law (1993), as amended in 2005.

Under these regulations, wholly foreign-owned enterprises in China may only pay dividends out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise in China is required to set aside at least 10.0% of its after-tax income each year, if any, to fund a reserve fund until the accumulated reserve amounts to 50.0% of its registered capital. It is also required to set aside funds for the employee bonus and welfare fund from its after- tax income each year at percentages determined at its sole discretion. These reserves are not distributable as cash dividends.

Restricted net assets

Relevant PRC laws and regulations permit payments of dividends by our PRC subsidiaries only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. In addition, the statutory general reserve fund, which requires annual appropriations of 10% of net after-tax income should be set aside prior to payment of any dividends. As a result of these and other restrictions under PRC laws and regulations, our PRC subsidiaries and affiliates are restricted in their ability to transfer a portion of their net assets to us either in the form of dividends, loans or advances. The restricted portion of their net assets amounted to approximately RMB553.7 million (US$88.0 million), or 59.2% of our total consolidated net assets as of December 31, 2011.

Regulation of the import/export industry

The State Administration for Quality Supervision and Inspection and Quarantine of the PRC

In April 2001, the PRC Inspections Administration was established by combining the former State Import and Export Commodity Inspection Quarantine Bureau of the PRC and the State Quality and Technique Supervision Bureau of the PRC, which oversees the inspection work of import and export commodities for the PRC in accordance with the institutional reform plan of the State Council. The PRC Inspections Administration, which is primarily an administrative and law enforcement institution governing, among others, the health quarantine of imported and exported animals and plants, the inspection, appraisal, certification and supervision of imported and exported commodities, has the following responsibilities, among others:

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executing the inspection and quarantine, appraising and supervising of import and export commodities;

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implementing the quarantine and supervision for the import and export of animals and plants and the inspection, supervision and administration of the sanitary and food quality;

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administering health registrations of import and export food products and their production units and external registration for export enterprises; administering the import and export inspection and quarantine marks, import safety licenses, and export quality licenses; and implementing the import and export-related quality authentication and accreditation;

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administering the issuance of Origin Certificates for commodities and the general certificates of origin;

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formulating the development plan of technologies for commodity inspection and quarantine; and

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developing international cooperation and technology exchanges related to commodity inspection and quarantine and carrying out the implementation work relating to technological barriers to trade, as stipulated.

Customs General Administration of the PRC

The PRC Customs, General Administration is the highest authority for supervising and administering the customs points for entering into and departing from the PRC and is responsible for customs administration throughout the nation.

The PRC Customs Law is intended to protect PRC sovereignty and interests and to strengthen the administration of customs supervision. In accordance with the PRC Customs Law, the PRC Customs, General Administration has primary responsibility for:

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supervising the entering into and departing from the PRC of transportation tools, goods, luggage, postal items and other articles;

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collecting customs duties and other taxes and fees;

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investigating and suppressing smuggling; and

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preparing customs statistics and conducting other customs affairs.

Import/ Export license system

The import and export license system is an important administrative measure in the international trade regulations of the PRC. Since the early 1990’s, the PRC government has gradually relaxed its control over import activities including abandoning or reducing the range of import licenses, import quotas and import control. Since 1998, the PRC government has removed its control of import licenses and export quotas over a wide range of commodities which previously required import licenses. On December 10, 2001, the State Council issued the Regulations of the People’s Republic of China on Administration of Import and Export, or the Regulations, which apply to the import of goods into China and the export of goods from China, to standardize administration of import and export of goods and to promote the development of foreign trade in China. Pursuant to the Regulations, goods for importation are divided into three categories: (i) prohibited for imports, (ii) restricted for imports, and (iii) free for imports. The lists of prohibited and restricted imports are formulated by the State Council department responsible for foreign trade and economic cooperation after consulting other relevant State Council departments. Restricted imports are further divided into quota-controlled imports, license- controlled imports and tariff- and quota-controlled imports. Import quotas are distributed to quota applicants annually based on specific criteria. Import licenses are issued on a case-by-case basis. Exported goods are also divided into prohibited exports, restricted exports and free exports. The lists of prohibited and restricted exports are formulated by the State Council department responsible for foreign trade and economic cooperation after consulting other relevant State Council departments. Restricted exports are further divided into quota-controlled exports and license-controlled exports. Export quotas are distributed annually and may be distributed through direct allocation, invitation of bids or other methods. Export licenses are issued on a case-by-case basis. Under certain circumstances, the relevant State Council departments may take certain temporary measures to restrict or prohibit certain imports.

Administrative provisions on the Origin Certificate

All exporters may apply for origin certificates in respect of the products to be exported out of China. In compliance with the Regulations of the People’s Republic of China on Origin of Imported and Exported Goods issued on September 3, 2004, which became effective on January 1, 2005, and the Provisions for the Issuance of the Origin Certificate for Export Goods of the PRC (Trial Implementation), which became effective on January 1, 1996, and to strengthen the administration of the issuance of Origin Certificates, the Ministry of Foreign Trade and Economic Cooperation, currently known as the Ministry of Commerce, promulgated the Administrative Provisions of the PRC on Origin Certificate on March 8, 1996, or the Administrative Provisions. The Administrative Provisions are aimed at facilitating the implementation of a national EDI project by the Ministry of Commerce. The Ministry of Commerce made use of the recommended standard form of the Origin Certificate issued by the then State Technology Supervision Administration of the PRC on July 1, 1996, to standardize and regulate the administration, subscription, printing, transportation, record-keeping, issuance, calculation and examination of the Origin Certificate, thus minimizing or eliminating the occurrence of forged or fake Origin Certificates. The new standard form of the Origin Certificate bears a uniform serial number.

Commodity quality inspection and quarantine inspection

Commodity quality inspection

The Law on the People’s Republic of China on Import and Export Commodity Inspection adopted by the Standing Committee of the Seventh National People’s Congress on February 21, 1989, which became effective on August 1, 1989, as amended on April 28, 2002, provides that all imported and exported commodities included in a published inspection list must be inspected in accordance with the relevant compulsory inspection standards or other standards specified by the state inspection authorities prior to export out of China or use or sale in China for imported goods. On August 31, 2005, the State Council promulgated the Implementing Provisions for the Law of the People’s Republic of China on Import and Export Commodity Inspection, which became effective on December 1, 2005 and stipulates particular requirements for the import and export commodity inspection.

Quarantine inspection

The Standing Committee of the PRC National People’s Congress adopted the Import & Export Animals and Plants Quarantine Law on April 1, 1992, which provides the legal basis for the quarantine inspection of animals, plants and other products and the containers and packaging materials used for transporting or packing these items. On December 2, 1996, the State Council issued Implementing Regulations for the Import & Export Animals and Plants Quarantine Law which provides detailed procedures for quarantine inspection of animals, plants and other products. The PRC Inspections Administration is currently responsible for carrying out import and export commodity inspections.

Regulation on Stock Incentive Plan

On December 25, 2006, the People’s Bank of China promulgated the Administrative Measures for Individual Foreign Exchange. On January 5, 2007, SAFE issued the Implementation Rules of the Administrative Measures for Individual Foreign Exchange, or the Individual Foreign Exchange Rule, which, among other things, specifies approval requirements for a PRC citizen’s participation in employee stock ownership plans or stock option plans of an overseas publicly-listed company. On February 15, 2012, SAFE issued the Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly-Listed Company, or the Stock Incentive Plan Rules, which terminated the Processing Guidance on Foreign Exchange Administration of Domestic Individuals Participating in the Employee Stock Ownership Plans or Stock Option Plans of Overseas-Listed Companies issued by SAFE on March 28, 2007. According to the Stock Incentive Plan Rules, if “domestic individuals” (both PRC residents and non-PRC residents who reside in the PRC for a continuous period of not less than one year, excluding foreign diplomatic personnel and representatives of international organizations) participate in any stock incentive plan of an overseas listed company, a qualified PRC domestic agent, which could be a PRC subsidiary of such overseas listed company, or a domestic agent selected by a PRC subsidiary, shall, among other things, file, on behalf of such individual, an application with SAFE to register such stock incentive plan, and obtain approval for an annual allowance with respect to the purchase of foreign exchange in connection with the stock purchase or stock option exercise. Such PRC individuals’ foreign exchange income received from the sale of stocks and dividends distributed by the overseas listed company and any other income shall be fully remitted into a collective foreign currency account in the PRC opened and managed by the PRC domestic agent before distribution to such individuals.

C. Organizational structure

We conduct substantially all of our business through eleven PRC subsidiaries, three investments under equity method and one VIE in China. The following diagram illustrates our subsidiaries, their country of incorporation and the proportion of our ownership of each as of April 20, 2012.

LOGO

For details of the above subsidiaries and VIE, see “— History and development of the company.”

D. Property, plant and equipment

Our principal executive offices occupy a total of approximately 7,992 square meters on the 19th to 23rd and 25th floors of Building No.1, Capital A Partners, No. 20 Gongti East Road, Chaoyang District, Beijing 100020, PRC, or the Principal Office. We have not obtained the ownership certificate for our principal offices due to an ongoing lawsuit filed against the building developer by an un-related third party. We also own an office building located at No. 38, Huicai Road, Tianhe District, Guangdong, PRC of a total of approximately 3,095 square meters.

We occupy a leased representative office of approximately 10 square meters at 1 1F, KaWah Bank Centre, 232 Des Voeux Road, Central, Hong Kong.

We lease premises with approximately 4,300 square meters in Beijing to serve as our warehouse for our fresh delivery B2C food related business. Such lease will expire on February 29, 2013.

We also lease approximately 703,200 square meters of land in Beijing on which we farm the products for our B2C food related business. Such lease will expire on September 15, 2022.

We and our four franchisees currently jointly provide services to the users of our enterprise software through three technical support centers, with one located in Beijing and two located in Guangzhou. The service centers in Beijing and Guangzhou are operated and maintained by us whereas all other 41 technical support centers are operated and maintained by our four franchisees, located in major import/export cities in China.

On October 30, 2008, Ninetowns Suitable Estate and the Beijing Municipal Bureau of Land Resources Economic Technological Development Area Branch entered into a land grant contract and a supplemental agreement, pursuant to which Ninetowns Suitable Estate acquired land use rights for 58,526.58 square meters of land located in Lu Dong District, Beijing Economic Technological Development Area, or Yizhuang. In May 2010, Ninetowns Suitable Estate acquired the project’s construction land use layout permit and obtained the land use right certificate. In January 2012, we obtained the approval to change the construction planning of Yizhuang to mixed-use real estate project development.

In 2011, we acquired the land use rights for a plot of undeveloped land located in Huainan, Anhui province of China, which consists of approximately 141,000 square meters. We also acquired land use rights for two plots of undeveloped land located in Dalian, Liaoning province of China through Dalian Changzheng, our 70%-owned subsidiary. The two plots consist of approximately 20,970 square meters. Shouchuang Caifu Ninetowns, a limited partnership among Ninetowns Ronghe Zhihui, Shouchuang Huaxia and Shouchuang Gengyin acquired 99% of the equity interest in Binzhou Ruichen, which intends to acquire a piece of land consisting of approximately 79,140 square meters for residential use located in Binzhou, Shandong Province of China. As of April 20, 2012, Binzhou Ruichen has obtained land use rights certificates of approximately 57,027 square meters of the Binzhou project.

Insurance

We do not maintain business liability insurance and to our knowledge, other software companies in China do not maintain such insurance. We do maintain vehicle liability insurance. While business disruption insurance is available, we have determined that the risks of disruption and the cost of insurance are such that we do not require it at this time. Any business disruption, litigation or natural disaster might therefore result in substantial costs and diversion of our resources.

We do not maintain key-man life insurance for any member of senior management. We maintain directors and officers insurance for our directors and members of senior management.

Item 4A. Unresolved Staff Comments.

Not applicable.

Item 5. Operating and Financial Review and Prospects.

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on Form 20-F. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. Key Information — D. Risk Factors” or in other parts of this annual report on Form 20-F.

A. Operating Results

Overview

We are a leading provider of online solutions for international trade, with our key services in automating import/export e-filings. We achieve this by leveraging our international trade expertise and our insight into the needs and procedures of certain trade- related PRC government agencies. To date, we have focused on providing enterprise software and related customer maintenance services for the completion over the Internet of the declaration process. In order to secure our market position, we assisted in designing and building, and continue to maintain and upgrade, the electronic systems of the PRC Inspections Administration, that enable our enterprise software to process electronic declarations over the Internet. We believe there were approximately 142,300, 143,500 and 145,100 licensees of our enterprise software registered to effect electronic import/export processing with the PRC Inspections Administration as of December 31, 2009, 2010 and 2011, respectively. We also engage in the sales of B2C organic food and other household products through our web portal, www.tootoo.cn. We intend to expand our business to invest in real estate development. We acquired land use rights for undeveloped land in Huainan, Dalian and Binzhou, China, to develop mixed-use real estate projects. We also changed the construction planning of the land of Yizhuang to develop mixed-use real estate projects. Our B2C and real estate development businesses are under development.

We generated total net revenues of approximately RMB79.6 million, RMB78.9 million and RMB75.2 million (US$12.0 million) in 2009, 2010 and 2011, respectively. Our total net revenues in 2011 was generally the same as our total net revenues in 2010 because the decrease in sales from software development services in 2011 was offset by the increase in net revenues from enterprise software and related customer maintenance services and B2C food related business during the same year. Our net income attributable to the Company in 2009, 2010 and 2011 was RMB1.3 million, RMB12.3 million and RMB3.5 million (US$0.6 million), respectively. The decrease in net income attributable to the Company in 2011 was mainly due to lower gains from our equity securities investment activities and loss on investments under the cost method.

We periodically invest our excess cash in highly liquid equity securities. In addition, from time to time we write call and put options through listed exchange as part of our investment strategy. Our investment committee approves the investment policy covering the investment parameters to be followed with the primary goals being the safety of principal and maintaining the liquidity of funds. As of December 31, 2011, we held equity securities with a total value of approximately RMB20.3 million (US$3.2 million), which we purchased from China’s A-Share stock market. We also made investments in the U.S. capital markets through investments in equity securities and call and put options. As of December 31, 2011, we held equity securities with a total value of approximately RMB225.5 million (US$35.8 million) that we purchased from the securities markets in the United States. In 2011, we recognized approximately RMB39.9 million (US$6.3 million) in gains from our equity securities investment activities.

In 2011, we recognized an impairment loss of RMB3.4 million (US$0.5 million) due to losses reported by Hangzhou Tophere Info-Tech Inc., or Tophere, one of our investments under cost method.

Factors affecting our results of operations and financial condition:

Focus on sales of enterprise software and related customer maintenance service

In 2011, we engaged in four main lines of business: (i) sales of enterprise software and related customer maintenance services, (ii) provision of software development services, (iii) B2C food related business and (iv) real estate development business. We intend to continue deploying our resources on sales of enterprise software and related customer maintenance services and on our B2C food related business and real estate development business. In addition, we also intend to leverage our existing expertise in quality control and e-service solutions to explore and develop other business opportunities.

Expansion to new business and continuance of investment activities

In April 2011, we expanded our business to focus on a new strategic initiative to invest in real estate development. We also expect to continue our investment activities in China’s A-Share stock market and U.S. capital markets.

Status of the import/export industry in China

Our financial results have been, and we expect them to continue to be, affected by the import/export industry in China. In 2011, China’s total import and export volume increased by 22.5% compared to 2010 and we believe the number of the import and export transaction consummated also significantly increased compared to 2010 .We expect China’s import/export volume and number of the transaction consummated to increase steadily in 2012 and lead to a corresponding increase in the demand for our products and services in 2012 compared to the demand in 2011. We believe the increase in demand will increase our revenues on our services provided to Pay-Per-Transaction users.

Change in number of potential users

In February 2006, the PRC Inspections Administration commenced the distribution of the software products that our company developed, free-of-charge to end-users. As certain basic functions of the free software are similar to those of iDeclare.CIQ and iProcess.CIQ, the provision of such software products free-of-charge by the PRC Inspections Administration has a material adverse effect on our results of operations and on our future profitability.

Although the number of users of our enterprise software has increased significantly since we first launched our iDeclare.CIQ software products in August 2000, the growth in the number of potential users has declined significantly in recent years. The initial increase was partially attributable to the increasing number of PRC international trade enterprises and partially attributable to the increasing demand from such enterprises for more efficient import/export processing methods. The recent decrease was due to the PRC Inspections Administration’s distribution of its free software. We expect an increase in the number of PRC international trade enterprises as the PRC economy continues to expand over time, but such increase may have been slowed significantly by the 2008 global financial crisis. We believe the long term growth of the import/export market will increase demand for our enterprise software and related customer maintenance services and software development services, as international trade enterprises seek an efficient means of completing the declaration process.

While the growth rate of our user base has decreased continuously, we believe that we have continued to make sales of our iDeclare.CIQ software packages and related customer maintenance services due to certain benefits offered to our paid customers that are not offered to users of the free software. The PRC Inspections Administration’s distribution of free software products, while in the long run will likely increase the number of e-filers and hence increase demand for our enterprise software services, has had a significant adverse effect on our total net revenue, our results of operations and profitability in the short-term. Since 2008, we believe that the PRC Inspections Administration decreased its efforts to promote its free software and we believe there is uncertainty surrounding the PRC Inspections Administration’s future promotional plans for its free software. Our sales of iDeclare.CIQ declined significantly from 2009 to 2010, but increased from 2010 to 2011 primarily because we increased our marketing efforts in 2011, such as value-added services to maintain existing customers and attract new customers.

Expanding our user base through franchisees

We believe our user base has substantial growth potential due to the high number of international trade enterprises that possess import/export rights in China. According to the PRC Ministry of Commerce, approximately 741,565 foreign-invested companies were approved to do business in China as of February 29, 2012. In addition, there are numerous PRC-based companies that possess import/export rights. A key component of our growth strategy is to secure new customers through the efforts of our franchisees and we intend to engage additional franchisees to expand our marketing and distribution network. Currently, we have engaged four franchisees to undertake marketing, distribution and service activities in China.

Description of statements of operations items

At December 31, 2011, we primarily operate in four business segments: (i) enterprise software and related customer maintenance services, (ii) software development services, (iii) B2C food related business and (iv) real estate development business. Currently, our total net revenues are primarily derived from our sales of enterprise software and related customer maintenance services.

Total net revenues

Currently, we generate total net revenues primarily from our B2G segment which includes (i) sales of enterprise software and related customer maintenance services and (ii) fees from software development services, and our new B2C food related business.

Except for VAT rebates from the Chinese tax authorities as part of the PRC government’s policy of encouraging software development in the PRC, we report total net revenue net of business tax. Our sales of enterprise software products and computer hardware and accessories are generally subject to a VAT of 17.0%. Our fees charged for software development services and customer maintenance service for enterprise software products are generally subject to a 5.0% business tax. Pursuant to the laws and regulations of the PRC, two of our subsidiaries in China are entitled to a 14.0% VAT rebate for certain self-developed software products. We recognize the VAT rebates at the same time we recognize net revenues from sales of enterprise software. VAT rebates are included in our net revenues from sales of enterprise software. In 2011, we recognized RMB0.6 million (US$91,000) in VAT rebates. We cannot predict how much our net revenues from sales of our enterprise software and related customer maintenance services or software development services will increase in the future, or if they will increase at all.

Enterprise software and related customer maintenance services: Our net revenues from enterprise software are derived primarily from sales of our iDeclare.CIQ basic package and related customer maintenance service fees. We charge users of our iDeclare.CIQ product series a fee of RMB4,500 per bundled software package, which includes a one-year basic customer maintenance service period. We also charge RMB1,500 for each additional year of customer maintenance services, which includes a number of value-added services in addition to the basic maintenance services. Enterprise software revenues and fees from customer maintenance services are recognized ratably over a 12-month period. Enterprise software revenues received or receivable but not yet recognized are accounted for as deferred revenue on our balance sheets. Deferred revenue is reduced proportionately as enterprise software revenues are recognized ratably over the 12-month period.

We currently sell our enterprise software and provide related customer maintenance services through four franchisees. Our per-unit license fee for enterprise software products charged to our franchisees is based on our negotiated sales arrangement with the franchisee, and is less than the RMB4,500 per-unit license fee we receive from direct sales. We also sell iDeclare.CIQ products on a Pay-Per-Transaction basis to various users. Our ability to grow our net revenues from sales of enterprise software and related customer maintenance services will depend on (i) the rate of increase in the number of new users of such product, (ii) the number of the export/import transactions consummated by our Pay-Per-Transaction users, (iii) the market’s acceptance of our planned new software products, (iv) the success of our plans to engage additional franchisees, and (v) our increased efforts in marketing our customer maintenance services to our users. The distribution of free enterprise software by the PRC Inspections Administration has adversely affected our ability to grow our net revenues from sales of enterprise software and related customer maintenance services.

Notwithstanding that we charge for such maintenance services, we believe our users and potential customers are not accustomed to being charged for this type of service and it is uncertain how many of our users will pay for such maintenance services. In 2011, we collected customer maintenance service fees from approximately 18,700 users, representing approximately 13% of our users due to the renewal of their maintenance service agreements. We intend to continue to increase our marketing and collection efforts with respect to these customer maintenance service fees.

Software development services: Our net revenues from software development services are derived primarily from contracts related to PRC government agency software development projects, such as our services for the PRC Inspections Administration. As we believe is consistent with the practice of other software development companies in China engaged in government-related work, we often commence work on software development projects based on oral commitments from our customer and sign the contract after the commencement of work. Once a contract has been signed, we begin recognizing net revenues from these projects based on the percentage-of-completion method, in which revenue recognition is based on the percentage of actual hours incurred to date for each contract to the estimated total hours to be incurred for each contract at completion. Compared to 2010, fewer contracts with respect to software development services were entered into, completed and accepted by customer in 2011 and the work that was completed and accepted in 2011 carried lower service fees compared to our work completed and accepted in 2010. As we recognize such sales as revenue when all components under the contracts are delivered and the project is complete upon the receipt of written acceptance by customer, the revenue recognized in 2011 is significantly lower than 2010.

B2C food related business: During the first half of 2009, we launched a portal site, www.tootoo.cn, to serve as an e-grocery platform targeting Chinese consumers primarily in Beijing metropolitan areas. This platform is designed as an online grocery store, with offerings of organic products and other fresh and natural products, as well as delivery services direct from farm to table. We established partnerships with two local Beijing organic farms, Beijing Qingpuyuan Farm Land and Huaixiang Organic Farm Land, to assist us with upholding and maintaining quality control standards for product sourcing. In addition, in order to attract potential customers to this e-grocery platform as well as to promote the tootoo.cn branding, we organized and participated in various events such as mother and baby health seminars, organic farm field trips, and various food-related events. Throughout the second half of 2009 and in the early part of 2010, we made significant progress on our online grocery retail initiative. In April 2010, the online retail platform www.tootoo.cn underwent a complete upgrade, with the addition of new features including a convenient online payment service and a more diverse offering of organic products, fresh vegetables, fruits, and household goods and consumer products. tootoo.cn currently carries over 3,000 products in 16 different categories. Furthermore, we established our first warehouse with approximately 4,300 square meters, functionally divided into an ordinary temperature warehouse, refrigerated / frozen warehouse, processing workshop, office and other functional facilities.

We believe we are the first retailer in Beijing to offer home deliveries of guaranteed fresh produce and groceries. We believe that the market for online shopping in China is large and growing quickly. While the e-Grocery market represents a small and nascent segment of the broader e-commerce industry, we are very optimistic about the future prospects of this market in China and are confident that our unique positioning, diversified offering and high quality services will enable us to create long-term shareholder value.

Real estate development business: In 2011, we acquired land use rights for undeveloped land in Huainan, Dalian and Binzhou, China. We plan to develop mixed-use real estate projects on such properties. In June 2011, we entered into a series of agreements with respect to certain financing arrangements for the “Smarter Town” project to be developed by Huainan Huacheng. Such arrangements were terminated on February 9, 2012. We also changed the construction planning of the land of Yizhuang to develop mixed-use real estate projects. Our real estate projects are all under progress and we have not generated any revenue from our real estate development business.

Cost of revenues

Our cost of revenues consists principally of costs related to (i) sales of our enterprise software and related customer maintenance services, (ii) our provision of software development services, and (iii) our provision of B2C food related business.

Enterprise software and related customer maintenance services: We distribute our software directly to end-users by distributing to them through our franchisee network via the Internet. As such, the costs of revenues for our enterprise software are minimal because of low production costs, packaging costs and shipment costs. Additionally the franchisees have been providing a majority of our software maintenance services to customers for us. We therefore incurred declining direct costs to provide software maintenance services to customers.

As a result of the above factors, cost of revenues for enterprise software and related customer maintenance services was immaterial.

Software development services: Our cost of software development services is comprised mainly of personnel expenses, office rental expenses and other expenses directly related to our provision of software development services. We record cost of revenues for software development services on the percentage-of-completion method by reference to the man-hours incurred and estimated to be incurred for each contract at completion.

B2C food related business: Our costs of B2C food related business consist primarily of procurement costs for products sold, and direct costs associated with food related products and services, including salaries, employee benefits and overhead costs associated with employees providing the related services.

Gross profit margin

Our gross profit margin is primarily affected by our net revenues from sales of enterprise software and related customer maintenance services, the cost of revenues for our software development services and B2C food related business. We expect our enterprise software and related customer maintenance services gross profit margin and our software development services gross profit margin to remain stable.

Operating expenses

Our operating expenses consist of (i) selling expenses, (ii) general and administrative expenses, (iii) research and development expenses, and (iv) (allowance for) recovery of doubtful accounts. We do not allocate operating expenses to individual lines of business when making decisions about allocation of resources or assessing the performance of our lines of business. We recognize stock-based compensation cost on a straight-line basis over the requisite service period, which is the vesting period.

Selling expenses: Selling expenses consist primarily of sales, marketing and personnel expenses, customer service expenses, associated rental expenses, marketing and advertising expenses and travel and entertainment expenses for our sales and marketing staff. We expense all selling expenses as they are incurred. We expect to expand our marketing and advertising campaigns to promote our new B2C food related business, specifically in the food products and services industries.

General and administrative expenses: General and administrative expenses consist primarily of personnel expenses, office rental expenses, general office expenses, travel and entertainment expenses and professional fees. We expense all general and administrative expenses as they are incurred. In 2011, we incurred lower general and administrative expenses than in 2010 because we did not grant any share option or non-vested share in 2011.

Research and development expenses: Research and development expenses consist primarily of research and development personnel expenses. We expense research and development expenses as they are incurred. In addition, because technological feasibility for our software products ordinarily occurs right before such products are commercially launched and because costs incurred between technological feasibility and commercial launch are immaterial, such costs are expensed as incurred. We generally expect our research and development expenses to increase as a result of (i) our investment in the research and development of new enterprise platform products, (ii) an increase in the number of research and development personnel, (iii) an expected increase in our potential new business ventures and (iv) our investment in software licenses for development tools to increase the productivity of our overall research and development efforts. However, research and development expenses decreased in 2011 because of a reduction in research and development personnel head count. Specifically, we are exploring the potential expansion of our business by leveraging our experience in B2G quality control and e-service solutions. We have focused our research and development initiatives to include our B2C offerings through our e-commerce platform, tootoo.cn. As our B2C food related business is still under development, we may not successfully introduce it as one of our primary businesses.

Allowance for doubtful accounts: In 2009, a RMB26.3 million provision for bad debts were made in light of the significant increase of the risk of collection such receivables. In 2010, we made a further provision of RMB2.6 million in accordance with our bad debts provision policy. In 2011, in conjunction with the Debt Repayment Agreements with three of our franchisees, and pursuant to which approximately RMB22.78 million of accounts receivable were written off, we reduced our bad debt provision by RMB6.8 million (US1.1 million), which represents payments received on accounts receivables that had previously been included in our bad debts provision.

As a result of the cumulative effect of the factors described above, we expect that in the future our total operating expenses will remain stable.

Taxation

Under the current laws of the Cayman Islands, our company is not subject to tax on its income or capital gains. In addition, payment of dividends by us is not subject to withholding tax in the Cayman Islands.

PRC EIT: Our PRC operating subsidiaries and VIE are subject to PRC EIT on their taxable income. Pursuant to PRC tax laws effective January 1, 2008, EIT is generally assessed at the rate of 25.0% of taxable income.

Ninetowns Ports and Guangdong Ninetowns were both subject to 15% EIT in each of 2009, 2010 and 2011.

Ninetowns Ports and Guangdong Ninetowns were qualified as “High and New technology enterprises” and were granted preferential EIT rates based on such status. Relevant PRC government authorities specify certain financial and operational criteria for a company to comply with in order to maintain its status as a High and New technology enterprise. Since the promulgation of the new Measures for Recognition of High and New Technology Enterprise effective as of January 1, 2008, Ninetowns Ports and Guangdong Ninetowns have been subject to a 15% EIT.

Ninetowns Suitable Estate, Ronghe Tongshang, Ninetowns Software, Dongguan Software, Beijing Sky, Ronghe Zhihui and Ronghe Dianzi were subject to a 25.0% EIT in 2010 and 2011.

Dalian Changzheng was qualified as a software company 2011 and was granted preferential EIT rates based on such status. Dalian Changzheng is subject to 0% EIT for 2011 and 2012 and 12.5% EIT for 2013, 2014 and 2015.

Huaixiang Modern Agriculture is subject to a 25.0% EIT each year based on a deemed income equal to 4% of its annual total income of such year as determined by the tax authority.

PRC business tax: Our PRC operating subsidiaries are also subject to PRC business tax. We primarily pay business tax on our net revenues generated from software development services and customer maintenance services. Our PRC operating subsidiaries and VIE generally pay a 5.0% business tax on our net revenues derived from software development services and customer maintenance services and this business tax is deducted from our total net revenues.

Value-added tax: Our PRC operating subsidiaries are also generally subject to a VAT of 17.0% on sales of enterprise software products. Pursuant to PRC tax regulations, Ninetowns Ports is entitled to a 14.0% VAT rebate on sales of certain registered self-developed software products. Our net revenues from sales of such enterprise software include VAT rebates in the amount of RMB0.9 million, RMB0.5 million, and RMB0.6 million (US$91,000) in 2009, 2010 and 2011, respectively. Except for products harvested from our own farms, which are exempted from VAT, sales of goods and other products through our B2C food related business are generally subject to VAT at 13% and 17%.

Upon expiration of these preferential EIT rates and VAT rebates, we will consider available options, if any, in accordance with applicable law, that would enable us to qualify for further tax incentives.

Critical accounting policies

The methods, estimates and judgments we use in applying our accounting policies have a significant impact on the results we report in our consolidated financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. We have summarized below our accounting policies that we believe are both important to the portrayal of our financial results and involve the need to make estimates about the effect of matters that are inherently uncertain.

Revenue recognition

Currently, our revenue is mainly derived from the following sources: (i) sale of enterprise software and related services; (ii) software development services, and (iii) B2C food related business.

Revenue from the sale of enterprise software and maintenance service is recognized when there is evidence of an arrangement, the delivery or service has occurred, the fee is fixed or determinable, and collectability is probable. As we do not have vendor- specific objective evidence to establish the fair values of the undelivered elements, we recognize revenue from sales of enterprise software and maintenance service on a straight-line basis over the service period which is typically 12 months.

For certain customers, we install the software at the customer’s place of business and charge the customer a fixed fee based on actual usage of the software. Accordingly, we recognize the related revenue when the customer uses the software. The cost to install the software has historically been insignificant.

