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All items in this section are not required, as this 20-F filing is made as an annual report.

All items in this section are not required, as this 20-F filing is made as an annual report.

A.  Selected Financial Data

The following tables set forth the data of our fiscal years ended December 31, 2006, 2005, 2004, 2003, and 2002. We derived all figures from our financial statements as prepared by our management, approved by our Board of Directors (who act as our audit committee) and audited by our former auditors. This information should be read in conjunction with our financial statements including the notes thereto, and "Item 5 - Operating and Financial Review and Prospects" included in this annual report. Our financial statements are compiled in Canadian dollars, expressed in US dollars, and presented in accordance with accounting principles generally accepted in the United States.

STATEMENT OF OPERATIONS (in U.S. dollars) - Select information

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United Traffic System Inc. (" UTS " or the " Company ") records its transactions in Canadian (Cdn) dollars and reports its operations in US dollars. Fluctuation in the exchange rate between the Cdn dollar and the US dollar will affect the amount of dollars reported in its financial statements and received in respect of cash dividends or other distributions paid in Cdn dollars by us. The following table sets forth, for the periods and dates indicated, certain information concerning the noon buying rate. No representation is made that the Cdn dollar amounts referred to herein could have been or could be converted into US dollars at any particular rate, or at all. On June 20, 2007 the noon buying rate was Cdn$1.0646 to US$1.00.

B.  Capitalization and Indebtedness

Not required, as this 20-F filing is made as an annual report.
 

C.  Reasons for the Offer and Use of Proceeds

Not required, as this 20-F filing is made as an annual report.
 

D.  Risk Factors

THERE ARE SIGNIFICANT RISKS ASSOCIATED WITH AN INVESTMENT IN OUR COMMON STOCK. BEFORE MAKING A DECISION CONCERNING THE PURCHASE OF OUR SECURITIES, YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AND OTHER INFORMATION IN THIS ANNUAL REPORT WHEN YOU EVALUATE OUR BUSINESS. THE POTENTIAL SUCCESS OF OUR BUSINESS MODEL MUST BE CONSIDERED IN LIGHT OF OUR STATUS AS A DEVELOPMENT STAGE COMPANY.

Business Risks :

Risks Associated with Our Company .

We have recently shifted the business focus of our company from Seed Potato production and Traffic Control Systems to mineral exploration, based in the Peoples Republic of China. We have no operating history which makes it difficult to evaluate the investment merits of our Company. At the time of filing this document, we have no mineral concession under license.

As we are seeking a mineral property in the People's Republic of China, we will be subject to Chinese government controls and regulations .

There are multitudes of red tape and government regulations that may materially restrict mineral exploration or exploitation. We may be required to obtain work permits, post bonds and perform remediation work for any physical disturbance to the land in order to comply with these regulations. While our planned exploration program budgets for Chinese regulatory compliance, there is a high risk that new regulations could increase our costs of doing business and prevent us from carrying out our exploration program. In either or both cases, the costs and/or losses could be greater than our financial capacity and our business would fail.

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If we do not obtain additional financing, our business will fail because we will be unable to fund our planned mineral exploration program .

In order for the company to continue its proposed acquisition and exploration program, we need to obtain additional financing. As of December 31, 2006, we had cash in the amount of $nil. We currently do not have any mineral concessions under license and we have no operations or income. Our business plan calls for incurring additional expenses in connection with the mapping program of several identified potential mineral concessions in China, and to conduct due diligence on the ones that the company proposes to acquire. If our exploration programs are successful in discovering ore of commercial tonnage and grade, we will require additional funds in order to place the mine into commercial production. We currently do not have any arrangements for financing and we may not be able to obtain financing when required. Obtaining additional financing would be subject to a number of factors, including the market price for base and precious metals and the cost of exploring for these minerals. These factors may make the timing, amount, terms and conditions of additional financing unavailable to us.

The future issuance of debt may contain contractual restrictions that may curtail implementation of our business plan .

We do not have any contractual restrictions limiting our ability to incur debt. Any significant indebtedness, however, could restrict our ability to fully implement our business plan. If we are unable to repay the debt, we could be forced to cease operating.

Because our officers and directors are not qualified mining people, they may not be able to secure the necessary funding or attract qualified personnel .

