UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





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





For the
quarterly period ended June 30, 2010





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





For the
transition period from   to





Commission
File Number:  000-53401





China
Transportation International Holdings Group Limited


(Exact
name of registrant as specified in its charter)





Nevada
              (State
      or other jurisdiction of
              incorporation
      or organization)
            26-4694804
              (I.R.S.
      Employer Identification No.)





c/o
      Yiyang Xiangyun Group Co., Ltd.
              No.
      823 Taohualun West Road
              Yiyang
      City, Hunan Province, China
            413000(Address
      of principal executive offices)
            (Zip
      Code)





Registrant’s
telephone number (including area code):  +86(737)-421-3711





n/a


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





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





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





Large
      accelerated filer  ̈
              
              Accelerated
      filer  ̈Non-accelerated
      filer  ̈
              
              Smaller
      reporting company x(Do
      not check if a smaller reporting company)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).   Yes  ̈ No x





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Date File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).     Yes
 ̈  No 
 ̈





As of
August 16, 2010, there were 20,000,000 shares of company common stock issued and
outstanding.





TABLE
OF CONTENTS





PART
      I – FINANCIAL INFORMATIONCautionary
      Note on Forward Looking Statement
                    
                    3Item
      1.
                    Financial
      Statements
                    
                    
                    4Item
      2.
                    Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                    
                    
                    5Item
      3.
                    Quantitative
      and Qualitative Disclosures About Market Risk
                    
                    
                    12Item
      4(T).
                    Controls
      and Procedures
                    
                    
                    12PART
      II – OTHER INFORMATIONItem
      1.
                    Legal
      Proceedings
                    
                    
                    13Item
      2.
                    Unregistered
      Sales of Equity Securities and Use of Proceeds
                    
                    
                    13Item
      3.
                    Defaults
      Upon Senior Securities
                    
                    
                    13Item
      4.
                    Removed
      and Reserved
                    
                    
                    13Item
      5.
                    Other
      Information
                    
                    
                    13Item
      6.
                    Exhibits
                    
                    
                    14SIGNATURES
                    
                    
                    15




2





CAUTIONARY
NOTE ON FORWARD LOOKING STATEMENTS





In
addition to historical information, this Quarterly Report on Form 10-Q contains
forward looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995.  The forward looking statements are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those reflected in such forward looking statements.  In
some cases, you can identify forward looking statements by terminology such as
“may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,”
“estimates,” “predicts,” “projects,” “potential,” “proposed,” “intended,” or
“continue” or the negative of these terms or other comparable terminology. 
Readers are cautioned not to place undue reliance on these forward looking
statements, which reflect management’s opinions only as of the date
thereof. In evaluating such forward looking statements, readers should
carefully review the discussion of risks and uncertainties in this Quarterly
Report on Form 10-Q and in our most recent Current Report on Form 8-K as well as
in other filings with the Securities and Exchange Commission  (“SEC”)
including, without limitation:





●
            our
      financial position, business strategy and other plans and objectives for
      future operations;





●
            the
      ability of our management team to execute its plans to meet its
      goals;





●
            our
      ability to attract and retain
management;





●
            our
      growth strategies;





●
            anticipated
      trends in our business;





●
            our
      ability to consummate or integrate
acquisitions;





●
            our
      liquidity and ability to finance our operations and acquisition and
      development activities;





●
            the
      timing, cost and procedure for proposed
  acquisitions;





●
            the
      impact of government regulation in China and
  elsewhere;





●
            estimates
      regarding future net revenues or
profits;





●
            planned
      capital expenditures (including the amount and nature
      thereof);





●
            estimates,
      plans and projections relating to construction of facilities and the
      acquisition of facilities or
businesses;





●
            the
      possibility that our acquisitions may involve unexpected
      costs;





●
            the
      impact of competition;





●
            general
      economic conditions, whether internationally, nationally or in the
      regional and local market areas in which we are doing business, that may
      be less favorable than expected;
and





●
            other
      economic, competitive, governmental, legislative, regulatory, geopolitical
      and technological factors that may negatively impact our businesses,
      operations and pricing.





The
discussion of risks and uncertainties set forth in this Quarterly Report on Form
10-Q and in our most recent Current Report on Form 8-K as well as in other
filings with the SEC, is not necessarily a complete or exhaustive list of all
risks facing the Company at any particular point in time.  We operate in
the People’s Republic of China (“China” or “PRC”) in a highly competitive
and rapidly changing environment.  Therefore, it is likely that new risks
will emerge, and that the nature and elements of existing risks will change,
over time. It is not possible for management to predict all such risk factors or
changes therein, or to assess either the impact of all such risk factors on our
business or the extent to which any individual risk factor, combination of
factors, or new or altered factors, may cause results to differ materially from
those contained in any forward looking statement.  Although we believe that
the expectations reflected in the forward looking statements are reasonable, we
cannot guarantee future results, growth rates, and levels of activity,
performance or achievements. Given the uncertainties that surround such
statements, you are cautioned not to place undue reliance on such forward
looking statements. Except as expressly required by the federal securities laws,
there is no undertaking to publicly update or revise any forward looking
statements, whether as a result of new information, future events, changed
circumstances or any other reason.





In this
report, the terms “Company,” “we,” “us” or “our” mean China Transportation
International Holdings Group Limited and all subsidiaries and variable interest
entities (“VIEs”) included in our consolidated financial
statements.


3


CHINA
TRANSPORTATION INTERNATIONAL HOLDINGS GROUP LIMITED


INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS





CONTENTS
                              
                              PagesConsolidated
      Balance Sheets at June 30, 2010 (Unaudited) and December 31,
      2009
                              
                              
                              5Consolidated
      Statements of Income for the Three Months and Six Months Ended June 30,
      2010 and 2009 (Unaudited)
                              
                              
                              6Consolidated
      Statement of Changes in Stockholders’ Equity for the Six Months Ended June
      30, 2010 (Unaudited)
                              
                              
                              7Consolidated
      Statements of Cash Flows for the Six months Ended June 30, 2010 and2009 (Unaudited)
                              
                              
                              8Notes
      to the Consolidated Financial Statements (Unaudited)
                              
                              9 -
      23




4


CHINA
TRANSPORTATION INTERNATIONAL HOLDINGS GROUP LIMITED


CONSOLIDATED
BALANCE SHEETS


(IN
US DOLLARS)


June
      30,
                            
                            
                            December
      31,2010
                            
                            
                            2009
      (A)(Unaudited)ASSETSCurrent
      assetsCash
      and cash equivalents
                            
                            $
                            988,387
                            
                            
                            $
                            1,084,066Accounts
      receivable
                            
                            
                            1,973,384
                            
                            
                            
                            782,258Other
      receivables
                            
                            
                            554,217
                            
                            
                            
                            463,246Prepaid
      expenses
                            
                            
                            312,118
                            
                            
                            
                            181,864Due
      from a stockholder
                            
                            
                            -
                            
                            
                            
                            40,000Due
      from related parties
                            
                            
                            14,359,974
                            
                            
                            
                            17,191,539Total
      Current Assets
                            
                            
                            18,188,080
                            
                            
                            
                            19,742,973Non-current
      assetsProperty,
      plant and equipment, net
                            
                            
                            13,699,607
                            
                            
                            
                            12,530,798Intangible
      assets, net
                            
                            
                            340,985
                            
                            
                            
                            287,605Utility
      deposits
                            
                            
                            6,790
                            
                            
                            
                            3,168Deposits
      for motor vehicle and software
                            
                            
                            173,310
                            
                            
                            
                            110,128Total
      Non-current assets
                            
                            
                            14,220,692
                            
                            
                            
                            12,931,699Total
      Assets
                            
                            
                            32,408,772
                            
                            
                            
                            32,674,672LIABILITIES AND STOCKHOLDERS’
      EQUITYCurrent
      liabilitiesAccounts
      payable
                            
                            
                            1,716,907
                            
                            
                            
                            1,077,254Accrued
      expenses and other payables
                            
                            
                            1,802,091
                            
                            
                            
                            1,599,345Bank
      loans
                            
                            
                            2,971,242
                            
                            
                            
                            8,224,127Deposits
      and advances received from subcontractors
                            
                            
                            1,522,695
                            
                            
                            
                            1,520,082Deferred
      revenue
                            
                            
                            1,034,704
                            
                            
                            
                            2,161,697Income
      tax payable
                            
                            
                            269,733
                            
                            
                            
                            695,295Due
      to a stockholder
                            
                            
                            960,000
                            
                            
                            
                            -Total
      Current Liabilities
                            
                            
                            10,277,372
                            
                            
                            
                            15,277,800Non-current
      liabilitiesDeferred
      revenue, net of current portion
                            
                            
                            11,264,745
                            
                            
                            
                            8,646,790Bank
      loans, net of current portion
                            
                            
                            16,890
                            
                            
                            
                            33,640Total
      non-current liabilities
                            
                            
                            11,281,635
                            
                            
                            
                            8,680,430Total
      Liabilities
                            
                            
                            21,559,007
                            
                            
                            
                            23,958,230Stockholders’
      equityPreferred
      Stock: par value $0.001; 30,000,000 shares authorized; no shares issued
      & outstanding
                            
                            
                            -
                            
                            
                            
                            -Common
      stock: par value $0.001; 300,000,000 shares authorized; 20,000,000 shares
      issued and outstanding (2009: 14,700,000)
                            
                            
                            20,000
                            
                            
                            
                            14,700Additional
      paid-in capital
                            
                            
                            2,433,564
                            
                            
                            
                            2,438,864Statutory
      reserve
                            
                            
                            1,573,267
                            
                            
                            
                            1,573,267Retained
      earnings
                            
                            
                            5,988,132
                            
                            
                            
                            3,888,097Accumulated
      other comprehensive income-
      Foreign currency translation gain
                            
                            
                            859,132
                            
                            
                            
                            816,560Non-controlling
      interests
                            
                            
                            (24,330
                            )
                            
                            
                            (15,046
                            )Total
      Stockholders’ Equity
                            
                            
                            10,849,765
                            
                            
                            
                            8,716,442Total
      Liabilities and Stockholders’ Equity
                            
                            $
                            32,408,772
                            
                            
                            $
                            32,674,672





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





(A) 
          Represents the consolidated financial
statements of Eminent Promise Limited


5





CHINA
TRANSPORTATION INTERNATIONAL HOLDINGS GROUP LIMITED


CONSOLIDATED
STATEMENTS OF INCOME (UNAUDITED)


(IN
US DOLLARS)





For the Three Months Ended
                        June 30,
                      
                      
                      For the Six Months Ended
                        June 30,2010
                      
                      
                      2009
      (A)
                      
                      
                      2010
                      
                      
                      2009
      (A)Revenue
                      
                      $
                      4,600,957
                      
                      
                      $
                      4,073,126
                      
                      
                      $
                      11,839,414
                      
                      
                      $
                      10,950,670Cost
      of sales
                        (including
      depreciation of motor vehicles of $1,785,767 and $1,723,400 (for the six
      months ended June 30, 2010 and 2009 respectively); and $890,198 and
      $916,594 (for the three months ended June 30, 2010 and 2009
      respectively)
                      
                      
                      2,575,729
                      
                      
                      
                      1,624,194
                      
                      
                      
                      7,623,630
                      
                      
                      
                      6,478,744Gross
      profit
                      
                      
                      2,025,228
                      
                      
                      
