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EX-32.2 - China Infrastructure Investment CORP | v197556_ex32-2.htm |
EX-31.1 - China Infrastructure Investment CORP | v197556_ex31-1.htm |
EX-31.2 - China Infrastructure Investment CORP | v197556_ex31-2.htm |
EX-32.1 - China Infrastructure Investment CORP | v197556_ex32-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
ANNUAL
REPORT
ON
FORM 10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For
the Fiscal Year Ended June 30, 2010
Commission
File Number 001-34150
CHINA
INFRASTRUCTURE
INVESTMENT
CORPORATION
(Exact
name of registrant as specified in its charter)
Nevada
|
88-0484183
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
|
incorporation
or organization)
|
Identification
No.)
|
Room
D, 2F, Building 12, Xinxin Huayuan, Jinshui Road, Zhengzhou, Henan Province, The
People’s
Republic
of China
(Address,
including zip code, of principal executive offices)
(011)
86-375-2754377
(Registrants’
telephone number, including area code)
Securities
Registered Under Section 12(b) of the Exchange Act: Common Stock, par value
$0.001 per share
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes ¨ No x
Yes ¨ No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act.
Yes ¨
No x
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T ('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 ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer ¨ Accelerated
filer ¨
Non-accelerated filer ¨ Smaller Reporting
Company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
Aggregate
market value of the voting stock held by non-affiliates of the registrant as of
December 31, 2009 based upon the closing price was approximately
$38,794,200.
The
number of outstanding shares of the registrant’s Common Stock on September 8,
2010 was 80,000,000.
China
Infrastructure Investment Corporation
Annual
Report on Form 10-K
For
the Year Ended June 30, 2010
Table
of Contents
PART
I DESCRIPTION OF BUSINESS
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||||
ITEM
1.
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Business
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1
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ITEM
1A.
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Risk
Factors
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7
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ITEM
1B.
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Unresolved
Staff Comments
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14
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ITEM
2.
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Properties
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14
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ITEM
3.
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Legal
Proceedings
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14
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ITEM
4.
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(Removed
and Reserved)
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14
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PART
II
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||||
ITEM
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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14
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ITEM
6.
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Selected
Financial Data
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16
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ITEM
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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16
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ITEM
7A.
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Quantitative
and Qualitative Disclosures about Market Risk
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24
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ITEM
8.
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Financial
Statements and Supplementary Data
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25
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ITEM
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosures
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25
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ITEM
9A.
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Controls
and Procedures
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25
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ITEM
9B.
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Other
Information
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26
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PART
III
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||||
ITEM
10.
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Directors,
Executive Officers, and Corporate Governance
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26
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ITEM
11.
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Executive
Compensation
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30
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ITEM
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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33
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ITEM
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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34
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ITEM
14.
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Principal
Accountant Fees and Services
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35
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PART
IV
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||||
ITEM
15.
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Exhibits
and Financial Statement Schedules
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36
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PART
I
DESCRIPTION
OF BUSINESS
ITEM 1.
|
Business
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Forward
Looking Statements
This
Report contains forward-looking statements. Generally, the words “believes”,
”anticipates”, “may”, “will”, “should”, “expect”, “intend”, “estimate”,
“continue” and similar expressions or the negative thereof or comparable
terminology are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties, including the matters set forth
in this report or other reports or documents we file with the SEC from time to
time, which could cause actual results or outcomes to differ materially from
those projected. Undue reliance should not be placed on these forward-looking
statements which speak only as of the date hereof. We undertake no obligation to
update these forward-looking statements. It is important to note that actual
results could differ materially from historical results or those contemplated in
the forward-looking statements. Forward-looking statements involve a number of
risks and uncertainties, and include risks associated with our target markets
and risks pertaining to competition, other trend information and our ability to
successfully enhance our operations. Factors that could cause actual results to
differ materially include, but are not limited to, those identified in “Item
1A-Risk Factors” and in other of our filings with the U.S. Securities and
Exchange Commission. All references to “China Infrastructure Investment
Corporation”, “us”, “we” or the “Company” in this Annual Report on Form 10-K
mean China Infrastructure Investment Corporation, a Nevada corporation, and all
entities owned or controlled by China Infrastructure Investment Corporation,
except where it is made clear that the term only means the parent
company.
Prior
Operations of the Company
China
Infrastructure Investment Corporation (f/n/a Learning Quest Technologies, Inc.
and hereinafter the “Company”) was formed as a Nevada corporation on January 11,
2001, originally under the name of “Learning Quest Technologies, Inc.” We were
in the business of developing, licensing and marketing educational products and
services. Our business model centered on the development and distribution of
high quality, educational tools and solutions for creating, authoring,
publishing, presenting and selling education and training materials and content
via the Internet. We commenced limited operations but were unsuccessful in fully
implementing our business plan. We ceased operations and focused our efforts on
seeking a business opportunity.
On
February 8, 2008, we entered into a Share Exchange Agreement with Color Man
Holdings Limited, a British Virgin Islands company (“CMH”) and Joylink
Holdings Limited, a British Virgin Islands company and the sole stockholder of
CMH (“Joylink”). As a
result of the share exchange, we acquired all of the issued and outstanding
securities of CMH from Joylink in exchange for 54,400,000 newly–issued shares of
our common stock (the “Exchange”).
Current
Operations of The Company
History
and Organizational Structure of CMH and Wise On China Limited
CMH was
formed on April 11, 2005 as a British Virgin Islands company. Upon the
consummation of the Exchange, the Company acquired Ten (10) shares of CMH’s
capital stock, representing one hundred percent (100%) of the total issued and
outstanding shares of capital stock of CMH. Wise On China Limited (“WOC”) was established
and incorporated on November 2, 2005. CMH’s sole business is to act as a holding
company for WOC, and WOC’s sole business is to act as a holding company for
Pingdingshan Pinglin Expressway Co., Ltd (“Ping”). CMH owns one
(1) share of WOC. Neither CMH nor WOC have a Board of Directors, however each
company has one (1) Executive Director that serves as the legal representative
and which may appoint a General Manager to lead each company’s routine
operations. CMH’s current Executive Director is RCD (Nominee) Limited and WOC’s
current Executive Director is Siu Choi Fat. Both CMH and WOC have their office
located at Room 42, 4F, New Henry House, 10 Ice House Street, Central, Hong
Kong.
History
of Ping and the Pinglin Expressway
In
accordance with the PRC’s National Expressway Network Plan formulated by the
State and “the Tenth Five-Year Plan” of Henan Province on the Comprehensive
Traffic System Development Plan formulated by the Henan provincial government
for the purpose of completing the Pingdingshan-Linru portion of the
Nanjing-Luoyang expressway (also referred to herein as the “Nanluo Expressway”),
Ping competed in and won an open bid to fund, operate and manage such
Pingdingshan-Linru portion in early 2003.
1
Thereafter,
Ping was incorporated under the laws of the People’s Republic of China (the
“PRC”) on May 12, 2003 by four (4) investors, Henan Shengrun Venture Investment
Management Co., Ltd. (“HSV”), Henan Pingdingshan Zhongya Road and Bridge
Construction Co., Ltd. (“HPZ”), Pingdingshan Expressway Construction Co., Ltd.
(“PECC”) and Zhongyuan Trust & Investment Co., Ltd. (“ZTI”). At
establishment, the percentage of each party’s equity interest was 46%, 18%, 18%
and 18%, respectively. In May 21, 2007, PECC, HPZ and ZTI transferred all of
their shares to HSV and Li Xipeng. After the transfer, Ping was held by HSV and
Li Xipeng with equity interests of 95% and 5%, respectively. On June 18, 2007
(effective July 30, 2007), HSV and Li Xipeng entered into an equity transfer
agreement pursuant to which they transferred all of their shares to WOC. the
Company’s approved operation tenure is thirty (30) years.
Currently,
Ping is wholly-owned by WOC. WOC has contributed RMB 260,000,000 (US$33,090,802)
in registered capital of Ping with a total investment equal to RMB 750,000,000
(US$95,454,237). Ping’s office is located at Pinglin Toll Road Station, New
District, Pingdingshan City, Henan Province, the PRC.
Current
Business of Ping
Ping was
founded with the purpose of providing to society high quality infrastructure
services and to promote regional economic development by investing in,
constructing, operating and managing an expressway property from the cities of
Linru to Pingdingshan in Luoyang-Nanjing, the PRC, and the rental of petrol
stations and service districts along the toll roads thereon. Such
expressway is referred to hereinafter as the “Pinglin Expressway” or the
“Expressway.”