Mr. Jai Woo Lee presently spends 100% of his business time on the business management of our Company. Mr. Lee is not a qualified geologist nor is he experienced in the mining business. As Mr. Lee is not a qualified geologist and the company does not have a qualified geologist on the board of directors or holding a management position, these factors may have serious impact on raising funds for continuing the business.

We may have to cease operations if we do not find a mine or unable to negotiate a lease for a property with a mineral body .

The Company does not own a mine at the present time. If we do not find a mine or are unable to negotiate a license for a mine with a mineral body or bodies containing valuable minerals or metals or if we cannot conduct further exploration for a mine, either because we do not have the money to do it or because it is not economically feasible to do so, we may have to cease operations and you will loose your investment.

The loss of any of our key personnel may affect our ability to implement our business plan and cause our stock to decline in value .

We are dependent on Jai Woo Lee, president and director to implement our business plan, and the loss of his services may have a negative affect on our ability to timely and successfully implement our business plan. Currently, Jai Woo Lee is devoting full time to UTS's operation. We do not have an employment agreement with Jai Woo Lee, CEO and president, and nor have we obtained key man insurance with respect to such person.

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Investment Risks :

Our issuance of additional shares may have the effect of diluting the interest of shareholders; Our common stock shareholders do not have preemptive rights .

Any additional issuances of common stock by us from our authorized but unissued shares may have the effect of diluting the percentage interest of existing shareholders. The securities issued to raise funds may have rights, preferences or privileges that are senior to those of the holders of our other securities, including our common stock. The board of directors has the power to issue such shares without shareholder approval. We fully intend to issue additional common shares in order to raise capital to fund our business operations and growth objectives.

We do not anticipate paying dividends to our common stockholders in the foreseeable future, which makes investment in our stock speculative and risky .

We have not paid dividends on our common stock and do not anticipate paying dividends on our common stock in the foreseeable future. The board of directors has sole authority to declare dividends payable to our stockholders. The fact that we have not and do not plan to pay dividends indicates that we must use all of our funds generated by operations for reinvestment in our business activities. Investors also must evaluate an investment in UTS solely on the basis of anticipated capital gains.

Limited liability of our executive officers and directors may discourage shareholders from bringing a lawsuit against them .

Our Memorandum and Articles of Incorporation contain provisions that limit the liability of our directors for monetary damages and provide for indemnification of officers and directors. These provisions may discourage shareholders from bringing a lawsuit against officers and directors for breaches of fiduciary duty and may reduce the likelihood of derivative litigation against officers and directors even though such action, if successful, might otherwise have benefited the shareholders. In addition, a shareholder's investment in UTS may be adversely affected to the extent that we pay costs of settlement and damage awards against officers or directors pursuant to the indemnification provisions of the bylaw. The impact on a shareholder's investment in terms of the cost of defending a lawsuit may deter the shareholder from bringing suit against any of our officers or directors. We have been advised that the SEC takes the position that these article and bylaw provisions do not affect the liability of any director under applicable federal and state securities laws.

Since we are a Canadian company and most of our assets and key personnel are located outside of the United States of America, you may not be able to enforce any United States judgment for claims you may bring against us, our assets, our key personnel or the experts named in this document .

We have been organized under the laws of Canada. Many of our assets are located outside the United States. In addition, a majority of the members of our board of directors and our officers and the experts named in this document are residents of countries other than the United States. As a result, it may be impossible for you to effect service of process within the United States upon us or these persons or to enforce against us or these persons any judgments in civil

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and commercial matters, including judgments under United States federal securities laws. In addition, a Canadian court may not permit you to bring an original action in Canada or to enforce in Canada a judgment of a U.S. court based upon civil liability provisions of U.S. federal securities laws.
 

This document contains forward-looking statements. We intend to identify forward-looking statements in this document using words such as "anticipates", "will", "believes", "plans", "expects", "future", "intends" or similar expressions. These statements are based on our beliefs as well as assumptions we made using information currently available to us. Because these statements reflect our current views concerning future events, these statements involve risks, uncertainties and assumptions. Actual future results may differ significantly from the results discussed in the forward-looking statements. Some, but not all, of the factors that may cause these differences include those discussed in the Risk Factors section. You should not place undue reliance on these forward-looking statements.

1. History and Development of the Company

United Traffic System Inc. (" UTS " or the " Company ") was originally incorporated on October 23, 2002, under the laws of British Columbia, Canada with the name Penn Biotech Inc. On January 13, 2005, the Company changed its name from Penn Biotech Inc. to its present name, United Traffic System Inc.