                      2,448,932
                      
                      
                      
                      4,215,784
                      
                      
                      
                      4,471,926Operating
      expensesSelling
      and marketing expenses
                      
                      
                      3,440
                      
                      
                      
                      2,090
                      
                      
                      
                      34,877
                      
                      
                      
                      67,480General
      and administrative expenses
                      
                      
                      738,805
                      
                      
                      
                      240,062
                      
                      
                      
                      1,529,634
                      
                      
                      
                      1,220,459Loss
      on write off of property, plant and equipment
                      
                      
                      27,997
                      
                      
                      
                      775,435
                      
                      
                      
                      27,997
                      
                      
                      
                      775,435Total
      operating expenses
                      
                      
                      770,242
                      
                      
                      
                      1,017,587
                      
                      
                      
                      1,592,508
                      
                      
                      
                      2,063,374Operating
      Income
                      
                      
                      1,254,986
                      
                      
                      
                      1,431,345
                      
                      
                      
                      2,623,276
                      
                      
                      
                      2,408,552Other
      income (expense):Interest
      income
                      
                      
                      196,287
                      
                      
                      
                      820
                      
                      
                      
                      379,658
                      
                      
                      
                      135,982Interest
      expense
                      
                      
                      (70,610
                      )
                      
                      
                      (24,783
                      )
                      
                      
                      (233,982
                      )
                      
                      
                      (115,122
                      )Other
      (expense) income, net
                      
                      
                      124,587
                      
                      
                      
                      27,120
                      
                      
                      
                      (109,635
                      )
                      
                      
                      76,170Total
      other income
                      
                      
                      250,264
                      
                      
                      
                      3,157
                      
                      
                      
                      36,041
                      
                      
                      
                      97,030Income
      before taxes
                      
                      
                      1,505,250
                      
                      
                      
                      1,434,502
                      
                      
                      
                      2,659,317
                      
                      
                      
                      2,505,582Income
      taxes
                      
                      
                      (196,335
                      )
                      
                      
                      (77,531
                      )
                      
                      
                      (561,372
                      )
                      
                      
                      (77,531
                      )Net
      income
                      
                      
                      1,308,915
                      
                      
                      
                      1,356,971
                      
                      
                      
                      2,097,945
                      
                      
                      
                      2,428,051Less:
      Net (loss) income attributable to non-controlling
interests
                      
                      
                      (892
                      )
                      
                      
                      1,902
                      
                      
                      
                      (2,090
                      )
                      
                      
                      658Net
      income attributable to common stockholders
                      
                      $
                      1,309,807
                      
                      
                      $
                      1,355,069
                      
                      
                      $
                      2,100,035
                      
                      
                      $
                      2,427,393Earnings
      per shareBasic
      and Diluted
                      
                      $
                      0.07
                      
                      
                      $
                      0.09
                      
                      
                      $
                      0.12
                      
                      
                      $
                      0.17Weighted
      common shares outstandingBasic
      and Diluted
                      
                      
                      20,000,000
                      
                      
                      
                      14,700,000
                      
                      
                      
                      17,364,641
                      
                      
                      
                      14,700,000





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





(A) 
          Represents the consolidated financial
statements of Eminent Promise Limited


6


CHINA
TRANSPORTATION INTERNATIONAL HOLDINGS GROUP LIMITED


CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDER’S EQUITY


FOR
THE SIX MONTHS ENDED JUNE 30, 2010


(IN
US DOLLARS)





AccumulatedAdditional
                        
                        
                        
                        
                        
                        
                        
                        
                        otherCommon stock
                        
                        
                        paid-in
                        
                        
                        Statutory
                        
                        
                        Retained
                        
                        
                        comprehensive
                        
                        
                        Non-controlling
                        
                        
                        TotalNumber
                        
                        
                        Amount
                        
                        
                        capital
                        
                        
                        reserve
                        
                        
                        earnings
                        
                        
                        income
                        
                        
                        interests
                        
                        
                        equityBalance
      at December 31, 2009 (A)
                        
                        
                        14,700,000
                        
                        
                        $
                        14,700
                        
                        
                        $
                        2,438,864
                        
                        
                        $
                        1,573,267
                        
                        
                        $
                        3,888,097
                        
                        
                        $
                        816,560
                        
                        
                        $
                        (15,046
                        )
                        
                        $
                        8,716,442Net
      income
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        2,100,035
                        
                        
                        
                        -
                        
                        
                        
                        (2,090
                        )
                        
                        
                        2,097,945Share
      effectively issued to former shareholder as part of the
      recapitalization
                        
                        
                        5,300,000
                        
                        
                        
                        5,300
                        
                        
                        
                        (5,300
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Acquisition
      of additional  interests in a subsidiary
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (7,194
                        )
                        
                        
                        (7,194
                        )Foreign
      currency translation
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        42,572
                        
                        
                        
                        -
                        
                        
                        
                        42,572Balance
      at June 30, 2010 (Unaudited)
                        
                        
                        20,000,000
                        
                        
                        $
                        20,000
                        
                        
                        $
                        2,433,564
                        
                        
                        $
                        1,573,267
                        
                        
                        $
                        5,988,132
                        
                        
                        $
                        859,132
                        
                        
                        $
                        (24,330
                        )
                        
                        $
                        10,849,765





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





(A) 
          Represents the consolidated financial
statements of Eminent Promise Limited


7


CHINA
TRANSPORTATION INTERNATIONAL HOLDINGS GROUP LIMITED


CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)


(IN
US DOLLARS)





Six months ended June 30,2010
                
                
                2009
      (A)Cash
      flows from operating activities:-Net
      income
                
                $
                2,097,945
                
                
                $
                2,428,051Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
                
                
                1,809,776
                
                
                
                1,746,570Amortization
      of intangible assets
                
                
                9,812
                
                
                
                3,936Loss
      on write off of property, plant and equipment
                
                
                27,997
                
                
                
                775,435Changes in assets and liabilities:Accounts
      receivable
                
                
                (1,191,126
                )
                
                
                (225,859
                )Other
      receivables
                
                
                (90,971
                )
                
                
                679,189Utility
      deposits
                
                
                (3,622
                )
                
                
                (3,168
                )Prepaid
      expenses
                
                
                (130,254
                )
                
                
                323,773Accounts
      payable
                
                
                639,653
                
                
                
                (107,132
                )Deposits
      and advances received from subcontractors
                
                
                2,613
                
                
                
                62,728Accrued
      expenses and other payables
                
                
                201,407
                
                
                
                634,460Deferred
      revenue
                
                
                1,490,962
                
                
                
                (125,758
                )Due
      to non-controlling interest
                
                
                -
                
                
                
                438Income
      tax payable
                
                
                (425,562
                )
                
                
                77,514Net
      cash provided by operating activities
                
                
                4,438,630
                
                
                
                6,270,177Cash
      flows from investing activities:Advances
      to related parties
                
                
                (5,459,365
                )
                
                
                (4,950,093
                )Repayment
      from related parties
                
                
                8,290,930
                
                
                
                5,148,404Deferred
      costs
                
                
                -
                
                
                
                (96,383
                )Acquisition
      of intangible assets
                
                
                (61,801
                )
                
                
                -Acquisition
      of property, plant and equipment
                
                
                (2,949,677
                )
                
                
                (3,917,290
                )Deposit
      paid for motor vehicle and software
                
                
                (63,182
                )Acquisition
      of additional interests in a subsidiary
                
                
                (7,194
                )
                
                
                -Net
      cash used in investing activities
                
                
                (250,289
                )
                
                
                (3,815,362
                )Cash
      flows from financing activities:Advance
      from a stockholder
                
                
                1,000,000
                
                
                
                -Proceeds
      from bank loans
                
                
                2,928,858
                
                
                
                8,181,441Repayment
      of bank loans
                
                
                (8,205,765
                )
                
                
                (905,464
                )Dividends
      paid
                
                
                -
                
                
                
                (2,746,234
                )Net
      cash (used in) provided by financing activities
                
                
                (4,276,907
                )
                
                
                4,529,743Net
      (decrease) increase in cash
                
                
                (88,566
                )
                
                
                6,984,558Effect
      of foreign currency conversion on cash
                
                
                (7,113
                )
                
                
                (5,353
                )Cash
      at beginning of period
                
                
                1,084,066
                
                
                
                533,565Cash
      at ending of period
                
                $
                988,387
                
                
                $
                7,512,770Supplemental
      cash flow information:Interest
      paid
                
                $
                233,982
                
                
                $
                115,122Income
      tax paid
                
                $
                988,590
                
                
                $
                -





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





(A) 
          Represents the consolidated financial
statements of Eminent Promise Limited


8


CHINA
TRANSPORTATION INTERNATIONAL HOLDINGS GROUP LIMITED


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


(IN
US DOLLARS)





1.
            DESCRIPTION
      OF ORGANIZATION AND BUSINESS





China
Transportation International Holdings Group Limited (the “Company”, f/k/a China
Ding Cheng Science Holdings Co., Ltd.), was incorporated under the laws of the
State of Nevada on March 12, 2004 under the name Beautiful Life Foods, Inc. On
December 22, 2004, the Company amended its Articles of Incorporation to change
its name to Diamond Bay Holdings, Inc. On December 1, 2006, the Company amended
its Articles of Incorporation to change its name to Shaan’xi Ding Cheng Science
Holding Co., Ltd.  On February 5, 2007 the Company amended its
Articles of Incorporation to change its name to China Ding Cheng Science
Holdings Co., Ltd.  The Company’s only activities had been organizational
ones, directed at developing its business plan and raising its initial capital.
Prior to the completion of the Share Exchange discussed below, the Company was a
shell company as defined in Rule 12b-2 under the Securities Act of 1933, having
no or nominal business operations, employees, or assets.





On April
1, 2010, the Company entered into a Share Exchange Agreement (the “Exchange
Agreement”) with Eminent Promise Limited (“Eminent Promise”), a corporation
incorporated under the laws of the British Virgin Islands, and the shareholders
of Eminent Promise (the “Eminent Shareholders”).  Pursuant to the terms of
the Exchange Agreement, the Eminent Shareholders agreed and transferred all of
the issued and outstanding shares of common stock in Eminent Promise to the
Company in exchange for the issuance of an aggregate of 14,700,000 shares of the
Company’s common stock, par value $.001 (“Common Stock”), to the Eminent
Shareholders (“Share Exchange”).





Prior to
the Share Exchange, Mr. Yueming Guo returned 14,700,000 previously issued shares
of common stock to the Company for cancellation and such shares were returned to
the Company’s authorized but unissued shares of common stock. Following the
Share Exchange, the Company has a total of 20,000,000 shares of common stock
issued and outstanding.





Eminent
Promise owns 100% of the issued and outstanding capital stock of Tone Express
(HK) Limited (“Tone Express), a corporation incorporated under the laws of Hong
Kong,. Tone
Express owns 100% of the issued and outstanding capital stock of the Yiyang Tone
Express (HK) Limited (“Yiyang Tone Express”, a corporation incorporated under
the laws of the PRC.,. On
December 24, 2009, Yiyang Tone Express entered into a series of variable
interest entity contractual agreements (the “VIE Agreements”) with Yiyang
Xiangyun Group Company Limited (“ the Yiyang Group”)  and its shareholders,
pursuant to which Yiyang Tone Express effectively assumed management of the
business activities of Yiyang Group and has the right to appoint all executives
and senior management and the members of the board of directors of Yiyang
Group.