Revenues from software development services requiring significant production, modification, or customization of the software are recognized over the installation and customization period based on the percentage of completion method. Percentage-of-completion is measured principally by the percentage of actual hours incurred to date for each contract to the estimated total hours to be incurred for each contract at completion.

Certain revenue from software development services also includes hardware procurement by customer’s request. Since we do not have vendor-specific objective evidence to allow for separating various components of such software development service contracts, we recognize such revenues when all components under the contracts are delivered and the project is completed upon the receipt of written acceptance from the customer.

In general, B2C revenues from food sales are generally recognized upon delivery.

Trade receivables

We perform ongoing credit evaluations of our customers and adjust credit limits based on payment history and the customer’s current credit-worthiness, as determined by our review of their current credit information. In some fiscal periods, our trade receivables increased, and may increase in the future. We continuously monitor collections and payments from our customers and maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make the required payments and use the specific identification method to record such allowances. We write off such trade receivables and specific allowances in one year if circumstances are not improved. While such credit losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we have had in the past. As of December 31, 2011, all of our billed receivables were from our customers and franchisees. Since our billed receivables are concentrated in a relatively small number of customers, a significant change in the liquidity or financial position of any one of these customers could have a material adverse impact on the collectability of our billed receivables and our future operating results.

In June 2011, we entered into certain debt repayment agreements with Ninetowns Zhi Fang, Ninetowns Xin He and Ninetowns Wang Li, or the Debt Repayment Agreements, pursuant to which:

•

We waived certain due and unpaid receivables from Ninetowns Xin He in the amount of RMB6.46 million (US$979,000). Ninetowns Xin He agreed to pay certain other outstanding due and unpaid receivable in the amount of RMB3.6 million (US$545,000) to us by December 31, 2012, with 50% of such amount due by December 31, 2011 and the remaining 50% due by December 31, 2012.

•

We waived certain due and unpaid receivables from Ninetowns Wang Li in the amount of RMB7.55 million (US$1.14 million). Ninetowns Wang Li agreed to pay certain other outstanding due and unpaid receivable in the amount of RMB2.5 million (US$379,000) to us by December 31, 2012, with 50% of such amount due by December 31, 2011 and the remaining 50% due by December 31, 2012.

Useful Life of Intangible Assets

Intangible assets include customer relationships, buyer database, completed technology, and purchased software for internal use and land use rights. Intangible assets are amortized on a straight-line basis over the expected useful life of five years, except land use rights which have an expected useful life of fifty years.

Share-based Compensation

The Company recognizes share-based compensation cost on a straight-line basis over the requisite service period, which is generally the vesting period, and measures the cost of employee services received in exchange for share-based compensation at the grant date fair value of the awards.

Income Taxes

As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must 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 must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a certain period, we must include an expense within the tax provision in the statement of operations.

Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. The valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over which our deferred tax assets will be recoverable. In the event that actual results differ from these estimates or we adjust these estimates in future periods, we may need to establish an additional valuation allowance, which could materially impact our financial position and results of operations.

We are also required to evaluate our tax positions to determine whether we have any unrecognized tax benefits resulting from the differences between positions taken on our tax returns and benefits measured and recognized in our financial statements. Significant management adjustment is required in this process. Interests and penalties as a result of income tax filings are classified as part of our income taxes.

Consolidation of Affiliated Entities

PRC law currently restricts foreign ownership of telecommunications services, including Internet-related businesses such as B2C e-commerce in China. To comply with these legal requirements, we conduct our B2C operations in the PRC through our VIE, Ronghe Tongshang, which is a PRC company that is effectively controlled by our subsidiary, Ninetowns Suitable Estate, through a series of contractual arrangements. As a result of these contractual arrangements, we believe that we have the ability to effectively control Ronghe Tongshang. As we are deemed to have the power to direct the economic activities that are most significant to Ronghe Tongshang and the right to obtain substantially all of the economic benefits and obligation to fund substantially all of the losses, we are considered to be the primary beneficiary of our VIE, and therefore we consolidated the results in our consolidated financial statements under U.S. GAAP. Any changes in or otherwise interpretation of PRC laws and regulations that affect our ability to control Ronghe Tongshang might preclude us from consolidating such results in the future.

A. Operating results

The following table sets forth the results of our operations expressed as a percentage of our total net revenues for the periods indicated. Our historical operating results are not necessarily indicative of the results for any future period.


	Years ended December 31,
	2009			2010			2011
Total net revenues:
Enterprise software and related customer maintenance services		73.3	%		62.9	%		81.1	%
Software development services		21.8	%		30.2	%		7.9	%
Food sales and services		4.9	%		6.9	%		11.0	%
Cost of revenues:
Enterprise software and related customer maintenance services		—			—			—
Software development services		-14.5	%		-12.9	%		-3.0	%
Food sales and services		-7.9	%		-8.8	%		-11.2	%
Gross profit		77.6	%		78.4	%		85.7	%
Operating expenses:
Selling and marketing		-17.3	%		-21.1	%		-29.9	%
General and administrative		-77.9	%		-113.5	%		-105.5	%
Research and development		-21.8	%		-19.9	%		-14.7	%
Allowance for doubtful accounts		-32.9	%		-3.3	%		9.1	%
Loss from operations		-72.3	%		-79.4	%		-55.3	%
Interest income		5.4	%		4.7	%		2.6	%
Gain on sales of short-term investments		44.5	%		82.6	%		43.5	%
Change in fair value of marketable options		34.8	%		-23.1	%		9.6	%
Gains from disposal of investments under cost method		—			23.2	%		-4.5	%
Income (loss) from equity method investments		—			—			2.2	%
Other income		4.9	%		9.2	%		8.0	%
Net (loss) income from continuing operations before income tax and non-controlling interests		17.3	%		17.2	%		6.1	%
Income tax expense		-5.1	%		-1.1	%		-1.4	%
Net (loss) income from continuing operations		12.1	%		16.1	%		4.7	%
Net (loss) from discontinued operations		-10.4	%		-0.5	%		-0.0	%
Net (loss) income attributable to the Company		1.7	%		15.6	%		4.7	%

2011 compared to 2010

Total net revenues

We generated total net revenues of approximately RMB75.2 million (US$12.0 million) in 2011, a decrease of 4.7% over our total net revenues of approximately RMB78.9 million in 2010. This revenue decrease was principally because fewer software development service contracts were completed in 2011.

Enterprise software and related customer maintenance services. Net revenues from sales of our enterprise software and related customer maintenance services increased by approximately 22.9% to RMB61.0 million (US$9.7 million) in 2011 from RMB49.7 million in 2010, primarily due to increased sales of our iDeclare.CIQ software package and related maintenance services and the increased volume of the services we provided to our Pay-Per-Transaction users. In 2011, we signed customer maintenance service contracts with approximately 18,700 users whose customer maintenance service contracts were due for renewal in 2011. We recognized net revenues of RMB5.0 million (US$0.8 million) from sales of our enterprise software in 2011. We recognized net revenues of RMB56.0 million (US$8.9 million) from the provision of customer maintenance services in 2011, including fees collected from Pay-Per-Transaction users. Of our net revenues from sales of enterprise software and related customer maintenance services, RMB86,160.1 and RMB10,769.2 (US$1,711) were from sales of the iQM product series and related software maintenance services in 2010 and 2011, respectively, representing a year-on-year decrease of 87.5%. In addition, RMB30.9 million and RMB38.8 million (US$6.2 million) were from the Pay-Per Transaction filing fees in 2010 and 2011, respectively, representing a year-on-year increase of 25.4% from 2010 to 2011. In 2011, 63.6% of our revenue generated from sales of enterprise software and related customer maintenance services were from Pay-Per Transaction users. We sold approximately 1,641 software packages of iDeclare.CIQ in 2011, which is higher than the approximately 1,140 software packages of iDeclare.CIQ sold in 2010, representing a year-on-year increase of 43.9%.

Software development services. Net revenues from our software development services decreased by 75% from RMB23.8 million in 2010 to RMB6.0 million (US$0.9 million) in 2011. Compared to 2010, fewer software development contracts with respect to software development services were entered into, completed and accepted by customers in 2011 and the work that was completed and accepted in 2011 carried lower service fees compared to our work completed and accepted in 2010. As we recognize revenues when all components under the contracts are delivered and the project is complete upon the receipt of written acceptance by customers in 2011, revenue recognized in 2011 is significantly lower than in 2010.

Food sales and services. Net revenues from our B2C food sales and services increased by 51.9% from RMB5.4 million in 2010 to RMB8.2 million (US$1.3 million) in 2011 due to increased sales related to heightened marketing efforts and the allocation of additional resources to the development of this business.

Cost of revenues

Enterprise software and related customer maintenance services. The cost of revenues consists mainly of direct costs associated with the delivery of customer maintenance services, including salaries, employee benefits and overhead costs associated with employees providing related services. Since iDeclare is now generally distributed through the Internet, we incurred minimal outsourcing costs to outside contractors and costs associated with packaging and shipping of software. The franchisees provide a majority of our software maintenance services to our customers for us. Cost of revenues from enterprise software and related customer maintenance services were insignificant in 2010 and 2011.

Software development services. Cost of revenues from software development services decreased to RMB2.3 million (US$0.4 million) in 2011 from RMB10.1 million in 2010 due to fewer software development projects in 2011 and we incurred lower costs for the contracts that were completed and accepted in 2011. As of December 31, 2011, we did not have any capitalized costs related to such projects.

Food sales and services. Cost of revenues for our B2C food sales and services was RMB8.5 million (US$1.3 million) in 2011 compared to RMB6.9 million in 2010 due to the increased volume and selection of products sold through our B2C food sales and services.

Gross profit margin

Enterprise software and related customer maintenance services. Gross profit margin for sales of enterprise software and related customer maintenance services was close to 100% in 2009, 2010 and 2011 mainly because iDeclare.CIQ has been generally distributed through the Internet since 2006 and we incurred minimal outsourcing costs to outside contractors and costs associated with packaging and shipping of software. Additionally, the franchisees have been providing most of the software maintenance services to customers and we incurred minimal direct costs associated with the delivery of customer maintenance services.

Software development services. Gross profit margin for software development services increased to 61.7% in 2011 compared to 57.4% in 2010, mainly because we incurred lower costs for the contracts completed and accepted by customers in 2011.

Food sales and services. We incurred negative margin of 2.6% for our B2C food sales and services in 2011 compared to a negative margin of 26.8% in 2010. Although B2C food sales and services were still not profitable in 2011, lower purchase costs and introduction of new products with higher profit margins resulted in margin improvement in 2011 compared to 2010.

Operating expenses

Operating expenses decreased to RMB106.0 million (US$16.8 million) in 2011 from RMB124.5 million in 2010, primarily due to decreased share-based compensation and the decrease in allowance for doubtful accounts.

Selling expenses

Selling expenses increased to RMB22.5 million (US$3.6 million) in 2011 from RMB16.7 million in 2010, primarily due to the increase in (i) salaries and bonus in the organic food business, and (ii) advertising and exhibition expense in the organic food business in 2011.

General and administrative expenses

General and administrative expenses decreased by 11.6% to RMB79.4 million (US$12.6 million) in 2011 from RMB89.5 million in 2010, primarily due to decreased share-based compensation expenses relating to share options and non-vested shares granted to our director, executive officers and certain employees in prior years.

Research and development expenses

Research and development expenses decreased by 29.6% to RMB11.0 million (US$1.8 million) in 2011 from RMB15.7 million in 2010, primarily due to a general decrease in research and development personnel headcount.

Allowance for doubtful accounts

Allowance for doubtful accounts was credited with RMB6.8 million (US$1.1 million) because of payments received on accounts receivable that had previously been included in our bad debt provisions. Pursuant to Debt Repayment Agreements with three of our franchisees, approximately RMB22.78 million of accounts receivable were written off. In addition, the Company focused its efforts to collect all current period sales.

Interest income

Interest income decreased to RMB1.9 million (US$0.3 million) in 2011 from RMB3.7 million in 2010, primarily due to a decrease in the average balances of our term deposits.

Gain on sales of short-term investments

Gain on sales of short-term investments decreased to RMB32.7 million (US$5.2 million) in 2011 from RMB65.1 million in 2010 because the performance of the securities products that we invested in was weaker in 2011 compared to 2010.

Change in fair value of marketable options

In 2011, the gain in the fair value of marketable options was RMB7.3 million (US$1.2 million), compared to a loss of RMB18.2 million in 2010, which is primarily due to the increase of the fair market value of the portfolios of marketable options we held in 2011. We held different portfolios of marketable options in 2010 and 2011.

Gain (loss) on investments under cost method

Loss on investments under the cost method was RMB3.4 million (US$0.5 million) in 2011, which is due to an impairment loss on Tophere. In 2010, gain on investments under cost method was primarily due to the sale of a portion of our investment in Global Market Group Limited, or Global Market, as well as the sale of our entire investment in GCL Silicon Technology Holdings Inc, or GCL.

Income from equity method investments

Income from equity method investments was RMB1.6 million (US$0.3 million) in 2011, which resulted from the inclusion of net income of Huainan Huacheng and Huainan Suitable Estate, which are the Company’s equity method investees. There were no equity method investments in 2010.

Income taxes

Income tax expense in 2011 increased to RMB1.0 million (US$0.2 million) in 2011 from RMB0.9 million in 2010 due to the decrease of deferred income tax assets as a result of obtaining tax bureau approval to defer service revenue for tax purposes.

Income from continuing operations

Income from continuing operations in 2011 was RMB3.5 million (US$0.6 million), compared to RMB12.8 million in 2010, as a result of the cumulative effect of the factors described above.

Loss from discontinued operations

In 2010 we sold our catering business and recorded a loss of RMB0.4 million.

Net income attributable to the Company

We recognized net income attributable to the Company of RMB3.5 million (US$0.6 million) in 2011 compared to net income attributable to the Company of RMB12.3 million in 2010, as a result of the cumulative effect of the factors described above.

2010 compared to 2009

Total net revenues

We generated total net revenues of approximately RMB78.9 million (US$12.0 million) in 2010, which is generally the same as our total net revenues of approximately RMB79.6 million in 2009. Total net revenues remained the same because the increased sales from software development services were offset by decreased sales from the iDeclare.CIQ series and related customer maintenance services.

Enterprise software and related customer maintenance services. Net revenues from sales of our enterprise software and related customer maintenance services decreased by approximately 15% to RMB49.7 million (US$7.5 million) in 2010 from RMB58.4 million in 2009, primarily due to decreased sales of our iDeclare.CIQ software package and iQM product series]. In 2010, we signed customer maintenance service contracts with approximately 16,700 users whose customer maintenance service contracts were due for renewal in 2010. We recognized net revenues of RMB4.7 million (US$0.7 million) from sales of our enterprise software in 2010. We recognized net revenues of RMB45.0 million (US$6.8 million) from provision of customer maintenance services in 2010, including fees collected from Pay-Per-Transaction users. Of our net revenues from sales of enterprise software and related customer maintenance services, RMB0.6 million and RMB0.1 million (US$15,152) were from sales of the iQM product series and related software maintenance services in 2009 and 2010, respectively, representing a year-on-year decrease of 83.3%. In addition, RMB28.7 million and RMB30.9 million (US$4.7 million) were from the Pay-Per Transaction filing fees in 2009 and 2010, respectively, representing a year-on-year increase of 7.7% from 2009 to 2010. Therefore, in 2010, 62.2% of our revenue generated from sales of enterprise software and related customer maintenance services were from Pay-Per Transaction users. We sold approximately 1,140 software packages of iDeclare.CIQ in 2010, which is lower than the approximately 1,500 software packages of iDeclare.CIQ sold in 2009, representing a year-on-year decrease of 24.0%.

Software development services. Net revenues from our software development services increased by 37.1% from RMB17.4 million in 2009 to RMB23.8 million (US$3.6 million) in 2010. Compared to 2009, more sales from contracts entered into in previous years with respect to software development services that also included hardware procurement were completed and accepted by customers in 2010. As we recognize such sales when all components under the contracts are delivered and the project is complete upon the receipt of written acceptance by customer, the revenue recognized in 2010 is significantly higher than in 2009.

Food sales and services. Net revenues from our B2C food sales and services increased by 38.5% from RMB3.9 million in 2009 to RMB5.4 million (US$0.8 million) in 2010 due to additional marketing efforts and development of this business.

Cost of revenues

Software development services. Cost of revenues from software development services decreased to RMB 10.1 million (US$1.5 million) in 2010 from RMB11.6 million in 2009. As of December 31, 2011, we did not have any capitalized costs related to such projects.

Food sales and services. Cost of revenues for our B2C food sales and services was RMB6.9 million (US$1.0 million) in 2010, which is generally the same as RMB6.3 million in 2009.

Gross profit margin

Enterprise software and related customer maintenance services. Gross profit margin for sales of enterprise software and related customer maintenance services was close to 100% in 2008, 2009 and 2010 mainly because iDeclare has been generally distributed through the Internet since 2006 and we incurred minimal outsourcing costs to outside contractors and costs associated with packaging and shipping of software. Additionally, the franchisees have been providing most of the software maintenance services to customers and we incurred minimal direct costs associated with the delivery of customer maintenance services.

Software development services. Gross profit margin for software development services increased to 57.4% in 2010 compared to 33.5% in 2009, for the reasons stated above.

Food sales and services. We incurred negative margin of 26.8% for our B2C food sales and services in 2010 compared to a negative margin of 62.2% in 2009. Although B2C food sales and services were still not profitable in 2010, there were fewer sales promotions that resulted in negative margins in 2010 compared to in 2009.

Operating expenses

Operating expenses increased to RMB124.5 million (US$18.9 million) in 2010 from RMB119.4 million in 2009, primarily due to the increase in salaries, bonus and the share-based compensation cost related to the share options and non-vested shares granted in 2010, partially offset by the decrease in the allowance for doubtful accounts.

Selling expenses

Selling expenses increased to RMB 16.7 million (US$2.5 million) in 2010 from RMB 13.8 million in 2009, primarily due to the increase in (i) salaries and bonus of sales and marketing staff, and (ii) rental expense and transportation expense in the organic food business in 2010.

General and administrative expenses

General and administrative expenses increased by 44.3% to RMB89.5 million (US$13.6 million) in 2010 from RMB62.0 million in 2009, primarily due to increases in (i) salaries and bonus of management and administrative staff and (ii) share-based compensation charges relating to the share options and non-vested shares granted to our director, executive officers and certain employees in 2010.

Research and development expenses

Research and development expenses decreased by 9.7% to RMB 15.7 million (US$2.4 million) in 2010 from RMB 17.4 million in 2009, primarily due to the reduction in consultancy fees and travel expenses as a result of a decrease in outsourcing projects in 2010.

Allowance for doubtful accounts

Allowance for doubtful accounts decreased to RMB2.6 million (US$0.4 million) in 2010 from RMB26.2 million in 2009, primarily due to the large reserves taken in 2009 coupled with the Company’s effort to collect all current period sales.

Interest income

Interest income decreased to RMB3.7 million (US$0.6 million) in 2010 from RMB4.3 million in 2009, primarily due to a decrease in the average balances of our term deposits.

Gain on sales of short-term investments

Gain on sales of short-term investments increased to RMB65.1 million (US$9.9 million) in 2010 from RMB35.5 million in 2009 due to increased investments in marketable securities and the positive performance of our investments in 2010.

Change in fair value of marketable options

The decrease in the fair value of marketable options was RMB 18.2 million (US$2.8 million) in 2010 compared to an increase of RMB27.7 million in 2009. We held different portfolios of marketable options in 2009 and 2010.

Gain on investments under the cost method

Gain on investments under the cost method was RMB 12.2 million (US$1.8 million) in 2010, which is primarily due to the sale of a portion of our investment in Global Market, as well as the sale of our entire investment in GCL. There was no gain in 2009.

Income taxes

Income tax expense in 2010 decreased to RMB0.9 million (US$0.1 million) in 2010 from RMB4.1 million in 2009 due to a provision for withholding tax on dividends paid by our Chinese subsidiaries to our overseas holding companies in 2009. There was no provision for withholding tax in 2010.

Income from continuing operations

Income from continuing operations in 2010 was RMB 12.8 million (US$1.9 million), compared to RMB9.6 million in 2009, as a result of the cumulative effect of the factors described above.

Loss from discontinued operations

Loss from discontinued operations in 2010 was RMB0.4 million (US$0.1 million), compared to a loss of RMB8.4 million in 2009. In 2009, we wound down our B2B business, and in 2010 we sold our catering business.

Net income attributable to the Company

We recognized net income attributable to the Company of RMB 12.3 million (US$1.9 million) in 2010 compared to a net loss attributable to the Company of RMB 1.3 million in 2009, as a result of the cumulative effect of the factors described above.

B. Liquidity and capital resources

Our primary sources of liquidity are from our cash account. We had no outstanding debt as of December 31, 2011. The following table sets forth the summary of our cash flows for the periods indicated:


	For the years ended December 31,
	2009			2010			2011
	RMB			RMB			RMB
				(in millions)
Net cash (used in) provided by operating activities		(26.5	)		8.9			(63.0	)
Net cash (used in) provided by investing activities		(76.8	)		21.8			(224.8	)
Net cash provided by financing activities		—			—			49.5
Effect of exchange rate changes		0.1			(3.5	)		(5.0	)
Net (decrease) increase in cash and cash equivalents		(103.2	)		27.2			(243.3	)
Cash and cash equivalents, beginning of year		576.6			473.4			500.6

Cash and cash equivalents, end of year		473.4			500.6			257.3

Substantially all of our operations are in China. The ability of our PRC operating subsidiaries to convert Renminbi into U.S. dollars and transfer such U.S. dollars to us is subject to PRC foreign exchange regulations, including the restriction that foreign invested enterprises may only buy, sell and/or remit foreign currencies at banks in the PRC authorized to conduct foreign exchange business after providing valid commercial documents.

Cash flow from operating activities

Cash used in operating activities was RMB63.0 million (US$10.0 million) in 2011. This was primarily attributable to payments for investments in real estate projects offset by the RMB240 million (US$72.9 million) government subsidies that we received in 2011. Cash used in operating activities was RMB26.5 million in 2009, and cash provided by operating activities was RMB8.9 million in 2010.

Cash flow from investing activities

Cash used in investing activities was RMB224.8 million (US$35.7 million) in 2011. This was primarily attributable to investments in our real estate development business through investments in our equity investees.

Cash provided by investing activities was RMB21.8 million in 2010. This was primarily attributable to proceeds from the sale of available-for-sale securities, short sales of options, as well as proceeds from the disposal of investments under cost method.

Cash used in investing activities was RMB76.8 million in 2009. This was primarily attributable to the purchase of marketable securities.

Cash flow from financing activities

Cash provided by financing activities was RMB49.5 million (US$7.9 million) in 2011. This was primarily attributable to the cash contributed to Dalian Changzheng by a non-controlling shareholder, Aviation Wanyuan. We did not generate cash from financing activities in 2010 and 2009.

Capital resources

To better manage our assets for long-term growth, we periodically invest our excess cash in highly liquid equity securities. In addition, from time to time we write call and put options through listed exchange as part of our investment strategy. Our investment committee approves the investment policy covering the investment parameters to be followed with the primary goals being the safety of principal and maintaining the liquidity of funds. Short-term investments are comprised of marketable equity securities, which are classified as trading and available-for-sale. Marketable securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and are reported at fair value, with realized gains and losses recognized in earnings. Short-term investments classified as available for sale are stated at fair values. Unrealized gains or losses on

available-for-sale securities from the changes in fair value are recorded in equity as other comprehensive income (loss). Realized gains or losses, based upon the specific identification method, on the disposal of available-for-sale securities are recorded in the consolidated statement of operations. Liabilities for certain call options of RMB4.9 million (US$0.8 million) and put option of RMB3.0 million (US$0.5 million) were included in liabilities at December 31, 2011.

Our primary source of liquidity is cash flow from operating activities. Our cash and cash equivalents primarily consist of cash on hand and bank deposits. As of December 31, 2011, we had RMB257.3 million (US$40.9 million) in cash and cash equivalents. In addition, as of December 31, 2011, we had invested RMB5.1 million (US$0.8 million) in term deposits, which are payable at varying maturities from six months to one year.

We believe that our available cash and cash equivalents will be sufficient to meet our capital needs for our businesses, except for our real estate development business for at least the next 12 months. Except for our net cash provided by operating activities, we have arranged additional sources of financing for our real estate development business. Binzhou Ruichen borrowed RMB28 million from Beijing Wanglian Jiye Software Technology Co., Ltd., who borrowed such funds from Shouchuang Caifu Ninetowns through an entrustment loan arrangement, or the Entrustment Loan. In the future we may seek additional external financing for our businesses, especially our real estate development business. We have not entered into any definitive agreement for such financing except the Entrustment Loan. However, we cannot assure you that our business or operations will not change in a manner that would consume our available capital resources more rapidly than anticipated, especially as we continue to evaluate other investment and acquisition opportunities. As of December 31, 2011, we had no lines of credit or other credit facilities other than the Entrustment Loan.

Capital expenditures

For details of our capital expenditures, see Item 4 of this annual report, “Information on the Company — History and development of the company.”

Restrictions on Cash Transfers to Us

To fund any cash requirements we may have from time to time, we may need to rely on dividends, loans or advances made to us by our PRC subsidiaries. We conduct our B2C operations in the PRC through Ronghe Tongshang, which is a PRC company that is effectively controlled by our subsidiary, Ninetowns Suitable Estate, through a series of contractual arrangements. As Ronghe Tongshang is not owned by Ninetowns Suitable Estate, it is not able to make dividend payments to Ninetowns Suitable Estate. Instead, Ninetowns Suitable Estate has entered into contractual arrangements with Ronghe Tongshang to provide services to Ronghe Tongshang in return for cash payments. In order for us to receive any dividends, loans or advances from our PRC subsidiaries, or to distribute any dividends to our shareholders and ADS holders, we will need to rely on these payments made from Ronghe Tongshang to Ninetowns Suitable Estate. Depending on the nature of services provided by Ninetowns Suitable Estate to Ronghe Tongshang certain of these payments are subject to PRC taxes, including business taxes and value-added tax, which effectively reduce the amount that Ninetowns Suitable Estate receives from Ronghe Tongshang. In addition, the PRC government could impose restrictions on such payments or change the tax rates applicable to such payments.

Regulations in the PRC currently permit payment of dividends of a PRC company, such as our PRC subsidiaries, only out of accumulated profits as determined in accordance with accounting standards and regulations in China. Each of our PRC subsidiaries is also required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its general reserves until the cumulative amount reaches 50% of its registered capital. As a result of these and other restrictions under PRC laws and regulations, our PRC subsidiaries and Ronghe Tongshang are restricted in their ability to transfer net assets to us in terms of cash dividends, loans or advances. Such restrictions amounted to approximately RMB550.3 million, RMB552.9 million and RMB553.7 million (US$88.0 million) as of December 31, 2009, 2010 and 2011, respectively. These reserves are not distributable as cash dividends, or as loans or advances. Ronghe Tongshang may also allocate a portion of its after-tax profits, as determined by its board of directors, to its staff welfare and bonus funds, which may not be distributed to us. In addition, if any of our PRC subsidiaries incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us.

Furthermore, under regulations of the SAFE, the Renminbi is not convertible into foreign currencies for capital account items, such as loans, repatriation of investments and investments outside of China, unless the prior approval of the SAFE is obtained and prior registration with the SAFE is made.

We do not expect any of such restrictions or taxes to have a material impact on our ability to meet our cash obligations.

C. Research and development, patents and licenses, etc.

Our research and development department works continuously to develop new software products as well as new software functions with additional import/export related applications to complement our existing enterprise software, thereby enhancing value for our users. Our research and development department is divided into the following three sub-departments:

•

Business development department — our business development department is responsible for business strategies and research to identify users’ needs in order to formulate new product designs.

•

Systems development department — our systems development department is responsible for product development in accordance with the designs proposed by the business development department, as well as software testing and quality control.

•

Project management department — our project management department is responsible for the allocation of staff and resources, employee training, product analysis and the registration of new software products with the relevant PRC government authorities.

In the past, we have developed products and services both independently and through cooperation with a variety of database providers, enterprise resource planners, decision support statistical consultants, software integration providers and others. Although we intend to continue to work closely with outside third parties in product development efforts, we expect the core technology and know-how for future enhancements to our existing and new products will be developed internally and may be supplemented by technology licensed from third parties. See Item 3 of this annual report, “Key Information — Risk factors — Risks related to our business — We may not be able to adequately protect our intellectual property rights and others may claim that we have infringed on their intellectual property rights, which could cause us to be less competitive, may expose us to litigation and may negatively impact our business, results of operations and financial condition.” We have not granted any ownership interest in any of our products to any party that has worked with us in our product development efforts.

As of December 31, 2011, we had 137 employees dedicated to research and development, 20 of whom have master’s degrees and one of whom has a Ph.D. degree. Most of our research and development efforts are located in our principal executive offices in Beijing.

Our expenses for research and development activities totaled RMB17.4 million in 2009, RMB 15.7 million in 2010 and RMB11.0 million (US$1.8 million) in 2011.

We believe that timely development of new and enhanced products and services is necessary for us to remain competitive in the marketplace. Accordingly, we intend to continue recruiting and hiring research and development personnel and to make other investments in research and development. In 2007, we established a research and development center in the southern region of China. We are in the process of establishing an additional research and development center in the eastern region of China.

Of our 137 employees dedicated to research and development, 8 employees concentrate their efforts on the research and development of our B2C food related business.

D. Trend information

Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 2011 to December 31, 2011 that are reasonably likely to have a material effect on our net revenues, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.

E. Off-balance sheet arrangements

We are exposed to equity price risk as a result of investment in equity securities and equity derivatives. Equity price risk results from changes in the level or volatility of equity prices, which affect the value of equity securities, or instruments that derive their value from such securities. We attempt to mitigate our exposure to such risks by not limiting our investment to any one security or index.

F. Tabular disclosure of contractual obligations

We have entered into leasing arrangements relating to our office premises, technical support centers and farm for self-grown products for our B2C food related business. Our contractual obligations regarding these lease arrangements generally consist of rental payments and other charges that are due and payable on a monthly basis during the term of the relevant lease. In general, our lessors have the right to terminate the lease agreements and repossess the leased premises if we fail to make the prescribed payments for two consecutive months, or the expiration of a reasonable period after service of notice for non-payment of rent by the lessors. The following sets forth our commitments under these leases as of December 31, 2011:


	(in thousands)
Less than one year		RMB 2,453
1-3 years		663
3-5 years		565
More than 5 years		1,695
Total		RMB 5,376

As of December 31, 2011, we had unrecognized tax benefits amounting to RMB5.6 million (US$0.9 million). Since there is a high degree of uncertainty regarding the timing of future cash outflows, we are unable to make reasonable estimates regarding the timing of settlement with the respective tax authority.

Pursuant to the terms of the creditor’s rights assignment agreement among Zhongcheng, Ninetowns Ports and Huainan Huacheng dated June 28, 2011, as of December 31, 2011, Huainan Huacheng owed Zhongcheng RMB11 million for interest payments.

On February 3, 2012, the Investment Trust Plan was terminated due to the delay in the development schedule of the “Smarter Town” project. As a result of such termination, Zhongcheng transferred the equity interest it held in Huainan Suitable Estate to Ninetowns Ports for no consideration. In addition, Huainan Huacheng repaid the debt of RMB160 million plus interest of approximately RMB13 million to Zhongcheng.