Our head office is located at 300 - 1055 West Hastings Street, Vancouver, British Columbia V6E 2E9 Canada. Our telephone number is (604) 681-8080.

We have not been involved in any bankruptcy, receivership or similar proceedings, nor have we been a party to any material reclassification, merger, consolidation or purchase or sale of a significant amount of assets.

UTS obtained an exclusive right to use patented biotechnology, Mass Production of Seed Potatoes (Potato Microtubers) under a license agreement with the Korea Research Institute of Bioscience and Biotechnology (KRIBB). UTS was a development stage company with no significant revenue.

UTS developed its tissue culture at a laboratory leased from Olds College Centre for Innovation (OCCI), Alberta, Canada. In November 2004, UTS terminated its lease with OCCI and relocated its seed potato operations to Yanji in Jilin Province and to Wuxi in Yunnan Province, both in The People's Republic of China (PRC).

The potato business was discontinued in PRC during the 3rd quarter of 2005 due to a lack of funding and also a down-shift in the demand for seed potatoes. The plant is no longer in existence.

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On December 22, 2003, the Company agreed to acquire the exclusive license to manufacture, install and sell technology owned by Traffic-Its Co., Ltd. The license provided the Company with the exclusive right to use the technology for the duration of the patent and to commercially exploit the technology in Asia, Europe, and North America. Subsequent to December 31, 2003, the Company determined the licensor had failed to comply with the terms of the agreement and cancelled the contract. After renewed negotiations, UTS re-entered its agreement with Traffic-Its Co., Ltd. in 2004. In 2005, it was considered unfeasible to continue operations and the project was discontinued during the 3rd quarter of 2005.

During the last quarter of 2005, the Company made sure that all previous business activities were concluded with no pending issues.

2. Business Overview

The Company intends to wholly focus on mineral exploration in the PRC in 2007. Major reforms to mining laws in the past decade and the chances of making sizeable discoveries have polished PRC's appeal to international mining companies. PRC has grown into the world's 4th largest gold producer, with the potential of heading to number one as foreign exploration and development interests climb.

The mineral industry is fragmented. We will be competing with other exploration companies looking for a variety of mineral resources. We are a very small exploration company compared to many of our competitors. Although we will be competing with other exploration companies, we intend to explore and find sufficient mineralization to a point in which major mining companies or mining financial groups would seriously consider pursuing the mineral claim as a valuable and significant acquisition.

The Company is currently seeking opportunities to acquire mineral exploration properties that, in the opinion of our consulting geologists, offer attractive mineral exploration opportunities.

The Company has located several potential mines and is presently executing a preliminary due diligence before proceeding with assay studies. We do not expect any major challenges in accessing properties under consideration during the initial exploration stages.

We will require additional financing in order to meet our anticipated operating expenses and for our new exploration projects.

Employees

Initially, the company intends to use the services of contractors and consultants for exploration work on our properties. At present, we have no paid employees. We believe in keeping a low number of full-time employees will conserve cash and allow greater flexibility in the future. The president of the Company, Jai Woo Lee, commits his full time to developing the Company.

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We are unable to name the geologists and engineers who will be performing work for UTS because they have not been retained. At the right time, we will hire from the available pool of geologists, both western trained and Asian trained, depending on the time of the year and availability of experience. Presently, there are no agreements or understandings to hire such geologists or engineers.

Our mineral exploration program will comply with all PRC laws for mining and exploration.

This item is not applicable, as we are not part of a group, nor do we hold any subsidiary companies.

The Company has no leased or owned property, plant or equipment.

The following discussion and analysis is based on and should be read in conjunction with the Company's audited financial statements including the notes thereto and other financial information appearing elsewhere herein. The audited consolidated financial statements have been prepared using US dollars and are presented in accordance with accounting principles generally accepted in the United States.

The Company's net loss for the period decreased to $136,157 in 2006 from a loss of $374,887 in 2005. The decrease reflects limited operation in 2006. In the same period, the working capital deficiency increased to $205,515 in 2006 from a deficiency of $176,858 in 2005. As of the year ended December 31, 2006, the Company had an accumulated stockholders' deficiency of $205,515. The related parties loan increased to $132,401 (2005 - $100,086). The Company settled a related parties loan of $100,000 by issuance of 10,000,000 shares of common stock in 2006.