With the
approval from Henan Communications Bureau and the State Development and Reform
Committee of China [NO. 2003-1784], the Company is permitted to construct and
operate the Pinglin Expressway in Henan Province for thirty (30) years from
2003. Pursuant to the permission from Henan Communications Bureau and Henan
Development and Reform Committee [NO. 2005-1885], the Company is entitled to
operate six (6) toll gates. All the rates applicable to the automobiles are
defined by the Henan Communications Bureau and Henan Development and Reform
Committee.
The
location of the Expressway is in Henan Province in central China, and is a hinge
terminal of the traffic backbone throughout China. The “five (5) longitudinal
roads and seven (7) transverse roads” in the national expressway network plan
are intercrossed with each other in Henan, extending more than 1,000 km, and
more than sixty percent (60%) of vehicles are those passing through Henan from
other provinces.
The
Pinglin Expressway is a significant part of the Nanluo Expressway, a national
trunk in the expressway network in China. The Nanluo Expressway links the
northwestern regions to the southeastern coastal regions of the PRC. The
construction of Pinglin Expressway started from October 23, 2003 and completed
in two (2) phases. The first phase of the construction which covered the part
with a length of approximately 86 kilometers, linking Ruzhou and Pingdingshan in
Henan Province, commercially opened on December 31, 2005. On May 31, 2006, the
second phase of the construction, with the length of approximately 21
kilometers, linking Pingdingshan and Yexian in Henan Province was completed.
With the operation of Pinglin Expressway, the key transport artery, national
trunk Nanluo Expressway was entirely opened to traffic.
Today,
the Pinglin Expressway is a dual carriageway four (4) lane expressway, the toll
section of which is 106 km in length. Toll revenue from the passing vehicles
through the Expressway’s six (6) toll gates (South Pingdingshan, Pingdingshan
New Town, Baofeng, Xiaotun, Ruzhou and Wenquan) is the primary source of the
Company’s earnings. The Expressway is also located between two (2) key cities,
Luoyang and Luohe. The Expressway extends from east to west, from Shilipu (the
end of the Luohe-Pingdingshan expressway), through Yexian and Pingdingshan and
then to New Xiying village at the joint of Pingdingshan and Luoyang. The road is
lined with the Lianhuo (Lianyungang-Huoerguosi) national highway through the
ringroad in Luoyang, and then extends to the southeast of Luohe City and
connects with the Beijing-Zhuhai national highway into a network to form a
convenient channel between Luoyang and Luohe. In addition to the traffic flow of
the line itself, we believe it also attracts the traffic flow from the Lianhuo
highway to Zhengzhou then to the Beijing-Zhuhai national highway to alter to
Luoyang-Luohe section of the Luonan route. Furthermore, the Expressway extends
east to link the highway network of the Jiangsu and Anhui Provinces and also
links the seaports, including Shanghai.
The
Company’s operating income is primarily achieved through toll charges on
vehicles passing through the Expressway’s toll gates. The standard of toll
charges is approved and set by the provincial price administrative bureau. The
Company's revenue equals the relevant standard toll rate of the type of vehicles
multiplied by the relative miles of travel through the Expressway, and is
cleared by the Henan Expressway System Toll Collection Center each month (the
Expressway has a charge system and clearing center which calculates and
allocates toll charge income according to the charge standards and the miles of
travel of vehicles on the Expressway). The Company is specialized in the
operation and management of expressways. The maintenance projects are outsourced
to professional road construction enterprises.
2
The
Company began generating operating revenue in January 2006. The Expressway
was not fully operational until June 2006, therefore our operating income was
low and growth was moderate. After several years of operations, awareness of the
Expressway has gradually increased, and passenger and commercial vehicle traffic
continues to increase. We believe that along with income growth in the future,
the profit earning capacity of the Company will improve steadily.
Enterprise
Strategy
Henan is
the province with the largest population in China. However, its
urbanization rate is far below the national average level. With rapid economic
and social development and the accelerated process of urbanization in Henan,
demand is growing rapidly for infrastructure, such as the Expressway and other
transportation infrastructure, urban facilities such as heating, water supply,
and sewerage treatment. The existing infrastructure can no longer meet the needs
of the region’s social development.
Because
the Chinese government’s financial revenue growth is limited, its investment
alone is unable to build huge infrastructure projects in a relatively short
period of time. In order to attract other funding, local governments are willing
to grant to commercial companies the right to invest in the construction and
operation of projects, or directly sell the equity of the established
enterprises to recover their early input.
The
Company plans to invest in the construction and purchase of additional
expressways, thermoelectricity, water supply, sewage treatment facilities and
other infrastructure assets with good profit prospects in the next few years. In
doing so, it intends to seize the current historic opportunity of rapid
development of infrastructure in China and Henan. We believe that this
will rapidly strengthen and expand the Company’s place in infrastructure
industries. This should also create advantages of scale thereby further
reducing costs of operation. The amount of investment in infrastructure is
often relatively large, and investment funds need to be in position within two
(2) or three (3) years in advance, therefore the amount of capital from the
Company’s operations alone cannot meet the demand for investment in the future.
The Company desires to actively participate in the capital markets and to use
various channels of financing to enhance its ability to raise funds, thereby
promoting and achieving its long-term development strategies.
Based on
the operation and management of the Expressway, the Company desires to take full
advantage of free cash flow and capital market instruments to invest in the
construction or purchase of infrastructure assets and to exploit all the
advantages in management, government relationships and stockholder support to
make the Company a professional, continuously-growing infrastructure investment
operator.
In
addition, the Company intends to energetically push forward its standard
management, human-based services, establish an information management platform
and continue to improve the road conditions and traffic capacity so as to
provide travelers with a smooth, safe and comfortable traveling environment.
With the increasing influence of the Expressway on the substitution and division
of other transportation lines in the context of the great macroeconomic
environment which is resulting in continuous and rapid growth in China and given
the specific area where the roads are located, we believe that the Company’s
income from toll and profits will continue to increase.
General
Overview on Industry and Market
General
With
efforts to advance China’s expressway system out of the developmental stage, the
PRC issued a series of polices to encourage the development of expressways.
China’s main objectives with respect to road construction during the “Tenth
Five-Year Plan” are (a) that total road mileage will reach 2.1~2.3 million km in
2010, (b) that the main national highways with “five (5) in longitudinal
direction and seven (7) in transverse” will be built across China, (c) that
eight (8) interprovincial roads will be built in the western areas where the
expressway will connect ninety percent (90%) of the cities with more than
200,000 in population and (d) that the expressway network will be developed in
the eastern parts of China. In 2020, the PRC estimates that China’s total road
mileage will extend more than 70,000 km, connecting all cities with more than
200,000 in population and forming a nationwide expressway network.
As
compared with common roads, the expressways have distinct economic and technical
characteristics and are indicative of the advanced productivity in road
transportation. According to the Pingdingshan-Linru Expressway Project
Feasibility Study Report, although expressways only account for approximately
1.72% of the total road mileage in China, the traffic volume undertaken thereby
is a quarter of the total volume. At present, the running speed of China’s motor
vehicles in the expressways are two times that of secondary roads; a two-way
expressway with four (4) lanes covers an area 2.5 times that of a common
secondary road, and its traffic capacity is eight (8) to ten (10) times that of
the latter (as such figures are represented in the aforementioned PL Report). We
believe that once the expressways are connected with each other, it will have an
immense opportunity for economic growth.
3
We
believe that as a result of recent progress in the social and economic
development in China, road transportation has taken on an important position
among the five (5) areas constituting the comprehensive transportation system
(road, railway, airway, watercourse and pipeline). We believe that the
expressway as a modern traffic infrastructure have become a backbone channel due
to its many characteristics such as large traffic volume, high speed,
far-reaching influence and extensive penetration, thus establishing its crucial
position in China’s comprehensive transportation system. We believe that
expressways highlight the road grade standard and running speed and thus
effectively improve the “bottleneck” situation with traffic transportation in
some areas as well as promote the optimization and upgrade of the road network.
Along with national economic development, we believe China’s passenger and
freight transportation will continue to rise. We believe that demand for special
transportation, land development, regional economic development and an increase
in people’s travel demands have resulted from an increase in economic income and
a change in life style, and that such demands will require continued development
of expressways to satisfy such demands.
Socio-Economic
Conditions of Henan Province and Pingdingshan
Henan
Province has the largest population in China and its GDP in 2009 ranked fifth
(5th) in the whole country. In 2009, Henan’s GDP growth increased by 10.7% up
from the previous year, higher than the national growth rate of 8.7%.