G. Safe Harbor

•

our anticipated capital expenditures and our ability to fund such expenditures;

•

our expectations about growth in demand for our products and services;

•

acquisitions or investments in businesses, products or technologies that are complementary to our own;

•

our ability to adjust to technological change; and

•

our belief about the effects of government regulation on our business.

Item 6. Directors, Senior Management and Employees.

A. Directors and senior management

The following table sets forth the name, age and position of our directors and executive officers as of the date of this annual report:


Name	Age	Position
Shuang Wang	49	Director and Chief Executive Officer
Kin Fai Ng	67	Director, Senior Vice President and Company Secretary
Dachun Zhang	67	Director
Fushan Chen	73	Director
Mark Ming Hsun Lee	40	Director
Martin Cheung	43	Director
Xiaoguang Ren	48	President
Tommy Siu Lun Fork	49	Chief Financial Officer
Min Dong	48	Senior Vice President, Legal Affairs, Administration and Human Resources
Bolin Wu	46	General Manager, Research and Development and Chief Technology Officer

Shuang Wang founded our predecessor, Ninetowns Technology, in 1995 and has served as a director and our Chief Executive Officer since 1995. From 1992 to 1994, Mr. Wang was the founder and Chief Executive Officer of Ninetowns Technology Co., Ltd., a company engaged in sales of computer hardware in China. From 1989 to 1992, Mr. Wang was the executive deputy general manager of Shenzhen Zhongnong Enterprise Corporation, a company engaged in the import and export of agricultural products. In March 2002, Mr. Wang was awarded the Traverse Cup Prize by Software World Magazine and Microelectronic Industry Development and Research jointly with a number of industry magazines in China for Mr. Wang’s outstanding performance in and significant contributions to the information technology industry. In March 2003, Mr. Wang was also recognized as one of the “2002 top ten leaders of the PRC software industry in China” by Software World Magazine jointly with China Central TV for his significant contributions to the software industry. Mr. Wang is also the chairman of the board of directors of Beijing New Take, Ninetowns Internet, Beijing Ninetowns Times and Dalian Changzheng; the vice-chairman and a non-

executive director of iTowNet; and a director of Jitter Bug, Ixworth, New Take, Shielder, Ninetowns Ports. Mr. Wang holds a bachelor’s degree in science from Beijing Institute of Technology, a master’s degree in optics engineering from Beijing Institute of Technology and an engineering qualification certificate from the Ministry of Agriculture of the PRC.

Kin Fai Ng has served as a director since October 2003, a senior vice president of our company since 2000 and our company secretary since June 2006. He has also been a director of New Take, Jitter Bug, Ixworth and Beijing New Take since 2000. He is also the chairman of the board of directors of Huainan Suitable Estate, Huainan Huacheng Estate and Beijing Ronghe Zhihui. From 1996 to 1999, Mr. Ng was an executive officer at Baolong Real Estate Development Co., Ltd., a company engaged in property development in China.

Dachun Zhang has served as a director since October 2003. From 2002 to 2003, Mr. Zhang served as an executive director of Yew Sang Hong Holdings Limited, an electrical engineering contractor. Mr. Zhang was the vice president of COSCO Group Limited, a shipping company, the executive deputy chairman and president of COSCO (Hong Kong) Group Limited, chairman of COSCO (Hong Kong) Shipping Company Limited from 1996 to 1999. Mr. Zhang served as an executive director and the president of China Merchants Group Limited, a conglomerate based in China that is engaged in the transportation and harbor operation businesses, from 1998 to 1999 and the chairman of the board of directors of China Merchants Holdings International Company Limited from 1998 to 2000. From 1999 to 2001, Mr. Zhang served as the chairman of the board of directors of China Chengxin Securities Rating Co., Ltd., a company engaged in the credit rating business in China. Mr. Zhang holds a bachelor’s degree in language and literature from Poznan University in Poland, a master’s degree in shipping from the University of Wales in the United Kingdom and the qualification certificate of a senior economist in shipping management conferred by the Ministry of Communications of the PRC.

Fushan Chen has served as a director since October 2003. Mr. Chen, who is presently retired, served as the general manager and the director of the Hong Kong Branch of the China Classification Society, a shipping industry trade organization, from 1995 to 2001. Mr. Chen also served as the deputy director of the Ship Inspection Bureau of the PRC and the vice-chairman of the China Classification Society and the China Classification Association, respectively, from 1989 to 1995. Mr. Chen holds a bachelor’s degree in ship casting from Nanjing Shipping Institute.

Mark Ming Hsun Lee has served as a director since October 2004. Since June 2006, Mr. Lee was the founder, the chief executive officer, president and a director of DeviceVM Inc., a company engaged in the software business. Mr. Lee was the founder, chief executive officer, president and a director of OSA Technologies, Inc., a company engaged in the software business, and served in such positions from April 2000 to April 2004. From April 2004 to June 2006, Mr. Lee served as the senior vice president of Avocent Corp., a provider of computer keyboard, video and mouse switching and network connectivity solutions, since it acquired OSA Technologies, Inc. in April 2004. From the summer of 1991 to April 2000, Mr. Lee served in various positions, including enterprise platform marketing manager, senior information technology architect and engineer, design engineer for Intel Corporation. Mr. Lee holds a bachelor’s degree in electrical engineering and a master’s degree in electrical engineering and computer science from Massachusetts Institute of Technology. Mr. Lee also holds a master’s degree in business administration from Arizona State University.

Martin Cheung has served as a director since June 2008. Mr. Cheung currently works as the Corporate Development Director of Profound Heavy Industrial Holding Limited. He also currently serves as an independent non-executive director of China Environmental Resources Group Limited (formerly called Benefun International Holding Limited) and Hong Long Holdings Limited, both of which are companies with securities listed on the Hong Kong Stock Exchange. Mr. Cheung is a member of the American Institute of Certified Public Accountants and is a Certified Public Accountant of Australia. From 2005 to 2008, Mr. Cheung was the Corporate Finance Director at Grant Thornton Corporate Finance Limited. From 2002 to 2005, Mr. Cheung was an Executive Vice President at Japan Asia Securities. From 1994 to 2002, Mr. Cheung was a Vice President of Daiwa Securities. From 1991 to 1994, Mr. Cheung was a senior auditor at Deloitte Touche Tohmatsu. Mr. Cheung obtained a bachelor’s degree in Social Sciences from the University of Hong Kong in 1991, a master’s of Science degree in Accounting from Curtin University of Technology, in Perth, Australia in 1997 and a master’s of Science degree in Finance (Investment Management) from the Hong Kong University of Science and Technology in 2001.

Xiaoguang Ren has served as our President since January 2004. From 1995 to December 2003, Mr. Ren served in various positions with our company, including vice president and senior vice president for sales and marketing. Mr. Ren has also been a director of Ixworth and Jitter Bug since February 2000. From 1988 to 1995, Mr. Ren served as the general manager of Beijing University Fangyuen Life Science Co., Ltd. and Tsingtao Minyi High Technology Co., Ltd, both companies engaged in the software development business. Mr. Ren is also a director of iTowNet, New Take, Beijing New Take, Ninetowns Times and Ninetowns Ports, a director and general manager of Ninetowns Internet and the sole supervisor of Shanghai New Take. Mr. Ren holds a bachelor’s degree in mathematics from Heilongjiang University and a master’s degree in computer science from the Computing Technologies Research Institute of the Chinese Academy of Sciences. Mr. Ren received an executive master of business administration degree from Peking University in January 2010.

Tommy Siu Lun Fork has served as our Chief Financial Officer since September 2002. He also currently serves as the Vice President of China Renji Medical Group Ltd., a company with securities listed on the Hong Kong Stock Exchange. Prior to joining our company, Mr. Fork was the Qualified Accountant and Company Secretary of Zheda Lande Scitech Limited, a provider of telecommunications services, from 2001 to 2002. From 1997 to 2001, Mr. Fork was a senior manager of assurance and advisory services of Deloitte Touche Tohmatsu. Mr. Fork holds a bachelor’s degree in Science from The University of Hong Kong and is a Certified Public Accountant in Hong Kong.

Min Dong formed our predecessor, Ninetowns Technology, in 1995 and is now our Senior Vice President of Legal Affairs, Administration and Human Resources. Prior to co-founding Ninetowns Technology in 1995, Ms. Dong served as a lecturer at Central Finance and Economic University in China. Ms. Dong has been a director of Jitter Bug and Ixworth since February 2000. Ms. Dong is also a director of New Take, Shielder, Beijing New Take, Ninetowns Internet, Ninetowns Ports and Dalian Changzheng, and a director and the general manager of Ninetowns Times. Ms. Dong is the spouse of Mr. Wang. Ms. Dong holds a bachelor’s degree and a master’s degree in law from China Politics and Law University. Ms. Dong received an executive master of business administration degree from Peking University in July 2009.

Bolin Wu has served as our General Manager, Research and Development and Chief Technology Officer since 1997. Prior to joining our company in 1997, Mr. Wu was in charge of the software engineering department of Tsingtao Minyi High Technology Co., Ltd., a company engaged in the software development business, from 1995 to 1997 and served as an assistant professor at Shandong Textile Polytechnic Institute and the Automation Faculty of Qingdao University from 1992 to 1995. Mr. Wu currently serves as the sole member of the supervisory board of iTowNet. He is also the chairman of the board of directors of Huaixiang Modern Agriculture. Mr. Wu holds a bachelor’s degree in application electronics from Hangzhou University of Commerce and a master’s degree in automation and computer science from Shanghai Jiaotong University.

The business address of each of our directors and executive officers is our principal executive office at 22/F, Building No.1, Capital A Partners, No. 20 Gongti East Road, Chaoyang District Beijing 100020, The People’s Republic of China.

B. Compensation

As of December 31, 2011, we do not have any outstanding loans or credit to any of our directors or executive officers, and we have not provided guarantees for borrowings by any of these persons. For 2011, the aggregate amount of compensation paid by us to all of our directors and executive officers was approximately RMB7.6 million (US$1.2 million).

Our PRC subsidiary as well as our consolidated entity and its subsidiaries are required by law to make contributions based on each employee’s salary for his or her pension insurance, medical insurance, housing fund, unemployment and other statutory benefits. The aggregate amount of such contributions we made with respect to our directors and executive officers for the year ended December 31, 2011 was RMB0.2 million (US$32,000). We have no service contracts with any of our directors providing for benefits upon termination of employment.

We have entered into service agreements with each of our executive officers. We may terminate an executive officer’s service for cause at any time without notice, for certain acts of the officer, including, but not limited to, gross negligence or willful misconduct in relation to service to us, grave misconduct that is detrimental to the interests or reputation of us, or a conviction of a crime. We have not entered into any service agreement that provides for benefits upon termination of service with any of our directors or executive officers.

2003 Plan

Our board of directors adopted the 2003 Plan in November 2003. We have granted share options relating to 2,574,400 ordinary shares under the 2003 Plan, which is the maximum number of share options allowed to be outstanding under the 2003 Plan. A general description of the terms of the 2003 Plan is set forth below.

Plan administration. Our board of directors currently administers the 2003 Plan.

Eligibility. Under the 2003 Plan, share options may be issued to employees and directors of our company or our subsidiaries.

Acceleration of vesting upon general offers or winding up. The 2003 Plan provides for acceleration of vesting upon the occurrence of a general offer or winding up transaction.

•

In the event a general offer is made to all of our shareholders, including a takeover offer, repurchase offer or any similar arrangement, the grantee’s share options will become fully vested and exercisable for 14 days after the date on which such offer becomes or is declared unconditional.

•

In the event an application is made to a court in connection with a proposed compromise or arrangement between us and our creditors or between us and our shareholders, the grantee’s share options will become fully vested and exercisable for 21 days after the date of such application.

•

In the event a notice is given by us to our shareholders to convene a general meeting to approve the voluntary winding-up of our company when we are solvent, the grantee’s share options will become fully vested and exercisable at any time not later than two business days prior to the proposed general meeting.

Share options. Share options under the 2003 Plan are evidenced by an option certificate which contains, among other things, provisions concerning the exercise price and vesting schedule of the share options. The exercise price of all of the options granted under our 2003 Plan is HK$25 per ordinary share, which we believe was the fair market value of our ordinary shares on the grant date of such options. One-fourth of the share options granted under the 2003 Plan become exercisable on each of May 18, 2004, November 18, 2004, November 18, 2005 and November 18, 2006. Generally, share options under the 2003 Plan are terminated if the grantee’s employment is terminated by us, or terminated within 12 months from the date of the grantee’s retirement, disability, change in our corporate structure, expiry of employment contract or termination of employment at the discretion of the board.

Termination of 2003 Plan. Under the 2003 Plan, our board of directors may at any time terminate the 2003 Plan, except that the provisions of the 2003 Plan will remain in respect of share options granted prior to such termination.

On August 13, 2004, Mr. Wang and Ms. Dong entered into a deed of undertaking with AIG Asian Opportunity Fund, L.P., or AOF, and American International Assurance Company (Bermuda) Limited, or AIA, agreeing to (i) procure Value Chain to distribute all of the cash consideration received from the reorganization transaction to Mr. Wang and Ms. Dong, (ii) exercise all of their vested share options under our 2003 Plan for 122,752 ordinary shares and apply the cash from the reorganization transaction to the exercise of such options, (iii) exercise the remaining share options under our 2003 Plan for 368,260 ordinary shares as soon as such options become vested and exercisable and (iv) refrain from transferring, assigning or creating any encumbrance over their share options under our 2003 Plan.

The following table summarizes, as of April 20, 2012, the outstanding options granted under our 2003 Plan to our directors and executive officers.

Ordinary
Shares
Underlying
Options
Granted

Exercise Price
(HK$/Share)

Date of Grant

Date of Expiration

Xiaoguang Ren

184,552

November 18, 2003

November 17, 2013

Bolin Wu

150,617

November 18, 2003

November 17, 2013

Tommy Siu Lun Fork

222,924

November 18, 2003

November 17, 2013

Shuang Wang

174,914

November 18, 2003

November 17, 2013

Min Dong

70,592

November 18, 2003

November 17, 2013

Kin Fai Ng

27,564

November 18, 2003

November 17, 2013

Amended and Restated 2004 Plan

Our board of directors adopted the Amended and Restated 2004 Plan on October 21, 2005 and our shareholders approved the Amended and Restated 2004 Plan on December 2, 2005. The Amended and Restated 2004 Plan contains certain amendments to the 2004 Plan, including an increase in the aggregate number of ordinary shares that may be issued under the Amended and Restated 2004 Plan from 1.8 million ordinary shares to 4.3 million ordinary shares, an addition of an “ever-green” provision and the ability to grant share appreciation rights, restricted share awards and performance awards.

The Amended and Restated 2004 Plan provides for the grant of incentive share options, within the meaning of Section 422 of the Internal Revenue Code, to our employees and employees of our affiliates and subsidiaries.

Our board of directors or a committee appointed by our board of directors administers our Amended and Restated 2004 Plan. The administrator has the power to determine the terms of the share options, including the exercise price, the number of shares subject to each such award and the circumstances for vesting.

The administrator determines the exercise price of options granted under our Amended and Restated 2004 Plan, but with respect to incentive share options, the exercise price must at least be equal to 100.0% of the fair market value of our ordinary shares on the date of grant. The term of an incentive share option may not exceed ten years from the grant date, except that with respect to any participant who owns 10.0% or more of the voting power of all classes of our outstanding stock, the term must not exceed five years from the grant date and the exercise price must equal at least 110.0% of the fair market value on the grant date. The administrator has the authority, in its sole discretion, to waive any restrictions or limitations under the Amended and Restated 2004 Plan.

After termination of an employee, director or consultant, he or she may exercise his or her option for the period of time stated in the option agreement. Generally, (i) if termination is due to death or disability, the option will remain exercisable for one year following such termination; (ii) if termination is due to retirement, the option will remain exercisable for six months following such termination; and (iii) if termination is for cause, the option will be forfeited immediately. In all other cases, the option will generally remain exercisable for 30 days following such termination. However, an option generally may not be exercised after the expiration of its term.

Our Amended and Restated 2004 Plan generally does not allow for the transfer of options and only the recipient of an option may exercise an award during his or her lifetime.

Our Amended and Restated 2004 Plan generally provides that in the event of a “change of control” involving our Company, the administrator may arrange for the successor corporation to assume or substitute an equivalent award for each outstanding option. The administrator may in the alternative pay cash or other consideration in exchange for cancellation of the outstanding options.

Our Amended and Restated 2004 Plan will automatically terminate in 2015, unless we terminate it sooner. In addition, our board of directors has the authority to amend, alter, suspend, discontinue or terminate the Amended and Restated 2004 Plan provided such action does not impair the rights of any participant.

The following table summarizes, as of April 20, 2012, the outstanding options granted under our Amended and Restated 2004 Plan to our directors and executive officers.

Ordinary Shares
Underlying
Options Granted

Exercise Price
(US$/Share)

Date of Grant

Date of Expiration

Xiaoguang Ren

19,286
22,368
220,000
70,000

8.60
3.03
1.40
1.60

February 23, 2005
February 5, 2008
July 16, 2009
February 10, 2010

February 22, 2015
February 4, 2018
July 15, 2019
February 9, 2020

Bolin Wu

35,357
39,930
110,000
70,000

8.60
3.03
1.40
1.60

February 23, 2005
February 5, 2008
July 16, 2009
February 10, 2010

February 22, 2015
February 4, 2018
July 15, 2019
February 9, 2020

Tommy Siu Lun Fork

17,679
220,000
70,000

8.60
1.40
1.60

February 23, 2005
July 16, 2009
February 10, 2010

February 22, 2015
July 15, 2019
February 9, 2020

Shuang Wang

20,893
330,000
70,000

8.60
1.40
1.60

February 23, 2005
July 16, 2009
February 10, 2010

February 22, 2015
July 15, 2019
February 9, 2020

Min Dong

17,679
110,000
70,000

8.60
1.40
1.60

February 23, 2005
July 16, 2009
February 10, 2010

February 22, 2015
July 15, 2019
February 9, 2020

Dachun Zhang

8,036
3,000
11,250
30,000

8.60
3.03
1.40
1.60

February 23, 2005
February 5, 2008
July 16, 2009
February 10, 2010

February 22, 2015
February 4, 2018
July 15, 2019
February 9, 2020

Fushan Chen

8,036
3,000
11,250
30,000

8.60
3.03
1.40
1.60

February 23, 2005
February 5, 2008
July 16, 2009
February 10, 2010

February 22, 2015
February 4, 2018
July 15, 2019
February 9, 2020

Mark Ming Hsun Lee

17,679
4,500
15,000
30,000

8.60
3.03
1.40
1.60

February 23, 2005
February 5, 2008
July 16, 2009
February 10, 2010

February 22, 2015
February 4, 2018
July 15, 2019
February 9, 2020

Kin Fai Ng

12,000
90,000
30,000

3.03
1.40
1.60

February 5, 2008
July 16, 2009
February 10, 2010

February 4, 2018
July 15, 2019
February 9, 2020

Martin Cheung

30,000
30,000

1.40
1.60

July 16, 2009
February 10, 2010

July 15, 2019
February 9, 2020

The following table summarizes, as of April 20, 2012, the outstanding non-vested shares granted under our Amended and Restated 2004 Plan to our directors and executive officers.

Non-vested Shares
Granted

Date of Grant

End of Vesting
Period

Xiaoguang Ren

60,037
585,771

February 5, 2008
February 10, 2010

February 5, 2012

February 10, 2011

Bolin Wu

41,709

February 5, 2008

February 5, 2012

Tommy Siu Lun Fork

20,000

February 5, 2008

February 5, 2012

Shuang Wang

30,000

February 5, 2008

February 5, 2012

Min Dong

20,000

February 5, 2008

February 5, 2012

2006 Share Incentive Plan

Our board of directors adopted the 2006 Share Incentive Plan, or 2006 Plan, on October 21, 2005 and our shareholders approved the 2006 Plan on December 2, 2005. The 2006 Plan includes the ability to grant stock options, share appreciation rights, restricted and unrestricted shares and performance awards, or collectively, the Awards.

The 2006 Plan provides for the grant of incentive share options, within the meaning of Section 422 of the Internal Revenue Code, to our employees and employees of our affiliates and subsidiaries.

Our board of directors or a committee appointed by our board of directors administers our 2006 Plan. The administrator has the power to determine the terms of the share options, including the exercise price, the number of shares subject to each such award and the circumstances for vesting.

The administrator determines the exercise price of options granted under our 2006 Plan, but with respect to incentive share options, the exercise price must be at least equal to 100.0% of the fair market value of our ordinary shares on the date of grant. The term of an incentive share option may not exceed ten year from the grant date, except that no participant may receive Awards during the life of the 2006 Plan that relate to more than 30.0% of the maximum number of shares that may be issued pursuant to Awards.

After termination of an employee, director or consultant, he or she may exercise his option for the period of time stated in the option agreement. Generally, (i) if termination is due to death or disability, the option will remain exercisable for one year following such termination; (ii) if termination is due to retirement, the option will remain exercisable for six months following such termination; and (iii) if termination is for cause, the option will be forfeited immediately. In all other cases, the option will generally remain exercisable for 30 days following such termination. However, an option generally may not be exercised after the expiration of its term.

Our 2006 Plan generally does not allow for the transfer of options and only the recipient of an option may exercise an award during his or her lifetime.

Our 2006 Plan generally provides that in the event of a “change in control” involving our company, the administrator may arrange for the successor corporation to assume or substitute and equivalent award for each outstanding option. The administrator may in the alternative pay cash or other consideration in exchange for cancellation of the outstanding options.

Our 2006 Plan will automatically terminate in 2015, unless we terminate it sooner. In addition, our board of directors has the authority to amend, alter, suspend, discontinue or terminate the 2006 Plan, provided such action does not impair the rights of any participant.

The following table summarizes, as of April 20, 2012, the non-vested shares granted under our 2006 Plan to our directors and executive officers.

Non-vested Shares
Granted

Date of Grant

End of Vesting
Period

Xiaoguang Ren

840,000

February 10, 2010

February 10, 2011

Bolin Wu

439,912

February 10, 2010

February 10, 2011

Tommy Siu Lun Fork

41,000

February 10, 2010

February 10, 2011

Shuang Wang

41,000

February 10, 2010

February 10, 2011

Min Dong

41,000

February 10, 2010

February 10, 2011

Kin Fai Ng

41,000

February 10, 2010

February 10, 2011

C. Board practices

Our board of directors consists of six members, including four independent directors. Our amended and restated memorandum and articles of association, as currently in effect, provide for a board of directors comprised of not less than two directors. Each of our directors holds office until a successor has been duly elected and appointed.

We have not entered into any service agreement that provides for benefits upon termination of service with any of our directors or executive officers.

Duties of directors

Our board of directors has the ultimate responsibility for the administration of our affairs. Under Cayman Islands law, our directors have a duty of loyalty and must act honestly, in good faith and with a view to our best interests. Our directors also have a duty to exercise the care, diligence and skills that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duties to us, our directors must ensure compliance with our amended and restated memorandum and articles of association. A shareholder may in certain circumstances have the right to seek damages if a duty owed by our directors is breached.

Board committees

Our board of directors has established an audit committee, a compensation committee, a nominating committee and an investment committee.

Audit committee. Our audit committee currently consists of Dachun Zhang, Mark Lee and Martin Cheung. Our board of directors has determined that all of our audit committee members are “independent directors” within the meaning of Nasdaq Marketplace Rule 4200 (a)(15) and meet the criteria for independence set forth in Rule 10A-3(b)(1) of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, and that Mr. Cheung has the necessary financial sophistication under Nasdaq Marketplace Rule 4350(d)(2)(A) and is qualified as an audit committee financial expert, as defined in Item 16A of Form 20-F. Our audit committee is responsible for, among other things:

•

the integrity of our financial statements;

•

the qualifications, independence and performance of our independent registered public accounting firm;

•

the performance, budget and staffing of our internal audit functions;

•

the review and approval of all related party transactions;

•

our compliance with legal and regulatory requirements;

•

the development and implementation of corporate governance principles, policies, codes of conduct and ethics relating to the operation of our board of directors and its committees as well as our company as a whole;

•

appointing, setting the compensation for, retaining, overseeing and terminating our independent registered public accounting firm;

•

reviewing and approving the scope and staffing of the independent registered public accounting firm’s annual audit plan;

•

establishing policies for the hiring of current and former employees of the independent registered public accounting firm;

•

evaluating the performance of the officers responsible for internal audit functions and making recommendations regarding the responsibilities, retention and termination of such officers;

•

reviewing and approving the critical accounting policies and practices and related-party transactions and off-balance sheet transactions of our company;

•

reviewing our internal controls and disclosure controls and procedures in conjunction with our chief executive officer and chief financial officer;

•

appointing a compliance officer with respect to our corporate governance guidelines and codes of conduct and ethics;

•

meeting annually with management to discuss compliance with our corporate governance guidelines;

•

coordinating the training of directors; and

•

reporting regularly to the board of directors.

Compensation committee. Our current compensation committee consists of Dachun Zhang, Fushan Chen and Mark Lee. Our board of directors has determined that all of our compensation committee members are “independent directors” within the meaning of Nasdaq Marketplace Rule 4200(a)(15). Our compensation committee is responsible for, among other things:

•

review and approval of the compensation of our executive officers;

•

recommendations with respect to our incentive compensation plans and equity-based plans;

•

approval of awards or material amendment of any employee benefit plan or share option plan;

•

oversight of regulatory compliance with respect to compensation matters; and

•

review and approval of any severance or similar termination payments in excess of US$100,000.

Nominating committee. Our current nominating committee consists of Dachun Zhang, Fushan Chen and Mark Lee. Our board of directors has determined that all of our nominating committee members are “independent directors” within the meaning of Nasdaq Marketplace Rule 4200(a)(15). Our nominating committee is responsible for, among other things:

•

nomination of director candidates to serve on our board of directors and recommendation of appointees to the committees of the board of directors;

•

recommendations to our board of directors regarding the termination of the directorship of directors;

•

annual evaluation of our board of directors and each of its committees and members;

•

recommendations to our board of directors concerning the appropriate size and needs of our board of directors; and

•

annual review of the compensation of members of the board of directors.

Investment committee. Our current investment committee is responsible for managing our securities trading account which was established in December 2008. Our investment committee consists of Shuang Wang, Xiaoguang Ren, Kin Fai Ng and Tommy Siu Lun Fork. Our investment committee is responsible for, among other things:

•

directing and managing investments in the listed securities of public companies in the United States, Europe and Asia; and

•

reporting performance and results of investments to the board of directors.

Corporate governance

Our board of directors has adopted a code of ethics for our chief executive officer and senior financial officers and a code of business conduct and ethics, which is applicable to all of our directors, officers and employees. Our code of ethics and code of business conduct and ethics are publicly available on our website at http://www.ninetowns.com/english, and such codes are filed as exhibits to our annual report on Form 20-F filed with Securities and Exchange Commission on June 29, 2005. The information on our website, which might be accessible through a hyperlink resulting from this URL, is not and shall not be deemed to be incorporated into this annual report. In addition, our board of directors has adopted a set of corporate governance guidelines. The guidelines reflect certain guiding principles with respect to the structure, procedures and committees of our board of directors. The guidelines are not intended to change or interpret any law, or our amended and restated memorandum and articles of association.

D. Employees

As of December 31, 2011, we had 509 full-time employees. Of our employees, 14 were in management, 14 were in finance, 18 were in administration and human resources. In addition, we also had 463 other employees, of which 179 were in B2G business, 214 were in B2C business and 70 were in real estate development business. We had 336 and 299 full-time employees as of December 31, 2009 and 2010, respectively.

Our employees located in China other than Hong Kong are covered by the retirement schemes defined by PRC local practice and regulations, which are essentially defined contribution schemes. Certain of our employees who are located in Hong Kong have joined the Mandatory Provident Fund Scheme which is also a defined contribution scheme. The amounts we paid to these defined contribution schemes were RMB3.5 million, RMB3.2 million and RMB3.4 million (US$0.5 million) for 2009, 2010 and 2011, respectively. In addition, we are required by law to contribute approximately 10% in Beijing, 8% in Guangzhou of the average salaries of all employees for mandatory medical benefits and approximately 1% in Beijing and 2% in Guangzhou of the salaries of some employees for unemployment benefits. The PRC government is directly responsible for the payments of the benefits to these employees. The amounts contributed amounted to RMB2.1 million, RMB1.8 million and RMB2.1 million (US$0.3 million) for 2009, 2010 and 2011, respectively.

Our future success will depend, in part, on our ability to continue to attract, retain and motivate highly qualified technical and management personnel, for whom competition is intense. Our employees are not covered by any collective bargaining agreement and we have never experienced a work stoppage. We believe we enjoy good relations with our employees

E. Share ownership

The following table sets forth information known to us with respect to the beneficial ownership of our ordinary shares as of April 20, 2012, taking into account the number of ordinary shares underlying our outstanding options, by each person who is known to us to be the beneficial owner of more than 5.0% of our ordinary shares; each of our directors; each of our named executive officers; and all of our executive officers and directors as a group.


	Ordinary Shares Beneficially Owned
Name	Number⁽¹⁾		Percent⁽²⁾
Directors and executive officers⁽³⁾
Shuang Wang⁽⁴⁾		6,785,197		17.24	%
Min Dong⁽⁵⁾		6,785,197		17.24	%
Xiaoguang Ren⁽⁶⁾		2,297,014		5.87	%


	Ordinary Shares Beneficially Owned
Name	Number⁽¹⁾		Percent⁽²⁾
Kin Fai Ng⁽⁷⁾		785,225		2.02	%
Bolin Wu⁽⁸⁾		1,127,525		2.88	%
Tommy Siu Lun Fork⁽⁹⁾		776,603		1.98	%
Mark Ming Hsun Lee⁽¹⁰⁾		*		*	%
Dachun Zhang⁽¹¹⁾		*		*	%
Fushan Chen⁽¹²⁾		*		*	%
Martin Cheung⁽¹³⁾		*		*	%

All directors and executive officers as a group (10 persons)		12,294,521		30.23	%

5% and above shareholders
Yong Ping Duan⁽¹⁴⁾		7,072,327		18.23	%
Technology Pioneer Corp.⁽¹⁵⁾		3,070,028		7.91	%
Value Chain International Limited⁽¹⁶⁾		2,002,312		5.16	%

*	Less than 1%

(1)	Beneficial ownership is determined in accordance with the rules of the SEC, and includes those securities for which voting or investment power with respect to the securities is held.

(2)

The number of ordinary shares outstanding used in calculating the percentage for each listed person includes the ordinary shares underlying options held by such persons and exercisable within 60 days of March 31, 2012. Percentage of beneficial ownership is based on 38,791,834 ordinary shares outstanding as of March 31, 2012. In 2011, 3,000,000 of the Company’s ordinary shares were converted into American Depositary Shares to facilitate our employees’ cashless exercise of vested stock options and non-vested shares. No Stock options were exercised in 2011. 795,329 previously non-vested shares became vested in 2011.

(3)	The address of our current directors and executive officers is c/o Ninetowns Internet Technology Group Company Limited, 22/F, Building No. 1, Capital A Partners, No. 20 Gongti East Road, Chaoyang District Beijing 100020, PRC.