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Our initial sources of liquidity are expected to be related party loans and equity financing. UTS has on hand as at December 31, 2006 $210 (2005 - $429). We will require additional funding in order to explore potential mining exploration projects.

There can be no assurances that financing, whether debt or equity, will be available to us in the amounts required at any particular time or for any particular period or if available, or that it can be obtained on satisfactory terms. We have no arrangements in place with our officers, directors or affiliates to provide liquidity to us.

We anticipate that we will need to raise additional capital within the next 12 months in order to continue implementing our business plan and commence full operations. We will need to raise the funds through debt or equity financing or a combination of both. To the extent that additional capital is raised through the sale of equity or equity-related securities, the issuance of such securities is likely to result in dilution to our shareholders. There can be no assurance that sources of capital will be available to us on acceptable terms, or at all. If we are unable to raise additional capital, we may not be able to continue as a going concern, and might have to reorganize under bankruptcy laws, liquidate or enter into a business combination. We have not presently identified any probable business combination. If adequate funds are not available within the next twelve months, we may be required to significantly curtail our operations or no longer be able to operate.

It is the goal of the Company to continually to look for potential mining site in Asia. Conservative budgetary allowances to proceed with a targeted property are:

The Company is at present in early discussions with potential investors to raise the estimated $650,000 USD.

See Item 4 B. Business Overview, Industry Overview

We have no off-balance sheet arrangements that would require disclosure.

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In the year ended December 31, 2006, the Company was not party to any contractually obligated payments.

This annual report contains forward-looking statements. We intend to identify forward-looking statements in this report using words such as "anticipates", "will", "believes", "plans", "expects", "future", "intends" or similar expressions. These statements are based on our beliefs as well as assumptions we made using information currently available to us. Because these statements reflect our current views concerning future events, these statements involve risks, uncertainties and assumptions. Actual future results may differ significantly from the results discussed in the forward-looking statements. Some, but not all, of the factors that may cause these differences include those discussed in the Risk Factors section. You should not place undue reliance on these forward-looking statements.

The following table sets forth the name, age, and position of each Director and Executive Officer of United Traffic System Inc.:

The following summary outlines the professional background of the directors and executive officers of the Company.

Jai Woo Lee, CEO & President : Jai Woo Lee founded Penn Biotech Inc. to focus on the development and commercialization of new technologies, and the identification and evaluation of commercially viable products and ventures. Mr. Lee studied at Seoul National University, in Seoul, Korea. He moved from Korea to Canada in the 1970's to establish his export business of live cattle and beef, and the company became one of the most successful exporters of Canadian products to Korea.

Hye Kyung Kim, Director and Secretary : Hye Kyung Kim has extensive experience as a bank manager at United Overseas Bank in Seoul, Korea for 8 years and at a credit union in Toronto, Canada for 3 years.

Jai Woo Lee and Hye Kyung Kim, the Company's directors and officers, are husband and wife.

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There are no arrangements or understandings between of our directors or executive officers, and with our major shareholders, customers, suppliers or others pursuant to which any director or officer was or is to be selected as a director or officer. In addition, there are no agreements or understandings for the officers or directors to resign at the request of another person and the above-named officers and directors are not acting on behalf of nor acting at the direction of any other person.

In 2005, a former director of the Company; Craig Auringer, was paid $50,000 for consulting service. In addition, a director, Mr. Jai Woo Lee received $100,000 for his services.

In 2006, the Company settled the loan from Jai Woo Lee of $100,000 by issuance of 10,000,000 shares of common stock in 2006.

The amount of retirement and severance benefits accrued for our executive officers and directors in 2006 and 2005 was $nil. There were no pension, retirement or other similar benefits set aside for our executive officers and directors in 2006, 2005 or 2004.

During the Years of 2005 and 2006, Mr. Jai Woo Lee provided management service to the Company valued at $100,000 per year. Subsequent to December 31, 2005, the Company issued 10,000,000 shares of common stock to settle $100,000 in debt owing to Mr. Jai Woo Lee.

Under our Articles of Incorporation, we may grant options for the purchase of our shares to certain qualified officers and employees.