Pingdingshan is an important energy base and industrial city in Henan Province,
which has abundant coal and salt resources. Coal mining, electricity, chemicals,
and the steel and mechanical industries are the pillar industries of the city.
In 2009, Pingdingshan’s GDP ranked fifth in Henan Province and its growth rate
was higher than the average level of the whole province. Pingdingshan had
a population of 5.06 million in 2006.
The
Road Network Conditions of Henan Province and Pingdingshan City
Henan
Province, which we believe has unique road advantages, is located in the central
part of China. There are nine (9) national expressways including Lianhuo and
Beijing-Hong Kong-Macao, and nine (9) national ways including No. 107 and No.
310, both of which pass through Henan. At the end of 2009, the total provincial
traffic mileage and expressway traffic mileage ranked first in the country
(these figures have been quoted from the 2009 Annual Report of the PRC listed
company Central Expressway, Symbol: 600020).
Main
Advantages
Geographic
Location
The
infrastructure has a natural characteristic of regional monopolization, and
there is no other resource to replace it within a specific region. Therefore,
the geographic location decides the market space of infrastructure assets and
has a substantial influence on the profit-earning capability of such assets, and
so does the expressway industry. The Pinglin Expressway is located between
Luoyang and Pingdingshan, two (2) major industrial cities among the city group
in central China and Henan Province. In the north, the Expressway connects with
the northwest area through the Lianyungang-Huo’erguosi expressway in Luoyang,
and in the east connects to Anhui, Jiangsu, Zhejiang and Shanghai through Luohe
city. In the south, the Expressway connects with the Beijing-Zhuhai expressway
through Luohe City. With the gradual emergence of the effects produced by
China’s initialization of its domestic demand policy, we believe the logistics
between the coastal areas and inland China will result in further
growth.
Ping’s
Corporate Governance Structure
The
Company has a standard and highly effective corporate governance structure. Ping
has implemented a management system of responsibility by the General Manager
under the leadership of its Board of Directors and has established an internal
control system. Ping currently implements a series of incentive and binding
policies to encourage management to create value for its stockholder, thus
avoiding the defects commonly encountered in state-owned enterprises such as
internally-connected person control and absence of the owners. We believe these
standards and practices will ensure that the Company’s operating activities will
not deviate from the track of healthy development.
4
Governmental
Relationships
The
operation of the infrastructure industry will not be separated from the support
and cooperation of the governmental departments. Whether the infrastructure is
working at optimum levels is associated with the integral competitiveness of a
city and even a district. Therefore, each local government attaches great
importance to the construction and operation of the infrastructure and provides
a strategic priority to its development. Henan is located in central China, and
has been positioned as an agricultural province for a long time, where the
urbanization rate is lower than the average level of the whole country, the
infrastructures are backward and the local governments have more eagerness to
advance the infrastructure. However, due to certain restrictions on local
finance, it is impossible to complete such a significant project only by
depending on the investment from the government. During the construction of
Pinglin Expressway, the Company experienced many links such as project
examination and approval, bank funding, license authorization, charging approval
and governmental custody and high efficiency management. As a result, we believe
Ping has achieved recognition from the various governmental departments and has
established a good cooperative relationship with them. We believe this will also
establish a solid basis for long-term development of the Company.
Financial
Advantages
We
believe the Company's major financial advantages to be (a) sound operation, (b)
low market risk, (c) no cyclical fluctuation, (d) strong capacity of cash flow
from operation, (e) large free cash flow and (f) strong solvency and capital
accumulation capacity. Furthermore, infrastructure industries are in line with
the state’s industrial policy and concessions on charge standards and interest
rates on bank loans.
Qualifications
The
Company entered into that certain Chartered Right Agreement on
Pingdingshan-Linru Expressway Project on April 10, 2003 with the Pingdingshan
Communications Bureau (authorized by Pingdingshan People’s Government), upon
which, the Company is entitled to the rights of construction, operation and toll
collection. A copy of such Agreement is referenced to this Report as Exhibit
10.2.
In
accordance with Y. F. G. S. F. [2006] No. 1460 filed jointly by Henan Provincial
Development and Reform Commission and Henan Provincial Department of
Communications, the toll collection standard of Pingdingshan-Linru expressway
was specially increased on October 20, 2006, and the charging standard after the
adjustment is as follows:
|
Type of Vehicle
|
Charging:
RMB:
Yuan/car km
|
Charging:
USD:
Dollar/car km
|
|||||
Type
A
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Small
passenger car, truck loaded below 2 tons
|
0.55
|
0.0759
|
|||||
Type
B
|
Middle-sized
passenger car, truck loaded 2-5 tons
|
0.75,
0.80
|
0.1035,
0.1104
|
|||||
Type
C
|
Large-sized
passenger car, truck loaded 5-8 tons
|
1.10,
1.40
|
0.1518,
0.1931
|
|||||
Type
D
|
Truck
loaded 8-20 tons l
|
1.75
|
0.2414
|
|||||
Type
E
|
Truck
loaded 20-40 tons
|
2.10
|
0.2897
|
|||||
Type
F
|
Truck
loaded more than 40 tons
|
RMB0.08/ton. km
|
0.0110/ton.km
|
Technical
Information
According
to the rules in “Road Engineering Technical Standard” issued by Ministry of
Communications of PRC, the main technical indexes of Pinglin Expressway are in
the table as follows:
Construction
mileage
|
107km
|
|
Grade
of the Road
|
Dual-carriageway
with two (2) lanes each direction
|
|
Design
Speed
|
120km/h
|
|
Road
Surface Type
|
Asphalt
concrete
|
|
Design
Load for Bridge/Culvert
|
Automobile
- S 20, Trailer-120
|
|
Terrain
|
Plain
lightly undulate
area
|
5
Employees
Ping
attaches great importance to the cultivation of professional managerial persons
and pursues a talent policy of retaining professionals by undertaking an
enterprise culture. Through continuously improving its corporate governance
structure, management system and talent introduction and incentive system, Ping
has created an excellent working atmosphere and development opportunity, which
integrates the individual occupational plan with the Company’s development and
reduces the turnover of the employees, especially the core technicians, thus
forming a relatively stable and high-quality employee team. Figure 1 below sets
forth the current institutional structure of Ping:
As of
June 30, 2010, we had approximately 389 full-time employees. The number of
employees by function is listed below:
Number of Employees
|
% of Total Employees
|
||||
Toll
Collection Operations
|
276
|
71.0
|
|||
Maintenance
and Operations
|
44
|
11.3
|
|||
Finance
and Accounting
|
6
|
1.5
|
|||
Administration
|
53
|
13.6
|
|||
Executive
Management
|
10
|
2.6
|
|||
Total
|
389
|
100
|
Institutional
Structure
There are
six (6) departments in the Company, and the main function of each department is
as follows:
Operation and Management
Department: This Department is responsible for toll collection
management, routine maintenance of operating facilities and statistics of
traffic volume.
Engineering Maintenance
Department: This Department is responsible for the organization of
Expressway maintenance, for managing infrastructure and maintenance projects,
for coordinating the relationship between the parties participating in the
projects, for managing project quality and for selecting and purchasing fixed
assets and project materials.
Road Administration
Department: This Department is responsible for implementing national laws
and regulations on the expressways, maintaining road assets and property rights
according to the law, supervising and investigating expressway cases and other
road administration such as comprehensive management and special treatment and
supervising the maintenance work.
6
Planned Finance Department:
This Department is responsible for setting and optimizing the financial system
and flow, conducting basic accounting checks, controlling and managing financial
matters, managing capital plans, managing contracts, researching and preparing
mid and long term development plans, conducting internal audits and other
matters related to industry, commerce and taxation.
Human Resources Department:
This Department is responsible for drafting human resources plans and allocating
the staff, organizing and implementing staff training and career development,
providing performance and salary management as well as other personnel
services.
Office Department: This
Department is responsible for managing administrative affairs, drafting the
Company’s systems and documents, managing the archives, stamps and vehicles and
organizing and administrating conference-related matters.
Intellectual
Property
We
currently do not own any copyrights, trademarks or patents.
Competition
Our
competition consists of other expressways. As newly-constructed expressways
continue to open, the expressway network improves and the density of road
network increases, a portion of traffic flow will change whereby travelers will
opt for shorter traveling routes, while the expressway network has the
clustering effect on traffic flow. Thus, relevant expressways will form
competition against each other. The Pinglin Expressway has its competitive
advantage in route; according to China’s expressway general plan, it will be the
shortest route in the province.