The VIE
Agreements comprised of a series of agreements, including a Management and
Consulting Services Agreement, Operating Agreement and Proxy Agreement, through
which Yiyang Tone Express has the right to advise, consult, manage and operate
Yiyang Group for an annual fee in the amount of Yiyang Group’s yearly net
profits after tax.  Additionally, Yiyang Group’s shareholders pledged their
rights, titles and equity interest in Yiyang Group as security for Yiyang Tone
Express to collect consulting and services fees provided to Yiyang Group through
an Equity Pledge Agreement.  In order to further reinforce Yiyang Tone
Express’s rights to control and to operate Yiyang Group, Yiyang Group’s
shareholders granted Yiyang Tone Express an exclusive right and option to
acquire all of their equity interests in Yiyang Group through an Option
Agreement.




9


CHINA
TRANSPORTATION INTERNATIONAL HOLDINGS GROUP LIMITED
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 (IN
US DOLLARS)
 
 1.
              DESCRIPTION
      OF ORGANIZATION AND BUSINESS
(CONTINUED)
 
 As a
result of the Share Exchange the Company, through its subsidiaries and VIE, is
now engaged in the business of providing public transportation services in the
PRC.  All business operations are conducted through the Company’s
wholly-owned subsidiary, Yiyang Tone Express, and Yiyang Group, its
VIE.
 Yiyang
Group includes the following subsidiaries along with its respective ownership
interests:
 Ownership %Yiyang
      Xiang Highway Transportation Company Limited
                      
                      
                      80
                      %Yiyang
      Shi Dong Fang Travelling Bus Company Limited
                      
                      
                      100
                      %(1)An
      Hua Xian An Shun Local Transportation Company Limited
                      
                      
                      100
                      %Tao
      Jiang Xiang Hui Shan Gang Xiangyun Rural Transportation Company
      Limited
                      
                      
                      100
                      %
 
 (1) On
April 13, 2010, Yiyang Group acquired the remaining interest of 12% of Yiyang
Shi Dong Fang Travelling Bus Company Limited, which then become a wholly-owned
subsidiary of Yiyang Group.
 
 2.
              SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
 
 Basis
of Presentation and Consolidation
 
 The
accompanying unaudited consolidated financial statements and related notes have
been prepared in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”) for interim financial information and
with the rules and regulations of the Securities and Exchange Commission (“SEC”)
for Form 10-Q. Accordingly, they do not include all of the information and
footnotes required by U.S. GAAP for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of the financial position, results
of operations and cash flows for the interim periods have been included. Interim
results are not necessarily indicative of the results for the full year. These
unaudited consolidated financial statements should be read in conjunction with
the financial statements of the Company on Form 8-K on April 1,
2010.




The Share
Exchange transaction has been accounted for as a recapitalization of the Company
whereby the Company is considered the legal acquiror and Eminent Promise 
is considered the accounting acquiror. As a result of this transaction, the
Company is deemed to be a continuation of the business of Eminent Promise. 
The historical stockholders’ equity of the accounting acquiror prior to the
share exchange has been retroactively restated as if the share exchange
transaction occurred as of the beginning of the first period
presented.


10


CHINA
TRANSPORTATION INTERNATIONAL HOLDINGS GROUP LIMITED


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


(IN
US DOLLARS)





2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)





Basis
of Presentation and Consolidation (Continued)





The
Company has adopted Financial Accounting Standard Board (“FASB”) Accounting
Standards Codification (“ASC”) 810, which requires that a VIE to be consolidated
by a company if that company is entitled to receive a majority of the VIE’s
residual returns and has direct ability to make decision on all operational
activities of the VIE.





The
Operating Agreement indicated that Yiyang Group, is the operating entity which
is under control of Yiyang Tone Express. It empowers Yiyang Tone Express the
direct ability to make decisions on all activities of Yiyang Group.





Under the
Management and Consulting Service Agreement entered between Yiyang Tone Express
and Yiyang Group on December 24, 2009, Yiyang Group agreed to pay all of its net
profits to Yiyang Tone Express as consultancy fee annually. Accordingly, Yiyang
Tone Express has the right to receive the expected residual returns of Yiyang
Group.





Under the
aforementioned contractual arrangement, the Company, “China Transportation
International Holdings Group Limited” qualifies as the primary beneficiaries for
the controlling interest of Yiyang Group under ASC230-10-45 and ASC810-10-15-14.
The result of subsidiaries or variable interest entities acquired prior to date
of Share Exchange Agreement on April 1, 2010 entered are included in the
consolidated financial statements.





As of
June 30, 2010, the unaudited consolidated financial statements include the
accounts of the Company and the following entities (together referred to as the
“CTHG Group”).  All intercompany transactions and accounts have been
eliminated in consolidation.





Name of Company
                        
                        Place of
                          incorporation
                        
                        Date of
                          incorporation
                        
                        Attributable equity
                          interest
                        
                        Direct/ Indirect
                          Controlling
                          interestEminent
      Promise Limited
                        
                        British
      Virgin Islands
                        
                        August
      11, 2009
                        
                        
                        100
                        %
                        DirectTone
      Express (HK) Limited
                        
                        Hong
      Kong
                        
                        August
      13, 2009
                        
                        
                        100
                        %
                        IndirectYiyang
      Tone Express (HK) Limited
                        
                        PRC
                        
                        January
      11, 2010
                        
                        
                        100
                        %
                        IndirectYiyang
      Xiangyun Group Co., Ltd.
                        
                        PRC
                        
                        December
      26, 1987
                        
                        
                        *
                        
                        Indirect





*
            The
      Company has indirect controlling interest of Yiyang Group under the VIE
      Agreements entered on December 24, 2009, which are described in Note 1
      above.





Initial
measurement of VIE - The Company initially measures the assets, liabilities, and
non-controlling interests of the VIEs at their fair values at the date of the
acquisitions. At the date of acquisition, the fair value of VIE was equal to
book value of the VIE.





Accounting
after initial measurement of VIE - Subsequent accounting for the assets,
liabilities, and non-controlling interest of a consolidated variable interest
entity are accounted for as if the entity were consolidated based on voting
interests and the usual accounting rules for which the VIE operates are applied
as they would to a consolidated subsidiary as follows:





-
            Carrying
      amounts of the VIE are consolidated into the financial statements of the
      Company as the primary beneficiary (referred as “Primary Beneficiary” or
      “PB”); and





-
            Inter-company
      transactions and balances, such as revenues and costs, receivables and
      payables between or among the Primary Beneficiary and the VIE(s) are
      eliminated in their entirety.


11


CHINA
TRANSPORTATION INTERNATIONAL HOLDINGS GROUP LIMITED


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


(IN
US DOLLARS)





2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)





Use
of Estimates





The
preparation of the consolidated financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions relating to the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.





Significant
items subject to such estimates and assumptions include the valuation allowances
for receivables, the recoverability of the carrying amount, the estimated useful
lives of long-lived assets, and the contingencies. Actual results could differ
from those estimates.





Economic
and Political Risks





CTHG
Group’s operations are conducted in the PRC. Accordingly, CTHG Group's business,
financial condition and results of operations may be influenced by the
political, economic and legal environment in the PRC, and by the general state
of the PRC economy.





CTHG
Group's operations in the PRC are subject to special considerations and
significant risks not typically associated with companies in North America and
Western Europe.  These include risks associated with, among others, the
political, economic and legal environment and foreign currency exchange. 
CTHG Group's results may be adversely affected by changes in the political and
social conditions in the PRC, and by changes in governmental policies with
respect to laws and regulations, anti-inflationary measures, currency
conversion, remittances aboard, and rates and methods of taxation, among other
things.





Cash
and Cash Equivalents





Cash and
cash equivalents include cash on hand and at banks. Substantially all of CTHG
Group’s cash deposits are held with financial institutions located in the PRC.
Management believes that these major financial institutions are of high credit
quality. Restricted cash is excluded from cash and cash
equivalents.





Accounts
Receivable





Accounts
receivable represents outstanding service fees to be collected from customers
and subcontractors. The allowance for doubtful accounts is CTHG Group’s best
estimate of the amount of probable credit losses in the existing accounts
receivable.  Management determines the allowance based on historical
experience, customer specific facts and economic conditions.





Outstanding
account balances are reviewed individually for collectability.  Account
balances are charged off against the allowance after all means of collection
have been exhausted and the potential for recovery is considered remote. 
Management believes CTHG Group is not exposed to any off-balance-sheet credit
exposure from its customers





Management
performs ongoing credit evaluation of its customers’ financial conditions and
believes that all outstanding balance is collectible.  Therefore,
management has determined that no allowance for doubtful accounts was deemed
necessary as of June 30, 2010 and December 31, 2009.


12


CHINA
TRANSPORTATION INTERNATIONAL HOLDINGS GROUP LIMITED


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


(IN
US DOLLARS)





2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)





Related
Parties





Related
parties, which can be a corporation, individual, investor or another entity are
considered to be related if the party has the ability, directly or indirectly,
to control the other party or exercise significant influence over the Company in
making financial and operating decisions. Companies are also considered to be
related if they are subject to common control or common significant influence.
CTHG Group has these types of relationships.





Property,
Plant, and Equipment





Property,
plant, and equipment are recorded at cost less accumulated depreciation.
Expenditures for major additions and betterments are capitalized. Maintenance
and repairs are charged to general and administrative expenses as
incurred.  Depreciation of property, plant and equipment is computed by the
straight-line method over the assets estimated useful lives ranging from two to
nineteen years.





Upon sale
or retirement of property, plant and equipment, the related cost and accumulated
depreciation are removed from the accounts and any gain or loss is reflected in
operations.





The
estimated useful lives of the assets as follows:


YearsBuildings
              
              19Office
      equipment and furniture
              
              2-8Motor
      vehicles
              
              5-8





Intangible
Assets





Intangible
assets acquired separately, including land use right and computer software, are
measured on initial recognition on cost.





The
useful lives of intangible assets are assessed to be either finite or
indefinite. Intangible assets with finite lives are subsequently amortized over
the useful economic life and assessed for impairment whenever there is an
indication that the intangible asset may be impaired. The amortization period
and the amortization method for an intangible asset with a finite useful life
are reviewed at least at each financial year end.





Computer
software is stated at cost less any impairment losses and is amortized on the
straight-line basis over its estimated useful life of 5 years.





Land use
right represents the prepayments for the use of the parcels of land in the PRC
where CTHG Group’s headquarter is located through a deed of trust with Yiyang
Xiangyun Investment Company Limited, one of CTHG Group’s related parties, and
are charged to expense over their respective lease periods of 39 years expiring
on June 28, 2046. According to the laws of the PRC, the government owns all the
land in the PRC.  Companies or individuals are authorized to use the land
only through land use rights granted by the PRC government for a certain period
(usually 50 years).  The land use right can be sold, purchased, and
exchanged in the market.  The term of such rights for successive owner
shall be reduced by the amount of time utilized by the preceding owner. 
CTHG Group has obtained a land use right from the PRC Government for commercial
purpose through a Deed of Trust with Yiyang Xiangyun Investment Company
Limited.




13


CHINA
TRANSPORTATION INTERNATIONAL HOLDINGS GROUP LIMITED


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


(IN
US DOLLARS)





2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)





Impairment
of Long-Lived Assets





Long-lived
assets, including intangible assets and property, plant, and equipment, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.