(4)

Includes (i) 4,006,215 ordinary shares held by Mr. Wang, (ii) 2,002,312 ordinary shares held by Mr. Wang through his ownership of Value Chain, (iii) 71,000 American depositary shares received by Mr. Wang as a result of the vesting of previously unvested shares, (iv) 395,807 ordinary shares underlying share options held by Mr. Wang which are currently exercisable or exercisable within 60 days of March 31, 2012, (v) 70,592 ordinary shares held by Ms. Dong, (vi) 61,000 American depositary shares received by Ms. Dong as a result of the vesting of previously unvested shares, and (vii) 178,271 ordinary shares underlying share options held by Ms. Dong which are currently exercisable or exercisable within 60 days of March 31, 2012.

(5)

Includes (i) 70,592 ordinary shares held by Ms. Dong, (ii) 178,271 ordinary shares underlying share options held by Ms. Dong which are currently exercisable or exercisable within 60 days of March 31, 2012, (iii) 61,000 American depositary shares received by Ms. Dong as a result of the vesting of previously unvested shares, (iv) 2,002,312 ordinary shares held by Ms. Dong through her ownership of Value Chain, (v) 4,006,215 ordinary shares held by Mr. Wang, (vi) 71,000 American depositary shares received by Mr. Wang as a result of the vesting of previously unvested shares, and (vii) 395,807 ordinary shares underlying share options held by Mr. Wang which are currently exercisable or exercisable within 60 days of March 31, 2012.

(6)

Includes (i) 440,000 ordinary shares held by Mr. Ren, (ii) 1,485,808 American depositary shares received by Mr. Ren as a result of the vesting of previously unvested shares, and (iii) 371,206 ordinary shares underlying share options held by Mr. Ren which are currently exercisable or exercisable within 60 days of March 31, 2012.

(7)

Includes (i)10,250 ordinary shares held by Mr. Ng, (ii) 41,000 American depositary shares received by Mr, Ng as a result of the vesting of previously unvested shares, (iii) 634,411 ordinary shares beneficially held by Mr. Ng through his ownership of Oriental Plan Developments Limited, or Oriental Plan, and (iv) 99,564 ordinary shares underlying share options held by Mr. Ng which are currently exercisable or exercisable within 60 days of March 31, 2012.

(8)

Includes (i) 330,000 ordinary shares held by Mr. Wu , (ii) 481,621 American depositary shares received by Mr, Wu as a result of the vesting of previously unvested shares, and (iii) 315,904 ordinary shares underlying share options held by Mr. Wu which are currently exercisable or exercisable within 60 days of March 31, 2012.

(9)

Includes (i)330,000 ordinary shares held by Mr. Fork, (ii) 61,000 American depositary shares received by Mr, Fork as a result of the vesting of previously unvested shares, and (iii) 385,603 ordinary shares underlying share options held by Mr. Fork which are currently exercisable or exercisable within 60 days of March 31, 2012.

(10)	Represents 44,679 ordinary shares underlying share options held by Mr. Lee which are currently exercisable or exercisable within 60 days of March 31, 2012.

(11)	Represents 31,661 ordinary shares underlying share options held by Mr. Zhang which are currently exercisable or exercisable within 60 days of March 31, 2012.

(12)	Represents 31,661 ordinary shares underlying share options held by Mr. Chen which are currently exercisable or exercisable within 60 days of March 31, 2012.

(13)	Represents 30,000 ordinary shares underlying share options held by Mr. Cheung which are currently exercisable or exercisable within 60 days of March 31, 2012.

(14)

Includes 5,072,308 ordinary shares held directly by Mr. Duan and 2,000,019 ordinary shares beneficially held by Mr. Duan through his position as the president of Enlight Foundation, or Enlight, a non-profit family foundation under the laws of California. Enlight is a California corporation that is owned by Mr. Duan. The address of Enlight is c/o SY. Lee & Chen, 362 W. Garvey Ave., Monterey Park, CA 91754.

(15)	Technology Pioneer is a British Virgin Islands company that is 100.0% owned by Mr. Lei Ding. The address of Technology Pioneer Corp. is No. 16 Ke Yun Road, Zhong Shan Avenue, Guangzhou, The People’s Republic of China, 510655.

(16)

Value Chain is a British Virgin Islands company that is 50.0% owned by Mr. Wang, who is our Chief Executive Officer and one of our directors, and 50.0% owned by Ms. Dong, who is one of our executive officers and the spouse of Mr. Wang. The address of Value Chain is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.

No shareholder has different voting rights from other shareholders. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.

For the details of our Plans, please refer to Item 6.B “Directors, Senior Management and Employees — Compensation.”

Item 7. Major Shareholders and Related Party Transactions.

A. Major shareholders

For the details of our major shareholders, please refer to Item 6. “Directors, Senior Management and Employees — Share Ownership.”

Except for the information furnished by our shareholders in Schedule 13Ds and Schedule 13Gs, there is no significant change in the percentage ownership held by any major shareholders during the past three years.

B. Related party transactions overview

You should note that, as described more fully below some of our officers, directors and related parties are members of the boards of directors or shareholders of companies with which we have important business relationships.

You should be aware of the relationships and transactions described herein, and that there can be no assurance as to the effect of such relationships and transactions on our company and its business. Our amended and restated articles of association require that all future transactions between our company and our related parties be approved by our audit committee.

Transactions with Mr. Wang and Ms. Dong

Mr. Wang is a director of Import & Export, which is 100.0% beneficially owned by Mr. Wang and Ms. Dong. Import & Export in turn owns a 49.0% equity interest in iTowNet, which is 51.0% owned by the PRC Inspections Administration. iTowNet operates the data exchange platforms that interface between international trade enterprises using our enterprise software and the PRC Inspections Administration’s internal electronic processing system. iTowNet receives a fee of RMB5 for each submission made over its platforms.

Pursuant to a right of first refusal agreement dated as of November 2, 2004, among Import & Export, Mr. Wang, Ms. Dong and our company, Import & Export has agreed to sell its 49.0% interest in iTowNet to our company if, at any time while we are required to submit reports to the SEC, Import & Export is allowed to sell such interest to us under relevant PRC law and policy. Our right of first refusal is subject to the statutory right of first refusal of the PRC Inspections Administration to purchase such interest. If we exercise our right of first refusal, we have agreed to purchase the 49.0% interest in iTowNet at a purchase price of US$25.0 million, plus a compounded interest rate of 5.0% per year for each year that Import & Export held the 49.0% interest since August 23, 2001, but deducting any dividend or distribution that Import & Export had previously received or receives in the future from iTowNet. Our audit committee approved the right of first refusal agreement and will need to approve the exercise of the purchase right granted under the Right of First Refusal Agreement. Based on current PRC laws and practice, and the stated policy of the PRC Inspections Administration, we do not believe the exercise of the purchase right is probable.

Related parties balances

As of December 31, 2011, the amounts due from related parties of RMB1.2 million, represents mainly advances from Ninetowns Ports to Huainan Huacheng. These advances are non-interest bearing and due on demand.

Board memberships

Mr. Wang and Mr. Ren are two of the five directors of iTowNet. iTowNet is 51.0% owned by the PRC Inspections Administration and 49.0% owned by Import & Export. Import & Export is in turn 100.0% beneficially owned by Mr. Wang and Ms. Dong. Mr. Wu is the sole supervisor of iTowNet.

Stock option grants

Please refer to Item 6, “Directors, Senior Management and Employees — Compensation of directors and executive officers.”

C. Interests of experts and counsel

Not applicable.

Item 8. Financial Information.

A. Consolidated statements and other financial information

Please see our consolidated financial statements which are filed as part of this annual report.

Legal proceedings

We are not currently involved in any material litigation and we are not aware of any pending or threatened litigation or similar proceedings which could reasonably be expected, if such litigation or proceeding is decided adversely to us, to have a material adverse effect on our financial condition or results of operations.

Dividend policy

Since our inception, we have not declared or paid a dividend on our ordinary shares. We do not anticipate paying any cash dividend in the foreseeable future. We currently intend to retain future earnings, if any, to finance our operations and the expansion of our business. Payments of dividends by our subsidiaries in China to us are subject to restrictions including the restriction that foreign- invested enterprises may only buy, sell and/or remit foreign currencies at banks authorized to conduct foreign exchange business after providing valid commercial documents. We do not expect any of these restrictions to have a material and adverse effect on our ability to receive payments of dividends from our subsidiaries in China. There are no such similar foreign exchange restrictions in the Hong Kong, the Cayman Islands or the British Virgin Islands.

We rely on dividends and fees paid to us by our subsidiaries in China to fund our operations. In accordance with current PRC laws and regulations, our PRC subsidiaries that were formed as domestic limited liability companies are required to set aside 10.0% of their after-tax profits for a PRC law-mandated reserve fund and 5-10% of their after-tax profits for a PRC law- mandated welfare fund each year. The actual amount set aside for the welfare fund is determined in accordance with PRC accounting standards and regulations. Each of these subsidiaries can stop contributing to its statutory reserve fund when the aggregate reserved amount in the fund is equal to 50.0% or more of the respective subsidiary’s registered capital, which is the amount of capital set forth in its organizational documents. In contrast, our PRC subsidiaries that were formed as foreign- invested enterprises are required to set aside a portion of their after-tax profits each year, as determined in accordance with PRC accounting standards and regulations, to their reserve funds, bonus and welfare funds for workers and staff members. Under PRC law, we are also required to set aside at least 10.0% of our after- tax net income each year into our reserve fund until the accumulated legal reserve amounts to 50.0% of registered capital. Each of our subsidiaries are further required to maintain a bonus and welfare fund at percentages determined at their sole discretion. The reserve funds and the bonus and welfare funds described above are not distributable as dividends. Our board of directors has complete discretion as to whether we will distribute dividends in the future. Even if our board of directors determines to distribute dividends, the form, frequency and amount of our dividends will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors as the board of directors may deem relevant. Any dividend we declare will be paid to the holders of ADSs, subject to the terms of the deposit agreement, to the same extent as holders of our ordinary shares, less the fees and expenses payable under the deposit agreement. Any dividend we declare will be distributed by the depositary to the holders of our ADSs. Cash dividends on our ordinary shares, including those represented by the ADSs, if any, will be paid in U.S. dollars.

B. Significant changes

We have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.

Item 9. The Offering and Listing.

A. Offering and listing details

On December 3, 2004, we listed our ADSs, each representing one ordinary share, on the Nasdaq Global Market under the symbol “NINE.”

The following table provides the high and low trading prices for our ADSs on the Nasdaq Global Market for the periods shown.

Sales Price

High

Low

Annual highs and lows

2007

US$

7.20

US$

2.64

2008

US$

3.30

US$

0.82

2009

US$

2.20

US$

0.86

2010

US$

1.90

US$

1.30

2011

US$

1.55

US$

1.15

Quarterly highs and lows

First Quarter 2010

US$

1.90

US$

1.46

Second Quarter 2010

US$

1.85

US$

1.40

Third Quarter 2010

US$

1.65

US$

1.30

Fourth Quarter 2010

US$

1.63

US$

1.31

First Quarter 2011

US$

1.55

US$

1.35

Second Quarter 2011

US$

1.55

US$

1.30

Third Quarter 2011

US$

1.46

US$

1.15

Fourth Quarter 2011

US$

1.40

US$

1.24

Monthly highs and lows

December 2011

US$

1.35

US$

1.25

January 2012

US$

1.40

US$

1.26

February 2012

US$

1.35

US$

1.25

March 2012

US$

1.34

US$

1.21

April 2012 (for the period to and including April 20, 2012)

US$

1.46

US$

1.20

B. Plan of distribution

Not applicable.

C. Markets

Our ADSs, each representing one ordinary share have been listed on the Nasdaq Global Market since December 3, 2004 under the symbol “NINE.”

D. Selling shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the issue

Not applicable.

Item 10. Additional Information.

A. Share capital

Not applicable.

B. Memorandum and articles of association

We incorporate by reference into this annual report the description of our Amended and Restated Memorandum and Articles of Association contained in Exhibit 99.2 to our Form 6-K (File No. 000-51025) filed with Securities and Exchange Commission on October 25, 2006.

C. Material contracts

We have not entered into any material contracts other than in the ordinary course of business and other than those described in Item 4, “Information on the Company” or elsewhere in this annual report.

D. Exchange control

The principal regulations governing foreign exchange in China are the Foreign Exchange Control Rules (1996), as amended. On June 20, 1996, the People’s Bank of China promulgated the FX Administration Rules, which became effective on July 1, 1996.

E. Taxation

Cayman Islands taxation

The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty or withholding tax applicable to us or to any holder of ADSs, or ordinary shares.

There are no other taxes levied by the Government of the Cayman Islands that are likely to be material to us except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. No Cayman Islands stamp duty will be payable by you in respect of transfers of shares of Cayman Islands companies except those which hold interests in land in the Cayman Islands. The Cayman Islands are not party to any double taxation treaties. There are no exchange control regulations or currency restrictions in the Cayman Islands.

We have, pursuant to Section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, obtained an undertaking from the Governor-in-Council that:

•

no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciation applies to us or our operations; and

•

the aforesaid tax or any tax in the nature of estate duty or inheritance tax is not payable on our ordinary shares, debentures or other obligations.

The undertaking that we have obtained is for a period of 20 years from February 26, 2002.

British Virgin Islands taxation

Our BVI subsidiaries are not subject to British Virgin Islands tax on income or capital gains. Payment of dividends is not subject to withholding tax in the British Virgin Islands.

Hong Kong taxation

New Take and Shielder, our wholly-owned subsidiaries, are not subject to Hong Kong profits tax on foreign-sourced dividends and capital gains. As an entity incorporated in Hong Kong, each of New Take and Shielder was subject to 16.5% income tax for the year ended December 31, 2011 on its taxable income generated from operations in Hong Kong. Payment of dividends is not subject to withholding tax in Hong Kong.

PRC enterprise income tax

On March 16, 2007, the National People’s Congress adopted the New Income Tax Law, which went into effect on January 1, 2008. The New Income Tax Law imposes a unified income tax rate of 25% for domestic and foreign enterprises. New and High Technology Enterprise will enjoy a favorable tax rate of 15%. The New Income Tax Law also provides a five-year transitional period for those enterprises established before March 16, 2007, which enjoy a favorable income tax rate less than 25% under the previous income tax laws, to gradually change their rates to 25%. In addition, the New Income Tax Law provides grandfather treatment for enterprises which were qualified as “New and High Technology Enterprises” under the previous income tax laws and were established before March 16, 2007, if they continue to meet the criteria for New and High Technology Enterprises after January 1, 2008.

The New and High Technology Enterprise status allows qualifying enterprises to be eligible for a preferential 15% tax rate for three years. At the conclusion of the three year period, the qualifying enterprise has the option to renew its New and High Technology Enterprise status for an additional three years if such enterprise’s business operations continue to qualify for New and High Technology Enterprise status. At the conclusion of the renewed period, the enterprise would have to go through a new application process to renew its New and High Technology Enterprise status. As of December 2011, we received certifications of New and High Technology Enterprise status for Ninetowns Ports and Guangdong Ninetowns, which qualify them for the preferential 15% tax rate for tax year 2011.

Under the New Income Tax Law, if the PRC subsidiaries and the VIE wish to qualify for a preferential rate for years commencing on or after January 1, 2008, they will need to qualify as a “High and New Technology Enterprise Strongly Supported by the State” under the new rules. Until the PRC subsidiaries and the VIE receive official approval for this new status, they will be subject to the statutory 25% tax rate.

Under the New Income Tax Law a “resident enterprise”, which includes an enterprise established outside of the PRC with management located in the PRC, will be subject to PRC income tax. If the PRC tax authorities subsequently determine that the Company and its subsidiaries registered outside the PRC should be deemed a resident enterprise, the Company and its subsidiaries registered outside the PRC will be subject to the PRC income tax at a rate of 25%.

United States Federal Income Tax Consequences

The following discussion describes the material United States federal income tax consequences of the ownership and disposition of our ordinary shares and ADSs as of the date hereof. The discussion is applicable only to United States Holders (as defined below) who hold our ordinary shares or ADSs as “capital assets,” as defined in Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”). As used herein, the term “United States Holder” means a beneficial owner of an ordinary share or ADS that is for United States federal income tax purposes:

•

an individual citizen or resident of the United States;

•

a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

•

an estate the income of which is subject to United States federal income taxation regardless of its source; or

•

a trust if it (1) is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person.

If a partnership (or other entity taxable as a partnership for United States federal income tax purposes) holds our ordinary shares or ADSs, the tax treatment of a partner will generally depend upon the status of the partner, the activities of the partnership and certain determinations made at the partner level. If you are a partnership or a partner in such partnership that holds our ordinary shares or ADSs, you should consult your tax advisors.

This discussion does not represent a detailed description of the United States federal income tax consequences applicable to you if you are subject to special treatment under the United States federal income tax laws, including if you are:

•

a dealer in securities or currencies;

•

a financial institution;

•

a regulated investment company;

•

a real estate investment trust;

•

an insurance company;

•

a tax-exempt organization;

•

a person holding our ordinary shares or ADSs as part of a hedging, integrated or conversion transaction, a constructive sale or a straddle;

•

a trader in securities that has elected the mark-to-market method of accounting for your securities;

•

a person liable for alternative minimum tax;

•

a person who owns or is deemed to own 10% or more of our voting stock;

•

a partnership or other pass-through entity for United States federal income tax purposes;

•

a United States expatriate and certain former citizens or long-term residents of the United States; or

•

a person whose “functional currency” is not the United States dollar.

The discussion below is based upon the provisions of the Code and regulations, administrative rulings and judicial decisions thereunder, all as of the date hereof, which are subject to differing interpretations or change (possibly with retroactive effect) so as to result in United States federal income tax consequences different from those discussed below. We can provide no assurance that the tax considerations contained in this summary will not be challenged by the Internal Revenue Service or will be sustained by a court if so challenged.

The United States Treasury has expressed concerns that intermediaries in the chain of ownership between the holder of an ADS and the issuer of the security underlying the ADS may be taking actions that are inconsistent with the beneficial ownership of the underlying security (for example, pre-releasing ADSs to persons that do not have the beneficial ownership of the securities underlying the ADSs). Accordingly, the creditability of any PRC taxes and the availability of the reduced tax rate for any dividends received by certain non-corporate United States Holders, including individual United States Holders, could be affected by actions taken by intermediaries in the chain of ownership between the holders of ADSs and our company if, as a result of such actions, the holders of ADSs are not properly treated as beneficial owners of underlying ordinary shares.

This discussion does not contain a detailed description of all the United States federal income tax consequences to you in light of your particular circumstances and does not address the effects of any state, local or non-United States tax laws. You should consult your own tax advisors concerning the United States federal income tax consequences to you in light of your particular situation as well as any consequences arising under the laws of any other taxing jurisdiction.

ADSs

If you hold ADSs, you generally will be treated as the owner of the underlying ordinary shares that are represented by such ADSs for United States federal income tax purposes. Accordingly, deposits or withdrawals of ordinary shares for ADSs will not be subject to United States federal income tax.

Taxation of Dividends

Subject to the discussion under “—Passive Foreign Investment Company” below, the gross amount of any cash distributions on the ADSs or ordinary shares (including any amounts withheld to reflect PRC withholding taxes) will be taxable as dividends. Such income (including withheld taxes) will be includable in your gross income as ordinary income on the day actually or constructively received by you, in the case of the ordinary shares, or by the depositary, in the case of ADSs. Such dividends will not be eligible for the dividends received deduction allowed to corporations under the Code.

With respect to non-corporate United States Holders, dividends received in taxable years beginning before January 1, 2013 may be subject to reduced rates of taxation provided that (a) our ordinary shares (or ADSs backed by such shares) are readily tradable on an established securities market in the United States or, in the event we are deemed to be a PRC “resident enterprise” under the PRC tax law, we are eligible for the benefits of the income tax treaty between the United States and the PRC (the “US-PRC Treaty”), (b) we are not a passive foreign investment company (as discussed below under “—Passive Foreign Investment Company”) for either the taxable year in which the dividend is paid or the preceding taxable year, and (c) certain holding period requirements are met. For purposes of clause (a) above, United States Treasury Department guidance indicates that our ADSs, but not our ordinary shares, are traded on an established securities market in the United States. Thus, we believe that dividends we pay on our ordinary shares that are represented by ADSs, but not on our ordinary shares that are not so represented, may qualify for the reduced tax rates. There can be no assurance that our ADSs will be considered readily tradable on an established securities market. You should consult your own tax advisors regarding the application of these rules given your particular circumstances.

Subject to certain conditions and limitations, PRC withholding taxes on dividends, if any, may be treated as foreign taxes eligible for credit against your United States federal income tax liability. For purposes of calculating the foreign tax credit, dividends paid to you with respect to our ordinary shares or ADSs will be treated as income from sources outside the United States and will generally constitute passive category income. The rules governing eligibility for the benefits of the income tax treaty and the foreign tax credit are complex. Accordingly, you are urged to consult your tax advisors regarding the application of these rules in light of your particular circumstances.

Taxation of Dispositions

Subject to the discussion under “—Passive Foreign Investment Company” below, you will recognize taxable gain or loss on any sale, exchange or other disposition of our ADSs or ordinary shares in an amount equal to the difference between the amount realized for the ADSs or ordinary shares and your tax basis in the ADSs or ordinary shares. Such gain or loss will generally be capital gain or loss. Capital gains are generally subject to United States federal income tax at the same rate as ordinary income, except that non-corporate United States Holders who have held their ADSs or ordinary shares for more than one year may be eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations.

Any gain or loss recognized by you will generally be treated as United States source gain or loss. Consequently, you may not be able to use the foreign tax credit arising from any PRC tax imposed on the disposition of our ADSs or ordinary shares unless such credit can be applied (subject to applicable limitations) against tax due on other income treated as derived from foreign sources. However, if we are treated as a “resident enterprise” for PRC tax purposes, we may be eligible for the benefits of the US-PRC Treaty. In such event, if PRC tax were to be imposed on any gain from the disposition of the ADSs or ordinary shares, a United States Holder that is eligible for the benefits of the US-PRC Treaty may treat the gain as PRC source income for foreign tax credit purposes. You are urged to consult your tax advisors regarding the creditability of any such PRC tax under your particular circumstances.

Passive foreign investment company

It is likely that we will be classified as a PFIC for 2011. Special U.S. federal income tax rules apply to U.S. holders of shares of a foreign corporation that is classified as a PFIC for U.S. federal income tax purposes. The determination of our PFIC status principally depends upon the composition of our assets, including goodwill, and the amount and nature of our income from time to time. The amount of goodwill will depend in part on the market value of our ADSs or ordinary shares, which may be especially volatile in a technology related enterprise. We have limited control over these variables and accordingly there can be no assurance that we will not be considered a PFIC for any taxable year. To the extent we do have control over these variables, we may take steps to reduce the material and adverse effect PFIC classification may have on our business, financial condition and results of operations.

A company is considered a PFIC for any taxable year if either:

•

at least 75.0% of its gross income is passive income, or

•

at least 50.0% of the value of its assets, based on an average of the quarterly values of the assets during a taxable year, is attributable to assets that produce or are held for the production of passive income.

We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, more than 25.0%, by value, of the stock of such corporation.

We note that if we are considered a PFIC for any taxable year, we will continue to be treated as a PFIC in for any subsequent taxable year with respect to any United States investors who held stock in such PFIC year, even if we no longer meet the definitional test of a PFIC. As a result of our substantial cash position and the decline in the value of our stock, we believe that we may have became a PFIC during the 2006 taxable year and continued PFIC status in the subsequent years including the 2011 taxable year, under a literal application of the asset test that looks solely to market value. As a result, we believe that we would continue to be treated as a PFIC in all taxable years thereafter for any United States Investors who held shares during such period.

Because it is likely that we will be classified as a PFIC for 2011, a U.S. Holder of our ordinary shares or our ADSs will likely be subject to special tax rules with respect to:

•

any “excess distribution” that the U.S. Holder receives on our ordinary shares or our ADSs and

•

any gain the U.S. Holder realizes from a sale or other disposition, including a pledge, of our ordinary shares or our ADSs, unless the U.S. Holder makes a “mark-to-market” election as discussed below.

Distributions the U.S. Holder receives in a taxable year that are greater than 125.0% of the average annual distributions the U.S. Holder received during the shorter of the three preceding taxable years or the U.S. Holder’s holding period for our ordinary shares or our ADSs will be treated as an excess distribution. Under these special tax rules:

•

any excess distribution or gain will be allocated ratably over your holding period for our ordinary shares or our ADSs,

•

the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinary income in the year of the distribution or gain, and

•

the amount allocated to each other year will be subject to tax as ordinary income at the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.

The tax liability for amounts allocated to years prior to the year of disposition or excess distribution cannot be offset by any net operating losses, and gains (but not losses) realized on the sale of our ordinary shares or our ADSs cannot be treated as capital, even if the U.S. Holder holds our ordinary shares or our ADSs as capital assets.

A U.S. shareholder of a PFIC may avoid taxation under the excess distribution rules discussed above by making a “qualified electing fund” election to include the U.S. Holder’s share of our income on a current basis. However, a U.S. Holder may make a qualified electing fund election only if the PFIC agrees to furnish the shareholder annually with certain tax information, and we do not presently intend to prepare or provide such information.

Alternatively, a U.S. Holder of “marketable stock” in a PFIC may make a mark-to-market election for stock of a PFIC to elect out of the excess distribution rules discussed above. If a U.S. Holder makes a mark-to-market election for our ordinary shares or our ADSs, the U.S. Holder will include in income each year an amount equal to the excess, if any, of the fair market value of our ordinary shares or our ADSs as of the close of the taxable year over the U.S. Holder’s adjusted basis in such ordinary shares or ADSs. A U.S. Holder is allowed a deduction for the excess, if any, of the adjusted basis of our ordinary shares or our ADSs over their fair market value as of the close of the taxable year only to the extent of any net mark-to-market gains on our ordinary shares or our ADSs included in the U.S. Holder’s income for prior taxable years. Amounts included in a U.S. Holder’s income under a mark-to-market election, as well as gain on the actual sale or other disposition of our ordinary shares or our ADSs, are treated as ordinary income. Ordinary loss treatment also applies to the deductible portion of any mark-to-market loss on our ordinary shares or our ADSs, as well as to any loss realized on the actual sale or disposition of our ordinary shares or our ADSs, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such ordinary shares ADSs. A U.S. Holder’s basis in the ordinary shares or ADSs will be adjusted to reflect any such income or loss amounts. The tax rules that apply to distributions by corporations which are not PFICs would apply to distributions by us.

The mark-to-market election is available only for stock which is regularly traded on a national securities exchange that is registered with the Securities and Exchange Commission or on The Nasdaq Stock Market, or an exchange or market that the U.S. Secretary of the Treasury determines has rules sufficient to ensure that the market price represents a legitimate and sound fair market value. Under the U.S. Treasury regulations, our ADSs or ordinary shares would generally be considered regularly traded if the shares are traded at least 15 days during each calendar quarter of the relevant calendar year in more than de minimis quantities. You should consult your own tax advisors as to whether a mark to market election is available or advisable for your particular circumstances.

A U.S. Holder who holds our ordinary shares or our ADSs in any year in which we are a PFIC would be required to file IRS Form 8621 regarding distributions received on our ordinary shares or our ADSs and any gain realized on the disposition of our ordinary shares or ADSs.

Our determination of whether we are a PFIC is not binding on the Internal Revenue Service. If we are a PFIC in any year in which a U.S. Holder holds our ordinary shares or our ADSs, the U.S. Holder generally will be subject to increased U.S. tax liabilities and reporting requirements on receipt of certain dividends or on a disposition of our ordinary shares or our ADSs in that year and all subsequent years. U.S. Holders should consult their own tax advisors regarding our status as a PFIC, the consequences of an investment in a PFIC, and the consequences of making a shareholder election with respect to PFIC status.

Non-U.S. holders

A Non-U.S. Holder generally will not be subject to U.S. federal income tax on dividends paid by us with respect to our ordinary shares or our ADSs unless the income is effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States.

A Non-U.S. Holder generally will not be subject to U.S. federal income tax on any gain attributable to a sale or other disposition of our ordinary shares or our ADSs unless such gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States or the Non-U.S. Holder is a natural person who is present in the United States for 183 days or more and certain other conditions exist.

Dividends and gains that are effectively connected with a Non-U.S. Holder’s conduct of a trade or business in the United States generally will be subject to tax in the same manner as they would be if the Non-U.S. Holder were a U.S. Holder, except that the passive foreign investment company rules will not apply. Effectively connected dividends and gains received by a corporate Non-U.S. Holder may also be subject to an additional branch profits tax at a 30.0% rate or a lower tax treaty rate.

Information reporting and backup withholding

In general, information reporting requirements will apply to dividends in respect of our ordinary shares or our ADSs or the proceeds received on the sale, exchange or redemption of our ordinary shares or our ADSs paid within the United States (and in certain cases, outside the United States) to U.S. Holders other than certain exempt recipients, such as corporations, and backup withholding tax may apply to such amounts if the U.S. Holder fails to provide an accurate taxpayer identification number or to report interest and dividends required to be shown on its U.S. federal income tax returns. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability provided that the appropriate returns are filed.

A Non-U.S. Holder generally may eliminate the requirement for information reporting and backup withholding by providing certification of its foreign status to the payor, under penalties of perjury, on IRS Form W-8BEN.

F. Dividends and paying agents

Not applicable.

G. Statement by experts

Not applicable.

H. Documents on display

We have previously filed with the Securities and Exchange Commission our registration statement on Form F-1, as amended and prospectus under the Securities Act of 1933, with respect to our ordinary shares.

We are subject to the periodic reporting and other informational requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Under the Exchange Act, we are required to file reports and other information with the Securities and Exchange Commission. Specifically, we are required to file annually a Form 20-F no later than six months after the close of each fiscal year, which close occurs on December 31. Copies of reports and other information, when so filed, may be inspected without charge and may be obtained at prescribed rates at the public reference facilities maintained by the Securities and Exchange Commission at Public Reference Room, 100 F Street NE, Washington, DC. 20549 and at the regional office of the Securities and Exchange Commission located at 175 W. Jackson Boulevard, Suite 900, Chicago, Illinois 60604. The public may obtain information regarding the Washington, D.C. Public Reference Room by calling the Commission at 1-800-SEC-0330. The SEC also maintains a Web site at www.sec.gov that contains reports, proxy and information statements,

and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.

Our financial statements have been prepared in accordance with U.S. GAAP.

We will furnish our shareholders with annual reports, which will include a review of operations and annual audited consolidated financial statements prepared in conformity with U.S. GAAP.

I. Subsidiary information

For a listing of our subsidiaries, see Item 4 of this annual report, “Information on the Company — Organizational structure.”

Item 11. Quantitative and Qualitative Disclosures About Market Risk.

Interest rate risk

Our exposure to interest rate risk for changes in interest rates relates primarily to the interest income generated by excess cash deposited in banks. We have not used any derivative financial instruments to hedge interest rate risk. We have not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates. Our future interest income may fluctuate in line with changes in interest rates. However, the risk associated with fluctuating interest rates is principally confined to our cash deposits and therefore, we believe our exposure to interest rate risk is minimal.