On May 20, 2004, UTS approved the granting of up to 2,300,000 options to its employees under the 2004 Employee Incentive Plan. At December 31, 2006, nil options have been granted. We have filed a registration statement on Form S-8 that permits and facilitates the offering of options to acquire shares of common stock of the Company by employees, directors and consultants. This option will become exercisable at the price of $1.20 as to one-third of the 2.3 million shares 1 month after the grant date, one-third of the 2.3 million shares 13 months after the grant date and the other one-third 25 months after the grant date.

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C. Board Practices

The board of directors has the ultimate responsibility for the administration of the affairs of UTS. Our Articles, as currently in effect, provides for a board of directors of not less than three directors and not more than ten directors. Under our Articles, all directors serve a three-year term but may be replaced at the ordinary general meeting of shareholders convened with respect to the last fiscal year. It is expected that all current directors will continue to serve the Company in the future with an additional director with mining experience to join the Board shortly. The directors are elected at a general meeting of shareholders by a majority of vote of the shareholders present or represented by proxy, subject to quorum requirements of at least one third of all issued and outstanding shares having voting rights.

At June 30, 2007 and from June 2006, no one has served or serves on the board as an independent director.

No directors or officers have a formal service contract with the Company.

The Company does not have an audit committee, compensation or remuneration committee. The entire board of directors serve these functions.

Employment Contracts with Employees and Officers

The Company does not have any employment agreement with any of its employees, directors or officers.

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The following table sets forth certain information regarding the beneficial ownership of the common stock of the Company as of December 31, 2006 of: (a) each of the Company's directors and officers, and (b) all directors and officers of the Company, as a group:

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The following table sets forth information with respect to the beneficial ownership of our shares as of December 31, 2006 by each person known to us to own beneficially more than five percent (5%) of our shares.

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The following table shows changes over the last three years in the percentage of the issued share capital for the Group held by major shareholders, either directly or by virtue of ownership of our common shares.

With the exception of the above-noted transactions, there has not been a significant change in the ownership percentage held by any major shareholders during the past three years.

Our major shareholders do not have any different voting rights than other shareholders.

We are not controlled directly or indirectly by any other corporation or any other foreign government or by any other natural or legal person, severally or jointly.

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The following lists the geographical distribution of shareholders at December 31, 2006:

Shares registered in intermediaries were assumed to be held by residents of the same country in which the clearing-house was located.

There are no arrangements for which through their operation, at a subsequent date, may result in a change of the Company.

During fiscal year ended December 31, 2006, the following amounts were incurred by us under related party transactions, none of which we deem material to us or the related party:

• During the year ended December 31, 2006, a director provided management service to the Company valued at $nil (2005: $100,000).

• Included in accounts payable and accrued liabilities at December 31, 2006 is $22,392 (2005: $86) due to a director for expenses advanced on behalf of the Company.

• During the year ended December 31, 2006, the Company paid rent of $nil (2005: $nil, 2004: $36,613) to a corporation controlled by a director.

• During the year ended December 31, 2005, the Company issued 17,500,000 shares of common stock with a fair market value at time of issue of $610,000 to settle $475,000 of debt. The difference $135,000 referred as part of non cash consulting expenses and a further 1,592,134 shares of common stock in settlement of $256,160, for the amounts due to a company controlled by a director.

• In 2006, a former director of the Company was paid $nil (2005: $50,000) for consulting service.

There is no known relationship between any of the Directors and Officers of the Company with major clients or provider of essential products and technology.

In the event conflicts between the Company and its related parties arise, the Company will attempt to resolve any such conflicts of interest in favour of the Company. The officers and directors of the Company are accountable to the Company and its shareholders as fiduciaries, which require that such officers and directors exercise good faith and integrity in handling the

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Company's affairs. A shareholder may be able to institute legal action on behalf of the Company on behalf of that shareholder and all other similarly situated shareholders to recover damages or for other relief in cases of the resolution of conflicts in any manner prejudicial to the Company.

Not required, as this form 20-F filing is made as an annual report.

The following financial statements of the Company have been included in Item 18, as audited by an independent auditor and accompanied by an audit report, as of December 31, 2006:

• Balance sheets;
• Statement of operations and deficit;
• Statement of cash flows;
• Statement of changes in shareholders' equity; and
• Related notes and schedules.

The Company is not involved in any litigation or legal proceedings and to its knowledge, no material legal proceedings involving is to be initiated against the Company.