Recoverability
of assets to be held and used is measured by a comparison of the carrying amount
of an asset to estimated undiscounted future net cash flows expected to be
generated by the asset. If the carrying amount of an asset exceeds its estimated
undiscounted future cash flows, an impairment charge is recognized by the amount
by which the carrying amount of the assets exceeds the fair value of the
asset.





Assets to
be disposed of, if any, are separately presented in the balance sheet and
reported at the lower of the carrying amount or fair value less costs to sell,
and are no longer depreciated.





At June
30, 2010 and June 30, 2009, CTHG Group determined that there was no impairment
in value.





Fair
Value of Financial Instruments





In August
2009, the FASB issued Accounting Standards Update "ASU" 2009-5 "Measuring
Liabilities at Fair Value". This ASU provides amendments to ASC 820-10 "Fair
Value Measurements and Disclosures" to address concerns regarding the
determination of the fair value of liabilities. Because liabilities are often
not "traded", due to restrictions placed on their transferability, there is
typically a very limited amount of trades (if any) from which to draw market
participant data. As such, many entities have had to determine the fair value of
a liability through the use of a hypothetical transaction. This ASU clarifies
the valuation techniques that must be used when the liability subject to the
fair value determination is not traded as an asset in an active market. The
management does not expect the adoption of this ASU to have a material effect on
the consolidated financial statements.





Deposits
and Advances Received From Subcontractors





CTHG
Group enters into agreements with various subcontractors to grant them the
rights to operate a designated bus route. Such agreement requires a deposit and
an advance received from subcontractors for obtaining the rights to operate the
bus line and is renewed on an annual basis. These deposits and advances received
are non-interest bearing.





Deferred
Revenue





Along
with the agreement to operate the bus routes, CTHG Group also contracts with
subcontractors to grant them the rights to use the motor vehicles during the
operation of designated bus routes.  Each agreement has a fixed term of
five years and is renewable upon expiration.  Upon signing of the
agreements, subcontractors are required to pay a lump sum subcontracting fee
calculated based on an annual estimated usage of the contracted motor vehicle
for the right to use.  These fees will be amortized over the term of the
agreement, usually five years. Deferred revenue that will be recognized in next
year is being classified as short term liabilities with the balance classified
as a long term liability.




14


CHINA
TRANSPORTATION INTERNATIONAL HOLDINGS GROUP LIMITED


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


(IN
US DOLLARS)





2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)





Revenue
Recognition





CTHG
Group generates revenue primarily from public transportation services provided
through direct bus ticket sales and subcontractors.





CTHG
Group recognizes revenue over the applicable contract periods with its
subcontractors or as services are rendered.  Amounts contracted and
collected before the services being rendered are included in deferred
revenue.





Income
Taxes





CTHG
Group accounts for income taxes under ASC 740 “Income Taxes”. Deferred income
tax assets and liabilities are determined based upon differences between the
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be effective when the differences
are expected to reverse.





Deferred
tax assets are reduced by a valuation allowance to the extent that management
concludes it is more likely than not that the assets will not be realized. 
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.  The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
the consolidated statements of income in the period that includes the enactment
date.





ASC 740
prescribes a more-likely-than-not threshold for financial statement recognition
and measurement of a tax position taken in the tax return. This interpretation
also provides guidance on de-recognition of income tax assets and liabilities,
classification of current and deferred income tax assets and liabilities,
accounting for interest and penalties associated with tax positions, accounting
for income taxes in interim periods and income tax disclosures. As of June 30,
2010 and December 31, 2009 there were no amounts that had been accrued with
respect to uncertain tax positions.





Statutory
Reserves





Pursuant
to the PRC Company Law, Yiyang Group are required to make appropriations to the
statutory reserve at a rate of at least 10% of the after-tax net earnings for
each year as determined in accordance with the PRC GAAP.  The after-tax net
earnings must be set off against any accumulated losses sustained by Yiyang
Group in prior years, before allocation is made to the statutory reserve. 
Appropriation to the statutory reserve must be made before distribution of
dividends to owners.  The appropriation is required until the reserve
accumulated is equal to 50% of Yiyang Group’ registered capital.  This
statutory reserve is not distributable in the form of cash dividends.  For
the six months ended June 30, 2010 and year ended December 31, 2009, Yiyang
Group has made appropriations of $Nil and $905,304, respectively, into the
statutory reserve.





Stock-Based
Compensation





CTHG
Group adopted ASC Topic 718.   This Statement requires a public entity
to measure the cost of services received in exchange for an award of equity
instruments based on the grant-date fair value of the award.  That cost
will be recognized over the period during which services are received. 
Stock compensation for stock granted to non-employees has been determined in
accordance with ASC Topic 718 and ASC Topic 505-50, as the fair value of the
consideration received or the fair value of equity instruments issued, whichever
is more reliably measured.





Other
Comprehensive Income





CTHG
Group adopted ASC 220 “Comprehensive Income”, which establishes standards for
the reporting and display of comprehensive income and its components in the
financial statements. Other comprehensive income is defined as the change in
equity of a company during the period from transactions and other events and
circumstances excluding transactions resulting from investments from owners and
distributions to owners. Accumulated other comprehensive income, as presented on
the accompanying consolidated statements of changes in equity and comprehensive
income, was cumulative foreign currency translation adjustment in each of the
quarters ended June 30, 2010 and 2009.





Pension
and Employee Benefits





Full time
employees of CTHG Group’s PRC subsidiaries are required to participate in a
government mandated multi-employer defined contribution plan pursuant to which
certain pension benefits, medical care, unemployment insurance, employee housing
fund and other welfare benefits are provided to employees.  PRC labor
regulations require CTHG Group to accrue for these benefits based on certain
percentages of the employees' salaries. Costs for pension and employee benefits
for the six months ended June 30, 2010 and 2009 were $161,363 and $147,235,
respectively.


15


CHINA
TRANSPORTATION INTERNATIONAL HOLDINGS GROUP LIMITED


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


(IN
US DOLLARS)





2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)





Commitments
and Contingencies





Certain
conditions may exist as of the date the financial statements are issued, which
may result in a loss to CTHG Group, but which will only be resolved when one or
more future events occur or fail to occur. CTHG Group’s management and its legal
counsel assess such contingent liabilities, and such assessment inherently
involves an exercise of judgment. In assessing loss contingencies related to
legal proceedings that are pending against CTHG Group, or unasserted claims that
may result in such proceedings, CTHG Group’s legal counsel evaluates the
perceived merits of any legal proceedings or unasserted claims as well as the
perceived merits of the amount of relief sought or expected to be sought
therein.





If the
assessment of a contingency indicates that it is probable that a material loss
has been incurred and the amount of the liability can be estimated, the
estimated liability would be accrued in CTHG Group’s consolidated financial
statements. If the assessment indicates that a potentially material loss
contingency is not probable but is reasonably possible, or is probable but
cannot be estimated, the nature of the contingent liability, together with an
estimate of the range of possible loss if determinable and material, would be
disclosed.





As of
June 30, 2010 and December 31, 2009, the management has evaluated all such
proceedings and claims.  In the opinion of management, provision of legal
claim was made and the ultimate disposition of these matters will not have a
material adverse effect on CTHG Group's financial position, liquidity or results
of operations.





Foreign
Currency Translation





CTHG
Group uses United States dollars (“U.S. Dollar” or “US$” or “$”) for financial
reporting purposes. The subsidiaries with the Company maintain their books and
records in their respective functional currency, Chinese Renminbi (“RMB”) and
Hong Kong Dollars (“HK$”), being the lawful currency in the PRC and Hong Kong,
respectively. Assets and liabilities of the subsidiaries are translated from RMB
or HK$ into U.S. Dollars using the applicable exchange rates prevailing at the
balance sheet date. Items on the statements of income, comprehensive income and
cash flows are translated at average exchange rates during the reporting period.
Equity accounts are translated at historical rates. Adjustments resulting from
the translation of CTHG Group’s financial statements are recorded as accumulated
other comprehensive income.





The
exchange rates used to translate amounts in RMB and HK$ into U.S. Dollars for
the purposes of preparing the consolidated financial statements are as
follows:





June 30,
                            2010
                          
                          June 30,
                            2009
                          
                          December 31,
                            2009Balance
      sheet items, except for equity accounts
                          
                          RMB6.80860=$1
                          
                          RMB6.84476=$1
                          
                          RMB6.83720=$1HK$7.75000=$1
                          
                          HK$7.75000=$1
                          
                          HK$7.75000=$1Items
      in statements of operations and comprehensive income
                          
                          RMB6.83474=$1
                          
                          RMB6.84323=$1
                          
                          RMB6.84658=$1HK$7.75000=$1
                          
                          HK$7.75000=$1
                          
                          HK$7.75000=$1





The RMB
is not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions. No representation
is made that the RMB amounts could have been, or could be, converted into USD at
the rates used in translation.





Earnings
Per Share





CTHG
Group reports earnings per share in accordance with the ASC 260 “Earnings Per
Share” This statement requires dual presentation of basic and diluted earnings
(loss) with a reconciliation of the numerator and denominator of the loss per
share computations. Basic earnings per share amounts are based on the weighted
average shares of common outstanding. If applicable, diluted earnings per share
would assume the conversion, exercise or issuance of all potential common stock
instruments such as options, warrants and convertible securities, unless the
effect is to reduce a loss or increase earnings per share. There were no
adjustments required to net profit for the period presented in the computation
of diluted earnings per share. There were no common stock equivalents necessary
for the computation of diluted earnings per share.




16


CHINA
TRANSPORTATION INTERNATIONAL HOLDINGS GROUP LIMITED


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


(IN
US DOLLARS)





2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)





Segment
Information





ASC 280
"Segment reporting" establishes standards for reporting information on operating
segments in interim and annual financial statements.  CTHG Group has one
segment, all of CTHG Group's operations and customers are in the PRC and all
income is derived from the providing services of public transportation. The
information presented in the consolidated statement of operations reflects the
revenues and costs associated with this business segment that management uses to
make operating decisions and assess performance.





Recently
Issued Accounting Pronouncements





In
January 2010, FASB issued authoritative guidance intended to improve disclosures
about fair value measurements. The guidance requires entities to disclose
significant transfers in and out of fair value hierarchy levels and the reasons
for the transfers and to present information about purchases, sales, issuances
and settlements separately in the reconciliation of fair value measurements
using significant unobservable inputs (Level 3). Additionally, the guidance
clarifies that a reporting entity should provide fair value measurements for
each class of assets and liabilities and disclose the inputs and valuation
techniques used for fair value measurements using significant other observable
inputs (Level 2) and significant unobservable inputs (Level 3). This guidance is
effective for interim and annual periods beginning after December 15, 2009
except for the disclosures about purchases, sales, issuances and settlements in
the Level 3 reconciliation, which will be effective for interim and annual
periods beginning after December 15, 2010. As this guidance provides only
disclosure requirements, the adoption of this guidance will not impact CTHG
Group’s financial condition or results of operations.





In
February 2010, the FASB issued Accounting Standards Update 2010-09 “Subsequent
Events (Topic 855)” allowing SEC filers to remove the date through which
subsequent events have been reviewed. ASU 2010-09 became effective upon
issuance, and the adoption of this guidance did not have a material impact on
CTHG Group’s financial statements.