Foreign Exchange Risk

We are exposed to the risk of foreign currency exchange rate fluctuation. We have not used any forward contracts or currency borrowings to hedge our exposure to foreign currency exchange risk. We conduct substantially all of our operations through our PRC operating companies, and their financial performance and position are measured in terms of Renminbi. To the extent we hold assets denominated in U.S. dollars through our PRC entities, any further appreciation of the Renminbi against the U.S. dollar could result in a charge to our income statement and a reduction in the RMB value of our U.S. dollar denominated assets. The value of our ordinary shares and our ADSs will be affected by the foreign exchange rate between U.S. dollars and Renminbi. For example, to the extent that we need to convert U.S. dollars into Renminbi for our operational needs and if the Renminbi appreciates against the U.S. dollar at that time, our financial condition and the price of our ordinary shares and our ADSs may be adversely affected. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of declaring dividends on our ordinary shares or for other business purposes and the U.S. dollar appreciates against the Renminbi, the U.S. dollar equivalent of our earnings from our subsidiaries in China would be reduced. The value of your investment in our ADSs may fluctuate with the foreign exchange rate between the U.S. dollar and the Renminbi, because the value of our business is largely denominated in Renminbi, while our ADSs will be traded in U.S. dollars.

Inflation

According to the National Bureau of Statistics of China, the change in Consumer Price Index in China was -0.7% in 2009, 3.3% in 2010 and 5.4% in 2011. It is widely speculated that the change in Consumer Price Index in China will be significant in 2012. We have not in the past been materially affected by inflation, but we do not know whether we will be affected in the future.

Item 12. Descriptio n of Securities Other than Equity Securities.

A. Debt Securities

Not applicable.

B. Warrants and Rights

Not applicable.

C. Other Securities

Not applicable.

D. American Depositary Shares

D3. Fees and Charges Payable by ADR Holders

The following table shows the fees and charges that a holder of our ADRs may have to pay to the depositary, either directly or indirectly:


Category (as defined by SEC)	Depositary Actions	Associated Fee
(a) Depositing or substituting the underlying shares	Each person to whom ADRs are issued against deposits of Shares, including deposits and issuances in respect of: • Share distributions, stock split, rights, merger • Exchange of securities or any other transaction or event or other distribution affecting the ADSs or the Deposited Securities	US$5.00 for each 100 ADSs (or portion thereof) evidenced by the new ADRs delivered

(b) Receiving or distributing dividends	Distribution of dividends	US$0.02 or less per ADS (or portion thereof)

(c) Selling or exercising rights	Distribution or sale of securities, the fee being in an amount equal to the fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities	US$5.00 for each 100 ADSs (or portion thereof)

(d) Withdrawing an underlying security	Acceptance of ADRs surrendered for withdrawal of deposited securities	US$5.00 for each 100 ADSs (or portion thereof) evidenced by the ADRs surrendered

(e) Transferring, splitting or grouping receipts;	Transfers, combining or grouping of depositary receipts	US$1.50 per ADR or ADSs for transfers made

(f) General depositary services, particularly those charged on an annual basis.	• Other services performed by the depositary in administering the ADRs • Provide information about the depositary’s right, if any, to collect fees and charges by offsetting them against dividends received and deposited securities	US$0.02 per ADS (or portion thereof) not more than once each calendar year and payable at the sole discretion of the depositary by billing Holders or by deducting such charge from one or more cash dividends or other cash distributions

(g) Expenses of the depositary	Expenses incurred on behalf of Holders in connection with • Compliance with foreign exchange control regulations or any law or regulation relating to foreign investment • The depositary’s or its custodian’s compliance with applicable law, rule or regulation • Stock transfer or other taxes and other governmental charges • Cable, telex, facsimile transmission/delivery • Expenses of the depositary in connection with the conversion of foreign currency into U.S. dollars (which are paid out of such foreign currency) • Any other charge payable by depositary or its agents	Expenses payable at the sole discretion of the depositary by billing Holders or by deducting charges from one or more cash dividends or other cash distributions.

D4. Fees and Other Payment Made by the Depositary to the Registrant

The following table shows the fees and other direct and indirect payments made by the depositary to us:


Category of Expenses		Amount Reimbursed for Fiscal Year Ended December 31, 2011

—*Broker reimbursements		US$-

Broker reimbursements are fees payable to Broadridge and other service providers for the distribution of hard copy material to beneficial ADR holders in the Depositary Trust Company. Corporate material includes information related to shareholders’ meetings and related voting instruction cards. These fees are SEC approved.

In addition, the depositary has agreed to waive US$100,000 annually for routine program maintenance.

PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies.

None.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.

Use of proceeds

The following “Use of Proceeds” information relates to our registration statement on Form F-1 (Registration No. 333 — 120184), or the Registration Statement, for our initial public offering and sale of 6,400,000 and 3,200,000 American Depositary Shares by our company and the selling shareholders, for an aggregate offering price of US$70.4 million and US$35.2 million, respectively. The Registration Statement was declared effective by the Securities and Exchange Commission on December 1, 2004.

As of March 31, 2012, we have used approximately RMB472 million (US$75.0 million) of the net proceeds from our initial public offering for capital expenditure, comprising approximately RMB80 million (US$12.7 million) for the expansion of existing facilities, approximately RMB78 million (US$12.4 million) for the purchase of real estate for new research and development centers, approximately RMB314 million (US$49.9 million) for strategic investment. None of the net proceeds from our initial public offering included payments to directors or officers of our company, persons owning 10.0% or more of our equity securities or our affiliates.

Item 15. Controls and Procedures.

Evaluation of disclosure controls and procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report, as required by Rule 13a-15(b) under the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2011 in ensuring that that information required to be disclosed by us in the reports that we file or submit under the Exchange Act was recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding any required disclosure.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.

Internal control over financial reporting includes policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of the consolidated financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the company are being made only in accordance with appropriate authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance with respect to consolidated financial statement preparation and presentation, and may not prevent or detect mis-statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Our management with the participation and under the supervision of our Chief Executive Officer and our Chief Financial Officer assessed the effectiveness of our internal control over financial reporting as of December 31, 2011 based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. As a result of these assessments, our management has concluded that our internal control over financial reporting was effective as of December 31, 2011.

Changes in Internal Control over Financial Reporting

We have continued to improve and upgrade our internal control over financial reporting based on our needs and changes in the business environment. We believe that there is no change in our internal control over financial reporting that occurred during the period covered by the annual report that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

Item 16. A. Audit Committee Financial Expert.

See Item 6 of this annual report, “Directors, Senior Management and Employees — Board practices.”

100

Item 16B. Code of Ethics.

Our board of directors has adopted a code of ethics for our Chief Executive Officer and senior financial officers and a code of business conduct and ethics, which is applicable to all of our directors, officers and employees. Our code of ethics and code of business conduct and ethics are publicly available on our website at http://www.ninetowns.com/english, and such codes such codes are filed as exhibits to our annual report on Form 20-F filed with Securities and Exchange Commission on June 29, 2005. The information on our website, which might be accessible through a hyperlink resulting from this URL, is not and shall not be deemed to be incorporated into this annual report. We hereby undertake to provide to any person without charge, a copy of our code of ethics within ten working days after we receive such person’s written request address to our board of directors at the address on the cover page of this annual report.

Item 16C. Principal Accountant Fees and Services.

GHP Horwath, P.C. was our independent registered public accounting firm for the fiscal years ended December 31, 2011, 2010 and 2009.

The following table sets forth the aggregate fees in connection with certain professional services rendered by GHP Horwath, P.C., for the periods indicated. We did not pay any tax related or other fees to GHP Horwath, P.C. during the periods indicated.

For the year ended December 31

2010

2011

2012

Audit fees(1)

RMB 2,970,000

RMB 3,272,828

US$

520,000

Audit related fees(2)

—

Total

RMB 2,970,000

RMB 3,272,828

US$

520,000

(1)	Audit fees consist of fees billed for the annual audit of our consolidated financial statements. Audit fees also include fees for services that are normally provided by the independent registered public accounting firm in connection with statutory regulatory filings or engagements.

(2)	Audit related fees consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements.

Audit Committee Pre-Approval Policy and Procedures

The policy of our audit committee is to pre-approve all audit and non-audit services provided by our independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services, as described above. On an annual basis, our audit committee will review and approve the audit services to be rendered by our independent registered public accounting firm prior to the engagement of the service. Audit services not covered by the annual engagement letter, audit-related services and tax services that are estimated to result in an amount of more than US$10,000 require the express approval of our audit committee prior to engagement. Our audit committee may delegate pre-approval authority to one or more members of our audit committee. The decisions of any audit committee member to whom authority is delegated to pre-approve a service shall be presented to the full audit committee at its next scheduled meeting. Our Chief Financial Officer, Tommy Siu Lun Fork is required to report to our audit committee on a quarterly basis regarding the extent of services actually provided and the fees for the services performed.

Item 16D. Exemptions from the Listing Standards for Audit Committee.

Not applicable.

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

Not applicable.

Item 16F. Change in Registrant’s Certifying Accountant.

Not applicable.

101

Item 16G. Corporate Governance.

We are incorporated in the Cayman Islands and our corporate governance practices are governed by applicable Cayman Islands law. In addition, because our ADSs are listed on the Nasdaq Global Market, we are subject to Nasdaq corporate governance requirements. Nasdaq Marketplace Rule 4350(a)(1) permits foreign private issuers like us to follow “home country practice” with respect to certain corporate governance matters. We are committed to a high standard of corporate governance. We believe that we are currently in compliance with the NASDAQ Marketplace Rules.

PART III

Item 17. Financial Statements.

We have elected to provide financial statements pursuant to Item 18.

Item 18. Financial Statements.

The consolidated financial statements for our company are included at the end of this annual report.

Item 19. Exhibits.


Exhibit Number		Description

1.1*		Amended and Restated Memorandum and Articles of Association of Ninetowns Internet Technology Group Company Limited (incorporated by reference to Exhibit 99.2 from our Form 6-K (File No. 000-51025) filed with Securities and Exchange Commission on October 25, 2006)

2.1*		Specimen American Depositary Receipt of Ninetowns Internet Technology Group Company Limited (incorporated by reference to Exhibit 2.1 from our Annual Report on Form 20-F (Registration No. 000- 51025) filed with Securities and Exchange Commission on June 29, 2005)

2.2*		Specimen Share Certificate of Ninetowns Internet Technology Group Company Limited (incorporated by reference to Exhibit 4.2 from our Registration Statement on Form F-1 (Registration No. 333-120184) filed with Securities and Exchange Commission on November 3, 2004)

4.1*		Shareholders’ Agreement dated October 22, 2003 among Jitter Bug Holdings Limited, AIG Asian Opportunity Fund, L.P., American International Assurance Company (Bermuda) Limited, the shareholders of Ninetowns Internet Technology Group Company Limited (listed on Schedule 1 thereto) and Ninetowns Internet Technology Group Company Limited (incorporated by reference to Exhibit 4.4 from our Registration Statement on Form F-1 (Registration No. 333-120184) filed with Securities and Exchange Commission on November 3, 2004)

4.2*		Form of Termination Agreement among Ninetowns Internet Technology Group Company Limited, Jitter Bug Holdings Limited, AIG Asian Opportunity Fund, L.P., American International Assurance Company (Bermuda) Limited and certain other shareholders of Ninetowns Internet Technology Group Company Limited (incorporated by reference to Exhibit 4.5 from our Registration Statement on Form F-1 (Registration No. 333-120184) filed with Securities and Exchange Commission on November 3, 2004)

4.3*		Form of Lock-up agreement by and among Ninetowns Internet Technology Group Company Limited and certain of its directors, executive officers and shareholders (incorporated by reference to Exhibit 4.6 from our Registration Statement on Form F-1 (Registration No. 333-120184) filed with Securities and Exchange Commission on November 3, 2004)

4.4*		Employee Share Option Scheme (incorporated by reference to Exhibit 10.1 from our Registration Statement on Form F-1 (Registration No. 333-120184) filed with Securities and Exchange Commission on November 3, 2004)

102



4.5*		Amended and Restated 2004 Share Option Plan of Ninetowns Internet Technology Group Company Limited (incorporated by reference to Exhibit 4.5 from our Annual Report on From 20-F (Registration No. 000- 51025) filed with Securities and Exchange Commission on June 29, 2006)

4.6*		2006 Share Incentive Plan of Ninetowns Internet Technology Group Company Limited (incorporated by reference to Exhibit 4.6 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on July 16, 2007)

4.7*		Translation of Form of Software Sales Agreement (incorporated by reference to Exhibit 10.12 from our Registration Statement on Form F-1 (Registration No. 333-120184) filed with Securities and Exchange Commission on November 3, 2004)

4.8*		Deed of Undertaking dated August 13, 2004 by Shuang Wang and Min Dong to AIG Asian Opportunity Fund, L.P. and American International Assurance Company (Bermuda) Limited (incorporated by reference to Exhibit 10.27 from our Registration Statement on Form F-1 (Registration No. 333-120184) filed with Securities and Exchange Commission on November 3, 2004)

4.9*		Sale and Purchase Agreement dated October 3, 2003 among Ninetowns Internet Technology Group Company Limited, Jitter Bug Holdings Limited, UOB Venture (Shenzhen) Limited, Titan I Venture Capital Co., Ltd., Titan II Venture Capital Co., Ltd. and CFM Investments Limited — CFM Greater China Fund (incorporated by reference to Exhibit 10.28 from our Registration Statement on Form F-1 (Registration No. 333-120184) filed with Securities and Exchange Commission on November 3, 2004)

4.10*		Sale and Purchase Agreement dated October 8, 2003 among Ninetowns Internet Technology Group Company Limited, Jitter Bug Holdings Limited, China Equity Associates L.P. and MMFI CAPI Venture Investments Limited (incorporated by reference to Exhibit 10.29 from our Registration Statement on Form F-1 (Registration No. 333-120184) filed with Securities and Exchange Commission on November 3, 2004)

4.11*		Subscription Agreement dated October 8, 2003 between Ninetowns Internet Technology Group Company Limited and Ever Praise Holdings Limited (incorporated by reference to Exhibit 10.30 from our Registration Statement on Form F-1 (Registration No. 333-120184) filed with Securities and Exchange Commission on November 3, 2004)

4.12*		Share Subscription Agreement dated October 9, 2003 among Ninetowns Internet Technology Group Company Limited, Jitter Bug Holdings Limited, AIG Asian Opportunity Fund, L.P., American International Assurance Company (Bermuda) Limited, Mr. Shuang Wang and Ms. Min Dong (incorporated by reference to Exhibit 10.31 from our Registration Statement on Form F-1 (Registration No. 333-120184) filed with Securities and Exchange Commission on November 3, 2004)

4.13*		Sale and Purchase Agreement dated October 16, 2003 among Ninetowns Internet Technology Group Company Limited, Jitter Bug Holdings Limited and Huitung Investments (BVI) Limited (incorporated by reference to Exhibit 10.32 from our Registration Statement on Form F-1 (Registration No. 333-120184) filed with Securities and Exchange Commission on November 3, 2004)

4.14*		Subscription Agreement dated December 11, 2003 among Ninetowns Internet Technology Group Company Limited, Jitter Bug Holdings Limited, Titan I Venture Capital Co., Ltd, Titan II Venture Capital Co., Ltd. and CFM Investments Limited — CFM Greater China Fund (incorporated by reference to Exhibit 10.33 from our Registration Statement on Form F-1 (Registration No. 333-120184) filed with Securities and Exchange Commission on November 3, 2004)

103



4.15*		Subscription Agreement dated December 11, 2003 among Ninetowns Internet Technology Group Company Limited, Jitter Bug Holdings Limited and Ferndale Associates Limited (incorporated by reference to Exhibit 10.34 from our Registration Statement on Form F-1 (Registration No. 333-120184) filed with Securities and Exchange Commission on November 3, 2004)

4.16*		Form of Right of First Refusal Agreement dated as of November 2, 2004 among Ninetowns Internet Technology Group Company Limited, Ninetowns Import & Export e-Commerce Co., Ltd., Shuang Wang and Min Dong (incorporated by reference to Exhibit 10.35 from our Registration Statement on Form F-1 (Registration No. 333-120184) filed with Securities and Exchange Commission on November 3, 2004)

4.17*		Summary of Sale and Purchase Agreement between Beijing Ninetowns Times Electronic Commerce Limited and Dauphin Science Business Park Construction & Development Co., Ltd. of Beijing Zhongguancun Fengtai Science Park (incorporated by reference to Exhibit 4.42 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on June 29, 2005)

4.18*		Summary of form of the Sale and Purchase Agreement between Ninetowns Ports Software and Technology Co., Ltd. and Beijing Heng Fu Plaza Development Co., Ltd. (incorporated by reference to Exhibit 4.43 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on June 29, 2005)

4.19*		Translation of Software Development Contract for Electronic Monitoring System Software Project (Common version for Enterprise) dated August 1, 2005 between State Administration for Quality Supervision and Inspection and Quarantine of the PRC and Ninetowns Ports Software and Technology Co., Ltd. (incorporated by reference to Exhibit 4.57 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on June 29, 2006)

4.20*		Share and Purchase Agreement dated September 3, 2006, among Ninetowns Digital World Trade Holdings Limited, Beprecise Investments Limited, Global Market Group Limited, Global Market Group (Asia) Limited, Global Market (Guangzhou) Co., Ltd., Pan Weijia and Pan Weinian (incorporated by reference to Exhibit 99.4 from our Form 6-K (File No.000-51025) filed with Securities and Exchange Commission on September 22, 2006)

4.21*		Investor’s Rights Agreement dated October 19, 2006, among Beprecise Investments Limited, Global Market Group Limited, Global Market Group (Asia) Limited, Global Market (Guangzhou) Co., Ltd., Pan Weijia and Pan Weinan (incorporated by reference to Exhibit 4.71 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on July 16, 2007)

4.22*		Share and Purchase Agreement dated April 9, 2007, among Ixworth Enterprises Limited, Beijing Ninetowns Network and Software Co., Ltd., Fan Hui Yang, Zhi Sheng Limited, Ample Spring Holdings Limited, Beijing Baichuan Tongda Science and Technology Development Co., Ltd., Zhou Peiji and Zhou Lijun (incorporated by reference to Exhibit 4.72 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on July 16, 2007)

4.23*		Shareholders Agreement dated April 26, 2007, among Ixworth Enterprises Limited, Fan Hui Yang, Zhi Sheng Limited and Ample Spring Holdings Limited (incorporated by reference to Exhibit 4.73 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on July 16, 2007)

104



†4.24*		Translation of Software Copyright Assignment Agreement dated November 10, 2006 between Department Service Center of Dongguan Entry-Exit Inspection and Quarantine Bureau and Ninetowns Ports Software and Technology Co., Ltd. (incorporated by reference to Exhibit 4.74 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on July 16, 2007)

4.25*		Amendment to Share Purchase and Subscription Agreement dated December 22, 2007, among Ixworth Enterprises Limited, Beijing Ninetowns Network and Software Co., Ltd., Fan Hui Yang, Zhi Sheng Limited, Ample Spring Holdings Limited, Beijing Baichuan Tongda Science and Technology Development Co., Ltd., Zhou Peiji and Zhou Lijun (incorporated by reference to Exhibit 4.75 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on July 15, 2008)

4.26*		Translation of Pre-sale Contract for Commodity House in Beijing Municipality dated June 25, 2007 between Beijing Hengfu Plaza Development Co., Ltd. and Ninetowns Ports Software and Technology Co., Ltd. (incorporated by reference to Exhibit 4.76 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on July 15, 2008)

4.27*		Translation of Sale Contract for Commodity House dated September 19, 2007 between Guangzhou Hejing Real Estate Development Co., Ltd. and Guangdong Ninetowns Technology Co., Ltd. (incorporated by reference to Exhibit 4.77 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on July 15, 2008)

4.28*		Translation of Construction Land Use Right Grant Contract dated October 30, 2008 between Beijing Ninetowns Software Co., Ltd. and Beijing Land Resource Bureau, Economic Technological Development Area Branch (incorporated by reference to Exhibit 4.78 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on June 24, 2009)

4.29*		Translation of Supplemental Agreement to Construction Land Use Right Grant Contract dated October 30, 2008 between Beijing Ninetowns Software Co., Ltd. and Beijing Land Resource Bureau, Economic Technological Development Area Branch (incorporated by reference to Exhibit 4.79 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on June 24, 2009)

†4.30*		Translation of Franchise Agreement relating to “Ninetowns Network Quality Supervision Software v1.0” software dated August 1, 2008 between Beijing Ninetowns Network and Software Co., Ltd. and Beijing Ninetowns Zhi Fang Software and Technology Co., Ltd. (incorporated by reference to Exhibit 4.80 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on June 24, 2009)

†4.31*		Translation of Franchise Agreement relating to “Ninetowns Network Quality Supervision Software v1.0” software dated August 1, 2008 between Beijing Ninetowns Network and Software Co., Ltd. and Shenzhen Ninetowns Enke Software Technology Co., Ltd. (incorporated by reference to Exhibit 4.81 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on June 24, 2009)

†4.32*		Translation of Franchise Agreement relating to “Ninetowns Network Quality Supervision Software v1.0” software dated August 1, 2008 between Beijing Ninetowns Network and Software Co., Ltd. and Beijing Ninetowns Xin He Software Technology Co., Ltd. (incorporated by reference to Exhibit 4.82 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on June 24, 2009)

105



†4.33*		Translation of Franchise Agreement relating to “Ninetowns Network Quality Supervision Software v1.0” software dated August 1, 2008 between Beijing Ninetowns Network and Software Co., Ltd. and Guangzhou Ninetowns Wang Li Software Co., Ltd. (incorporated by reference to Exhibit 4.83 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on June 24, 2009)

†4.34*		Translation of Franchise Agreement relating to “iDeclare V5.0” software dated August 1, 2008 between Ninetowns Ports Software and Technology Co., Ltd. and Beijing Ninetowns Zhi Fang Software and Technology Co., Ltd. (incorporated by reference to Exhibit 4.84 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on June 24, 2009)

†4.35*		Translation of Franchise Agreement relating to “iDeclare V5.0” software dated August 1, 2008 between Ninetowns Ports Software and Technology Co., Ltd. and Shenzhen Ninetowns Enke Software Technology Co., Ltd. (incorporated by reference to Exhibit 4.85 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on June 24, 2009)

†4.36*		Translation of Franchise Agreement relating to “iDeclare V5.0” software dated August 1, 2008 between Ninetowns Ports Software and Technology Co., Ltd. and Beijing Ninetowns Xin He Software Technology Co., Ltd. (incorporated by reference to Exhibit 4.86 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on June 24, 2009)

†4.37*		Translation of Franchise Agreement relating to “iDeclare V5.0” software dated August 1, 2008 between Ninetowns Ports Software and Technology Co., Ltd. and Guangzhou Ninetowns Wang Li Software Co., Ltd. (incorporated by reference to Exhibit 4.87 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on June 24, 2009)

†4.38*		Translation of Franchise Agreement relating to “Ninetowns Network Quality Supervision Software v1.0” software dated June 1, 2009 between Beijing Ninetowns Network and Software Co., Ltd. and Beijing Ninetowns Zhi Fang Software and Technology Co., Ltd. (incorporated by reference to Exhibit 4.88 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on June 30, 2010)

4.39#		Translation of Franchise Agreement relating to “Ninetowns Network Quality Supervision Software v1.0” software dated June 1, 2009 between Beijing Ninetowns Network and Software Co., Ltd. and Shenzhen Ninetowns Enke Software Technology Co., Ltd. (incorporated by reference to Exhibit 4.89 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on June 30, 2010)

†4.40*		Translation of Franchise Agreement relating to “Ninetowns Network Quality Supervision Software v1.0” software dated June 1, 2009 between Beijing Ninetowns Network and Software Co., Ltd. and Beijing Ninetowns Xin He Software Technology Co., Ltd. (incorporated by reference to Exhibit 4.90 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on June 30, 2010)

4.41#		Translation of Franchise Agreement relating to “Ninetowns Network Quality Supervision Software v1.0” software dated June 1, 2009 between Beijing Ninetowns Network and Software Co., Ltd. and Guangzhou Ninetowns Wang Li Software Co., Ltd. (incorporated by reference to Exhibit 4.91 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on June 30, 2010)

106



†4.42*		Translation of Franchise Agreement relating to “iDeclare V5.0” software dated October 1, 2009 between Ninetowns Ports Software and Technology Co., Ltd. and Beijing Ninetowns Zhi Fang Software and Technology Co., Ltd. (incorporated by reference to Exhibit 4.92 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on June 30, 2010)

4.43#		Translation of Franchise Agreement relating to “iDeclare V5.0” software dated October 1, 2009 between Ninetowns Ports Software and Technology Co., Ltd. and Shenzhen Ninetowns Enke Software Technology Co., Ltd. (incorporated by reference to Exhibit 4.93 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on June 30, 2010)



†4.44*		Translation of Franchise Agreement relating to “iDeclare V5.0” software dated October 1, 2009 between Ninetowns Ports Software and Technology Co., Ltd. and Beijing Ninetowns Xin He Software Technology Co., Ltd. (incorporated by reference to Exhibit 4.94 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on June 30, 2010)

4.45#		Translation of Franchise Agreement relating to “iDeclare V5.0” software dated October 1, 2009 between Ninetowns Ports Software and Technology Co., Ltd. and Guangzhou Ninetowns Wang Li Software Co., Ltd. (incorporated by reference to Exhibit 4.95 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on June 30, 2010)

4.46*		Translation of Lease Agreement relating to warehouse lease dated January 25, 2010 between Beijing Ninetowns Sky Eco-agriculture Co., Ltd. and Beijing Shunfeng Runlin Technology and Trade Co., Ltd. (incorporated by reference to Exhibit 4.96 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on June 30, 2010)

4.47*		Translation of Sublease Agreement relating to land sublease dated June 29, 2010, between Beijing Ninetowns Sky Eco-Agriculture Co., Ltd. and Beijing Huaixiang Xiandai Agriculture Technology Co., Ltd. (incorporated by reference to Exhibit 4.97 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on June 30, 2010)

†4.48*		Translation of Franchise Agreement relating to “iQs” software dated April 1, 2010 between Ninetowns Ports Software and Technology Co., Ltd. and Beijing Ninetowns Zhi Fang Software and Technology Co., Ltd.

†4.49*		Translation of Franchise Agreement relating to “iQs” software dated April 1, 2010 between Ninetowns Ports Software and Technology Co., Ltd. and Beijing Ninetowns Zhi Fang Software Technology Co., Ltd. Shanghai Branch

†4.50*		Translation of Franchise Agreement relating to “iQs” software dated April 1, 2010 between Ninetowns Ports Software and Technology Co., Ltd. and Shenzhen Ninetowns Enke Software Technology Co., Ltd.

†4.51*		Translation of Franchise Agreement relating to “iQs” software dated April 1, 2010 between Ninetowns Ports Software and Technology Co., Ltd. and Beijing Ninetowns Xin He Software Technology Co., Ltd.

†4.52*		Translation of Franchise Agreement relating to “iQs” software dated April 1, 2010 between Ninetowns Ports Software and Technology Co., Ltd. and Guangzhou Ninetowns Wang Li Software Co., Ltd.

†4.53*		Translation of Franchise Agreement relating to “iDeclare V5.0” software dated October 1, 2010 between Ninetowns Ports Software and Technology Co., Ltd. and Beijing Ninetowns Zhi Fang Software and Technology Co., Ltd.

107



†4.54*		Translation of Franchise Agreement relating to “iDeclare V5.0” software dated October 1, 2010 between Ninetowns Ports Software and Technology Co., Ltd. and Beijing Ninetowns Zhi Fang Software Technology Co., Ltd. Shanghai Branch

†4.55*		Translation of Franchise Agreement relating to “iDeclare V5.0” software dated October 1, 2010 between Ninetowns Ports Software and Technology Co., Ltd. and Shenzhen Ninetowns Enke Software Technology Co., Ltd.

†4.56*		Translation of Franchise Agreement relating to “iDeclare V5.0” software dated October 1, 2010 between Ninetowns Ports Software and Technology Co., Ltd. and Beijing Ninetowns Xin He Software Technology Co., Ltd.

†4.57*		Translation of Franchise Agreement relating to “iDeclare V5.0” software dated October 1, 2010 between Ninetowns Ports Software and Technology Co., Ltd. and Guangzhou Ninetowns Wang Li Software Co., Ltd.

†4.58*		Translation of Franchise Agreement relating to “iQs” software dated January 1, 2011 between Ninetowns Ports Software and Technology Co., Ltd. and Beijing Ninetowns Zhi Fang Software and Technology Co., Ltd.

†4.59*		Translation of Franchise Agreement relating to “iQs” software dated January 1, 2011 between Ninetowns Ports Software and Technology Co., Ltd. and Beijing Ninetowns Zhi Fang Software Technology Co., Ltd. Shanghai Branch

†4.60*		Translation of Franchise Agreement relating to “iQs” software dated January 1, 2011 between Ninetowns Ports Software and Technology Co., Ltd. and Shenzhen Ninetowns Enke Software Technology Co., Ltd.

†4.61*		Translation of Franchise Agreement relating to “iQs” software dated January 1, 2011 between Ninetowns Ports Software and Technology Co., Ltd. and Beijing Ninetowns Xin He Software Technology Co., Ltd.

†4.62*		Translation of Franchise Agreement relating to “iQs” software dated January 1, 2011 between Ninetowns Ports Software and Technology Co., Ltd. and Guangzhou Ninetowns Wang Li Software Co., Ltd.

4.63*		Translation of Dalian Aviation Research and Testing Center Project Cooperation Agreement dated January 25, 2011 between Ninetowns Ports Software and Technology Co., Ltd. and Aviation Wanyuan Industry Co., Ltd.

4.64*		Translation of State-owned Construction Land Use Right Grant Contract dated April 7, 2011 between Huainan Municipal Bureau of Land and Resources and Huainan Huacheng Estate Co., Ltd.

4.65*		Translation of State-owned Construction Land Use Right Grant Contract (Parcel 10) dated April 29, 2011 between Dalian Municipal Bureau of Land and Resources and Dalian Aviation Changzheng Technology Development Co., Ltd.

4.66*		Translation of State-owned Construction Land Use Right Grant Contract (Parcel 11) dated April 29, 2011 between Dalian Municipal Bureau of Land and Resources and Dalian Aviation Changzheng Technology Development Co., Ltd.

4.67*		Translation of Debt Repayment Agreement dated June 22, 2011 between Ninetowns Ports Software and Technology Co., Ltd. and Beijing Ninetowns Xin He Software Technology Co., Ltd.

4.68*		Translation of Debt Repayment Agreement dated June 22, 2011 between Ninetowns Ports Software and Technology Co., Ltd. and Beijing Ninetowns Zhi Fang Software Technology Co., Ltd.

108



4.69*		Translation of Debt Repayment Agreement dated June 22, 2011 between Ninetowns Ports Software and Technology Co., Ltd. and Guangzhou Ninetowns Wang Li Software Co., Ltd.

†4.70		Translation of Franchise Agreement relating to “iQs” software dated January 1, 2012 between Ninetowns Ports Software and Technology Co., Ltd. and Beijing Ninetowns Zhi Fang Software and Technology Co., Ltd.

†4.71		Translation of Franchise Agreement relating to “iQs” software dated January 1, 2012 between Ninetowns Ports Software and Technology Co., Ltd. and Beijing Ninetowns Zhi Fang Software Technology Co., Ltd. Shanghai Branch

†4.72		Translation of Franchise Agreement relating to “iQs” software dated January 1, 2012 between Ninetowns Ports Software and Technology Co., Ltd. and Shenzhen Ninetowns Enke Software Technology Co., Ltd.

†4.73		Translation of Franchise Agreement relating to “iQs” software dated January 1, 2012 between Ninetowns Ports Software and Technology Co., Ltd. and Beijing Ninetowns Xin He Software Technology Co., Ltd.