Secondly,
the common roads have competition between each other. Although on the common
roads there are some problems such as low velocity, high oil consumption and low
safety, the charges for the vehicle are inexpensive so that some of the traffic
flow may be attracted. However, as the economy grows and people’s income rises,
we believe time and safety factors will be more of a priority, especially in
long distance road transportation, and the advantage of expressways will be
prominent.
Thirdly,
there are competitions from railways and air transportation. The capacity of
air-express is limited, and it costs much more than expressways do, so it is
restrained in its availability to the general public. The railway transportation
has a lower cost, but it is different from the road transportation due to
different service objects. Moreover, the total social demand for passenger and
freight transportation is increasing, so the increase in the railway
transportation capacity can’t completely offset by the growth in demand for
expressways.
Research
and Development
The
Company did not incur any expenses on research and development during the fiscal
years ended June 30, 2010 or June 30, 2009.
Environmental
Laws
The
Company did not incur any expenses in connection with compliance with
environmental laws (federal, state, local and foreign) during the fiscal year
ended June 30, 2010.
ITEM 1A.
|
Risk
Factors
|
The
financial condition, business, operations, and prospects of the Company involve
a high degree of risk. You should carefully consider the risks and uncertainties
described below, which constitute the material risks relating to the Company,
and the other information in this report. If any of the following risks are
realized, the Company’s business, operating results and financial condition
could be harmed and the value of the Company’s stock could suffer. This means
that investors and stockholders of the Company could lose all or a part of their
investment.
7
RISKS
RELATING TO THE PEOPLE’S REPUBLIC OF CHINA
Certain
Political and Economic Considerations Relating to China Could Adversely Affect
Our Company.
The PRC
is transitioning from a planned economy to a market economy. While the PRC
government has pursued economic reforms since its adoption of the open-door
policy in 1978, a large portion of the PRC economy is still operating under
five-year plans and annual state plans. Through these plans and other economic
measures, such as control on foreign exchange, taxation and restrictions on
foreign participation in the domestic market of various industries, the PRC
government exerts considerable direct and indirect influence on the economy.
Many of the economic reforms carried out by the PRC government are unprecedented
or experimental, and are expected to be refined and improved.
Other
political, economic and social factors can also lead to further readjustment of
such reforms. This refining and readjustment process may not necessarily have a
positive effect on our operations or future business development. Our operating
results may be adversely affected by changes in the PRC’s economic and social
conditions as well as by changes in the policies of the PRC government, such as
changes in laws and regulations (or the official interpretation thereof),
measures which may be introduced to control inflation, changes in the interest
rate or method of taxation, and the imposition of additional restrictions on
currency conversion.
The
Chinese Government Exerts Substantial Influence Over The Manner In Which We Must
Conduct Our Business Activities Which Could Adversely Affect Our
Company.
China
only recently has permitted provincial and local economic autonomy and private
economic activities. The Chinese government has exercised and continues to
exercise substantial control over virtually every sector of the Chinese economy
through regulation and State ownership. Our ability to operate in China may be
harmed by changes in its laws and regulations, including those relating to toll
collection standards, taxation, import and export tariffs, environmental
regulations, land use rights, property and other matters. We believe that our
operations in China are in material compliance with all applicable legal and
regulatory requirements. However, the central or local governments of these
jurisdictions may impose new, stricter regulations or interpretations of
existing regulations that would require additional expenditures and efforts on
our part to ensure our compliance with such regulations or
interpretations.
Accordingly,
government actions in the future, including any decision not to continue to
support recent economic reforms and to return to a more centrally planned
economy or regional or local variations in the implementation of economic
policies, could have a significant effect on economic conditions in China or
particular regions thereof, and could require us to divest ourselves of any
interest we then hold in Chinese properties or joint ventures.
The
Chinese Legal System Has Inherent Uncertainties That Could Limit The Legal
Protections Available To You.
Our
contractual arrangements are governed by the laws of the People’s Republic of
China. China’s legal system is based upon written statutes. Prior court
decisions may be cited for reference but are not binding on subsequent cases and
have limited value as precedents. Since 1979, the Chinese legislative bodies
have promulgated laws and regulations dealing with economic matters such as
foreign investment, corporate organization and governance, commerce, taxation
and trade. However, because these laws and regulations are relatively new, and
because of the limited volume of published decisions and their non-binding
nature, the interpretation and enforcement of these laws and regulations involve
uncertainties, and therefore you may not have legal protections for certain
matters in China.
All
Of Our Assets Are Located In China, Any Dividends Of Proceeds From Liquidation
Is Subject To The Approval Of The Relevant Chinese Government
Agencies.
Our
assets are located inside China. Under the laws governing foreign invested
enterprises in China, dividend distribution and liquidation are allowed but
subject to special procedures under the relevant laws and rules. Any dividend
payments will be subject to the decision of our Board of Directors and subject
to foreign exchange rules governing such repatriation. Any liquidation is
subject to both the relevant government agency’s approval and supervision as
well the foreign exchange control. This may generate additional risk for our
investors in case of dividend payments and liquidation.
Future
Inflation In China May Inhibit Our Activity To Conduct Business In
China.
In recent
years, the Chinese economy has experienced periods of rapid expansion and high
rates of inflation. These factors have led to the adoption by Chinese
government, from time to time, of various corrective measures designed to
restrict the availability of credit or regulate growth and contain inflation.
While inflation has been more moderate since 1995, high inflation may in the
future cause Chinese government to impose controls on credit and/or prices, or
to take other action, which could inhibit economic activity in China and thereby
harm our business operations.
8
Currency
Conversion And Exchange Rate Volatility Could Adversely Affect Our Financial
Condition.
The PRC
government imposes control over the conversion of Renminbi into foreign
currencies. Under the current unified floating exchange rate system, the
People’s Bank of China (PBOC) publishes an exchange rate, which we refer to as
the PBOC exchange rate, based on the previous day’s dealings in the inter-bank
foreign exchange market. Financial institutions authorized to deal in foreign
currency may enter into foreign exchange transactions at exchange rates within
an authorized range above or below the PBOC exchange rate according to market
conditions.
Pursuant
to the Foreign Exchange Control Regulations of the PRC issued by the State
Council which came into effect on April 1, 1996, and the Regulations on the
Administration of Foreign Exchange Settlement, Sale and Payment of the PRC which
came into effect on July 1, 1996, regarding foreign exchange control, conversion
of Renminbi into foreign exchange by Foreign Investment Enterprises (“FIEs”), for use on
current account items, including the distribution of dividends and profits to
foreign investors, is permissible. FIEs are permitted to convert their after-tax
dividends and profits to foreign exchange and remit such foreign exchange to
their foreign exchange bank accounts in the PRC. Conversion of Renminbi into
foreign currencies for capital account items, including direct investment,
loans, and security investment, is still under certain restrictions. On January
14, 1997, the State Council amended the Foreign Exchange Control Regulations and
added, among other things, an important provision, which provides that the PRC
government shall not impose restrictions on recurring international payments and
transfers under current account items.
Enterprises
in the PRC (including FIEs) which require foreign exchange for transactions
relating to current account items, may, without approval of the State
Administration of Foreign Exchange, or SAFE, effect payment from their foreign
exchange account or convert and pay at the designated foreign exchange banks by
providing valid receipts and proofs.
Convertibility
of foreign exchange in respect of capital account items, such as direct
investment and capital contribution, is still subject to certain restrictions,
and prior approval from the SAFE or its relevant branches must be
sought.
Since
1994, the exchange rate for Renminbi against the United States dollars has
remained relatively stable, most of the time in the region of approximately
RMB8.3 to US$1.00. However, in 2005, the Chinese government announced that would
begin pegging the exchange rate of the Chinese Renminbi against a number of
currencies, rather than just the U.S. Dollar. As our operations are primarily in
China, any significant revaluation of the Chinese Renminbi may materially and
adversely affect our cash flows, revenues and financial condition. For example,
to the extent that we need to convert United States dollars into Chinese
Renminbi for our operations, appreciation of this currency against the United
States dollar could have a material adverse effect on our business, financial
condition and results of operations. Conversely, if we decide to convert Chinese
Renminbi into United States dollars for other business purposes and the United
States dollar appreciates against this currency, the United States dollar
equivalent of the Chinese Renminbi we convert would be reduced.
The
Value Of Our Securities Will Be Affected By The Foreign Exchange Rate Between
U.S. Dollars And Renminbi.