In April
2010, the EITF issued “Revenue Recognition – Milestone Method.”  This issue
provides guidance on defining a milestone and determining when it may be
appropriate to apply the milestone method of revenue recognition for research or
development transactions.  This issue is effective on a prospective basis
for milestones achieved in fiscal years beginning after June 15, 2010. 
Early adoption is permitted.  CTHG Group is currently evaluating the
potential impact of this issue.





3.
            CASH
      AND CASH EQUIVALENTS





Cash
represents cash at banks and cash in hand. CTHG Group does not believe it is
exposed to any significant credit risk on cash and cash equivalents. As of June
30, 2010 and December 31, 2009, there were cash and cash equivalents of $988,387
and $1,084,066 respectively.





Renminbi
is not a freely convertible currency and the remittance of funds out of the PRC
is subject to the exchange restrictions imposed by the PRC
government.


17


CHINA
TRANSPORTATION INTERNATIONAL HOLDINGS GROUP LIMITED


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


(IN
US DOLLARS)





4.
            OTHER
      RECEIVABLES


As
      of June 30,
                  
                  
                  As
      of December 31,2010
                  
                  
                  2009Advances
      to bus suppliers
                  
                  $
                  11,750
                  
                  
                  $
                  35,746Advances
      to employees
                  
                  
                  185,631
                  
                  
                  
                  140,799Advances
      to third parties
                  
                  
                  32,839
                  
                  
                  
                  35,024Advances
      to subcontractors
                  
                  
                  320,339
                  
                  
                  
                  240,382Others
                  
                  
                  3,658
                  
                  
                  
                  11,295$
                  554,217
                  
                  
                  $
                  463,246





These
advances represent mainly temporary funds provided to various parties for daily
operations.  These advances are interest free and without fixed repayment
terms.





5.
            PREPAID
      EXPENSES





As
      of June 30,
                  
                  
                  As
      of December 31,2010
                  
                  
                  2009Prepaid
      fuel
                  
                  
                  220,287
                  
                  
                  
                  77,509Prepaid
      insurance
                  
                  
                  84,423
                  
                  
                  
                  49,846Prepaid
      repairs and maintenance
                  
                  
                  -
                  
                  
                  
                  13,238Others
                  
                  
                  7,408
                  
                  
                  
                  41,271$
                  312,118
                  
                  
                  $
                  181,864





6.
            DUE
      FROM RELATED PARTIES





Related
parties, which can be a corporation, individual, investor or another entity are
considered to be related if the party has the ability, directly or indirectly,
to control the other party or exercise significant influence over the Company in
making financial and operating decisions. Companies are also considered to be
related if they are subject to common control or common significant
influence.  CTHG Group has the following due from related parties as
outlined below:





As
      of June 30,
                    
                    
                    As
      of December 31,2010
                    
                    
                    2009Yiyang
      Xiangyun Station Services Company Limited (a)
                    
                    $
                    5,246,978
                    
                    
                    $
                    8,971,918Yiyang
      Xiangyun Investment Company Limited (a)
                    
                    
                    1,850,276
                    
                    
                    
                    6,298,512Yiyang
      Xiangyun Holding Company Limited (a)
                    
                    
                    7,262,720
                    
                    
                    
                    1,921,109$
                    14,359,974
                    
                    
                    $
                    17,191,539





(a)
            On
      June 1, 2010, CTHG Group renewed the loan agreement with above related
      parties. Under the new agreement, the loan advances were secured by the
      assets of these related parties, interest was computed at a rate based on
      10% increment of the PRC’s banks’ current borrowing rate and has no fixed
      terms of repayment.





Interest
income was $379,658 and $135,982 for the six months ended June 30, 2010 and
2009, respectively.


18


CHINA
TRANSPORTATION INTERNATIONAL HOLDINGS GROUP LIMITED


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


(IN
US DOLLARS)





7.
            PROPERTY,
      PLANT AND EQUIPMENT





Property,
plant and equipment consist of the following:





As
      of June 30,
                  
                  
                  As
      of December 31,2010
                  
                  
                  2009Buildings
                  
                  $
                  134,873
                  
                  
                  $
                  134,308Office
      equipment and furniture
                  
                  
                  266,858
                  
                  
                  
                  248,624Motor
      vehicles
                  
                  
                  29,280,765
                  
                  
                  
                  27,250,49529,682,496
                  
                  
                  
                  27,633,427Less:Accumulated
      depreciation
                  
                  
                  (15,982,889
                  )
                  
                  
                  (15,102,629
                  )Net
      book value
                  
                  $
                  13,699,607
                  
                  
                  $
                  12,530,798





Depreciation
charged to costs of sales was $1,785,767 and $1,723,400 for the six months ended
June 30, 2010 and 2009, respectively. The expense charged to costs of sales was
$890,198 and $916,594 for the three months ended June 30, 2010 and 2009,
respectively.





Depreciation
charged to general and administrative expenses was $24,009 and $23,170 for the
six months ended June 30, 2010 and 2009, respectively. The expense charged to
general and administrative expenses was $11,923 and $11,389 for the three months
ended June 30, 2010 and 2009, respectively.





Buildings
with an aggregate net book value of $100,544 and $102,450 at June 30, 2010 and
December 31, 2009, respectively, were pledged as collateral for various bank
loans.





CTHG
Group inspects the motor vehicles periodically to check if any of them are
old and need to be retired or written off due to the operation
inefficiencies. As of June 30, 2010 and 2009, CTHG Group recognized a loss on
write off of motor vehicles amounting to $27,997 and $775,435, respectively,
under operating expenses.





8.
            INTANGIBLE
      ASSETS





Intangible
assets consist of the following:





As
      of June 30,
                  
                  
                  As
      of December 31,2010
                  
                  
                  2009Land
      use right, net
                  
                  $
                  284,857
                  
                  
                  $
                  287,605Computer
      software
                  
                  
                  56,128
                  
                  
                  
                  -$
                  340,985
                  
                  
                  $
                  287,605





In July
2007, CTHG Group obtained the land use right of a piece of land, on which CTHG
Group’s headquarter is located, through a deed of trust with Yiyang Xiangyun
Investment Company Limited, one of CTHG Group’s related parties, for $275,836
(RMB2,101,100).  This land is located in Yiyang, Hunan Province, with an
area of approximately 2,200 square meters.  Under the deed of trust, the
land use right has a term of 39 years expiring on June 28, 2046. Land use right
is amortized using straight-line method over its prospective beneficial period.
Land use right was pledged as collateral for various bank loans.





The
computer software was amortized using straight-line method over its estimated
useful line of 60 months starting from January 2010.




The
amortization expenses were $9,812 and $3,936 for the six months ended June 30,
2010 and 2009, respectively. The expenses were $5,070 and $1,968 for the three
months ended June 30, 2010 and 2009, respectively.




19


CHINA
TRANSPORTATION INTERNATIONAL HOLDINGS GROUP LIMITED


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


(IN
US DOLLARS)





9.
            BANK
      LOANS





As
      of June 30,
                  
                  
                  As
      of December 31,2010
                  
                  
                  2009Current
                  
                  $
                  2,971,242
                  
                  
                  $
                  8,224,127Non-current
                  
                  
                  16,890
                  
                  
                  
                  33,640$
                  2,988,132
                  
                  
                  $
                  8,257,767





Bank
loans were secured by land use right and the buildings held by CTHG Group and
its related parties, namely Yiyang Xiangyun Investment Company Limited and
Yiyang Xiangyun Station Services Company Limited. These loans were used to
finance daily operations, fuel purchasing and accessories of motor vehicles.
Interest rate ranges from 6.372% to 6.48%.





Bank
loans consist of the following as of June 30, 2010:





Financial Institutions
                              
                              Original Loan
                                Amount
                                USD
                              
                              
                              Loan Amount
                                USD
                              
                              Duration
                              
                              Annual
                                Interest
                                Rate
                              
                              CollateralIndustrial
      and Commercial Bank of China Limited
                              
                              
                              2,928,858
                              
                              
                              
                              2,928,858
                              
                              8/2/2010-
                                7/2/2011
                              
                              
                              6.372
                              %
                              Related
      parties’ and CTHG Group’s buildingsRural
      Credit Cooperatives
                              
                              
                              100,668
                              
                              
                              
                              59,274
                              
                              12/29/2008- 12/29/2011
                              
                              
                              6.48
                              %
                              NILTotal
                              
                              
                              3,029,526
                              
                              
                              
                              2,988,132





The
interest expenses incurred and paid for the six months ended June 30, 2010 were
$233,982 and for the three months ended Jun 30, 2010 were $70,610. The weighted
average interest rate was 6.37%.





The
interest expenses incurred and paid for the six months ended June 30, 2009 were
$115,122 and for the three months ended June 30, 2009 were $90,339. The weighted
average interest rate was 5.43%.





Bank
loans consist of the following as of December 31, 2009:





Financial Institutions
                                  
                                  Original Loan
                                    Amount
                                    USD
                                  
                                  
                                  Loan Amount
                                    USD
                                  
                                  Duration
                                  
                                  Annual
                                    Interest
                                    Rate
                                  
                                  CollateralIndustrial
      and Commercial Bank of China Limited
                                  
                                  
                                  877,552
                                  
                                  
                                  
                                  877,552
                                  
                                  1/16/2009-
                                    1/15/2010
                                  
                                  
                                  6.372
                                  %
                                  Related
      parties’  and CTHG Group’s buildingsChina
      Construction Bank
                                  
                                  
                                  7,312,935
                                  
                                  
                                  
                                  7,312,935
                                  
                                  6/22/2009-
                                    6/21/2010
                                  
                                  
                                  5.31
                                  %
                                  Related
      parties’ buildings and the land use rightRural
      Credit Cooperatives
                                  
                                  
                                  100,668
                                  
                                  
                                  
                                  67,280
                                  
                                  12/29/2008- 12/29/2011
                                  
                                  
                                  6.48
                                  %
                                  NILTotal
                                  
                                  
                                  8,291,155
                                  
                                  
                                  
                                  8,257,767





The loan
from Industrial and Commercial Bank of China Limited of $877,552 was repaid on
15 January, 2010 and the loan from China Construction Banks of $7,312,935 was
repaid on 21 June, 2010.


20


CHINA
TRANSPORTATION INTERNATIONAL HOLDINGS GROUP LIMITED


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


(IN
US DOLLARS)





10.
            ACCRUED
      EXPENSES AND OTHER PAYABLES





As
      of June 30,
                  
                  
                  As
      of December 31,2010
                  
                  
                  2009Accrued
      utility expenses and others
                  
                  $
                  12,018
                  
                  
                  $
                  148Accrued
      insurance expenses
                  
                  
                  140,511
                  
                  
                  
                  167,148Accrued
      salaries and welfare
                  
                  
                  118,004
                  
                  
                  
                  121,689Value
      added tax and other taxes payable
                  
                  
                  120,856
                  
                  
                  
                  89,209Other
      payablesDue
      to staffs
                  
                  
                  135,806
                  
                  
                  
                  81,872Provision
      for litigation claims (Note a)
                  
                  
                  733,476
                  
                  
                  
                  709,906Due
      to bus suppliers
                  
                  
                  204,168
                  
                  
                  
                  41,853Other
      loan payable (Note b)
                  
                  
                  320,240
                  
                  
                  
                  318,901Others
                  
                  
                  17,012
                  
                  
                  
                  68,619$
                  1,802,091
                  
                  
                  $
                  1,599,345





(a)
            In
      2008, CTHG Group was involved in a severe traffic accident which resulted
      in deaths and injuries to many victims. CTHG Group has an obligation to
      compensate the loss of victims. As of June 30, 2010, no final settlement
      has been determined by the Court. However, the management reviewed the
      pertinent case situation and had made provision of $733,476 for the
      compensation claim by victims.