†4.74		Translation of Franchise Agreement relating to “iQs” software dated January 1, 2012between Ninetowns Ports Software and Technology Co., Ltd. and Guangzhou Ninetowns Wang Li Software Co., Ltd.

†4.75		Translation of Franchise Agreement relating to “iDeclare V5.0” software dated January 1, 2012 between Ninetowns Ports Software and Technology Co., Ltd. and Beijing Ninetowns Zhi Fang Software and Technology Co., Ltd.

†4.76		Translation of Franchise Agreement relating to “iDeclare V5.0” software dated January 1, 2012 between Ninetowns Ports Software and Technology Co., Ltd. and Beijing Ninetowns Zhi Fang Software Technology Co., Ltd. Shanghai Branch

†4.77		Translation of Franchise Agreement relating to “iDeclare V5.0” software dated January 1, 2012 between Ninetowns Ports Software and Technology Co., Ltd. and Shenzhen Ninetowns Enke Software Technology Co., Ltd.

†4.78		Translation of Franchise Agreement relating to “iDeclare V5.0” software dated January 1, 2012 between Ninetowns Ports Software and Technology Co., Ltd. and Beijing Ninetowns Xin He Software Technology Co., Ltd.

†4.79		Translation of Franchise Agreement relating to “iDeclare V5.0” software dated January 1, 2012 between Ninetowns Ports Software and Technology Co., Ltd. and Guangzhou Ninetowns Wang Li Software Co., Ltd.

†4.80		Translation of Trust Agreement dated June 28, 2011 between Ninetowns Ports Software and Technology Co., Ltd. and Zhongcheng Trust Co., Ltd.

†4.81		Translation of Creditor’s Rights Assignment Agreement dated June 28, 2011 among Ninetowns Ports Software and Technology Co., Ltd., Zhongcheng Trust Co., Ltd. and Huainan Huacheng Estate Co., Ltd.

†4.82		Translation of Capital Increase Agreement dated June 28, 2011 among Huainan Ninetowns Suitable Estate Co., Ltd., Zhongcheng Trust Co., Ltd. and Ninetowns Ports Software and Technology Co., Ltd.

†4.83		Translation of Cooperation Agreement for Shouchuang Caifu Ninetowns (Tianjin) Equity Investment Fund Partnership (Limited Liability Partnership) dated October 21, 2011 among Shouchuang Huaxia (Tianjin) Equity Investment Fund Partnership (Limited Liability Partnership), Shouchuang Caifu Gengyin (Tianjin) Equity Investment Fund Partnership (Limited Liability Partnership) and Beijing Ronghe Zhihui Network Software Services Co., Ltd.

109



†4.84		Translation of Supplemental Agreement to Three Parties Partnership Agreement dated October 21, 2011 among Shouchuang Huaxia (Tianjin) Equity Investment Fund Partnership (Limited Liability Partnership), Shouchuang Caifu Gengyin (Tianjin) Equity Investment Fund Partnership (Limited Liability Partnership) and Beijing Ronghe Zhihui Network Software Services Co., Ltd.

†4.85		Translation of First Beneficiary General Meeting Resolutions of 2011 Zhongcheng Trust Huainan Ninetowns Investment Portfolio Trust Scheme dated February 3, 2012 by Zhongcheng Trust Co., Ltd.

†4.86		Translation of Supplemental Agreement to Creditor’s Rights Assignment Agreement dated February 3, 2012 among Ninetowns Ports Software and Technology Co., Ltd., Zhongcheng Trust Co., Ltd. and Huainan Huacheng Estate Co., Ltd.

†4.87		Translation of Equity Transfer Agreement dated March 19, 2012 between Zhongcheng Trust Co., Ltd. and Ninetowns Ports Software and Technology Co., Ltd.

†4.88		Translation of Supplemental Agreement to Equity Transfer Agreement dated March 19, 2012 between Zhongcheng Trust Co., Ltd. and Ninetowns Ports Software and Technology Co., Ltd.

8.1		Subsidiaries of Ninetowns Internet Technology Group Company Limited

11.1*		Code of Business Conduct and Ethics (incorporated by reference to Exhibit 11.1 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on June 29, 2005)

11.2*		Code of Ethics for Chief Executive Officer and Senior Financial Officers (incorporated by reference to Exhibit 11.2 from our Annual Report on Form 20-F (Registration No. 000-51025) filed with Securities and Exchange Commission on June 29, 2005)

12.1		Certification of principal executive officer pursuant to SEC Rule 13a-14(a)

12.2		Certification of principal financial officer pursuant to SEC Rule 13a-14(a)

13.1		Certification of principal executive officer pursuant to SEC Rule 13a-14(b)

13.2		Certification of principal financial officer pursuant to SEC Rule 13a-14(b)

15.1		Consent of GHP Horwath, P.C.

15.2		Consent of Commerce & Finance Law Offices

101.INS**		XBRL Instance Document

101.SCH**		XBRL Taxonomy Extension Schema Document

101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF**		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB**		XBRL Taxonomy Extension Label Linkbase Document

101.PRE**		XBRL Taxonomy Extension Presentation Linkbase Document

*	Previously filed with the relevant Registration Statement on Form F-1, with the relevant Annual Report on Form 20-F or with the relevant Periodic Report on Form 6-K.

†	Certain portions of this Exhibit have been omitted based upon a request for confidential treatment. The omitted portions have been separately submitted to the Securities and Exchange Commission.

#	This Exhibit, which was previously filed is replaced by the Exhibit furnished along with this annual report.

XBRL (eXtensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.XBRL.

110

Signatures

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

Date: April 27, 2012

111

NINETOWNS INTERNET TECHNOLOGY GROUP COMPANY LIMITED

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Report of independent registered public accounting firm			F - 2

Consolidated balance sheets as of December 31, 2010 and 2011			F - 3

Consolidated statements of operations for the years ended December 31, 2009, 2010 and 2011			F - 5

Consolidated statements of comprehensive income (loss) for the years ended December 31, 2009, 2010 and 2011			F - 7

Consolidated statements of changes in equity for the years ended December 31, 2009, 2010 and 2011			F - 8

Consolidated statements of cash flows for the years ended December 31, 2009, 2010 and 2011			F - 9

Notes to consolidated financial statements			F - 11

Schedule I - Condensed financial information of the parent company			F - 41

F - 1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Ninetowns Internet Technology Group Company Limited

We have audited the accompanying consolidated balance sheets of Ninetowns Internet Technology Group Company Limited and subsidiaries (the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows and the financial statement schedule for each of the three years in the period ended December 31, 2011. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America. In our opinion, the related financial statement schedule, when considered in relation to the basic financial statement taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ GHP HORWATH, P.C.

Denver, Colorado

April 27, 2012

F - 2

NINETOWNS INTERNET TECHNOLOGY GROUP COMPANY LIMITED

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)


	As of December 31,
	2010		2011		2011
	RMB		RMB		US$

ASSETS
Current assets:
Cash and cash equivalents		500,618		257,345		40,888
Restricted cash		245		88		14
Short-term investments
Trading securities		523		708		112
Available-for-sale securities		231,339		245,090		38,941
Term deposits		8,154		5,088		808
Trade receivables:
Billed, less allowance for doubtful accounts of RMB34,001 in 2010 and RMB4,378 in 2011		1,488		2,449		389
Unbilled		554		1,472		234
Inventories		2,161		3,146		500
Amounts due from related parties		—		1,248		198
Prepaid expenses and other current assets		7,503		8,561		1,360
Deferred tax assets		794		311		50

Total current assets		753,379		525,506		83,494

Real estate property under development		—		305,469		48,534
Property and equipment, net		188,481		179,265		28,483
Investments under cost method		15,481		11,590		1,841
Investments under equity method		—		230,579		36,635
Acquired intangible assets, net		31,666		29,258		4,649
Other non-current assets		577		457		73

TOTAL ASSETS		989,584		1,282,124		203,709

(continued)

F - 3

NINETOWNS INTERNET TECHNOLOGY GROUP COMPANY LIMITED

CONSOLIDATED BALANCE SHEETS (continued)

(In thousands, except share and per share data)


	As of December 31,
	2010			2011			2011
	RMB			RMB			US$

LIABILITIES AND EQUITY

Current liabilities:
Option liabilities		4,560			7,932			1,260
Accounts payable and accrued expenses		12,552			16,442			2,612
Advances from customers		5,919			9,951			1,581
Deferred revenue		10,699			14,332			2,277
Income taxes payable		316			640			102
Other taxes payable		984			1,537			244
Unrecognized tax liabilities		621			829			132

Total current liabilities		35,651			51,663			8,208

Non-current liabilities:
Deferred subsidies		—			240,240			38,170
Deferred tax liabilities		342			51			8
Unrecognized tax liabilities		4,766			4,766			757

Total liabilities		40,759			296,720			47,143


Equity:
Shareholders’ equity of the Company
Ordinary shares, par value RMB0.027(HK$0.025) per share: 8,000,000,000 shares authorized; 36,742,832 shares issued and outstanding in 2010 and 37,538,161 shares issued and outstanding in 2011, respectively		965			982			156
Additional paid-in capital		916,719			923,829			146,782
Accumulated deficit		(23,414	)		(20,732	)		(3,294	)
Statutory reserve		77,635			78,478			12,469
Accumulated other comprehensive loss		(23,080	)		(47,137	)		(7,489	)

Total equity of the Company		948,825			935,420			148,624

Non-controlling interest		—			49,984			7,942

Total equity		948,825			985,404			156,566

TOTAL LIABILITIES AND EQUITY		989,584			1,282,124			203,709

See notes to consolidated financial statements.

F - 4

NINETOWNS INTERNET TECHNOLOGY GROUP COMPANY LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)


	Years Ended December 31,
	2009			2010			2011			2011
	RMB			RMB			RMB			US$

Net revenues:
Enterprise software and related maintenance services		58,387			49,650			61,014			9,694
Software development services		17,363			23,809			5,963			947
Food sales and services		3,889			5,448			8,239			1,309

Total net revenues		79,639			78,907			75,216			11,950


Cost of revenues:
Enterprise software and related maintenance services		—			—			—			—
Software development services (including share-based compensation expense of RMB51 in 2009, RMB8 in 2010 and RMB21 in 2011)		(11,552	)		(10,144	)		(2,281	)		(362	)
Food sales and services		(6,308	)		(6,910	)		(8,452	)		(1,343	)

Total cost of revenues		(17,860	)		(17,054	)		(10,733	)		(1,705	)



Gross profit		61,779			61,853			64,483			10,245

Operating expenses:
Selling and marketing (including share-based compensation expense of RMB787 in 2009, RMB607 in 2010 and RMB347 in 2011)		(13,771	)		(16,663	)		(22,493	)		(3,574	)
General and administrative (including share-based compensation expense of RMB3,297 in 2009, RMB26,741 in 2010 and RMB4,127 in 2011)		(62,030	)		(89,531	)		(79,354	)		(12,608	)
Research and development (including share-based compensation expense of RMB332 in 2009, RMB4,354 in 2010 and RMB2,632 in 2011)		(17,373	)		(15,695	)		(11,042	)		(1,754	)
Allowance for doubtful accounts, net		(26,204	)		(2,585	)		6,841			1,087

Total operating expenses		(119,378	)		(124,474	)		(106,048	)		(16,849	)

(continued)

F - 5

NINETOWNS INTERNET TECHNOLOGY GROUP COMPANY LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS (continued)

(In thousands, except share and per share data)


	Years Ended December 31,
	2009			2010			2011			2011
	RMB			RMB			RMB			US$
Loss from operations		(57,599	)		(62,621	)		(41,565	)		(6,604	)
Interest income		4,274			3,686			1,922			305
Gain on sales of short-term investments		35,474			65,146			32,689			5,194
Change in fair value of marketable options		27,684			(18,211	)		7,252			1,152
Gain (loss) on investment under cost method		—			12,153			(3,373	)		(536	)
Income from equity method investments		—			—			1,639			260
Other income		3,911			13,448			5,994			952


Income before income tax and non-controlling interest		13,744			13,601			4,558			723

Income tax expense		(4,100	)		(878	)		(1,048	)		(167	)

Income from continuing operations before non-controlling interest		9,644			12,723			3,510			556

Discontinued operations:
Loss from discontinued operations, including loss on disposal of discontinued operations of RMB nil in 2009 and RMB1,808 in 2010		(8,401	)		(398	)		—			—
Income tax		—			—			—			—

Loss from discontinued operations, net of tax		(8,401	)		(398	)		—			—

Net income		1,243			12,325			3,510			556

Net loss attributable to non-controlling interest		89			—			15			2

Net income attributable to the Company		1,332			12,325			3,525			558


Income from continuing operations per share:
Basic		0.28			0.35			0.09			0.01

Diluted		0.28			0.34			0.09			0.01


Loss from discontinued operations per share:
Basic		(0.24	)		(0.01	)		—			—

Diluted		(0.24	)		(0.01	)		—			—


Income attributable to the Company per share:
Basic		0.04			0.34			0.09			0.01

Diluted		0.04			0.33			0.09			0.01

Weighted average number of shares used in computation:
Basic		35,100,194			35,800,428			37,443,657			37,443,657
Diluted		35,100,194			37,291,534			40,465,449			40,465,449

See notes to consolidated financial statements.

F - 6

NINETOWNS INTERNET TECHNOLOGY GROUP COMPANY LIMITED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, except share and per share data)


	Years Ended December 31,
	2009			2010			2011			2011
	RMB			RMB			RMB			US$
Net income		1,243			12,325			3,510			556
Foreign currency translation loss		(5	)		(10,572	)		(15,004	)		(2,384	)
Unrealized gain (loss) on available-for-sale securities		16,451			(7,063	)		(9,053	)		(1,438	)

Comprehensive income (loss)		17,689			(5,310	)		(20,547	)		(3,266	)

Less: comprehensive (loss) attributable to the non-controlling interest		(89	)		—			(15	)		(2	)

Comprehensive income (loss) attributable to the Company		17,778			(5,310	)		(20,532	)		(3,264	)

See notes to consolidated financial statements.

F - 7

NINETOWNS INTERNET TECHNOLOGY GROUP COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands, except share and per share data)


								Retained Earnings (Accumulated					Accumulated Other Comprehensive
					Additional Paid-in											Non- Controlling Interest
	Ordinary Shares				Additional Paid-in						Statutory
	Shares		Amount		Capital			Deficit)			Reserve		(Loss) Income						Total
			RMB		RMB			RMB			RMB		RMB			RMB			RMB
Balance as of January 1, 2009		34,998,020		926		880,581			(25,172	)		65,736		(21,891	)		—			900,180
Issuance of ADR shares for the exercises of employee share options		120,536		3		(3	)		—			—		—			—			—
Provision for statutory reserve		—		—		—			(9,323	)		9,323		—			—			—
Net income (loss)		—		—		—			1,332			—		—			(89	)		1,243
Foreign currency translation adjustments		—		—		—			—			—		(5	)		—			(5	)
Employee share options compensation		—		—		4,467			—			—		—			—			4,467
Unrealized gain on available-for-sale securities		—		—		—			—			—		16,451			—			16,451

Balance as of December 31, 2009		35,118,556		929		885,045			(33,163	)		75,059		(5,445	)		(89	)		922,336
Issuance of ADR shares for the exercises of employee share options		1,624,276		36		(36	)		—			—		—			—			—
Provision for statutory reserve		—		—		—			(2,576	)		2,576		—			—			—
Sale of non-controlling interest		—		—		—			—			—		—			89			89
Net income		—		—		—			12,325			—		—			—			12,325
Foreign currency translation adjustments		—		—		—			—			—		(10,572	)		—			(10,572	)
Employee share options compensation		—		—		31,710			—			—		—			—			31,710
Unrealized loss on available-for-sale securities		—		—		—			—			—		(7,063	)		—			(7,063	)

Balance as of December 31, 2010		36,742,832		965		916,719			(23,414	)		77,635		(23,080	)		—			948,825
Issuance of ADR shares for the exercises of employee share options		795,329		17		(17	)		—			—		—			—			—
Capital invested in Dalian Changzheng		—		—		—			—			—		—			49,999			49,999
Provision for statutory reserve		—		—		—			(843	)		843		—			—			—
Net income (loss)		—		—		—			3,525			—		—			(15	)		3,510
Foreign currency translation adjustments		—		—		—			—			—		(15,004	)		—			(15,004	)
Employee share options compensation		—		—		7,127			—			—		—			—			7,127
Unrealized loss on available-for-sale securities		—		—		—			—			—		(9,053	)		—			(9,053	)

Balance as of December 31, 2011		37,538,161		982		923,829			(20,732	)		78,478		(47,137	)		49,984			985,404

				US$156		US$146,782			(US$3,294	)		US$12,469		(US$7,489	)		US$7,942			US$156,566

See notes to consolidated financial statements.

F - 8

NINETOWNS INTERNET TECHNOLOGY GROUP COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except share and per share data)


	Years Ended December 31,
	2009			2010			2011			2011
	RMB			RMB			RMB			US$
Cash flows from operating activities:
Net income		1,243			12,325			3,510			556
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Loss on disposal of property and equipment		658			1,031			38			6
Depreciation of property and equipment		16,916			17,321			16,541			2,628
Amortization of other non-current assets		116			102			122			19
Amortization of acquired intangible assets		5,560			4,043			3,503			557
Gain on sale of trading securities		(6,881	)		(4,012	)		(698	)		(111	)
Loss on the change in fair value of trading securities		—			—			1,173			186
(Gain) loss on sale of available-for-sale securities		(14,461	)		1,656			(39	)		(6	)
Gain on investment under cost method		—			(18,317	)		(920	)		(146	)
Impairment recognized on investments under cost method		—			—			3,373			536
Income from equity method investment		—			—			(1,639	)		(260	)
Allowance for doubtful accounts		27,020			2,585			(6,842	)		(1,087	)
Loss on disposal of subsidiary		—			2,028			—			—
Employee share-based compensation		4,467			31,710			7,127			1,132
Gain from short sale of stock options		(41,810	)		(45,988	)		(37,942	)		(6,029	)
Changes in operating assets and liabilities:
Trade receivables		(10,438	)		7,251			4,963			789
Amounts due from related parties		—			—			(1,248	)		(198	)
Inventories		(1,036	)		124			(986	)		(157	)
Real estate property under development		—			—			(305,469	)		(48,534	)
Prepaid expenses and other current assets		821			52			(441	)		(70	)
Accounts payable and accrued expenses		(2,180	)		6,325			4,312			685
Advance from customers		2,166			(4,309	)		4,032			641
Deferred revenue and deferred subsidies		(10,939	)		650			243,257			38,650
Income taxes payable		5,232			(6,015	)		533			85
Other taxes payable		(963	)		450			553			88
Deferred taxes, net		(1,969	)		(158	)		193			31

Net cash (used in) provided by operating activities		(26,478	)		8,854			(62,994	)		(10,009	)


Cash flows from investing activities:
(Increase) decrease in restricted cash		(120	)		545			157			25
Decrease in term deposits		3,000			16,846			3,066			487
Payments to acquire investments		—			—			(228,940	)		(36,375	)
Cash paid for business acquisition, net of cash acquired		—			—			(2,200	)		(350	)
Proceeds from sale of trading securities		20,126			38,490			47,175			7,495
Purchase of trading securities		(14,162	)		(34,083	)		(47,835	)		(7,600	)
Purchases of available-for-sale securities		(306,648	)		(248,058	)		(334,560	)		(53,156	)
Proceeds from sale of available-for-sale securities		177,179			173,693			302,171			48,010
Proceeds from options		53,673			36,663			41,613			6,612
Purchase of property and equipment		(10,778	)		(4,896	)		(6,489	)		(1,031	)
Proceeds from sale of property and equipment		872			77			138			22
Dividends received on investment		—			6,134			920			146
Proceeds from disposal of investments under cost method		—			36,301			—			—
Proceeds from disposal of subsidiaries		—			2,699			—			—
Cash disposed of on sale of subsidiaries		—			(2,650	)		—			—

Net cash (used in) provided by investing activities		(76,858	)		21,761			(224,784	)		(35,715	)

(continued)

F - 9

NINETOWNS INTERNET TECHNOLOGY GROUP COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(In thousands, except share and per share data)


	Years Ended December 31,
	2009			2010			2011			2011
	RMB			RMB			RMB			US$
Cash flows from financing activities:
Capital contributed by non-controlling interest								49,523			7,869

Net cash provided by financing activities		—			—			49,523			7,869


Effect of exchange rate changes on cash		142			(3,445	)		(5,018	)		(797	)

Net (decrease) increase in cash and cash equivalents		(103,194	)		27,170			(243,273	)		(38,652	)
Cash and cash equivalents at the beginning of the year		576,642			473,448			500,618			79,540
											—

Cash and cash equivalents at the end of the year		473,448			500,618			257,345			40,888


Supplemental disclosure of non-cash investing activities:
Other receivable for sale of property and equipment		642			—			—			—

Supplemental cash flow information:
Cash paid during the year for income taxes		881			1,820			326			52

See notes to consolidated financial statements.

F - 10

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES

Ninetowns Internet Technology Group Company Limited (“Ninetowns”) was incorporated in the Cayman Islands as an exempted limited liability company on February 8, 2002 under the Companies Law of the Cayman Islands. Substantially all of Ninetowns’ business is conducted in the People’s Republic of China (the “PRC”) through its subsidiaries and variable interest entity (“VIE”). Ninetowns, its subsidiaries, and its VIE (collectively, the “Company”) are principally engaged in (i) the sale of enterprise software and the provision of the related after-sales maintenance services, (ii) software development services, (iii) from April 2007 to March 2009, Business to Business (“B2B”) search engine operations and the provision of B2B search services, (iv) beginning in the first half of 2009, food sales and services targeting Chinese consumers, and (v) beginning in the first half of 2011, real estate development.

As of December 31, 2011, a summary of the subsidiaries and VIE of Ninetowns was as follows:


Name of entity	Place of incorporation/ establishment	Effective ownership interest		Principal activities
Subsidiaries:

Ixworth Enterprises Limited	British Virgin Islands (“BVI”)		100%	Investment holding

Asia Pacific Logistics Limited	BVI		100%	Investment holding

Better Chance International Limited	BVI		100%	Investment holding

Beprecise Investments Limited	BVI		100%	Investment holding

Ample Spring Holdings Limited	BVI		70%	Inactive

New Take Limited	Hong Kong		100%	Investment holding

Shielder Limited	Hong Kong		100%	Investment holding

Ninetowns Land Group Limited (“Ninetowns Land”)	BVI		100%	Inactive

China Genotown Development Holding Limited (“Genotown”)	BVI		100%	Inactive

Ninetowns Organic Agricultural Holdings Limited	BVI		100%	Inactive

Beijing New Take Electronic Commerce Limited (“Beijing New Take”)	PRC		100%	Inactive

Beijing Ninetowns Times Electronic Commerce Limited (“Beijing Ninetowns Times”)	PRC		100%	Inactive

Beijing Ninetowns Ports Software and Technology Co., Ltd (“Beijing Ninetowns Ports”)	PRC		100%	Sale of enterprise software and provision of the related after-sales services, and provision of software development services

F - 11

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES-continued


Name of entity	Place of incorporation/ establishment	Effective ownership interest		Principal activities

Beijing Ninetowns Suitable Estate Co., Limited (“Ninetowns Suitable Estate”)	PRC		100%	Sale of enterprise software and provision of the related after-sales services, and provision of technical consulting services

Guangdong Ninetowns Technology Co., Ltd. (“Guangdong Ninetowns”)	PRC		100%	Sale of enterprise software and provision of the related after-sales services, and provision of software development services

Beijing Ninetowns Software Co., Ltd. (“Beijing Software”)	PRC		100%	Inactive

Dongguan Ninetowns Software Co., Ltd. (“Dongguan Software”)	PRC		100%	Provision of enterprise software services

Dalian Aviation Changzheng Technology Development Co., Ltd. (“Dalian Changzheng”) (i)	PRC		70%	Real estate development

Beijing Ronghe Zhihui Network Software Services Co., Ltd. (“Beijing Ronghe Zhihui”) (ii)	PRC		100%	Sale of enterprise software, provision of technical development services, and provision of technical consulting services

VIE and its subsidiaries:

Beijing Ronghe Tongshang Network Technology Limited (“Ronghe Tongshang”)	PRC		100%	Investment holding

Beijing Ninetowns Sky Eco-agriculture Co., Ltd. (“Beijing Sky”) (a wholly-owned subsidiary of Ronghe Tongshang)	PRC		100%	Sale of dietary products, daily necessities, home appliances and crop cultivation

Beijing Huaixiang Modern Agriculture Technology Co., Ltd., (“Huaixiang Modern Agriculture”) (a wholly-owned subsidiary of Beijing Sky) (iii)	PRC		100%	Crop and seedling cultivation, agricultural technology development, technical services and consulting, landscape design, sale of fresh fruits and vegetables

Beijing Ronghe Tongshang Electronic Business Co., Ltd. (“Beijing Ronghe Dianzi”) (a wholly-owned subsidiary of Ronghe Tongshang) (iv)	PRC		100%	Cultivation and sale of crops and technical consultation and services related to agricultural sales

(i)	Dalian Changzheng was incorporated by Beijing Ninetowns Ports and a third party on February 24, 2011. Dalian Changzheng is owned 70% by Beijing Ninetowns Ports and 30% by the third party.

(ii)	Beijing Ronghe Zhihui, a wholly-owned subsidiary of the Company, was incorporated on April 22, 2011.

(iii)

Huaixiang Modern Agriculture, a wholly-owned subsidiary of the VIE, was purchased on August 30, 2011.

(iv)	Beijing Ronghe Dianzi, a wholly-owned subsidiary of the VIE, was incorporated on August 5, 2011.

F - 12

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES-continued

PRC regulations prohibit direct foreign ownership of business entities that provide internet content, or ICP, services in the PRC, such as the business of providing online solutions for international trade. In December 2006, Ronghe Tongshang was established in the PRC by three designated equity owners who are PRC citizens and legally own Ronghe Tongshang. Pursuant to a series of contractual arrangements with Ronghe Tongshang, the Company provides exclusive technical consulting and management services to Ronghe Tongshang. A summary of the major terms of the agreements are as follows:

•

The Company has the sole discretion to determine the amount of the fees it will receive and it intends to transfer substantially all of the economic benefits of Ronghe Tongshang to the Company;

•

The Company provides guarantees on the execution of all business contracts entered by Ronghe Tongshang in its business operation. Ronghe Tongshang pledges its assets to the Company as collateral for such guarantees.

•

The Company may dispose of the collateralized registered capital at its sole discretion without limitation or restriction. The Company has the right and sole discretion to purchase all or part of the registered capital from equity owners when such purchase becomes legally allowable;

•

The equity owners may not dispose of or enter into any other agreements involving the common shares without prior agreement by the Company.

Through December 31, 2011, Ronghe Tongshang has not yet entered into any business contracts that would require guarantees from the Company.

In 2008, the Company entered into a series of agreements with Beijing Guochuangwanwei Information Technology Limited Company (“Guochuang”), under which the Company, through Guochuang, increased the registered capital of Ronghe Tongshang through an entrusted loan of RMB60,000 to Guochuang. The three original shareholders of Ronghe Tongshang, also entered into agreements with Guochuang whereby Guochuang became the sole shareholder of Ronghe Tongshang. Guochuang’s interest in Ronghe Tongshang has been pledged to the Company as collateral for the entrusted loan.

In 2009, Guochuang entered into a series of agreements with two designated PRC citizens, by which the entrusted loan of RMB60,000 was transferred from Guangchuang to these two owners (“New Owners”). The New Owners became the shareholders of Ronghe Tongshang and their interests in Ronghe Tongshang have been pledged to the Company as collateral for the entrusted loan. The New Owners act as the nominee shareholders and have contractually agreed not to make any decision regarding Ronghe Tongshang’s operations and business without the Company’s consent. In addition, the Company is obliged to absorb the expected losses and is entitled to receive the expected residual returns of Ronghe Tongshang.

The above arrangements assigned all of the equity owners’ rights and obligations to the Company, resulting in (i) the equity owners lacking the ability to make decisions that have a significant effect on Ronghe Tongshang’s operations, and (ii) the Company’s ability to extract the profits from the operations of Ronghe Tongshang, and to assume Ronghe Tongshang’s residual benefits. Because the Company is the sole variable interest holder of Ronghe Tongshang, it is the primary beneficiary of Ronghe Tongshang. Accordingly, the Company has consolidated the results of Ronghe Tongshang since its inception.

Through March, 2009, the Company conducted its B2B business through Ronghe Tongshang and Beijing Baichuan Tongda Science and Technology Development Co., Ltd., (“Baichuan Tongda”), also a VIE of the Company. In conjunction with the Company’s overall strategy to exit the B2B business, the underlying contractual relationship with Baichuan Tongda was terminated in August 2010 (Note 3).

F - 13

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES-continued

Financial positions and operating results for the VIE are summarized below:


	As of December 31,
	2010			2011
	RMB			RMB
Total assets		37,098			29,975
Total liabilities (consisting primarily of other current liabilities)		(2,668	)		(11,279	)


	Years Ended December 31,
	2009			2010			2011
	RMB			RMB			RMB
Total net revenues		4,136			5,448			8,239
Total net loss		(9,038	)		(14,542	)		(19,048	)

2.	SUMMARY OF PRINCIPAL ACCOUNTING POLICIES

Basis of presentation - The consolidated financial statements of the Company have been prepared in accordance with the accounting principles generally accepted in the United States of America (“US GAAP”). All amounts in the accompanying consolidated financial statements and the related notes are expressed in Renminbi (“RMB”). The amounts expressed in United States dollars (“US$”) are presented solely for the convenience of the readers and are translated at a rate of RMB6.2939 to US$1, the approximate rate of exchange at December 31, 2011. Such translations should not be construed to be the amounts that would have been reported under US GAAP.

Basis of consolidation - The consolidated financial statements include the financial statements of Ninetowns and its subsidiaries and VIE. All significant intercompany transactions and balances are eliminated on consolidation.

Use of estimates - The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company bases its estimates on historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Significant accounting estimates reflected in the Company’s consolidated financial statements include the allowance for doubtful accounts, estimated costs to complete in a percentage of completion arrangement, estimated useful lives and impairment of acquired intangible assets, valuation allowance for deferred tax assets and fair values of derivatives.

Cash and cash equivalents - Cash and cash equivalents consist of cash on hand, demand deposits and highly liquid investments, which are unrestricted as to withdrawal and use, and have remaining maturities of three months or less when purchased.

Restricted cash - The Company’s restricted cash is related to deposits required by certain customers for software development services provided by the Company.

F - 14

2.	SUMMARY OF PRINCIPAL ACCOUNTING POLICIES-continued

Short-term investments - To enable the Company to better manage its assets for long-term growth, the Company periodically invests its excess cash in highly liquid equity securities. In addition, from time to time the Company may write call and put options through listed exchanges as part of its investment strategy. The Company’s investment committee approves the investment policy covering the investment parameters to be followed with the primary goals being the safety of principal and maintaining the liquidity of funds. Short-term investments are comprised of marketable equity securities, which are classified as trading and available-for-sale. Marketable securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and are reported at fair value, with realized and unrealized gains and losses recognized in earnings. Short-term investments classified as available for sale are stated at fair values. Unrealized gains or losses on available-for-sale securities from the changes in fair value are recorded in equity as other comprehensive income (loss). Realized gains or losses, based upon the specific identification method, on the disposal of available-for-sale securities are recorded in earnings.