The Company has never paid any dividends and does not intend to pay any dividends in the near future.

B. Significant Changes

There has been no significant change in the Company's affairs since the December 31, 2006 financial statements.

The shares of common stock of the Company trade on the OTCBB under the symbol "UTYF". These shares have traded on the OTCBB since May 27, 2003. No trades in the common stock of the Company occurred on this quotation system until November 3, 2003. The following sets forth the high and low closing prices in United States funds of our common shares traded on the

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OTCBB since this date:

Not required, as this form 20-F filing is made as an annual report.

D. Markets

The shares of the common stock of the Company trade on the OTCBB under symbol "UTSYF". The shares of the common stock of the Company have traded on the OTCBB since May 27, 2003. However, no trades in our common shares occurred on the OTCBB market until November 3, 2003.

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Not required, as this form 20-F filing is made as an annual report.

Not required, as this form 20-F filing is made as an annual report.

Not required, as this form 20-F filing is made as an annual report.

Information about our share capital is not required, as this form 20-F as this filing is made as an annual report.

The following information was requested by the SEC to be included under this item. On May 27, 2003, the Company issued a total of 15,000,000 in return for funding from various investors.  As part of this offering, Inzi Display Co., Ltd. ("Inzi") committed to purchase 6,000,000 shares of the Company.  The Company, however, never received the requisite funds from Inzi and requested Inzi return the share certificate representing the 6,000,000 shares for immediate return to treasury of the Company.  Inzi returned the share certificate to the Company and on February 12, 2004, the 6,000,000 shares issued in the name of Inzi were cancelled and returned to treasury.

Our Articles of Incorporation and Bylaws of the Company are incorporated by reference to certain exhibits to our Form F-1 registration statement filed with the Securities and Exchange Commission on May 27, 2003.

C. Material Contracts

None

There currently are no laws, decrees, regulations or other legislation in Canada that restricts the export or import of capital or that affects the remittance of dividends, interest or other payments to non-resident holders of the Company's securities, other than withholding tax requirements.

There is no limitation, imposed either by Canadian law or by the Articles of Incorporation and other charter documents of the Company, on the right of a non-resident to hold voting shares of the Company, other than as provided by the Investment Canada Act as amended (the " Act ") and as amended by the North American Free Trade Agreement Implementation Act (Canada) and the World Trade Organization (WTO) Agreement Implementation Act. The Act requires notification and, in certain cases, advance review and approval by the Government of Canada of the

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acquisition by a "non-Canadian" of "control of a Canadian business," all as defined in the Act. Generally, the threshold for review will be higher in monetary terms for a member of the WTO or NAFTA.

United States and Canada: there are reciprocal tax treaties between Canada and the United States. Potential purchasers are urged to consult their tax advisors as to the particular consequences to them under U.S. federal, state, local and applicable foreign tax laws of the acquisition, ownership and disposition of common shares.

Not required, as this 20-F filing is made as an annual report.

Not required, as this 20-F filing is made as an annual report.

You may review a copy of the Company's filings with the SEC, including exhibits and schedules filed with it, in the SEC's Public Reference Room at 100 F Street NE, Washington, D.C. 20549. You may call the SEC at 1-800-SEC-0330 or the Conventional Reading Rooms' Headquarters Office at 212-551-8090 for further information on the public reference rooms. The SEC maintains a web site (www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC.

The Company does not have any subsidiary companies.

We are subject to market risk exposures due to fluctuations in exchange rates and interest rates. Changes in the foreign exchange rate between the CDN$ and the US$ may affect us due to the effect of such changes on any shareholder distributions to the shareholders using US$ as a main currency. United Traffic System Inc. denominates its financial statements in the United States dollars but conducts its daily affairs in Canadian dollars. We are not currently carrying significant amounts of short term or long-term debt. Upward fluctuations in interest rates increase the cost of additional debt and the interest cost of outstanding floating rate borrowings.

We do not consider that inflation in Canada has had a material impact on our results of operations. Inflation in Canada in 2004, 2005 and 2006 was 1.9%, 2.2% and 1.6% respectively.

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Not required, as this 20-F filing is made as an annual report.

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The Company is not currently in default, arrears or delinquent with respect to any of its debt obligations or other responsibilities.

Not applicable.