(b)
            The
      loan was borrowed from Hunan Highway Transportation Stock Company Limited,
      a non-controlling interest of Yiyang Xiang Highway Transportation Company
      Limited, one of Yiyang Group’s subsidiaries.  The loan was unsecured,
      interest-free and without fixed repayment
date.





11.
            DEFERRED
      REVENUE





The
deferred revenue will be amortized over the term of five years. Deferred revenue
that will be recognized in next year is being classified as current liabilities
and is being classified as non-current liabilities if it is over one
year.





As
      of June 30,
                  
                  
                  As
      of December 31,2010
                  
                  
                  2009Current
      liabilities
                  
                  $
                  1,034,704
                  
                  
                  $
                  2,161,697Non-current
      liabilities
                  
                  
                  11,264,745
                  
                  
                  
                  8,646,790$
                  12,299,449
                  
                  
                  $
                  10,808,487





A summary
of 5 years deferred revenue is summarized as below:





For
      the year ending December 31,2010
                    
                    
                    
                    
                    
                    $
                    560,0342011
                    
                    
                    
                    
                    
                    
                    2,848,0212012
                    
                    
                    
                    
                    
                    
                    2,848,0212013
                    
                    
                    
                    
                    
                    
                    2,848,0212014
                    
                    
                    
                    
                    
                    
                    2,848,0212015
                    
                    
                    
                    
                    
                    
                    347,331$
                    12,299,449




21


CHINA
TRANSPORTATION INTERNATIONAL HOLDINGS GROUP LIMITED


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


(IN
US DOLLARS)





12.
            DUE
      TO A STOCKHOLDER





The
amount due to a stockholder is interest free, unsecured and repayable on
demand.





13.
            COMMON
      STOCK





Common StockNumber
                    
                    
                    AmountAs
      of December 31, 2009
                    
                    
                    14,700,000
                    
                    
                    $
                    14,700Share
      effectively issued to former shareholders as part of the
      recapitalization
                    
                    
                    5,300,000
                    
                    
                    
                    5,300As
      of June 30, 2010
                    
                    
                    20,000,000
                    
                    
                    $
                    20,000





As of
June 30, 2010, the Company has authorized 300,000,000 of $0.001 par common
stock, of which 20,000,000 shares were issued and outstanding.





14.
            COMPREHENSIVE
      INCOME





Comprehensive
income consists of the following:





Three
      months ended June 30,
                  
                  
                  Six
      months ended June 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Net
      income attributable to common stockholders
                  
                  $
                  1,309,807
                  
                  
                  $
                  1,355,069
                  
                  
                  $
                  2,100,035
                  
                  
                  $
                  2,427,393Other
      comprehensive income:Foreign
      currency translation adjustments
                  
                  
                  41,558
                  
                  
                  
                  1,099
                  
                  
                  
                  42,572
                  
                  
                  
                  9,330Comprehensive
      income
                  
                  $
                  1,351,365
                  
                  
                  $
                  1,356,168
                  
                  
                  $
                  2,142,607
                  
                  
                  $
                  2,436,723





15.
            INCOME
      TAXES





CTHG
Group is subject to income taxes on an entity basis, that is, on income arising
in or derived from the tax jurisdiction in which the entity is
domiciled.





The
income tax on consolidated statements of income represented the provision of
income taxes for the operating VIE, Yiyang Group only.  No provision for
the Company and Eminent Promise has been made as both companies have no
operation nor assessable profits for the six months ended June 30,
2010.





All
Chinese enterprises are governed by the PRC Income Tax Law and various local
income tax laws, pursuant to which a company generally is subject to an income
tax at an effective rate of 25% on income as reported in its statutory financial
statements after appropriate tax adjustments. Yiyang Group has obtained
preferential tax treatment from the district official of Yiyang City in 2010.
Twenty-eight percent of the tax paid would be refunded to Yiyang Group for the
period from 2009 to 2011.





Three
      months ended June 30,
                  
                  
                  Six
      months ended June 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009PRC
      enterprise income tax
                  
                  $
                  180,470
                  
                  
                  $
                  77,531
                  
                  
                  $
                  545,507
                  
                  
                  $
                  77,531Under-provision
      of tax
                  
                  
                  15,865
                  
                  
                  
                  -
                  
                  
                  
                  15,865
                  
                  
                  
                  -Current
      income tax
                  
                  $
                  196,335
                  
                  
                  $
                  77,531
                  
                  
                  $
                  561,372
                  
                  
                  $
                  77,531





CTHG
Group’s income tax provision in respect of operations in PRC is calculated at
the applicable tax rates on the estimated assessable profits for the year based
on existing legislation, interpretations and practices in respect
thereof.




22


CHINA
TRANSPORTATION INTERNATIONAL HOLDINGS GROUP LIMITED


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


(IN
US DOLLARS)





16.
            INCOME
      TAXES (CONTINUED)





A
reconciliation of the expected income tax expense to the actual income tax
expense is as follows:-





Three
      months ended June 30,
                  
                  
                  Six
      months ended June 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Income
      before taxes
                  
                  $
                  1,505,250
                  
                  
                  $
                  1,434,502
                  
                  
                  $
                  2,659,317
                  
                  
                  $
                  2,505,582Expected
      tax (2010: 25%, 2009: 25%)
                  
                  $
                  376,313
                  
                  
                  $
                  358,626
                  
                  
                  $
                  664,830
                  
                  
                  $
                  626,396Non-deductible
      expenses
                  
                  
                  16,298
                  
                  
                  
                  3,924
                  
                  
                  
                  92,818
                  
                  
                  
                  3,924Tax
      preferential treatment provided by local district official
                  
                  
                  (212,141
                  )
                  
                  
                  -
                  
                  
                  
                  (212,141
                  )
                  
                  
                  -Non-taxable
      income
                  
                  
                  -
                  
                  
                  
                  (285,036
                  )
                  
                  
                  -
                  
                  
                  
                  (552,806
                  )Effect
      on exchange rate
                  
                  
                  -
                  
                  
                  
                  17
                  
                  
                  
                  -
                  
                  
                  
                  17Under-provision
      of tax
                  
                  
                  15,865
                  
                  
                  
                  -
                  
                  
                  
                  15,865
                  
                  
                  
                  -Income
      tax expense
                  
                  $
                  196,335
                  
                  
                  $
                  77,531
                  
                  
                  $
                  561,372
                  
                  
                  $
                  77,531





CTHG
Group adopted the provisions of ASC 605, "Accounting for Uncertainty in Income
Taxes." ASC 605 contains a two step approach to recognizing and measuring
uncertain tax positions accounted for in accordance with ASC 740, "Accounting for Income Taxes."
The first step is to evaluate the tax position for recognition by determining if
the weight of available evidence indicates that it is more likely than not that
the position will be sustained on audit, including 50% likely of being realized
upon ultimate settlement. Management does not anticipate any potential future
adjustments would result in a material change to its tax position. As a result,
there is no unrecognized tax benefit.





17.
            CONTINGENCIES





In 2008,
CTHG Group was involved in a severe traffic accident which resulted in death and
injuries to many victims. CTHG Group has an obligation to compensate the loss of
victims. As of June 30, 2010, there has been no final settlement has been
determined by the Court. As discussed with its PRC counsel, the maximum
compensation to victims was estimated to be $733,476. Management has made a full
provision in the financials.




23


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





You should read this Management's Discussion and Analysis in conjunction with
the Consolidated Financial Statements and Related Notes.





Business
Overview





China
Transportation International Holdings Group Limited (the “Company”, f/k/a China
Ding Cheng Science Holdings Co., Ltd.), was incorporated under the laws of the
State of Nevada on March 12, 2004 under the name Beautiful Life Foods, Inc. On
December 22, 2004, the Company amended its Articles of Incorporation to change
its name to Diamond Bay Holdings, Inc. On December 1, 2006, the Company amended
its Articles of Incorporation to change its name to Shaan’xi Ding Cheng Science
Holding Co., Ltd.  On February 5, 2007 the Company amended its Articles of
Incorporation to change its name to China Ding Cheng Science Holdings Co.,
Ltd.  Up until the entry of the Share Exchange (as described below), the
Company’s only activities had been organizational ones, directed at developing
its business plan and raising its initial capital. Prior to the completion of
the Share Exchange with Eminent Promise discussed below, the Company was a shell
company as defined in Rule 12b-2 under the Securities Act of 1933, having no or
nominal business operations, employees, or assets.





On April
1, 2010, the Company entered into a Share Exchange Agreement (the “Exchange
Agreement”) with Eminent Promise Limited (“Eminent Promise”), a corporation
incorporated under the laws of the British Virgin Islands, and the shareholders
of Eminent Promise (the “Eminent Shareholders”).  Pursuant to the terms of
the Exchange Agreement, the Eminent Shareholders agreed to transfer all of the
issued and outstanding shares of common stock in Eminent Promise to the Company
in exchange for the issuance of an aggregate of 14,700,000 shares of the
Company’s common stock, par value $.001 (“Common Stock”), to the Eminent
Shareholders, thereby causing Eminent Promise and its wholly-owned subsidiaries,
Tone Express (HK) Limited (“Tone Express”), a company incorporated under the
laws of Hong Kong Special Administrative Region of PRC, and Yiyang Tone Express
(HK) Limited (“Yiyang Tone Express”), a corporation incorporated under the laws
of the Peoples Republic of China (“PRC”) to become wholly-owned subsidiaries of
the Company, and Yiyang Xiangyun Group Company Limited (the “Yiyang Group”), a
corporation organized under the PRC laws to become a variable interest entity
(“VIE”) of the Company (“Share Exchange”).




The Share
Exchange transaction has been accounted for as a recapitalization of the Company
whereby the Company is considered the legal acquiror and Eminent Promise 
is considered the accounting acquiror. As a result of this transaction, the
Company is deemed to be a continuation of the business of Eminent Promise. 
The historical stockholders’ equity of the accounting acquiror prior to the
share exchange has been retroactively restated as if the share exchange
transaction occurred as of the beginning of the first period
presented.




As a
result of the Share Exchange the Company, through its subsidiaries and VIE, is
now engaged in the business of providing public transportation services in the
PRC.  All business operations are conducted through the Company’s
wholly-owned subsidiary, Yiyang Tone Express, and through Yiyang Group, its
VIE.





Plan
of Operation





During
the next twelve months, the Company expects to take the following steps in
connection with the development of its transportation business in PRC and the
implementation of the following operation plans:


·     
     The Company intends to continue with its general strategies
to build a road transportation network throughout China and expand
extensively;


·     
     The Company intends to acquire or merge with an array of
trans-provincial and trans-regional passenger transport companies and build the
company to become the first choice for passengers;


·     
     The Company intends to build a multilevel passenger
transport network and strive for expanding market;


·     
     The Company intends to boost urban public transportation and
integrate urban and rural passenger transport business.





We
currently have no agreements or commitments with respect to any material
acquisitions or investments in other companies.