The value
of the Company’s Common Stock will be affected by the foreign exchange rate
between U.S. dollars and Renminbi, and between those currencies and other
currencies in which our sales may be denominated. For example, to the extent
that we need to convert U.S. dollars into Renminbi for our operational needs and
should the Renminbi appreciate against the U.S. dollar at that time, our
financial position, the business of the Company, and the price of our Common
Stock may be harmed. Conversely, if we decide to convert our Renminbi into U.S.
dollars for the purpose of declaring dividends on our Common Stock or for other
business purposes and the U.S. dollar appreciates against the Renminbi, the U.S.
dollar equivalent of our earnings from our China operations would be
reduced.
You
May Experience Difficulties In Effecting Service Of Legal Process, Enforcing
Foreign Judgments Or Bringing Original Actions In China Based On United States
Or Other Foreign Laws Against Us.
We
conduct our operations in China and a significant portion of our assets is
located in China. In addition, our directors and executive officers reside
within China, and substantially all of the assets of these persons are located
within China. As a result, it may not be possible to effect service of process
within the United States or elsewhere outside China upon those directors or
executive officers, including with respect to matters arising under U.S. federal
securities laws or applicable state securities laws. Moreover, our Chinese
counsel has advised us that China does not have treaties with the U.S. and many
other countries that provide for the reciprocal recognition and enforcement of
judgment of courts. As a result, recognition and enforcement in China of
judgments of a court of the U.S. or any other jurisdiction in relation to any
matter may be difficult or impossible.
9
Our
Significant Amount Of Deposits In Certain Banks In China May Be At Risk If These
Banks Go Bankrupt During Our Deposit Period.
As of
June 30, 2010, we had approximately RMB35.6 million (approximately US$5.2 million) in banks in
China, which almost constitute all of our total cash. The terms of these
deposits are, in general, up to twelve (12) months. Historically, deposits in
Chinese banks are secure due to the state policy on protecting depositors’
interests. However, China promulgated a new Bankruptcy Law in August 2006, which
has come into effect on June 1, 2007, which contains a separate article
expressly stating that the State Council may promulgate implementation measures
for the bankruptcy of Chinese banks based on the Bankruptcy Law. Under the new
Bankruptcy Law, a Chinese bank may go bankrupt. In addition, since China’s
concession to WTO, foreign banks have been gradually permitted to operate in
China and have been severe competitors against Chinese banks in many aspects,
especially since the opening of Renminbi business to foreign banks in late 2006.
Therefore, the risk of bankruptcy of those banks in which we have deposits has
increased. In the event of bankruptcy of one of the banks which holds our
deposits, we are unlikely to recover our deposits back in full since we are
unlikely to be classified as a secured creditor based on PRC laws.
RISKS
RELATING TO OUR BUSINESS
Because
Our Operating History Is Limited And The Revenue And Income Potential Of Our
Business And Markets Are Unproven, We Cannot Predict Whether We Will Meet
Internal or External Expectations Of Future Performance.
We
believe that our future success depends on our ability to significantly increase
revenue from toll collections, of which we have a limited history. The
Expressway marketplace features high investment and a long recovery period. The
main market risk in connection with our Company is the future traffic volume
less than the predicted amount. Accordingly, our prospects must be considered in
light of the risks, expenses and difficulties frequently encountered by
companies with a limited operating history. These risks include our ability
to:
|
·
|
offer new and innovative services
on the Expressway;
|
|
·
|
attract billboard
advertisers;
|
|
·
|
attract more
travelers;
|
|
·
|
respond effectively to
competitive pressures and address the effects of strategic relationships
or corporate combinations;
|
|
·
|
maintain our current, and develop
new, strategic
relationships;
|
|
·
|
increase awareness of the
Expressway and continue to build traveler
loyalty;
|
|
·
|
attract and retain qualified
management and employees;
and
|
|
·
|
upgrade our technology to support
increased traffic and expanded
services.
|
10
Our
Business And Growth Could Suffer If We Are Unable To Hire And Retain Key
Personnel That Are In High Demand.
We depend
upon the continued contributions of our senior management and other key
personnel, including Li Xipeng and Zhang Chunxian. The loss of the services of
any of our executive officers or other key employees could have a material
adverse effect on our business, operations, revenues or prospects. We do not
maintain key man insurance on the lives of these individuals at present. As we
plan to expand, we will have to attract managerial staff. We may not be able to
identify and retain qualified personnel due to our lack of understanding of
different cultures and lack of local contacts. This may impede any potential
expansion. Our future success will also depend on our ability to attract and
retain highly skilled and qualified technical, engineering, managerial, finance,
marketing, security and customer service personnel in China. Qualified
individuals are in high demand, and we may not be able to successfully attract,
assimilate or retain the personnel we need to succeed.
If
We Need Additional Capital To Fund Our Growing Operations, We May Not Be Able To
Obtain Sufficient Capital And May Be Forced To Limit The Scope Of Our
Operations.
We may
experience increased capital needs and we may not have enough capital to fund
our future operations without additional capital investments. Our capital needs
will depend on numerous factors, including (i) our profitability; (ii) the
success of our competitors; (iii) the amount of our capital expenditures; and
(iv) new infrastructure project investment. We cannot assure you that we will be
able to obtain capital in the future to meet our needs.
If we
cannot obtain additional funding, we may be required to:
|
·
|
reduce our investments in
infrastructure industry;
|
|
·
|
limit our expansion efforts;
and
|
|
·
|
decrease or eliminate capital
expenditures.
|
Such
reductions could materially adversely affect our business and our ability to
compete. Even if we do find a source of additional capital, we may not be able
to negotiate terms and conditions for receiving the additional capital that are
acceptable to us. Any future capital investments could dilute or otherwise
materially and adversely affect the holdings or rights of our existing
stockholders. We cannot give you any assurance that any additional financing
will be available to us, or if available, will be on terms favorable to
us.
Competition
With The Railways and Airways in China May Have A Negative Impact On Our
Business
With the
rapid development of the domestic expressway, China is also giving great support
to the development of railways and airways. The construction of a special
passenger railway and the speed-up of railways in general will be able to
greatly improve the transport capacity of passengers and freight by railway and
bring about a division of the target clients of the Expressway which could be an
impediment to our growth and have a negative impact on our
revenues.
We
Are Exposed To Risks Related To Long-Term Notes Receivables And An Advance From
Related Parties.
As of
June 30, 2010, we have total of $191,080,493 in long-term receivables from
related parties (see Notes 6 and 7 of Notes to Consolidated Financial
Statements). Of the total, related party receivables from Xinyang
Expressway and Tai Ao Expressway comprise most of the amount. Neither company
has paid any interest or principal during the past year to the Company. Although
both Xinyang and Tai Ao are operating companies, the settlement of the balances
owed to the Company is highly dependent upon the approval of the acquisition of
Tai Ao. See below.
In
September 2009, the Company and Tai Ao entered into a letter of intent for the
Company to acquire Tai Ao. If this acquisition is approved, the total related
party receivables from Tai Ao will be eliminated since Tai Ao will be part of
the combined company. However, this acquisition is subject to the regulatory
approval from several agencies of both provincial and state bodies of the
Chinese government. The outcome of obtaining these approvals is uncertain. We
cannot guarantee that any or all of the Chinese government agencies would
approve the acquisition. We are also unsure the length of the time these
approvals will take. If anyone of the agencies would not approve the plan, the
acquisition will not be completed.
11
RISKS
RELATING TO OUR COMMON STOCK
Our
Common Stock Price Is Volatile And Could Decline In The Future.
The stock
market in general and the market price for other companies based in the PRC have
experienced extreme stock price fluctuations. In some cases, these fluctuations
have been unrelated to the operating performance of the affected companies. Many
companies in the toll road industry have experienced dramatic volatility in the
market prices of their common stock. We believe that a number of factors, both
within and outside of our control, could cause the price of our Common Stock to
fluctuate, perhaps substantially. Factors such as the following could have a
significant adverse impact on the market price of our Common Stock:
|
·
|
announcements of technological
innovations by us or our
competitors;
|
|
·
|
our ability to obtain additional
financing and, if available, the terms and conditions of the
financing;
|
|
·
|
our financial position and
results of operations;
|
|
·
|
litigation;
|
|
·
|
period-to-period fluctuations in
our operating results;
|
|
·
|
changes in estimates of our
performance by any securities
analysts;
|
|
·
|
new regulatory requirements and
changes in the existing regulatory
environment;
|
|
·
|
the issuance of new equity
securities in a future
offering;
|
|
·
|
changes in interest
rates;
|
|
·
|
changes in toll road
standards;
|
|
·
|
market conditions of securities
traded on the NASDAQ Capital
Market;
|
|
·
|
investor perceptions of us and
the toll road industry generally;
and
|
|
·
|
general economic and other
national conditions.
|
We
May Have Difficulty Raising Necessary Capital To Fund Operations As A Result Of
Market Price Volatility For Our Shares Of Common Stock.