The Company reviews investments in available-for-sale securities as of each balance sheet date for other-than-temporary declines in fair value. If the Company determines that a decline in fair value is other-than-temporary (OTTI), accumulated unrealized loss is accounted for as realized loss and included in earnings. The Company recorded an OTTI loss of RMB1,683 in 2009. No OTTI losses were recorded during the years ended December 31, 2010 and 2011.

Derivative financial instruments, consisting of written call and put options (option liabilities), are initially recorded at fair value and are re-valued at each reporting date, with changes in fair value included in earnings.

Term deposits consist of deposits placed with financial institutions with remaining maturities of greater than three months but less than one year.

Inventories - Inventories, consisting of computer accessories, food products and related consumables, are stated at the lower of cost or market price. Cost is determined by the first in first out method. Provision for diminution in value on inventories is made using the specific identification method. No inventory provisions were made in 2009, 2010 and 2011.

Trade receivables and allowance for doubtful accounts - Trade receivables mainly represents amounts earned and collectible from customers. The Company provides an allowance for doubtful accounts based on its aging analysis of trade receivables, customers’ credit-worthiness, past collection history, and changes in customers’ payment terms. The Company also provides a specific allowance if there is strong evidence that indicates the trade receivables are uncollectible, and writes off such trade receivables and specific allowance within one year if circumstances are not improved. Trade receivables in the consolidated balance sheet are net of such allowance.

Changes in the allowance for doubtful accounts were as follows for the years ended December 31, 2009, 2010 and 2011:


	2009			2010		2011
	RMB			RMB		RMB
Balance at January 1,		5,293			31,416		34,001
Allowance for doubtful debts		26,385			2,585		—
Recovery of accounts previously allowed		—			—		(6,841	)
Write offs		(262	)		—		(22,782	)

Balance at December 31,		31,416			34,001		4,378

F - 15

2.	SUMMARY OF PRINCIPAL ACCOUNTING POLICIES-continued

Real estate property under development - The Company capitalizes the planning, entitlement, construction, development and interest costs associated with its various real estate projects. Costs that are not capitalized are expensed as incurred. A real estate development project is substantially complete upon the cessation of construction and development activities.

In 2011, the Company capitalized RMB305,469 of costs related to its real estate projects and expensed RMB230 of costs.

Property and equipment - Property and equipment are recorded at cost less accumulated depreciation, amortization and provision for impairment loss. Depreciation and amortization are provided on a straight-line basis over the estimated useful lives of the assets. Estimated useful lives of property and equipment are as follows:


Buildings		20 years
Agricultural equipment		10 years
Leasehold improvements		shorter of lease term or 5 years
Furniture, fixtures and office equipment		5 years
Computer equipment		5 years
Motor vehicles		5 years

Acquired intangible assets - Acquired intangible assets, which consist primarily of customer relationships, buyer database, completed technology, purchased software for internal use and land use right, are carried at cost, less accumulated amortization and provision for impairment loss.

Amortization is calculated on a straight-line basis over the expected useful life of the assets of five years, except for the land use right which is amortized over fifty years. Amortization expenses for the years ended December 31, 2009, 2010 and 2011 were RMB5,560, RMB4,043 and RMB3,503, respectively.

Impairment of long-lived assets - The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When these events occur, the Company measures impairment by comparing the carrying amount of the assets to future undiscounted net cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, the Company adjusts the carrying value of the asset based on the fair value and recognizes an impairment loss. Fair value is estimated using expected discounted future cash flows. No impairment charge was recorded for the years ended December 31, 2009, 2010, 2011.

Investments under cost method - For investment in an investee over which the Company does not have significant influence, the Company carries the investment at cost adjusted for other-than-temporary declines in fair value, and recognizes income when receiving dividends from distributions of the investee’s earnings. The Company reviews its investments under cost method for impairment whenever events or changes in circumstances indicate that the carrying value may no longer be recoverable. An impairment loss is recognized in earnings equal to the difference between the investment cost and its fair value at the balance sheet date of the reporting period for which the assessment is made. No impairment charge was recorded for the years ended December 31, 2009 and 2010. Impairment loss recognized in the year ended December 31, 2011 was RMB3,373.

Investments under equity method - Investments in unconsolidated companies, limited partnerships and trusts in which the Company has significant influence but less than a controlling interest, or is not the primary beneficiary, are accounted for under the equity method of accounting and, accordingly, are adjusted for capital contributions, distributions and the Company’s equity in net earnings or loss of the entity.

F - 16

2.	SUMMARY OF PRINCIPAL ACCOUNTING POLICIES-continued

Deferred subsidies - The receipt of government grants relating to software and system development projects are initially recorded as deferred subsidies. Upon the completion of the projects, the government grants are recognized as either other income or as an offset to research and development expenses.

In 2011, Dalian Changzheng received a grant of RMB240,240 from the government of China.

Income taxes - Deferred income taxes are provided using the asset and liability method. Under this method, deferred income taxes are recognized for tax credits and net operating losses available for carry-forward and significant temporary differences. Deferred tax assets and liabilities are classified as current or non-current based upon the classification of the related asset or liability in the financial statements or the expected timing of their reversal if they do not relate to a specific asset or liability. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws and regulations applicable to the Company as enacted by the relevant tax authorities.

The Company recognizes the impact of an uncertain income tax position on the income tax return at the largest amount that is more likely-than-not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. The Company recognizes interest and penalties related to uncertain tax benefits as a component of income tax expense. The Company’s tax years from 2003 to 2011 are subject to examination by the tax authorities.

Revenue recognition - The Company’s revenue is derived from three primary sources: (i) sale of enterprise software and related customer maintenance services; (ii) software development services; (iii) food sales and, through September 2010, catering services.

Revenue from the sale of enterprise software and related customer maintenance service is recognized when there is evidence of an arrangement, the delivery or service has occurred, the fee is fixed or determinable, and collectability is probable. As the Company does not have vendor-specific objective evidence to establish the fair values of the undelivered elements, the Company recognizes revenue from sales of enterprise software and maintenance service on a straight-line basis over the service period which is typically no more than 12 months.

For certain customers, the Company installs the software at the customer’s place of business and charges the customer a fixed fee based on actual usage of the software. Accordingly, the Company recognizes the related revenue when the customer uses the software. The cost to install the software has historically been insignificant.

Revenues from software development services requiring significant production, modification, or customization of the software are recognized over the installation and customization period based on the percentage of completion method, which is measured principally by the percentage of actual hours incurred to date for each contract to the estimated total hours to be incurred for each contact at completion.

Certain revenue from software development services also includes hardware procurement under customer’s request. Since the Company does not have vendor-specific objective evidence to allow for separating various components of such software development service contracts, the Company recognizes such revenues when all components under the contracts are delivered and the project is completed upon the receipt of a written acceptance from the customer.

Revenues from food sales are generally recognized upon delivery and through September 2010, revenues from catering services were generally recognized when the catering services were provided.

F - 17

2.	SUMMARY OF PRINCIPAL ACCOUNTING POLICIES-continued

With the exception of rebates of value added tax on sales of software and related maintenance services (“VAT rebate”) received from the Chinese tax authorities as part of the PRC government’s policy of encouraging software development in the PRC, the Company reports revenue net of business tax. The VAT rebate was RMB853, RMB482 and RMB573 during 2009, 2010 and 2011, respectively. Pursuant to certain PRC rules relating to value-added tax, Beijing Ninetowns Ports is entitled to a rebate of value-added tax paid, at a rate of 14% of the sales value for self-developed software products, excluding revenues from maintenance services and upgrade rights that are sold separately.

Cost of revenue - Cost of revenue includes procurement costs for products sold, and direct costs associated with the delivery of software development and maintenance services, and food related products and services, including salaries, employee benefits and overhead costs associated with employees providing the related services.

Research and development costs - Research and development expenses include payroll, employee benefits and other costs associated with product development. Technological feasibility for the Company’s software products is reached shortly before the products are released for production. Cost incurred after technological feasibility has historically been immaterial. Accordingly, the Company expenses all research and development costs when incurred.

Advertising costs - Advertising costs are expensed in the period incurred. The Company incurred advertising costs totaling RMB1,580, RMB1,886 and RMB2,475 during the years ended December 31, 2009, 2010 and 2011, respectively.

Foreign currency translation - The functional currency of the Company’s subsidiaries and VIE established in the PRC is the RMB. The functional currency of Ninetowns and its subsidiaries established in countries other than the PRC is the US dollar. Transactions denominated in other currencies are recorded in the applicable functional currencies at the rates of exchange prevailing when the transactions occur. Monetary assets and liabilities denominated in other currencies are translated into the applicable functional currencies at rates of exchange in effect at the balance sheet dates. Non-monetary assets and liabilities are remeasured into the applicable functional currencies at historical exchange rates. Exchange gains and losses are recorded in the consolidated statements of operations.

The Company has chosen the RMB as its reporting currency. Assets and liabilities are translated at the exchange rates at the balance sheet date, equity accounts are translated at historical exchanges rates and revenues, expenses, gains and losses are translated using the average rate for the year. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of other comprehensive income/loss in the statement of changes in equity.

Comprehensive income - Comprehensive income includes net income/loss, foreign currency translation adjustments and unrealized gain or loss on investments in available-for-sale securities.

Fair value measurement - Short-term investments and option liabilities are stated at fair value. The carrying value of all other financial instruments approximates their fair value due to the short-term nature of these instruments.

Accounting Standards Codification (“ASC”) 820 defines fair value, establishes a framework for measuring fair value, and provides disclosure requirements about fair value measurements. It also establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.

Level 1 Inputs

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

F - 18

2.	SUMMARY OF PRINCIPAL ACCOUNTING POLICIES-continued

Level 2 Inputs

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 Inputs

Level 3 inputs are unobservable inputs that are used to measure fair value to the extent that observable inputs are not available for the asset or liability.

Share-based compensation - The Company recognizes compensation cost on a straight-line basis over the requisite service period, which is generally the vesting period, and measures the cost of employee services received in exchange for share-based compensation at the grant date fair value of the awards.

Net income/loss per share - Basic net income/loss per share is computed by dividing net income/loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. Diluted net income/loss per ordinary share reflects the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised. Ordinary share equivalents are excluded from the computation of the diluted net income/loss per share in periods when their effect would be anti-dilutive.

Reclassifications - Certain reclassification adjustments have been made to conform the Company’s historical reported balances to the current period presentation. The adjustments were primarily to reclassify dividends received from gain on investments under cost method to other income.

Recently issued accounting pronouncements - In May 2011, the FASB issued guidance on fair value measurement and disclosure requirements under U.S. GAAP and International Financial Reporting Standards (“IFRS”). The amendments in this update result in common fair value measurement and disclosure requirements under both U.S. GAAP and IFRS. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The amendments in this update may change the application of the requirements of fair value measurement. This guidance will become effective for interim and annual periods beginning after December 15, 2011. The Company is still evaluating the impact that adoption of this guidance will have on its financial statements.

In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income,” which improves the comparability, consistency and transparency of financial reporting and increases the prominence of items reported in other comprehensive income. This ASU is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2011 although early adoption is permitted. In December 2011, the FASB issued ASU 2011-12 “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05,” which defers certain aspects of ASU 2011-05 related to the presentation of reclassification adjustments. The adoption of the revised guidance on January 1, 2012 is not expected to have a material impact on the Company’s consolidated financial statements.

3.	DISCONTINUED OPERATIONS

In March 2009, the Company announced that it had undertaken a thorough review of its overall B2B strategy for international trade and decided to discontinue its tootoo.com business. This decision was made in light of the major changes in the global economic environment. Tootoo.com was originally developed as a B2B search and service provider for suppliers and buyers engaged in international trade.

In August 2010, the Company sold Shanghai Meihuilong, its wholly-owned subsidiary, that provided catering services to institutional customers. Management believes that the sale allows the Company to optimize its food related segment resources to focus on the development of the e-grocery food business, which targets individual consumers.

F - 19

3.	DISCONTINUED OPERATIONS-continued

In August 2010, the Company terminated its contractual relationships with Baichuan Tongda, its former VIE, and in connection therewith, received cash of approximately RMB1,500 (US$227).

Summarized 2009 and 2010 operating results from discontinued operations included in the Company’s consolidated statements of operations are as follows:


	Years Ended December 31,
	2009			2010
	RMB			RMB

Net revenues		14,995			19,271

(Loss) income before income taxes		(8,401	)		1,410
Loss from disposal of the discontinued component		—			(1,808	)
Income tax benefit		—			—

Loss from discontinued operations, net of tax		(8,401	)		(398	)
Non-controlling interest in discontinued operations		89			—

Loss from discontinued operations		(8,312	)		(398	)

Loss per share from discontinued operations - basic		(0.24	)		(0.01	)

Loss per share from discontinued operations - diluted		(0.24	)		(0.01	)

4.	SHORT-TERM INVESTMENTS

Short-term investments include trading securities and available-for-sale securities. Trading securities consist of investments in marketable equity securities with the intention of selling them in the short term. Available-for-sale securities consist principally of equity securities and balanced funds without a contractual expiration date issued by major financial institutions.

Term deposits consist of deposits placed with financial institutions with remaining maturities of greater than three months but less than one year. As of December 31, 2010 and 2011, term deposits are RMB8,154 and RMB5,088.

The following table provides additional information concerning the Company’s trading securities and available-for-sale securities:

Trading securities:


	December 31, 2010 (RMB)								December 31, 2011 (RMB)
	Cost		Gross realized gains		Gross realized losses		Fair value		Cost		Gross realized gains		Gross realized losses			Fair value
Trading securities		523		—		—		523		1,880		—		(1,172	)		708

Total		523		—		—		523		1,880		—		(1,172	)		708

F - 20

4.	SHORT-TERM INVESTMENTS-continued

Available-for-sale securities:


	December 31, 2010 (RMB)											December 31, 2011 (RMB)
	Cost		Gross unrealized gains		Gross unrealized losses			Other-than- temporary impairment		Fair value		Cost		Gross unrealized gains		Gross unrealized losses			Other-than- temporary impairment		Fair value
Equity securities		182,383		6,372		(134	)		—		188,621		221,953		13,329		(9,795	)		—		225,487
Mutual funds		44,069		—		(1,351	)		—		42,718		27,178		—		(7,575	)		—		19,603

Total		226,452		6,372		(1,485	)		—		231,339		249,131		13,329		(17,370	)		—		245,090

Information pertaining to securities with gross unrealized losses at December 31, 2011 and 2010 aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

		(11,140)		(11,140)			(11,140)		(11,140)
	Less than twelve months					Twelve months or more
December 31, 2011	Fair value		Gross unrealized losses			Fair value		Gross unrealized losses
Equity securities		49,009		(8,146	)		1,324		(1,649	)
Mutual funds		9,486		(2,994	)		10,117		(4,581	)

Total		58,495		(11,140	)		11,441		(6,230	)

		(11,140)		(11,140)			(11,140)		(11,140)
	Less than twelve months					Twelve months or more
December 31, 2010	Fair value		Gross unrealized losses			Fair value		Gross unrealized losses
Equity securities		23,920		(134	)		—		—
Mutual funds		14,313		(747	)		28,405		(604	)

Total		38,233		(881	)		28,405		(604	)

The Company’s assessment that it has the ability to continue to hold impaired investment securities along with its evaluation of their future performance provide the basis for it to conclude that its impaired securities are not other-than-temporarily impaired. In assessing whether it is more likely than not that the Company will be required to sell any impaired security before its anticipated recovery, which may be at their maturity, it considers the significance of each investment, the amount of impairment, as well as the Company’s liquidity position and the impact on the Company’s capital position. As a result of its analyses, the Company determined at December 31, 2011 and 2010, that the unrealized losses on its securities portfolio on which impairments had not been recognized are temporary.

F - 21

4.	SHORT-TERM INVESTMENTS-continued

Proceeds, gross realized gains and gross realized losses on securities classified as available-for-sale for the years ended December 31, 2009, 2010 and 2011 are as follows:


	Years Ended December 31,
	2009			2010			2011
	RMB			RMB			RMB
Proceeds		177,179			173,693			302,171
Gross realized gains		27,823			1,866			302
Gross realized losses		(13,362	)		(3,522	)		(263	)

The summary of trading and available-for-sale securities measured and recorded at fair value on a recurring basis as of December 31, 2011 is as follows:


			Fair Value Measurements at Reporting Date Using
Description	December 31, 2011 (RMB)		Quoted Prices in Active Markets for Identical Assets (Level 1) (RMB)		Significant Other Observable Inputs (Level 2) (RMB)		Significant Unobservable Inputs (Level 3) (RMB)
Available-for-sale securities		245,090		245,090		—		—
Trading securities		708		708		—		—

Total		245,798		245,798		—		—

5.	INVENTORIES

Inventories consisted of the following:


	December 31,
	2010		2011
	RMB		RMB

Computer accessories		1,411		1,475
Food products and related consumables		750		1,671

		2,161		3,146

F - 22

6.	PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following:


	December 31,
	2010		2011
	RMB		RMB

Advances to employees		785		1,526
Prepaid expenses		1,333		2,118
Deposits for office rental, utilities		1,011		998
Interest receivable for term deposits		30		81
Value added tax recoverable		164		699
Other receivables		4,180		3,139

		7,503		8,561

7.	REAL ESTATE PROPERTY UNDER DEVELOPMENT

Real estate under development assets of RMB305,469 is comprised of land costs of RMB291,956 and land development costs of RMB13,513 at December 31, 2011.

On February 24, 2011, Dalian Changzheng was incorporated in the PRC. Beijing Nientowns Ports owns 70% of Dalian Changzheng, and its total capital contribution is RMB117 million, of which RMB35 million was paid as of December 31, 2011. An additional contribution of RMB82.67 million is expected to be paid on May 26, 2013.

Dalian Changzheng acquired the land use rights for two tracts of undeveloped land permitted for commercial and residential use and located in Dalian High and New Technology Industry Park in Dalian, Liaoning Province, China on April 29, 2011. The two tracts of land were purchased for a total consideration, including acquisition costs, of approximately RMB292 million (US$46 million). The commercial land use rights and the residential land use rights will expire in 40 years and 70 years, respectively.

8.	PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following:


	December 31,
	2010			2011
	RMB			RMB

Buildings		196,409			198,450
Leasehold improvements		6,926			7,930
Furniture, fixtures and office equipment		4,278			5,405
Computer equipment		30,227			29,106
Motor vehicles		7,586			8,318
Agricultural equipment		3,678			5,195

Total		249,104			254,404
Less: accumulated depreciation and amortization		(60,623	)		(75,139	)

Property and equipment, net		188,481			179,265

Depreciation and amortization expenses for the years ended December 31, 2009, 2010 and 2011 were RMB16,916, RMB17,316, and RMB16,541, respectively.

F - 23

9.	INVESTMENTS UNDER COST METHOD


	December 31,
	2010		2011
	RMB		RMB

Global Market		10,981		10,463
Tophere		4,500		1,127

		15,481		11,590

At December 31, 2010 and 2011, the Company owned 16,049,075 shares, or 3.55%, of Global Market Group Limited (“Global Market”) Series A preferred shares.

Because the Company cannot exercise significant influence over Global Market, the investment is accounted for under the cost method.

In June 2010, the Company sold 24,714,225 Series A preferred shares for cash consideration of RMB26,448 (US$3,875). The Company recognized a gain of RMB9,186 (US$1,392) on the disposal of the Series A preferred shares in 2010.

In June 2010, Global Market declared a cash payment of special dividends to the holders of its ordinary shares, Series A preferred shares and Series B preferred shares. The Company received dividends of RMB6,164 (US$934), which is included in other income in the consolidated statement of operations.

In November 2011, The Company received dividends of RMB920 (US$146), which is included in other income in the consolidated statement of operations.

In November 2007, the Company entered into an agreement with Hangzhou Tophere Info-Tech Inc. (“Tophere”), a Chinese B2B food and beverage trade facilitator headquartered in Hangzhou, to acquire its 19.8% equity interest for a cash consideration of RMB4,500. Because the Company cannot exercise significant influence over Tophere, the investment is accounted for under the cost method.

In 2011, an impairment loss of RMB3,373 was recognized due to losses reported by Tophere.

On January 1, 2010, the Company also had a cost investment in GCL Silicon Technology Holdings Inc. (“GCL”) of RMB7,074 (US$1,036).In May 2010, the Company sold part of the investment, and received RMB7,626 (US$1,117). In September 2010, the Company sold the rest of the investment, and received RMB2,306 (US$349). The Company recorded a gain of approximately RMB2,967 (US$450) on the disposal.

10.	INVESTMENTS UNDER EQUITY METHOD

The Investment Trust Plan and Huainan Ninetowns:

In April 2011, the Company acquired the land use rights for a plot of undeveloped land permitted for mixed-use and located in Huainan, Anhui province of China. The purchase price was approximately RMB258 million (US$39 million) in total of which RMB140 million was paid during the year ended December 31, 2011. The Company intends to develop a mixed-use real estate project tentatively named “Smarter Town” on the land, and also intends to (i) design, develop, construct, market and sell certain retail and residential units, (ii) design and construct an “Internet of Things” exhibition park, and (iii) design and construct a community hospital on such land. The mixed-use land use rights will expire in 40 years and 70 years.

F - 24

10.	INVESTMENTS UNDER EQUITY METHOD-continued

In June 2011, the Company, through its subsidiaries, entered into a series of agreements with respect to certain financing arrangements for the “Smarter Town” project to be developed by Huainan Huacheng Estate Co. Ltd. (“Huainan Huacheng”), the project company. Pursuant to such agreements, Zhongcheng Trust Co., Ltd. (“Zhongcheng”) organized and offered the “2011 Zhongcheng Trust Huainan Ninetowns Investment Trust Plan” (“the Investment Trust Plan”). Pursuant to the terms of the Investment Trust Plan, Zhongcheng issued (i) 150,000,000 preferred trust units for RMB150 million to certain investors and (ii) 160,000,000 ordinary trust units to Beijing Ninetowns Ports, a wholly-owned indirect subsidiary of the Company, in exchange for the assignment by Beijing Ninetowns Ports of certain creditor’s rights for RMB160 million in Huainan Huacheng. To inject the funds raised under the Investment Trust Plan to Huainan Huacheng, Zhongcheng and Beijing Ninetowns Ports entered into a capital increase agreement pursuant to which Zhongcheng made a capital investment of RMB150 million to Huainan Ninetowns Suitable Estate Co., Ltd. (“Huainan Ninetowns”), a wholly-owned subsidiary of Beijing Ninetowns Ports and the sole shareholder of Huainan Huacheng. As a result of the capital investment, Zhongcheng and Beijing Ninetowns Ports owned 90% and 10% equity interest, respectively, of Huainan Ninetowns at December 31, 2011. The funds injected to Huainan Ninetowns were injected to Huainan Huacheng through a capital increase by Huainan Ninetowns in December 2011.

In February 2012, Beijing Ninetowns Ports proposed to terminate the Investment Trust Plan due to the delay in the development schedule of the “Smarter Town” project. The termination of the Investment Trust Plan was approved at a meeting of the investors who subscribed for the preferred trust units of the Investment Trust Plan and Beijing Ninetowns Ports. As a result of the termination, Zhongcheng transferred the 90% equity interest it held in Huainan Ninetowns to Beijing Ninetowns Ports for no consideration. In addition, Huainan Huacheng repaid the debt of RMB160 million plus interest of approximately RMB13 million to Zhongcheng. The Company intends to continue the development of the “Smarter Town” project and may seek other alternative financing options in the future.

Although the Company through Beijing Ninetowns Ports owned 51.6% of the Investment Trust Plan at December 31, 2011, the non-controlling interest retained veto rights and accordingly the Investment Trust Plan was not consolidated and was instead accounted for using the equity method of accounting. Interest expense related to the Investment Trust Plan during the year ended December 31, 2011 was RMB11 million.

Shouchuang Caifu Ninetowns and Shouchuang Caifu Gengyin:

On October 21, 2011, Beijing Ronghe Zhihui entered into a partnership agreement with Shouchuang Huaxia (Tianjin) Equity Investment Fund Management Co., Ltd. (“Shouchuang Huaxia”) and Shouchuang Caifu Gengyin (Tianjin) Equity Investment Fund Limited Partnership (“Shouchuang Caifu Gengyin”). Pursuant to the partnership agreement, Beijing Ronghe Zhihui and Shouchuang Caifu Gengyin, as the limited partners, and Shouchuang Huaxia, as the general partner, established Shouchuang Caifu Ninetowns (Tianjin) Equity Investment Fund Limited Partnership (“Shouchuang Caifu Ninetowns”), as a limited partnership based in Tianjin, China.

Shouchuang Caifu Ninetowns’s initial capital is expected to be RMB110 million. Through December 31, 2011, Shouchuang Caifu Gengyin and Shouchuang Huaxia each contributed RMB10 million and Beijing Ronghe Zhihui, who is expected to contribute a total of RMB90 million, contributed RMB53 million. The remaining balance of Beijing Ronghe Zhihui’s capital contribution of RMB37 million, which is at Beijing Ronghe Zhihui’s option, is expected to be contributed by October 31, 2013.

As of December 31, 2011, Ninetowns Suitable Estate had contributed RMB5.94 million of a total commitment of RMB29.7 million for a 29.7% interest in Shouchuang Caifu Gengyin.

As of December 31, 2011, the Company had a 72.60% direct interest in Shouchuang Caifu Ninetowns and a 4.07% indirect interest in Shouchuang Caifu Ninetowns. As a limited partner, the Company is using the equity method of accounting to account for its investment in Shouchuang Caifu Ninetowns.

On December 21, 2011, Shouchuang Caifu Ninetowns acquired 99% of the equity interests of Binzhou Ruichen Real Estate Development Co., Ltd. (“Binzhou Ruichen”), a limited liability company established in Binzhou, Shandong Province, China. As of December 31, 2011, Binzhou Ruichen owns the land use rights for a plot of undeveloped land permitted for residential use and located in Binzhou. The residential land use rights will expire in 70 years.

F - 25

10.	INVESTMENTS UNDER EQUITY METHOD-continued

The Company’s investments in and equity in the earnings of its equity method investees is as follows for the year ended December 31, 2011:


	The Investment Trust Plan		Huainan Ninetowns		Shouchuang Caifu Ninetowns		Shouchuang Caifu Gengyin		Total
	(RMB)		(RMB)		(RMB)		(RMB)		(RMB)
Investment balance at January 1, 2011		—		—		—		—		—
Investment contributions		160,000		10,000		53,000		5,940		228,940
Equity earnings		1,475		164		—		—		1,639


Investment balance at December 31, 2011		161,475		10,164		53,000		5,940		230,579

At December 31, 2011, there are no significant differences between the carrying amounts of the Company’s equity investments and the underlying equity in the investees’ net assets.

11.	ACQUIRED INTANGIBLE ASSETS, NET

Acquired intangible assets, net consisted of the following:


	December 31,
	2010			2011
	RMB			RMB

Customer lists and relationships		6,131			6,131
Completed technology		5,251			5,251
Purchased software for internal use		17,200			17,200
Land use right		30,156			31,251

Total		58,738			59,833
Less: Accumulated amortization		(27,072	)		(30,575	)

Acquired intangible assets, net		31,666			29,258

In October 2008, the Company acquired a land use right from Yizhuang Substation of the PRC Country Resources Bureau for RMB30,156. The land use right has a contractual useful life of 50 years.

In January 2012, the Company changed the construction planning of Yizhuang to development of mixed-use real estate projects and reclassified the land use right to real estate property under development.

Amortization expenses for the years ended December 31, 2009, 2010, and 2011 were RMB5,560, RMB4,043, and RMB3,503, respectively.

F - 26

11.	ACQUIRED INTANGIBLE ASSETS, NET-continued

The following table represents the total estimated amortization of intangible assets for the next five years:


For the Year Ending December 31	Estimated Amortization Expense
	RMB
2012		703
2013		703
2014		703
2015		703
2016		703

		3,515

12.	OPTION LIABILITIES

The Company writes call and put options through listed exchanges. When the Company writes an option, an amount equal to the premium received by the Company is recorded as a liability and is subsequently adjusted to the current fair value of the option written. Premiums received from writing options that expired are treated by the Company on the expiration date as realized gains from investments. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether the Company has realized a gain or loss. If a put option is exercised, the premium is deducted from the total purchase price in determining the cost of the underlying security. The Company, as the option writer of an option, bears the market risk of an unfavorable change in the price of the security underlying the written options. At December 31, 2011, option liabilities included liabilities for call options of RMB4,913 and put options of RMB3,019.

13.	ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following:


	December 31,
	2010		2011
	RMB		RMB
Accounts payable and other payables		6,629		8,514
Salary and wages		4,064		7,896
Accrued expenses		1,859		32

		12,552		16,442

14.	INCOME TAXES

Ninetowns is a tax exempted company incorporated in the Cayman Islands. No provision for Hong Kong Profits Tax has been made as the subsidiaries incorporated in Hong Kong had no assessable profits earned or derived from Hong Kong during the years ended December 31, 2009, 2010 and 2011. The subsidiaries incorporated in the PRC (other than Hong Kong) are governed by the Income Tax Law of the PRC Concerning Foreign Investment and Foreign Enterprises and various local income tax laws (the “Income Tax Laws”).

F - 27

14.	INCOME TAXES-continued

On March 16, 2007, the National People’s Congress adopted the 2008 PRC Enterprise Income Tax Law (the “New Income Tax Law”), which went into effect on January 1, 2008. The New Income Tax Law imposes a unified income tax rate of 25% for domestic and foreign enterprises. New and High Technology Enterprise will enjoy a favorable tax rate of 15%. The New Income Tax Law also provides a five-year transitional period for those entities established before March 16, 2007, which enjoy a favorable income tax rate less than 25% under the previous income tax laws, to gradually change their rates to 25%. In addition, the New Income Tax Law provides grandfather treatment for enterprises which were qualified as “New and High Technology Enterprises” under the previous income tax laws and were established before March 16, 2007, if they continue to meet the criteria for New and High Technology Enterprises after January 1, 2008. The grandfather provision allows these enterprises to continue to enjoy their unexpired tax holiday provided by the previous income tax laws and rules.

The New and High Technology Enterprises status allows qualifying entities to be eligible for a 15% tax rate for three years. At the conclusion of the three year period, the qualifying enterprise has the option to renew its New and High Technology Enterprises status for an additional three years through a simplified application process if such enterprise’s business operations continue to qualify for New and High Technology Enterprises status. After the first six years, the enterprise would have to go through a new application process in order to renew its New and High Technology Enterprises status.

Under the New Income Tax Law, if the PRC subsidiaries and VIE wish to qualify for a preferential rate for years commencing on or after January 1, 2008, they will need to qualify as a “High and New Technology Enterprise Strongly Supported by the State” . Until the PRC subsidiaries and VIE receive official approval for this new status, they will be subject to the statutory 25% tax rate. Furthermore, under the New Income Tax Law a “resident enterprise”, which includes an enterprise established outside of the PRC with management located in the PRC, will be subject to PRC income tax. If the PRC tax authorities determine that the Company and its subsidiaries registered outside the PRC should be deemed a resident enterprise under the new tax law, the Company and its subsidiaries registered outside the PRC will be subject to PRC income tax at a rate of 25%.

In 2009, 2010 and 2011, Beijing New Take, Beijing Ninetowns Times, Ninetowns Suitable Estate, Ronghe Tongshang, Beijing Software, Beijing Sky and Dongguan Software were subject to an enterprise income tax rate of 25%. Beijing Ronghe Zhihui and Beijing Ronghe Dianzi were subject to an enterprise income tax rate of 25% in 2011.