24


Results
of Operations





Results
of Operations for the Three Months Ended June 30, 2010 and 2009





Gross
revenue was $4,600,957 for the three months ended June 30, 2010, an increased of
approximately $527,831 or 12.96% as compared to the three months ended June 30,
2009.  Excluding a 0.11% favorable impact of foreign exchange reflecting a
weaker U.S. dollar compared to the three months ended June 30, 2009, revenue
increased 12.85%.  The increase was primarily due to strong rebound of the
Chinese economy which requires more labor from inner main land. The National
Bureau of Statistics of China announces that China’s GDP for the six months
ended June 30, 2010 increased 11.1% compared to 2009.




Cost of
sales was $2,575,729 or 55.98% of revenues for the three months ended June 30,
2010, while cost of sales for the three months ended June 30, 2009 was
$1,624,194 or 39.88% of revenues.  The increase of cost of sales was partly
due to the increase of revenue correspondingly.  The increase of gas prices
also contributed to the cost increase.




Gross
profit was $2,025,228 for the three months ended June 30, 2010 compared to
$2,448,932 for the three months ended June 30, 2009.  The decrease of gross
profit was mainly attributed to the increase cost of fuel by $128,555
and insurance by $281,840 as a result of the increase of new bus lines and
number of motor buses during the three months ended June 30, 2010.





Gross
margins decreased to 44.02% for the three months ended June 30, 2010 from 60.12%
for the three months ended June 30, 2009.  The decrease was mainly
attributed to the increase in the expenses associated the sub-contracting
charges, fuel cost, depreciation, insurance, sales tax and toll
charges.





Operating
expenses, which consist of selling and marketing expenses, general and
administrative expenses, and reallocated loss on write off of property, plant
and equipment, was $770,242 for the three months ended June 30, 2010, as
compared to $1,017,587 for the three months ended June 30, 2009.  The
decrease was primarily due to loss from write off of property, plant and
equipment, which exceeded the increase of salary and legal and other
professional fees for the three months ended June 30, 2010.  Operating
expenses, as a percentage of gross revenue, was 16.74% for the three months
ended June 30, 2010 compared to 24.98% for the three months ended June 30,
2009.





Operating
income for the three months ended June 30, 2010 was $1,254,986, compared to
$1,431,345 for the three months ended June 30, 2009.  The decrease was
primarily due to the decrease of gross profit and the increase of general and
administrative expenses.





Other
income (expenses) consists primarily of interest income/expense, agency income,
penalty income/expense, donation and compensation paid to subcontractors. 
Net interest income was $125,677 for the three months ended June 30, 2010,
compared to net interest expense of $23,963 for the three months ended June 30,
2009.  More than 98% of interest income, which was $193,413 for the three
months ended June 30, 2010, came from the Company’s related parties. Prior to
the carve-out on June 1 2009, as a branch of Yiyang Xiangyun, Yiyang Group
didn’t collect interest from other parts of Yiyang Xiangyun.  The interest
rates on bank loans were between 5.31-6.48% for the three months ended June 30,
2010.





The
effective income tax rate for the three months ended June 30, 2010 was
13.04% compared to 5.4% for the three months ended June 30, 2009. Prior to the
carve-out on June 1, 2009, Yiyang Group was a branch of Yiyang Xiangxun, and
contributed most of its profit to off set other branch’s losses, which resulted
in a lower effective income tax rate then.





As a
result of the above factors, Net Income from continuing operations for the three
months ended June 30, 2010 was $1,308,915, or $0.07 per share, compared to
$1,355,069, or $0.09, per share for the same period of 2009.





Results
of Operations for the Six Months ended June 30, 2010 and 2009





Gross
revenue for the six months ended June 30, 2010 was $11,839,414, an increase of
approximately $888,744 or 8.12% from the first six months ended June 30,
2009.  Excluding a 0.13% favorable impact of foreign exchange, reflecting a
weaker U.S. dollar compared to first six months 2009, revenue increased
7.99%.  The increase was primarily due to higher volumes of passengers
traveling during 2010’s Spring Festival in January and February 2010. 
According to the Company’s statistics, 973,090 passengers utilized Yiyang
Xiangyun’s buses in the 40-day peak season in 2010’s Spring Festival in January
and February 2010, an 11% increase compared to the corresponding period in 2009.
In addition to that, the strong rebound of the Chinese economy requires more
labor from inner main land.


25




Cost of
sales was $7,623,630 or 64.39% of revenues for the six months ended June 30,
2010, while cost of sales for the six months ended June 30, 2009 was $6,478,744
or 59.16% of revenues.  The increase of cost of sales was partly due to the
increase of revenue correspondingly.  The increase of gas prices also
contributed to the cost increase.




Gross
profit was $4,215,784 for the six months ended June 30, 2010 compared to
$4,471,926 for the same period in 2009. The decrease of gross profit was
mainly attributed to the increase of cost of fuel by $193,526 and insurance
by $91,275, as a result of the increase of new bus lines and number of
motor buses for the six months ended June 30, 2010.




Gross
margins decreased to 35.61% for the six months ended June 30, 2010 from 40.84%
for the six months ended June 30, 2009. The decrease was primarily due to
the increase in the expenses associated the sub-contracting charges, fuel cost,
depreciation, insurance, sales tax and toll charges..





Operating
expenses which consist of selling and marketing expenses, general and
administrative expenses, and reallocated loss on write-off of property, plant
and equipment were $1,592,508 for the six months ended June 30, 2010 compared to
$2,063,374 for the six months ended June 30, 2009. The decrease was
primarily due to loss from write off of property, plant and equipment, which was
$27,997 for the six months ended June 30, 2010 compared to $775,435 for the six
months ended June 30, 2009. Meanwhile, general and administrative expenses
increased by $309,175, which was particularly attributed to the higher
salaries and traveling expenses, in the amount of $708,918, partially offset by
a decrease of legal and other professional fees in the amount of
$568,877. Operating expenses, as a percentage of gross revenue, decreased
to 13.45% from 18.84% for the six months ended June 30, 2009.





Operating
income for the six months ended June 30, 2010 was $2,623,276 compared to
$2,408,552 for the six months ended June 30, 2009.  Higher gross profit due
to higher prices and revenue volume, and a favorable impact from foreign
currency brought more operating income.





Other
income (expenses) consists primarily of interest income/expense, agency income,
penalty income/expense, donation and compensation paid to subcontractors. Net
interest income was $145,676 for the six months ended June 30, 2010 compared to
$20,860 for the six months ended June 30, 2009.  During the first six
months 2010, interest income which came from the Company’s related parties was
$379,658 for the six months ended June 30, 2010. Prior to the carve-out on June
1 2009, as a branch of Yiyang Xiangyun, Yiyang Group didn’t collect interest
from other parts of Yiyang Xiangyun.  The interest rates on debt were
between 5.31-6.48% for the six months ended June 30, 2010.





The
effective tax rate for the first six months 2010 increased to 21.11% compared to
3.09% for the six months ended June 30, 2009.  Prior to the carve-out on
June 1, 2009, Yiyang Group was a branch of Yiyang Xiangxun, and contributed most
of its profit to off set other branch’s losses, causing a low effective income
tax rate then.





Income
from continuing operations for the six months ended June 30, 2010 was
$2,097,945, or $0.12 per share, compared to $2,428,051, or $0.17, per share for
the same period of 2010.





Liquidity
and Capital Resources





The
Company has historically funded its operations primarily through bank loans and
incoming cash from operations. At June 30, 2010, the Company had an
approximately $3 million secured revolving credit facility with Industrial and
Commercial Bank of China Limited, and Rural Credit Cooperatives.  The bank
loans are secured by a first priority perfected security interest on land use
right and the building owned by Yiyang Group and its related
parties.


26





Over the
next twelve months, we intend to pursue organic and acquisitive growth and
increase our market share. We are also evaluating acquisition and consolidation
opportunities in China’s transportation industry. We believe that we have
sufficient funds to operate our existing business for the next twelve months.
However, in addition to funds available from our operating and short term bank
loans, we may need external sources of capital for our expansion. There can be
no assurance that we will be able to obtain such additional financing at
acceptable terms to us, or at all.





The
following table summarizes the cash flows for the six months ended June 30, 2010
and 2009.




Six months Ended June 30,2010
                              
                              
                              2009Cash
      provided by (used in):Operating
      Activities
                              
                              $
                              4,438,630
                              
                              
                              
                              6,270,177Investing
      Activities
                              
                              $
                              (250,289
                              )
                              
                              
                              (3,815,362
                              )Financing
      Activities
                              
                              $
                              (4,276,907
                              )
                              
                              
                              4,529,743





Cash and
cash equivalents decreased $88,566 during the six months ended June 30, 2010
primarily due to the repayment of $8,190,487 bank loans for the six months ended
June 30, 2010.  During the first six months of 2010, net income was $
2,097,945 compared to $ 2,428,051 for the same period of 2009.





Cash
flows provided by operations was $4,438,630 for the six months ended June 30,
2010 compared to $6,270,177 for the first six months of 2009 was unfavorably
impacted by a lower net income, cash collections of accounts receivable, and
cash payments for income tax in 2009 and the first quarter of 2010.





Cash
outflows for the six months ended June 30, 2010 related to investing activities
were $250,289 compared to  $3,815,362 for the same period of
2009.  The major in-flow of funds was from related parties in the amount of
8,290,930 in 2010 as a result of repayment of loans by related parties to Yiyang
Group after the carve out in June 2009, compared to $5,148,404 in
2009.





Cash
flows used in financing activities for the six months ended June 30, of 2010
were $4,276,907 compared to $4,529,743 which was generated from financing
activities for the same period a year ago.  Cash outflows in 2010 and 2009
related to the net pay down of loans from China Construction Bank in the amount
of $7,343,654 (RMB50, 000,000).





The
Company’s forecasted cash flow from future operations may be adversely affected
by various factors including, but not limited to, gas prices, declines in
passenger demand, increased competition, the deterioration in general economic
and business conditions, as well as other factors.  See the “Risk Factors”
section of the Company’s Current Report on Form 8-K on April 1, 2010 for further
explanation of factors that may negatively impact the Company’s cash
flows.  Any change in the current status of these factors could adversely
impact the Company’s ability to fund operating cash flow
requirements.





The
Company was in compliance with all financial covenants at June 30,
2010.





CRITICAL
ACCOUNTING POLICIES AND ESTIMATES





Use
of Estimates





The
preparation of the consolidated financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions relating to the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.





Significant
items subject to such estimates and assumptions include the valuation allowances
for receivables, the recoverability of the carrying amount, the estimated useful
lives of long-lived assets, and the contingencies. Actual results could differ
from those estimates.


27





Economic
and Political Risks





CTHG
Group’s operations are conducted in the PRC. Accordingly, CTHG Group's business,
financial condition and results of operations may be influenced by the
political, economic and legal environment in the PRC, and by the general state
of the PRC economy.





CTHG
Group's operations in the PRC are subject to special considerations and
significant risks not typically associated with companies in North America and
Western Europe.  These include risks associated with, among others, the
political, economic and legal environment and foreign currency exchange. 
CTHG Group's results may be adversely affected by changes in the political and
social conditions in the PRC, and by changes in governmental policies with
respect to laws and regulations, anti-inflationary measures, currency
conversion, remittances aboard, and rates and methods of taxation, among other
things.