Based on the management's evaluation (with the participation of the Chief Executive Officer and Acting Chief Financial Officer), the Chief Executive Officer and Acting Chief Financial Officer have concluded that as of December 31, 2006, the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange of 1934 (the " Exchange Act ") are effective to provide reasonable assurance that the information required to be disclosed in this annual report on Form 20-F is recorded, processed, summarized and reported within the time period specified in Securities and Exchange Commission rules and forms.

During the fiscal year ended December 31, 2006, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. There was no change in the Company's internal control over financial reporting (as required by the Exchange Act) during the last fiscal year that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. There were no significant deficiencies or material weaknesses, and therefore no corrective actions were taken or may occur and not be detected.

This annual report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.

The Company does not yet have an audit committee financial expert. The Company is in the formative stage and has focused its requirements on gold mining experts for its board of directors. The Company intends to appoint a financial expert once commercial operations commence.

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The Company does not have in place a written code of ethics that applies to its executive, financial or accounting officers or to persons performing similar functions. The Company is dependent upon its president to lead by example and has faith in his ability to do so. Once the Company becomes more diverse in its operations and where required by regulation, it intends to implement a code of ethics for its officers. The Company does not plan to grant any waiver, including an implicit waiver, from a provision of the code of business conduct and ethics to any person.

Smythe Ratcliffe LLP, Chartered Accountants, has served as our independent public account for the fiscal year ended December 31, 2006 for which audited financial statements appear in this annual report on Form 20-F. D& H Group LLP, Chartered Accountants, served as our independent public account for the fiscal year ended December 31, 2005. The following is an aggregate of fees billed for each of the last two fiscal years for professional services rendered by the Company's principal accountants:

No accounting or audit work is performed by persons other than the independent accountant's full-time, permanent employees.

Pre-Approval Polices and Procedures

The Company's Board of Directors is currently acting as the audit committee.

The Board pre-approves all of the services, audit and non-audit, to be provided by the Company's independent accountant. The Board of Directors understands the need for our principal accountants to maintain objectivity and independence in their audit of our financial statements. The Board of Directors has restricted the non-audit services that the Company's principal accountants may provide to primarily to tax services and review assurance services.

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The Board of Directors has not adopted any other formal policies and procedures for pre-approving work performed by the Company's principal accountants.

The board of directors on review of the services provided by the principal accountants of the Company this year has determined that payment of the above audit fees is in conformance with the independent status of the Company's principal independent accountants.

Not applicable.

Not applicable.

See "Item 18 - Financial Statements."

The Company's audited financial statements were prepared by management of the Company and approved by its Board of Directors and include:

• balance sheets as at December 31, 2006 and 2005;
• the following statements for the fiscal years ended December 31, 2006, 2005, and 2004, as well as information from our inception to December 31, 2006:

• statements of operations and deficit
• statements of cash flows; and
• statements of changes in shareholders' equity.

The financial statements for the 2006 fiscal year were audited by the Company's auditor, SmytheRatcliffe LLP, Chartered Accountants. The 2005, 2004 and 2003 fiscal years were audited by D&H Group LLP, Chartered Accountants.

UNITED TRAFFIC System INC.
(A Development Stage Company)
Financial Statements
(Expressed in Canadian Dollars)
31 December 2006

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UNITED TRAFFIC SYSTEM INC.

Financial Statements
December 31, 2006
(Expressed in U.S. Dollars)




 

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INSERT AUDITORS LETTER

F-1

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F-2

30

F-3

31

F-4

32

F-6

34

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United Traffic System Inc.
(A Development Stage Company)
Notes to the Financial Statements
Years ended December 31, 2006, 2005 and 2004
(Expressed in U.S. Dollars )

United Traffic System Inc.
(A Development Stage Company)
Notes to the Financial Statements
Years ended December 31, 2006, 2005 and 2004
(Expressed in U.S. Dollars )

F-9

38

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

F-10

39

United Traffic System Inc.
(A Development Stage Company)
Notes to the Financial Statements
Years ended December 31, 2006, 2005 and 2004
(Expressed in U.S. Dollars )

United Traffic System Inc.
(A Development Stage Company)
Notes to the Financial Statements
Years ended December 31, 2006, 2005 and 2004
(Expressed in U.S. Dollars )

F-12

41

The following exhibits are included herein, except for the exhibits marked with an asterisk, which are incorporated herein by reference .

42

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

43