In recent
years, the securities markets in the United States have experienced a high level
of price and volume volatility, and the market price of securities of many
companies have experienced wide fluctuations that have not necessarily been
related to the operations, performances, underlying asset values or prospects of
such companies. For these reasons, our shares of Common Stock can also be
expected to be subject to volatility resulting from purely market forces over
which we will have no control. If our business development plans are successful,
we may require additional financing to continue to develop and exploit existing
and new technologies and to expand into new markets. The exploitation of our
technologies may, therefore, be dependent upon our ability to obtain financing
through debt and equity or other means.
Our
Common Stock Is Considered A “Penny Stock” And As A Result, Related
Broker-Dealer Requirements Affect Its Trading And Liquidity.
Our
common stock is deemed to be “penny stock” as that term is defined in Rule
3a51-1 promulgated under the Exchange Act. Penny stocks are stocks:
|
·
|
With a price of less than $5.00
per share;
|
|
·
|
That are not traded on a
“recognized” national exchange;
or
|
12
|
·
|
In issuers with net tangible
assets less than $2.0 million (if the issuer has been in continuous
operation for at least three years) or $5.0 million (if in continuous
operation for less than three years), or with average revenues of less
than $6.0 million for the last three (3)
years.
|
Broker/dealers
dealing in penny stocks are required to provide potential investors with a
document disclosing the risks of penny stocks. Moreover, broker/dealers are
required to determine whether an investment in a penny stock is a suitable
investment for a prospective investor. These requirements may reduce the
potential market for our common stock by reducing the number of potential
investors. This may make it more difficult for investors in our common stock to
resell shares to third parties or to otherwise dispose of them. This could cause
our stock price to decline.
Shares
Eligible For Future Sale May Adversely Affect The Market Price Of Our Common
Stock.
From time
to time, certain of our stockholders may be eligible to sell all or some of
their shares of Common Stock by means of ordinary brokerage transactions in the
open market pursuant to Rule 144, promulgated under the Securities Act of 1933,
as amended, subject to certain limitations. In general, effective February 15,
2008, pursuant to Rule 144, a stockholder (or stockholders whose shares are
aggregated) who has satisfied a six (6) months holding period may, under certain
circumstances, sell within any three (3) month period a number of securities
which does not exceed one percent (1%) of the then outstanding shares of common
stock. In addition, effective February 15, 2008, Rule 144 also permits, under
certain circumstances, the sale of securities, without any limitations, by a
non-affiliate of our company that has satisfied a one (1) year holding period.
Any substantial sale of common stock pursuant to Rule 144 may have an adverse
effect on the market price of our Common Stock.
One
Stockholder Which is 50% Controlled By Our Chief Executive Officer and Chairman
of the Board of The Company Exercises Significant Control Over Matters Requiring
Stockholder Approval.
After
giving effect to the issuance of all the shares of Common Stock, Joylink has
voting power equal to eighty-five percent (85%) of our voting securities as of
the date of this Report. Moreover, Joylink is fifty percent (50%) controlled by
Li Xipeng, the Company’s Chief Executive Officer and Chairman of the Board. As a
result, Joylink, and our CEO through such stock ownership, exercises control
over all matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions. This concentration
of ownership in Joylink may also have the effect of delaying or preventing a
change in control of us that may be otherwise viewed as beneficial by
stockholders other than Joylink.
We
May Incur Significant Costs To Ensure Compliance With U.S. Corporate Governance
And Accounting Requirements.
We may
incur significant costs associated with our public company reporting
requirements, costs associated with newly applicable corporate governance
requirements, including requirements under the Sarbanes-Oxley Act of 2002 and
other rules implemented by the SEC. We expect all of these applicable rules and
regulations to increase our legal and financial compliance costs and to make
some activities more time-consuming and costly. We also expect that these
applicable rules and regulations may make it more difficult and more expensive
for us to obtain director and officer liability insurance and we may be required
to accept reduced policy limits and coverage or incur substantially higher costs
to obtain the same or similar coverage. As a result, it may be more difficult
for us to attract and retain qualified individuals to serve on our board of
directors or as executive officers. We cannot predict or estimate the amount of
additional costs we may incur or the timing of such costs.
We
May Be Required To Raise Additional Financing By Issuing New Securities With
Terms Or Rights Superior To Those Of Our Shares Of Common Stock, Which Could
Adversely Affect The Market Price Of Our Shares Of Common Stock.
We may
require additional financing to fund future operations, including expansion in
current and new markets, programming development and acquisition, capital costs
and the costs of any necessary implementation of technological innovations or
alternative technologies. We may not be able to obtain financing on favorable
terms, if at all. If we raise additional funds by issuing equity securities, the
percentage ownership of our current stockholders will be reduced, and the
holders of the new equity securities may have rights superior to those of the
holders of shares of Common Stock, which could adversely affect the market price
and the voting power of shares of our Common Stock. If we raise additional funds
by issuing debt securities, the holders of these debt securities would similarly
have some rights senior to those of the holders of shares of Common Stock, and
the terms of these debt securities could impose restrictions on operations and
create a significant interest expense for us.
13
We
Do Not Foresee Paying Cash Dividends In The Foreseeable Future.
We have
not paid cash dividends on our stock and we do not plan to pay cash dividends on
our stock in the foreseeable future.
ITEM 1B.
|
Unresolved Staff
Comments
|
None.
ITEM 2.
|
Properties
|
DESCRIPTION
OF PROPERTIES
All land
in China is owned by the State. Individuals and companies are permitted to
acquire rights to use land or land use rights for specific purposes. In the case
of land used for industrial purposes, the land use rights are granted for a
period of fifty (50) years. This period may be renewed at the expiration of the
initial and any subsequent terms. Granted land use rights are transferable and
may be used as security for borrowings and other obligations.
Ping owns
land use rights with respect to its office location at Pinglin Toll Road
Station, New District, Pingdingshan City, Henan Province, the PRC. Pursuant to
the approval from The Ministry of Land and Resources of the PRC [No. 2004-289]
dated September 10, 2004, Ping was granted approximately Seven Hundred (700)
hectares land use right for construction purpose, among which approximately
Eight (8) hectares were used in association with the office and service
facilities and the others were used for the construction of toll road
infrastructures.
CMH and
WOC share offices at Room 42, New Henry House, 10 Ice House Street, Central,
Hong Kong. This office consists of approximately Three Thousand (3,000) square
feet.
We
believe that all of our properties and equipment have been adequately
maintained, are generally in good condition, and are suitable and adequate for
our business.
ITEM 3.
|
Legal
Proceedings
|
In the
normal course of business, we are named as a defendant in lawsuits in which
claims are asserted against us. In our opinion, the liabilities, if any, which
may ultimately result from such lawsuits, are not expected to have a material
adverse effect on our financial position, results of operations or cash flows.
In our opinion, as of the date hereof, there is no pending litigation, the
outcome of which would have material outcome on the Company’s financial
position.
ITEM 4.
|
(Removed and
Reserved)
|
PART
II
ITEM 5.
|
Market for Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
|
MARKET
PRICE OF AND DIVIDENDS ON THE REGISTRANT’S
COMMON
EQUITY AND OTHER STOCKHOLDER MATTERS
The
Registrant’s Common Stock is traded on the NASDAQ Capital Market under the
symbol “CIIC”. The following table sets forth on a per share basis for the
periods shown, the high and low sale prices of our Common Stock. The quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not represent actual transactions.
Sale Prices
|
High
|
Low
|
||||||
Fiscal Year Ended June 30,
2009
|
||||||||
Quarter
ended September 30, 2008
|
$ | 4.55 | $ | 3.04 | ||||
Quarter
ended December 31, 2008
|
3.68 | 1.39 | ||||||
Quarter
ended March 31, 2009
|
2.33 | 0.73 | ||||||
Quarter
ended June 30, 2009
|
$ | 1.89 | $ | 0.82 |
14
Sale Prices
|
High
|
Low
|
||||||
Fiscal Year Ended June 30,
2010
|
||||||||
Quarter
ended September 30, 2009
|
$ | 1.80 | $ | 1.01 | ||||
Quarter
ended December 31, 2009
|
4.75 | 1.09 | ||||||
Quarter
ended March 31, 2010
|
3.55 | 1.65 | ||||||
Quarter
ended June 30, 2010
|
$ | 2.58 | $ | 1.02 |
When the
trading price of the Company’s Common Stock is below $5.00 per share, the Common
Stock is considered to be a “penny stock” that is subject to rules promulgated
by the SEC (Rule 15-1 through 15g-9) under the Exchange Act. These rules impose
significant requirements on brokers under these circumstances, including: (a)
delivering to customers the SEC’s standardized risk disclosure document; (b)
providing customers with current bid and ask prices; (c) disclosing to customers
the brokers-dealer’s and sales representatives compensation; and (d) providing
to customers monthly account statements.