Accounts
Receivable





Accounts
receivable represents outstanding service fees to be collected from customers
and subcontractors. The allowance for doubtful accounts is CTHG Group’s best
estimate of the amount of probable credit losses in the existing accounts
receivable.  Management determines the allowance based on historical
experience, customer specific facts and economic conditions.





Outstanding
account balances are reviewed individually for collectability.  Account
balances are charged off against the allowance after all means of collection
have been exhausted and the potential for recovery is considered remote. 
Management believes CTHG Group is not exposed to any off-balance-sheet credit
exposure from its customers





Management
performs ongoing credit evaluation of its customers’ financial conditions and
believes that all outstanding balance is collectible.  Therefore,
management has determined that no allowance for doubtful accounts was deemed
necessary as of June 30, 2010 and December 31, 2009.





Property,
Plant, and Equipment





Property,
plant, and equipment are recorded at cost less accumulated depreciation.
Expenditures for major additions and betterments are capitalized. Maintenance
and repairs are charged to general and administrative expenses as
incurred.  Depreciation of property, plant and equipment is computed by the
straight-line method over the assets estimated useful lives ranging from two to
nineteen years.





Upon sale
or retirement of property, plant and equipment, the related cost and accumulated
depreciation are removed from the accounts and any gain or loss is reflected in
operations.





The
estimated useful lives of the assets as follows:


YearsBuildings
                  
                  19Office
      equipment and furniture
                  
                  2-8Motor
      vehicles
                  
                  5-8





Deposits
and Advances Received From Subcontractors





CTHG
Group enters into agreements with various subcontractors to grant them the
rights to operate a designated bus route. Such agreement requires a deposit and
an advance received from subcontractors for obtaining the rights to operate the
bus line and is renewed on an annual basis. These deposits and advances received
are non-interest bearing.




28





Revenue
Recognition





CTHG
Group generates revenue primarily from public transportation services provided
through direct bus ticket sales and subcontractors.





CTHG
Group recognizes revenue over the applicable contract periods with its
subcontractors or as services are rendered.  Amounts contracted and
collected before the services being rendered are included in deferred
revenue.





Statutory
Reserves





Pursuant
to the PRC Company Law, Yiyang Group are required to make appropriations to the
statutory reserve at a rate of at least 10% of the after-tax net earnings for
each year as determined in accordance with the PRC GAAP.  The after-tax net
earnings must be set off against any accumulated losses sustained by Yiyang
Group in prior years, before allocation is made to the statutory reserve. 
Appropriation to the statutory reserve must be made before distribution of
dividends to owners.  The appropriation is required until the reserve
accumulated is equal to 50% of Yiyang Group’ registered capital.  This
statutory reserve is not distributable in the form of cash dividends.  For
the six months ended June 30, 2010 and year ended December 31, 2009, Yiyang
Group has made appropriations of $Nil and $905,304, respectively, into the
statutory reserve.





Pension
and Employee Benefits





Full time
employees of CTHG Group’s PRC subsidiaries are required to participate in a
government mandated multi-employer defined contribution plan pursuant to which
certain pension benefits, medical care, unemployment insurance, employee housing
fund and other welfare benefits are provided to employees.  PRC labor
regulations require CTHG Group to accrue for these benefits based on certain
percentages of the employees' salaries. Costs for pension and employee benefits
for the six months ended June 30, 2010 and 2009 were $161,363 and $147,235,
respectively.





Commitments
and Contingencies





Certain
conditions may exist as of the date the financial statements are issued, which
may result in a loss to CTHG Group, but which will only be resolved when one or
more future events occur or fail to occur. CTHG Group’s management and its legal
counsel assess such contingent liabilities, and such assessment inherently
involves an exercise of judgment. In assessing loss contingencies related to
legal proceedings that are pending against CTHG Group, or unasserted claims that
may result in such proceedings, CTHG Group’s legal counsel evaluates the
perceived merits of any legal proceedings or unasserted claims as well as the
perceived merits of the amount of relief sought or expected to be sought
therein.





If the
assessment of a contingency indicates that it is probable that a material loss
has been incurred and the amount of the liability can be estimated, the
estimated liability would be accrued in CTHG Group’s consolidated financial
statements. If the assessment indicates that a potentially material loss
contingency is not probable but is reasonably possible, or is probable but
cannot be estimated, the nature of the contingent liability, together with an
estimate of the range of possible loss if determinable and material, would be
disclosed.





As of
June 30, 2010 and December 31, 2009, the management has evaluated all such
proceedings and claims.  In the opinion of management, provision of legal
claim was made and the ultimate disposition of these matters will not have a
material adverse effect on CTHG Group's financial position, liquidity or results
of operations.





Foreign
Currency Translation





CTHG
Group uses United States dollars (“U.S. Dollar” or “US$” or “$”) for financial
reporting purposes. The subsidiaries with the Company maintain their books and
records in their respective functional currency, Chinese Renminbi (“RMB”) and
Hong Kong Dollars (“HK$”), being the lawful currency in the PRC and Hong Kong,
respectively. Assets and liabilities of the subsidiaries are translated from RMB
or HK$ into U.S. Dollars using the applicable exchange rates prevailing at the
balance sheet date. Items on the statements of income, comprehensive income and
cash flows are translated at average exchange rates during the reporting period.
Equity accounts are translated at historical rates. Adjustments resulting from
the translation of CTHG Group’s financial statements are recorded as accumulated
other comprehensive income.


29





The
exchange rates used to translate amounts in RMB and HK$ into U.S. Dollars for
the purposes of preparing the consolidated financial statements are as
follows:




June 30,
                        2010
                      
                      June 30,
                        2009
                      
                      December 31,
                        2009Balance
      sheet items, except for equity accounts
                      
                      RMB6.80860=$1
                      
                      RMB6.84476=$1
                      
                      RMB6.83720=$1HK$7.75000=$1
                      
                      HK$7.75000=$1
                      
                      HK$7.75000=$1Items
      in statements of operations and comprehensive income
                      
                      RMB6.83474=$1
                      
                      RMB6.84323=$1
                      
                      RMB6.84658=$1HK$7.75000=$1
                      
                      HK$7.75000=$1
                      
                      HK$7.75000=$1





The RMB
is not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions. No representation
is made that the RMB amounts could have been, or could be, converted into USD at
the rates used in translation.





Recently
Issued Accounting Pronouncements





In
January 2010, FASB issued authoritative guidance intended to improve disclosures
about fair value measurements. The guidance requires entities to disclose
significant transfers in and out of fair value hierarchy levels and the reasons
for the transfers and to present information about purchases, sales, issuances
and settlements separately in the reconciliation of fair value measurements
using significant unobservable inputs (Level 3). Additionally, the guidance
clarifies that a reporting entity should provide fair value measurements for
each class of assets and liabilities and disclose the inputs and valuation
techniques used for fair value measurements using significant other observable
inputs (Level 2) and significant unobservable inputs (Level 3). This guidance is
effective for interim and annual periods beginning after December 15, 2009
except for the disclosures about purchases, sales, issuances and settlements in
the Level 3 reconciliation, which will be effective for interim and annual
periods beginning after December 15, 2010. As this guidance provides only
disclosure requirements, the adoption of this guidance will not impact CTHG
Group’s financial condition or results of operations.





In
February 2010, the FASB issued Accounting Standards Update 2010-09 “Subsequent
Events (Topic 855)” allowing SEC filers to remove the date through which
subsequent events have been reviewed. ASU 2010-09 became effective upon
issuance, and the adoption of this guidance did not have a material impact on
CTHG Group’s financial statements.





In April
2010, the EITF issued “Revenue Recognition – Milestone Method.”  This issue
provides guidance on defining a milestone and determining when it may be
appropriate to apply the milestone method of revenue recognition for research or
development transactions.  This issue is effective on a prospective basis
for milestones achieved in fiscal years beginning after June 15, 2010. 
Early adoption is permitted.  CTHG Group is currently evaluating the
potential impact of this issue.





Off
Balance Sheet Arrangements





As of
June 30, 2010, the Company had no off balance sheet arrangements.




30





Item
      3.
            Quantitative
      and Qualitative Disclosures about Market
Risk





Not
applicable





Item 4T.
            Controls
      and Procedures





Evaluation
of Disclosure Controls and Procedures





As of the
end of the period covered by this Quarterly Report, the Company’s chief
executive officer and chief financial officer (the “Certifying Officers”),
conducted evaluations of the Company’s disclosure controls and procedures. 
As defined under Sections 13a–15(e) and 15d–15(e) of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), the term “disclosure controls and
procedures” means controls and other procedures of an issuer that are designed
to ensure that information required to be disclosed by the issuer in the reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC’s rules
and forms.  Disclosure controls and procedures include without limitation,
controls and procedures designed to ensure that information required to be
disclosed by an issuer in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the issuer’s management,
including the Certifying Officers, to allow timely decisions regarding required
disclosures.





Based on
this evaluation, the Certifying Officers have concluded that the Company’s
disclosure controls and procedures were effective to ensure that material
information is recorded, processed, summarized and reported by management of the
Company on a timely basis in order to comply with the Company’s disclosure
obligations under the Exchange Act and the rules and regulations promulgated
thereunder.





Changes
in Internal Control over Financial Reporting





Further,
there were no changes in the Company’s internal control over financial reporting
during the Company’s fiscal quarter June 30, 2010 that materially affected, or
are reasonably likely to materially affect, the Company’s internal control over
financial reporting.





Limitations
on the Effectiveness of Internal Controls





Readers
are cautioned that our management does not expect that our disclosure controls
and procedures or our internal control over financial reporting will necessarily
prevent all fraud and material error.  An internal control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. 
Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of
fraud, if any, within the Company have been detected.  The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any control
design will succeed in achieving its stated goals under all potential future
conditions.  Over time, control may become inadequate because of changes in
conditions, or the degree of compliance with the policies or procedures may
deteriorate.




31


PART
II – OTHER INFORMATION





Item
1.     Legal Proceedings





From time
to time, we may become involved in various lawsuits and legal proceedings, which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm business. We are currently not aware of
any such legal proceedings or claims that will have, individually or in the
aggregate, a material adverse affect on our business, financial condition or
operating results.





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





There was
no unregistered sales of equity securities other than the issuance of shares in
connection with the Share Exchange which is described in PART I and reported on
Form 8-K filed on April 1, 2010.





Item
3.     Defaults Upon Senior Securities





None.





Item
4.    Removed and Reserved





Item
5.     Other Information





None.




32


Item
6.     Exhibits





(a)  Exhibits





Exhibit
              Number
            
            Description of Exhibit31.1*
            
            Certification
      of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
      promulgated under the Securities and Exchange Act of 1934, as
      amended.31.2*
            
            Certification
      of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a),
      promulgated under the Securities and Exchange Act of 1934, as
      amended.32.1*
            
            Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002 (Chief Executive
  Officer).32.2*
            
            Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002 (Chief Financial
  Officer).










* Filed
herewith


33


SIGNATURES





In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.





CHINA
      TRANSPORATION INTERNATIONAL HOLDINGS GROUP, LIMITED.August
      13, 2010
                  By:
                  /s/
      Yueming GuoYueming
      GuoChairman
      & President(Principal
      Executive Officer)August
      13, 2010
                  By:
                  /s/ Xin
      HeXin
      HeChief
      Financial Officer(Principal
      Financial andAccounting
      Officer)




34