Beijing Ninetowns Ports was awarded the certificate of “New and High Technology Enterprise” and was taxed at an income tax rate of 15% for the years ended December 31, 2009, 2010 and 2011.

Guangdong Ninetowns was awarded the certificate of “New and High Technology Enterprise” and was taxed at an income tax rate of 15% for the years ended December 31, 2009, 2010 and 2011.

Dalian Changzheng was qualified as a software company in 2011 and was granted preferential EIT rates based on such status. Dalian Changzheng is subject to 0% EIT for 2011 and 2012 and 12.5% EIT for 2013, 2014 and 2015.

Huaixiang Modern Agriculture is subject to a 25.0% EIT each year based on a deemed income equal to 4% of its annual total income of year 2011 as determined by the tax authority.

During the years ended December 31, 2009, 2010 and 2011, if the Company’s subsidiaries in the PRC had not been awarded tax holidays or had special tax concessions, they would have recorded an additional provision for income taxes totaling RMB501, RMB838 and RMB374, respectively. Basic net income per share would have been changed to RMB0.02, RMB0.32 and RMB0.08, and diluted net income per share would have been changed to RMB0.02, RMB0.32 and RMB0.08 for the years ended December 31, 2009, 2010, and 2011, respectively.

F - 28

14.	INCOME TAXES-continued

Income tax expense consisted of the following:


	Years Ended December 31
	2009			2010			2011
	RMB			RMB			RMB
Current tax		6,070			1,036			855
Deferred tax		(1,970	)		(158	)		193

		4,100			878			1,048

As of December 31, 2010 and 2011, significant temporary differences between the tax basis and financial statement basis of accounting for assets and liabilities that gave rise to deferred taxes were principally related to the following:


	December 31
	2010			2011
	RMB			RMB
Current deferred tax assets
Short-term deferred revenue (B2G)		1,879			311
Less: valuation allowances		(1,085	)		—

Current deferred tax assets		794			311


Non-current deferred tax assets
Net operating loss carry forwards		8,767			9,413
Less: valuation allowances		(8,767	)		(9,413	)

Non-current deferred tax assets		—			—


Non-current deferred tax liabilities
Accelerated depreciation of property and equipment		(342	)		(51	)

Non-current deferred tax liabilities		(342	)		(51	)

The Company has operating loss carry forwards totaling RMB44,963 as of December 31, 2011, all of which were from PRC subsidiaries and will expire on December 31, 2016.

As of December 31, 2010 and 2011, a valuation allowance was provided against deferred tax assets arising from net operating loss carry-forwards, and short-term deferred revenue of certain PRC subsidiaries and the VIE due to the uncertainty of realization. Adjustment will be made to the valuation allowance if events occur in the future that indicate changes in the amount of deferred tax assets that may be realized.

The Company operates through multiple subsidiaries and a VIE and the valuation allowances are considered separately for each subsidiary and the VIE. The Company does not file consolidated tax returns, therefore, losses and deferred taxes from one subsidiary or the VIE may not be used to offset another subsidiary’s or the VIE’s earnings or deferred taxes.

If the Company were to be a non-resident for PRC tax purposes, dividends paid to it out of profits earned after January 1, 2008 would be subject to a withholding tax. In the case of dividends paid by PRC subsidiaries the withholding tax would be 10% and in the case of a subsidiary 25% or more directly owned by residents in the Hong Kong Special Administrative Region, the withholding tax would be 5%.

Aggregate undistributed earnings of the Company’s subsidiaries and its VIE located in the PRC that are available for distribution to the Company of approximately RMB552,883 and RMB553,727 at December 31, 2010 and 2011 are considered to be indefinitely reinvested, and accordingly, no provision has been made for the Chinese dividend withholding taxes that would be payable upon the distribution of those amounts to the Company. The Chinese tax authorities have clarified that distributions made out of pre-January 1, 2008 retained earnings will not be subject to the withholding tax.

F - 29

14.	INCOME TAXES-continued

A reconciliation between income tax expense (benefit) computed by applying the PRC statutory income tax rate of 25% to income (loss) before income taxes and the actual provision for income taxes is as follows:


	Years Ended December 31,
	2009			2010			2011

PRC statutory income tax		25.0	%		25.0	%		25.0	%
Expenses not deductible for tax purposes		20.2	%		18.1	%		5.6	%
Provision for withholding tax on inter-company distributions		34.7	%		—			—
Permanent differences		(30.1	%)		(32.1	%)		(8.4	%)
Tax exemption and tax relief granted to PRC subsidiaries		(5.7	%)		(1.0	%)		(8.0	%)
Effect on deferred taxes due to changes in tax rates under the new law for certain subsidiaries		(14.3	%)		(3.5	%)		8.8	%

		29.8	%		6.5	%		23.0	%

A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows:


	RMB
Balance at January 1, 2010		5,141
Additions based on tax positions related to the current year		246
Reversal based on tax positions related to the current year		—

Balance at December 31, 2010		5,387
Additions based on tax position related to the current year		208
Reversal based on tax positions related to the current year		—

Balance at December 31, 2011		5,595

The Company does not anticipate any significant change within 12 months of this reporting date to its uncertain tax positions that relate primarily to 2009 inter-company distributions. Interest and penalties recognized in the statement of operations and current liabilities were not significant in 2009, 2010 and 2011.

15.	DEFERRED SUBSIDIES

During the year ended December 31, 2011, Dalian Changzheng received a grant of RMB240,240 from the government of China. This grant was initially deferred when received and will used for research and development related to certain software and system development projects which were approved by the government. Upon the completion of the projects, the government grant will be recognized as either other income or as an offset to relevant research and development expenses.

There are no contingencies related to the grant.

F - 30

16.	OTHER TAXES PAYABLE


	December 31,
	2010			2011
	RMB			RMB
Individual income tax withholding		127			109
Business tax payable		1,540			2,011
Value added taxes payable (recoverable), net		(708	)		(602	)
Property tax		25			19

		984			1,537

The Company’s subsidiaries in the PRC (other than Hong Kong) are subject to a 17% value added tax on revenues from the sales of hardware to customers and, in addition, are subject to business taxes and value added taxes at the rates of 5% and 3%, on service revenues from software development and sales of software, respectively. Value added taxes payable for hardware sales is reported net of value added taxes paid for inventory purchases. VAT on food sales and services is applicable at various rates, from 0% for self-grown products sales, to 13% and 17% for other goods and products. The Company is also required to withhold PRC individual income taxes on employees’ payroll for remittance to the tax authorities. In addition, in October 2008, the Company purchased a land use right resulting in a property tax liability thereon.

F - 31

17.	NET INCOME PER SHARE

The following table sets forth the computation of basic and diluted income per share for the periods indicated:


	Years Ended December 31,
	2009			2010			2011
	RMB			RMB			RMB

Numerator used in basic income per share:
Income from continuing operations before non-controlling interest		9,644			12,723			3,510
Loss from discontinued operations attributable to the Company		(8,401	)		(398	)		—
Net loss attributable to the non-controlling interest		89			—			15

Net income attributable to the Company		1,332			12,325			3,525


Shares (denominator):
Weighted average ordinary shares outstanding		35,100,194			35,800,428			37,443,657
Plus: incremental shares from vesting of					1,491,106			3,021,792
restricted shares		—			—

Weighted average ordinary shares outstanding used in computing diluted income per ordinary share		35,100,194			37,291,534			40,465,449


Income from continuing operations per share - basic		0.28			0.35			0.09

Income from continuing operations per share - diluted		0.28			0.34			0.09

Loss from discontinued operations per share - basic		(0.24	)		(0.01	)		—

Loss from discontinued operations per share - diluted		(0.24	)		(0.01	)		—

Net income attributable to the Company per share - basic		0.04			0.34			0.09

Net income attributable to the Company per share - diluted		0.04			0.33			0.09

American Depository Receipts held by the Company to facilitate cashless exercises of vested employee stock options and non-vested shares for 673,278 and 1,253,673 ordinary shares have been excluded from shares issued and outstanding as of December 31, 2009 and 2011. There were no such shares excluded as of December 31, 2010.

The Company had 3,320,311, 5,595,664 and 4,396,023 ordinary share equivalents outstanding, that could potentially dilute basic income per share in the future, which were excluded in the computation of diluted income per share in 2009, 2010 and 2011, respectively, as their effect would have been anti-dilutive.

F - 32

18.	RELATED PARTY TRANSACTIONS AND BALANCES

As of December 31, 2011, the amount due from related parties of RMB1,248, represents advances from Beijing Ninetowns Ports to Huainan Huacheng. These advances are non-interest bearing and due on demand.

19.	SHARE OPTION PLANS

The 2003 Plan

The Company’s 2003 Plan (the “2003 Plan”) allows the Company to issue options to employees and directors to acquire 2,574,400 of the Company’s ordinary shares. The 2003 Plan will remain in effect for ten years starting from the date of adoption.

As of December 31, 2010 and 2011, options to purchase 1,229,010 and 1,093,779 ordinary shares were outstanding, respectively, under the 2003 Plan. As of December 31, 2010 and 2011, there were 493,698 and 628,929 options, respectively, available under the 2003 Plan for future grants.

The 2004 Plan (as amended)

Under the Amended and Restated 2004 Plan (the “2004 Plan, as amended”), the Company may grant options to its employees that are exercisable for up to 4.3 million ordinary shares at prices to be determined by the Company’s Board of Directors. The 2004 Plan, as amended, also permits the Company to grant share appreciation rights, restricted share awards, and performance awards. The 2004 Plan, as amended, will automatically terminate in ten years from grant date unless the Company terminates it earlier.

On July 16, 2009, Ninetowns granted options to certain employees to purchase 1,369,800 ordinary shares at an exercise price of RMB10 (US$1.4) per ordinary share, which was the average closing fair market value of the Company’s ordinary shares for the month before the grant date. The options will vest over four years at 25% per year from the grant date. Any options granted but not exercised will expire on July 15, 2019.

On February 10, 2010, Ninetowns granted options to certain employees to purchase 976,500 ordinary shares at an exercise price of RMB11 (US$1.6) per ordinary share, which was the average closing fair market value of the Company’s ordinary shares for the month before the grant date. The options will vest over four years at 25% per year from the grant date. Any options granted but not exercised will expire on February 10, 2020.

As of December 31, 2010 and 2011, options to purchase 2,895,462 and 2,605,506 ordinary shares were outstanding, respectively.

The fair value of the option awards was estimated on the respective dates of grant using a dividend adjusted Black - Scholes pricing model that uses the assumptions noted in the following table:


Options grants	2009 Grant			2010 Grant

Weighted average risk-free rate of return		2.90	%		3.15	%

Weighted average expected option life		6.25 years			6.25 years
Weighted average volatility rate		61	%		63	%
Weighted average dividend yield		0	%		0	%

The risk-free rate of interest is based on the market yield of China Sovereign Bond Denominated in USD with maturity nearest to the expected term as of the valuation date. No dividend is expected to be paid in the future. The expected life of the option is derived using the mid-point method, which is calculated as the period between the grant date and the expected exercise date.

F - 33

19.	SHARE OPTION PLANS-continued

On July 16, 2009, Ninetowns granted 58,698 nonvested shares to certain employees, 25% of which vested on the grant date and the remaining will vest over three years at 25% per year from the grant date.

On February 10, 2010, Ninetowns granted 585,771 nonvested shares to certain employees. that will vest over one year at 25% per three month period from the grant date.

As of December 31, 2010 and 2011, 340,302 and 92,304 nonvested shares were outstanding.

As of December 31, 2010 and 2011, 402,361 and 698,441 share-based instruments were available under the 2004 Plan, as amended, for future grants.

The 2006 Plan

In December 2005, the Company’s shareholders approved the 2006 stock incentive plan (the “2006 Plan”) which allows the Company to offer a variety of share-based awards to employees and employees of the Company’s affiliates and subsidiaries including share options, restricted shares, and other similar awards. The exercise price must be at least equal to 100% of the fair market value of the ordinary shares on the grant date. The 2006 Plan will be automatically terminated in 2015.

On February 10, 2010, Ninetowns granted 2,213,824 nonvested shares to certain employees. 1,443,912 nonvested shares vest over one year at 25% per three month period from the grant date, and 769,912 nonvested shares vest over four years at 25% per year from the grant date.

As of December 31, 2010 and 2011, 1,130,890 and 577,434 nonvested shares were outstanding.

A summary of the share options and nonvested shares activities is as follows:


	Years Ended December 31,
	2009					2010					2011
Share options	Number of options			Weighted Average Exercise price		Number of options			Weighted Average Exercise price		Number of options			Weighted Average Exercise price
				RMB					RMB					RMB
Outstanding at beginning of year		2,113,149			36		3,320,311			25		4,124,472			22
Granted		1,369,800			22		976,500			11		—			—
Exercised		—			—		—			—		—			—
Cancelled		(162,638	)		34		(172,339	)		18		(425,187	)		28

Outstanding at end of year		3,320,311			25		4,124,472			22		3,699,285			22


Exercisable at end of year		1,790,239			37		2,125,918			33		2,439,744			27

F - 34

19.	SHARE OPTION PLANS-continued


Nonvested Option	Number of option			Weighted-average exercise price

Nonvested at January 1, 2011		1,998,554			11
Granted		—			—
Vested		(589,754	)		11
Cancelled		(149,259	)		12

Nonvested at December 31, 2011		1,259,541			11


Nonvested Shares	Shares			Weighted-average grant-date fair value
				RMB
Nonvested at January 1, 2011		1,471,192			12
Granted		—			—
Vested		(795,329	)		12
Forfeited		(6,125	)		21

Nonvested at December 31, 2011		669,738			12

The total intrinsic value of options exercised during each of the years ended December 31, 2009, 2010, and 2011 was RMB nil. As of December 31, 2011, the aggregate intrinsic value of both options outstanding and options exercisable was RMB nil.

The outstanding options as of December 31, 2011 have the following characteristics:


Options outstanding							Options exercisable
Number outstanding		Weighted average remaining contractual life		Fair value per share at grant date			Weighted average exercise price	Number exercisable		Weighted average exercise price
							(RMB)			(RMB)

	1,093,779		1.875		RMB0.297 (HK$0.286	)	26		1,093,779	26
	372,967		3.167		RMB40.42 (US$4.896	)	71		372,967	71
	172,939		6.099		RMB11.63 (US$1.619	)	22		130,773	22
	1,327,800		7.496		RMB6.49 (US$0.947	)	10		658,900	10
	731,800		9.083		RMB6.72 (US$0.991	)	11		183,325	11

	3,699,285		6				22		2,439,744	27

As of December 31, 2011, the unrecognized share-based compensation cost related to options was approximately RMB2,164 and is expected to be recognized over a weighted average vesting period of 1.8 years. As of December 31, 2011, the unrecognized share-based compensation cost related to nonvested share-based compensation arrangements was approximately RMB1,926 and is expected to be recognized over a weighted-average vesting period of 2.0 years.

F - 35

19.	SHARE OPTION PLANS-continued

The amounts of share-based compensation attributable to cost of revenues, sales and marketing, general and administrative expenses, and research and development included in those line items in the consolidated statements of operations are as follows:


	Years Ended December 31,
	2009		2010		2011
	RMB		RMB		RMB
Cost of revenues		51		8		21
Sales and marketing		787		607		347
General and administrative		3,297		26,741		4,127
Research and development		332		4,354		2,632

Total share-based compensation expense		4,467		31,710		7,127

At December 31, 2011, 1,253,673 of the Company’s ordinary shares were reserved for future share option exercises.

20.	COMMITMENTS

The Company has operating lease agreements principally for its office properties in the PRC. The leases have remaining terms ranging from 12 to 24 months and are renewable subject to negotiation. Rental expense was RMB7,056, RMB3,867 and RMB3,243, for the years ended December 31, 2009, 2010 and 2011, respectively.

Future minimum lease payments under non-cancellable operating lease agreements at December 31, 2011 are as follows:


Years ending December 31,	RMB

2012		2,395
2013		376


Total		2,771

The Company has entered into franchise agreements to undertake marketing, distribution and service activities. Under these agreements, the Company is obligated to provide advertising, training and telephone support associated with its software licenses and products. Other than as disclosed herein, the Company did not have any significant outstanding obligations or commitments at December 31, 2011.

21.	SEGMENT INFORMATION

The Company has four operating segments: enterprise software and related maintenance services segment, software development services segment, food related business and real estate development. The enterprise software and related maintenance services segment is engaged in the development, distribution and sale of software products, the provision of customer maintenance services to end users, and the research and development of new enterprise software. The software development services segment is responsible for the development and integration of software in accordance with the customers’ specifications and requirements. The food related business consists of food sales and services and targets Chinese consumers. The real estate development segment includes real estate development operations, which through December 31, 2011 has not generated any revenues.

F - 36

21.	SEGMENT INFORMATION-continued

For financial reporting purposes, operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the Chief Executive Officer. Segment information provided to the chief operating decision maker is prepared using the accounting principles and the relevant financial regulations applicable to enterprises with foreign investment as established by the Ministry of Finance in the PRC (“PRC GAAP”). The principal differences between PRC GAAP and US GAAP as they relate to the Company are primarily (i) revenue recognition from the sale of enterprise software, (ii) the classification of the PRC value added tax refund, and (iii) the recognition of share-based compensation expenses.

The Company’s reportable segments offer different products and services. Each reportable segment is assigned a member of senior management who has knowledge about the products and services, specific operational risks, and opportunities associated with the segment.

The following is a summary of financial information relating to the Company’s three revenue generating segments expressed under PRC GAAP:

		00000000		00000000		00000000			00000000
	Year Ended December 31, 2009
	Enterprise software and related customer maintenance services		Software development services		Food related business			Total
	RMB		RMB		RMB			RMB

Net revenues		47,954		17,363		3,889			69,206

Gross profit		48,005		5,811		(2,419	)		51,397

		00000000		00000000		00000000			00000000
	Year Ended December 31, 2010
	Enterprise software and related customer maintenance services		Software development services		Food related business			Total
	RMB		RMB		RMB			RMB

Net revenues		45,448		24,546		5,448			75,442

Gross profit (loss)		45,448		13,673		(1,462	)		57,659

		00000000		00000000		00000000			00000000
	Year Ended December 31, 2011
	Enterprise software and related customer maintenance services		Software development services		Food related business			Total
	RMB		RMB		RMB			RMB

Net revenues		56,677		5,963		8,239			70,879

Gross profit (loss)		56,677		3,703		(213	)		60,167

The Company does not allocate operating expenses to individual segments when making decisions about allocating resources to the segments and assessing their performance.

F - 37

21.	SEGMENT INFORMATION-continued

The following is a reconciliation of the amounts presented for the Company’s three revenue generating segments under PRC GAAP to the consolidated totals reported under US GAAP:


	Years Ended December 31,
	2009			2010			2011
	RMB			RMB			RMB

Net revenues under PRC GAAP		69,206			75,442			70,879
U.S. GAAP adjustments:
Differences in the timing of revenue recognition		9,580			2,983			3,764
PRC value added tax refund		853			482			573


Total net revenues under US GAAP		79,639			78,907			75,216


Gross profit under PRC GAAP		51,397			57,659			60,167
U.S. GAAP adjustments:
Differences in the timing of revenue recognition		9,580			2,983			3,764
PRC value added tax refund		853			1,219			573
Share-based compensation expenses		(51	)		(8	)		(21	)


Gross profit under US GAAP		61,779			61,853			64,483

Operating expenses		(119,378	)		(124,474	)		(106,048	)

Loss from operations		(57,599	)		(62,621	)		(41,565	)
Interest income		4,274			3,686			1,922
Gain on sales of short-term investments		35,474			65,146			32,689
Change in fair value of marketable options		27,684			(18,211	)		7,252
Gain (loss) on investments under cost method		—			12,153			(3,373	)
Income from equity method investments		—			—			1,639
Other income		3,911			13,448			5,994

Income before income tax expense		13,744			13,601			4,558

The Company does not allocate assets to individual segments when making decisions about allocating resources to the segments and assessing their performance.

F - 38

22.	CONCENTRATIONS AND RISKS

Customers Concentrations

Details of customers accounting for 10% or more of net revenues are as follows:


	Years Ended December 31,
Customer	2009			2010			2011

A		21	%		21	%		34	%
B		22	%		12	%		16	%

Foreign currency risk - RMB is not a freely convertible currency. The State Administration for Foreign Exchange, under the authority of the People’s Bank of China, controls the conversion of the RMB into foreign currencies. The value of the RMB is subject to changes in PRC government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market. RMB balances in cash and cash equivalents and term deposits of the Company included RMB377,924 at December 31, 2010 and RMB214,970 at December 31, 2011.

Equity price risk - The Company is exposed to equity price risk as a result of its investments in equity securities and written options. Equity price risk results from changes in the level or volatility of equity prices, which affect the value of equity securities, or instruments that derive their value from such securities. The Company attempts to mitigate its exposure to such risks by not limiting its investment to any one security or index.

Concentration of credit risk - Financial instruments that potentially expose the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments, trade receivables, and term deposits. The Company places its cash and cash equivalents with financial institutions with high-credit ratings and quality. Short-term investments are traded through highly rated equity security brokers. The Company conducts credit evaluations of customers and generally does not require collateral or other security from its customers. The Company establishes an allowance for doubtful accounts primarily based upon the age of the receivables and factors surrounding the credit risk of specific customers.

F - 39

23.	EMPLOYEE BENEFIT PLANS

Employees of the Company located in the PRC (other than Hong Kong) are covered by the retirement plans defined by local practice and regulations, which are essentially defined contribution schemes. The calculation of contributions for the eligible employees is based on 20% of the applicable payroll costs. Certain employees of the Company who are located in Hong Kong have joined the Mandatory Provident Fund (“MPF”) Scheme which is also a defined contribution scheme. The contribution to the MPF Scheme is calculated based on the rules set out in the MPF Ordinance in Hong Kong which is 5% of the relevant income of the employee with a specific ceiling. The expenses recorded by the Company related to these defined contribution schemes were RMB3,549, RMB3,249, and RMB3,443 for the years ended December 31, 2009, 2010, and 2011, respectively.

In addition, the Company is required by PRC law to contribute approximately 10%, 1%, and 1.1% of applicable salaries of certain employees for medical, unemployment benefits, and workers compensation, respectively. The PRC government is directly responsible for the payments of the benefits to these employees. The amounts contributed were RMB2,075, RMB1,797, and RMB2,074 for the years ended December 31, 2009, 2010 and 2011, respectively.

24.	CHINA CONTRIBUTION PLAN AND PROFIT APPROPRIATION

As stipulated by the relevant laws and regulations in the PRC, the Company’s subsidiaries and VIE in the PRC are required to maintain a non-distributable statutory reserve. Appropriations to the statutory reserve are required to be made at not less than 10% of profit after taxes as reported in these entities’ statutory financial statements prepared under PRC GAAP. Once appropriated, these amounts are not available for future distribution to owners or shareholders. Once the statutory reserve is accumulated to 50% of these entities registered capital, these entities can choose not to provide additional reserves. The statutory reserve may be applied against prior year losses, if any, and may be used for general business expansion and production and an increase in the registered capital of these entities. Amounts contributed to the statutory reserve were RMB77,635 and RMB78,478 as of December 31, 2010 and 2011, respectively.

RMB2,576 and RMB843 were appropriated from net income to statutory reserves by Ninetown’s subsidiaries in the PRC for the years ended December 31, 2010 and 2011, respectively.

Relevant PRC Statutory laws and regulations permit payments of dividends by Ninetown’s PRC subsidiaries and VIE only from their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. In addition, the statutory reserve requires annual appropriations of 10% of after-tax profit to be set as aside prior to the payment of dividends. As a result of these PRC laws and regulations, the Company’s PRC subsidiaries and VIE are restricted in their abilities to transfer funds to the Company in the form of dividends, loans or advances. Total restricted net assets of the Company’s consolidated PRC subsidiaries and VIE were RMB552,883 and RMB553,727 as of December 31, 2010 and 2011, respectively.

F - 40

SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY

BALANCE SHEETS

(In thousands, except share and per share data)


	As of December 31,
	2010			2011			2011
	RMB			RMB			US$
ASSETS
Current assets:
Cash and cash equivalents		117,692			86,769			13,786
Investment in available-for-sale securities		188,621			225,488			35,826
Prepaid expenses and other current assets		590			95			15
Amounts due from subsidiaries		375,906			357,190			56,752


Total current assets		682,809			669,542			106,379
Investments in subsidiaries		278,580			283,585			45,057

TOTAL ASSETS		961,389			953,127			151,436


LIABILITIES AND SHAREHOLDERS’ EQUITY

Option liabilities		4,560			7,932			1,260
Other payables		2,052			3,206			509
Amounts due to subsidiaries		5,952			6,569			1,043


Total current liabilities		12,564			17,707			2,812


Shareholders’ equity:
Ordinary shares, par value RMB0.027 (HK$0.025) per share:
8,000,000,000 shares authorized; 36,742,832 shares issued and outstanding in 2010 and 37,538,161 shares issued and outstanding in 2011, respectively		965			982			156
Additional paid-in capital		916,719			923,829			146,782
Retained earnings		54,221			57,746			9,175
Accumulated other comprehensive loss		(23,080	)		(47,137	)		(7,489	)


Total shareholders’ equity		948,825			935,420			148,624


TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		961,389			953,127			151,436

F - 41

SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY (CONTINUED)

STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)


	Years Ended December 31,
	2009			2010			2011			2011
	RMB			RMB			RMB			US$

Selling and marketing expenses		—			—			—			—
General and administrative expenses		(16,506	)		(17,064	)		(23,845	)		(3,789	)

Loss from operations		(16,506	)		(17,064	)		(23,845	)		(3,789	)
Interest income		15			2			1			—
Gain on sales of short-term investments		28,587			59,452			32,637			5,184
Change in fair value of marketable options		27,684			(18,211	)		7,252			1,152
Other income		1,804			1,979			—			—

Income before equity in earnings of subsidiaries		41,584			26,158			16,045			2,547
Equity in losses of subsidiaries		(40,252	)		(13,833	)		(12,520	)		(1,989	)

Net income		1,332			12,325			3,525			558


Net income per share
Basic		0.04			0.34			0.09			0.01
Diluted		0.04			0.33			0.09			0.01

Weighted average shares used in computation:
Basic		35,100,194			35,800,428			37,443,657			37,443,657
Diluted		35,100,194			37,291,534			40,465,449			40,465,449

F - 42

SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY (CONTINUED)

STATEMENT OF COMPREHENSIVE INCOME

(In thousands, except share and per share data)


	Years Ended December 31,
	2009			2010			2011			2011
	RMB			RMB			RMB			US$
Net income		1,332			12,325			3,525			558
Foreign currency translation loss		(5	)		(10,572	)		(15,004	)		(2,384	)
Unrealized gain (loss) on available-for-sale securities		16,451			(7,063	)		(9,053	)		(1,438	)

Comprehensive income (loss)		17,778			(5,310	)		(20,532	)		(3,264	)

F - 43

SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY (CONTINUED)

STATEMENTS OF CHANGES IN EQUITY

(In thousands, except share and per share data)


					Additional Paid-in Capital			Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive (Loss) Income			Total
	Ordinary shares
	Shares		Amount
			RMB		RMB			RMB		RMB			RMB
Balance as of January 1, 2009		34,998,020		926		880,581			40,564		(21,891	)		900,180
Issuance of ADR shares for the exercise of employee share options		120,536		3		(3	)		—		—			—
Net income		—		—		—			1,332		—			1,332
Foreign currency translation adjustments		—		—		—			—		(5	)		(5	)
Employee share options compensation		—		—		4,467			—		—			4,467
Unrealized gain on available-for-sale securities		—		—		—			—		16,451			16,451


Balance as of December 31, 2009		35,118,556		929		885,045			41,896		(5,445	)		922,425
Issuance of ADR shares for the exercise of employee share options		1,624,276		36		(36	)		—		—			—
Net income		—		—		—			12,325		—			12,325
Foreign currency translation adjustments		—		—		—			—		(10,572	)		(10,572	)
Employee share options compensation		—		—		31,710			—		—			31,710
Unrealized loss on available-for-sale securities		—		—		—			—		(7,063	)		(7,063	)


Balance as of December 31, 2010		36,742,832		965		916,719			54,221		(23,080	)		948,825
Issuance of ADR shares for the exercise of employee share options		795,329		17		(17	)		—		—			—
Net income		—		—		—			3,525		—			3,525
Foreign currency translation adjustments		—		—		—			—		(15,004	)		(15,004	)
Employee share options compensation		—		—		7,127			—		—			7,127
Unrealized loss on available-for-sale securities		—		—		—			—		(9,053	)		(9,053	)

Balance as of December 31, 2011		37,538,161		982		923,829			57,746		(47,137	)		935,420

				US$156		US$146,782			US$9,175		(US$7,489	)		US$148,624

F - 44

SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY (CONTINUED)

STATEMENTS OF CASH FLOWS

(In thousands, except share and per share data)


	Years Ended December 31,
	2009			2010			2011			2011
	RMB			RMB			RMB			US$
Cash flows from operating activities:
Net income		1,332			12,325			3,525			558
Adjustments to reconcile net income to net cash used in operating activities:
Equity in earnings of subsidiaries		40,252			13,833			12,520			1,989
Gain from short sale of stock options		(41,810	)		(43,788	)		(37,942	)		(6,028	)
(Gain) loss from sale of available-for-sale securities		(14,461	)		2,823			—			—
Changes in operating assets and liabilities:

Prepaid expenses and other current assets		256			(48	)		478			76
Other payables		(4,499	)		1,993			1,279			203
Amounts due to subsidiaries		(7,622	)		5,998			920			147


Net cash used in operating activities		(26,552	)		(6,864	)		(19,220	)		(3,055	)

Cash flows from investing activities:
Purchase of available-for-sale securities		(271,568	)		(231,132	)		(332,132	)		(52,770	)
Proceeds from sales of available-for-sale securities		177,179			151,440			282,814			44,935
Proceeds from short sale of options		73,508			37,594			59,006			9,376
Cover short or assignment of option liabilities		(19,835	)		(931	)		(17,393	)		(2,763	)
Decrease in amounts due from subsidiaries		97,548			37,954			971			155

Net cash provided by (used in) investing activities		56,832			(5,075	)		(6,734	)		(1,067	)

Net cash provided by financing activities		—			—			—			—

Effect of exchange rate changes on cash		(156	)		(5,197	)		(4,969	)		(791	)

Net increase (decrease) in cash and cash equivalents		30,124			(17,136	)		(30,923	)		(4,913	)
Cash and cash equivalents at the beginning of the year		104,704			134,828			117,692			18,699

Cash and cash equivalents at the end of the year		134,828			117,692			86,769			13,786

F - 45

SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY (CONTINUED)

Notes to Schedule I:

Basis of preparation

The parent-company condensed financial information of Ninetowns is prepared using the same accounting policies as set out in the Company’s consolidated financial statements except that Ninetowns uses the equity method to account for its investments in subsidiaries.

Amounts due from and due to subsidiaries

Amounts due from subsidiaries represents amounts loaned to subsidiaries for their investments in the Company’s PRC subsidiaries. Amounts due from subsidiaries are non-interest bearing, unsecured and do not have specified payment terms. Amounts due to subsidiaries are payable within one year.

* * * * * * * * *

F - 46