Holders
of Common Equity
As of
September 8, 2010 and as of the date of this Report, the Company has an
aggregate of 80,000,000 shares of its Common Stock issued and outstanding and
four (4) stockholders of record.
Dividends
Prior to
the closing of the Exchange, the Company effectuated a 2-1 reverse stock split
for the issued and outstanding shares of its Common Stock. The effective date
for this reverse split was December 3, 2007.
On
January 22, 2008, the Company completed a dividend distribution to its
shareholders of record as of January 18, 2008 in the amount equal to five
percent (5%) (1,250,005 shares) of the then issued and outstanding Common Stock.
Following the dividend distribution and immediately prior to the
consummation of the Exchange, the Company had 26,250,005 shares of Common Stock
issued and outstanding.
The
further issuance of dividends, if any, will be contingent upon our revenues and
earnings, if any, capital requirements and financial conditions. The payment of
dividends, if any, will be within the discretion of the Company’s Board of
Directors. The company presently intends to retain all earnings, if any, for use
in its business operations and accordingly, the Board does not anticipate
declaring any cash dividends for the foreseeable future. We have not paid any
cash dividends on our Common Stock.
Securities
Authorized for Issuance under Equity Compensation Plans
The
following table discloses information as of June 30, 2010 with respect to
compensation plans (including individual compensation arrangements) under
which our equity securities are authorized for issuance.
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|||
Plan Category
|
|
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
|
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
|
|
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a)
|
|
|||
N/A
|
-0-
|
-0-
|
-0-
|
|||||||||
Total
|
-0-
|
-0-
|
-0-
|
Options
and Warrants
As of the
date of this Report, we have no outstanding options or
warrants.
15
Transfer
Agent
Interwest
Transfer Company, Inc., 1981 East Murray Holladay Road, Suite 100, P.O. Box
17136, Salt Lake City, UT 84117, telephone (801) 272-9294, facsimile (801)
277-3147 currently acts as our transfer agent and registrar.
Performance
Graph
Not
required for a smaller reporting company.
Recent
Sales of Unregistered Securities
The
Company effectuated a 2-1 reverse split of its Common Stock effective on
December 3, 2007 effectively reducing the number of issued and outstanding
shares of Common Stock to 25,000,000 shares.
On
January 22, 2008, the Company completed a dividend distribution to its
shareholders of record as of January 18, 2008 in the amount equal to five
percent (5%) (1,250,005 shares) of the then issued and outstanding Common Stock.
Following the dividend distribution and immediately prior to the
consummation of the Exchange, the Company had 26,250,005 shares of Common Stock
issued and outstanding.
On
February 8, 2008, pursuant to the terms of the Exchange Agreement, the Company
acquired all of the issued and outstanding capital stock of CMH in exchange for
the issuance by the Company of 54,400,000 newly-issued shares of
Common Stock to the Stockholder (Joylink Holdings, Inc.).
ITEM 6.
|
Selected Financial
Data
|
Not
required for a smaller reporting company.
ITEM 7.
|
Management’s Discussion and
Analysis of Financial Condition and Results of
Operations
|
Forward
Looking Statements
The
following discussion of our financial condition and results of operations is
based upon and should be read in conjunction with our consolidated financial
statements and their related notes included in this Report. This Report contains
forward-looking statements. Generally, the words “believes”, ”anticipates”,
“may”, “will”, “should”, “expect”, “intend”, “estimate”, “continue” and similar
expressions or the negative thereof or comparable terminology are intended to
identify forward-looking statements. Such statements are subject to certain
risks and uncertainties, including the matters set forth in this report or other
reports or documents we file with the SEC from time to time, which could cause
actual results or outcomes to differ materially from those projected. Undue
reliance should not be placed on these forward-looking statements which speak
only as of the date hereof. We undertake no obligation to update these
forward-looking statements.
Business
Overview
The Company is engaged in the
investment, construction, operation and management of the Pinglin Expressway
toll road in the Province of Henan, China and the rental of petrol stations and
service districts along the toll roads.
With the approval from Henan
Communications Bureau and the State Development and Reform Committee of China
[NO. 2003-1784], the Company is permitted to construct and operate the
Pinglin Expressway in Henan, China for thirty (30) years from 2003. Pursuant to
the permission from Henan Communications Bureau and Henan Development and Reform
Committee [NO. 2005-1885], the Company is entitled to operate six toll
gates. All the rates applicable to the automobiles are defined by the Henan
Communications Bureau and Henan Development and Reform Committee.
The Pinglin Expressway is a significant
part of the Nanluo Expressway, a key national trunk highway in China which
connects Nanjing to Luoyang. The Nanluo Expressway links the
northwestern regions to the southeastern coastal regions of China. The
construction of the Pinglin Expressway started on October 23, 2003 and was
completed in two (2) phases. The first phase of the construction (covering a
section of approximately 86 kilometers in length) linking Ruzhou and
Pingdingshan in Henan Province, began commercial operations on December 31,
2005. On May 31, 2006, the second phase of the construction (covering
a section of approximately 21 kilometers in length) linking Pingdingshan to
Yexian in Henan Province was completed. With the operation of Pinglin Expressway
the Nanluo Expressway became completely operational.
16
The Pinglin Expressway is a dual
carriageway four lane expressway, the toll section of which is 106 km in length.
Toll revenue from vehicles passing through the Expressway’s six toll gates
(South Pingdingshan, Pingdingshan New Town, Baofeng, Xiaotun, Ruzhou and
Wenquan) is the primary source of the Company’s revenue. The
Expressway is also located between two key cities, Luoyang and Luohe. The
Expressway extends from east to west, from Shilipu (the end of the
Luohe-Pingdingshan expressway), through Yexian and Pingdingshan and then to New
Xiying village at the joint of Pingdingshan and Luoyang. The road is linked with
the Lianhuo (Lianyungang-Huoerguosi) national highway in Luoyang, and then
extends to the southeast of Luohe City and connects with the Beijing-Zhuhai
national highway to form a convenient channel between Luoyang and Luohe. In
addition to the traffic flow of the line itself, we believe it also attracts the
traffic flow from the Lianhuo highway to Zhengzhou and then to the
Beijing-Zhuhai national highway to alter the route of the Pinglin
Expressway. Furthermore, the Expressway extends east to link the
highway network of the Jiangsu and Anhui provinces and also links seaports,
including Shanghai.
The Company’s operating revenue is
generated through toll charges on vehicles that pass through the toll gate. The
standard of toll charges is approved and set by the provincial price
administrative bureau. The Company’s revenue is equal to the relevant standard
toll rate for the types of vehicles, multiplied by the relative miles of travel
through the Expressway which the Company is operating, and is cleared by the
Henan Expressway System Toll Collection Center each month (Henan Expressway has
a system of charges and a clearing center which calculates and allocates toll
charge income according to the charge standards and the miles of vehicle travel
in the Expressway). The Company specializes in the operation and management of
expressways, and maintenance projects are outsourced to professional road
construction enterprises.
The Company began generating operating
revenue in January 2006. The Expressway was not fully operational
until June 2006, therefore our operating income was low and growth was moderate.
After several years of operations, awareness of the Expressway and passenger and
commercial vehicle traffic has gradually increased. We believe that along with
income growth in the future, the profit earning capacity of the Company will
improve steadily.
Enterprise
Strategy
Henan is the province with the largest
population in China. However, its urbanization rate is far below the
national average level. With rapid economic and social development and the
accelerated process of urbanization in Henan, demand is growing rapidly for
infrastructure, such as the Expressway and other transportation infrastructure,
urban facilities such as heating, water supply, and sewerage treatment. The
existing infrastructure can no longer meet the needs of the region’s social
development.
Because the Chinese government’s
financial revenue growth is limited, its investment alone is unable to build
huge infrastructure projects in a relatively short period of time. In order to
attract other funding, local governments are willing to grant to commercial
companies the right to invest in the construction and operation of projects, or
directly sell the equity of the established enterprises to recover their early
input.
The Company plans to invest in the
construction and purchase of additional expressways, water supply, sewage
treatment facilities and other infrastructure assets in the next few years. In
doing so, it intends to seize the opportunities in infrastructure development in
China, especially in Henan province. We believe that through
consolidation, the Company will strengthen its business in infrastructure
development and create scale of economy resulting in reduction in operation
costs.
The Company intends to actively seek
various sources in the capital markets to raise funds for its future expansion
and consolidation.
In addition, the Company will continue
to maintain and improve its business operations in areas of operations
management, information systems, customer services, and repair
maintenance.
Significant
Accounting Policies and Estimates
We prepare our financial statements in
accordance with generally accepted accounting principles in the United States,
which require us to make estimates and assumptions that affect the reported
amounts of our assets and liabilities, to disclose contingent assets and
liabilities on the date of the financial statements, and to disclose the
reported amounts of revenues and expenses incurred during the financial
reporting period. We continue to evaluate these estimates and assumptions that
we believe to be reasonable under the circumstances. We rely on these
evaluations as the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Since
the use of estimates is an integral component of the financial reporting
process, actual results could differ from those estimates. Some of our
accounting policies require higher degrees of judgment than other in their
application.
17
This section should be read together
with the Summary of Significant Accounting Policies included as Note 2 to the
consolidated financial statements included herein.
We determine the estimated useful lives
and related depreciation charges for our toll road infrastructures, property,
plant and equipment. This estimate is based on the historical experience of the
actual useful lives of toll road infrastructures, property, plant and equipment
of a similar nature and functions and the practice in similar industries. Toll
road infrastructures, property, plant and equipment are carried at cost less
accumulated depreciation and amortization. Depreciation and amortization of the
toll road infrastructures are calculated to write off their cost, commencing
from the date of commencement of commercial operations of the toll roads, based
on the ratio of actual traffic volume compared to the total expected traffic
volume of the toll roads as estimated by reference to traffic projection reports
prepared by an independent PRC organization each year. It could change
significantly as a result of technical innovations and competitor actions in
response to severe industry cycles. Other properties, plant and equipment are
depreciated or amortized over their estimated useful lives, using the
straight-line method. We will increase the depreciation charge where useful
lives are less than previously estimated lives, or we will write-off or
write-down technically obsolete or non-strategic assets that have been abandoned
or sold.
The board of directors of the Company
approved a share purchase resolution. Pursuant to a letter of intent, the
Company shall purchase at least 51% of Tai Ao. The consideration for such
purchase will be settled first with the note receivable from Xinyang, and the
remainder in cash. The advance to Tai Ao will be also involved in the
Company’s acquisition of Tai Ao.
The collectibility of the notes receivables from related parties to the
large extent depends on completion of the share purchase resolution as above
mentioned. The transaction is the acquisition by a foreign company and is
required to be approved by the Bureau of Commerce in the PRC. The Company has
applied the share purchase application to the Pingdingshan Bureau of Commerce.
However, whether the application will be approved is still unclear as of June
30, 2010. Thus, there is uncertainty as to the collectibilty of the notes
receivables from related parties. At this time, the Company estimates that there
is no need for a reserve against the amounts due from related parties. If the
Company is unsuccessful in getting approval for the acquisition of Tai Ao, this
reserve estimate could change significantly.
Revenue
Recognition
The Company’s revenue represents toll
revenue net of business tax, and is recognized when all of the following
criteria are met:
|
·
|
The
amount of revenue can be measured
reliably;
|
|
·
|
It
is probable that the economic benefits associated with the transaction
will flow to the enterprise;
|
|
·
|
The
costs incurred or to be incurred in respect of the transaction can be
measured reliably; and
|
|
·
|
Collectibility
is reasonably assured.
|
The rental income is measured at the
fair value of the consideration receivable and represents amounts receivable for
services provided in the normal course of business, net of discounts and sales
tax.
Fair
Value of Financial Instruments
The Company’s financial instruments
include restricted cash, accounts receivable, notes receivable, due from related
parties, other receivables, other payables and accrued liabilities, short-term
bank loans, payable to contractors, other current liabilities and deferred
taxes. We estimated that the carrying amount approximates fair value due to
their short-term nature. The fair value of the Company’s long-term bank loans
and deferred revenue are estimated based on the current rates offered to the
Company for debt of similar terms and maturities. The Company’s fair
value of long-term bank loans and deferred revenue was not significantly
different from the carrying value at June 30, 2010 and 2009.
Depreciation
of Toll Road Infrastructures
Toll road
infrastructures are carried at cost less accumulated depreciation and
amortization. Depreciation and amortization of the toll road infrastructures are
calculated to write off their cost, commencing from the date of commencement of
commercial operation of the toll roads, based on the ratio of actual traffic
volume compared to the total expected traffic volume of the toll roads as
assessed by management each year. The total expected traffic volume
is derived from a traffic projection report prepared by an independent PRC
organization.
18
Impairment
of Long-Lived Assets
We review periodically the carrying
amounts of long-lived assets including toll road infrastructures, property,
plant and equipment, land use rights, construction in progress, long-term
investment and long-term deferred assets with finite useful lives or beneficial
periods, to assess whether they are impaired. We evaluate these assets for
impairment whenever events or changes in circumstances indicate that their
carrying amounts may not be recoverable such as a change of business plan or a
period of continuous losses. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to the estimated
undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its projected future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of
the asset exceeds the fair value of the assets. In determining estimates of
future cash flows, significant judgment in terms of projection of future cash
flows and assumptions is required. There were no impairments for the years ended
June 30, 2010 and 2009.
Related
Parties Transactions
The Company considers parties to be
related if one party has the ability to control the other party or exercise
significant influence over the other party in making financial and operational
decisions. In considering each possible related party relationship, attention is
directed to the substance of the relationship, not merely the legal
form.
Relationship
between the Company and related parties without controlling relationships are as
follow:
Relationship with the Company
|
||
Tai
Ao Expressway Co., Ltd. (“Tai Ao”)
|
held
by the same shareholder with the Company
|
|
Xinyang
Expressway Co., Ltd. (“Xinyang”)
|
held
by the same shareholder with the Company
|
|
Henan
Ruijia Industry Co., Ltd. (“Ruijia”)
|
Substantially
controlled by the Vice President of Operations of the
Company
|
|
Henan
Hairun Trade Co., Ltd. (“Hairun”)
|
held
by the same shareholder with the Company
|
|
Zhengzhou
Zhengbian Tap Water Co., Ltd.(“Zhengbian”)
|
held
by the same shareholder with the
Company
|
The
material related party transactions of the Company mainly relates to borrowings
and loans for working capital needs, which are disclosed as
follows:
On June
29, 2010, Tai Ao entered into a renewal agreement with the Company. Pursuant to
the agreement, the note receivable from Tai Ao was extended to June 29, 2011
with a 5.94% interest rate per annum. Interest shall be paid annually and the
principal shall be repaid at maturity. The note
receivable from Tai Ao is classified as
a
non-current asset because
the Company expects to purchase a
controlling interest in Tai Ao and the receivable will be part of the cost of
acquiring the ownership interest.
On June
29, 2010, Xinyang entered into a renewal agreement with the Company. Pursuant to
the agreement, the note receivable to Xinyang was extended to June 29, 2011 with
a 5.94% interest rate per annum. Interest is paid annually and the principal is
repaid at maturity.
On
September 27, 2009, the board of directors of the Company approved a share
purchase resolution. Pursuant to a letter of intent, the Company shall purchase
at least 51% of Tai Ao. The consideration for such purchase will be settled
first with the note receivable from Xinyang, and the remainder in cash. The advance to Tai Ao will be also involved in the
Company’s acquisition of Tai Ao.
The collectibility of the notes receivables from related parties to the
large extent depends on completion of the share purchase resolution as above
mentioned. The transaction is the acquisition by a foreign company and is
required to be approved by the Bureau of Commerce in the PRC. The Company has
applied the share purchase application to the Pingdingshan Bureau of Commerce.
However, whether the application will be approved is still unclear as of June
30, 2010. Thus, there is uncertainty as to the collectibilty of the notes
receivables from related parties. At this time, the Company estimates that there
is no need for a reserve against the amounts due from related parties. If the
Company is unsuccessful in getting approval for the acquisition of Tai Ao, this
reserve estimate could change significantly.
19
On April
12, 2009, Ruijia entered into an agreement with the Company. Pursuant to the
agreement, the Company provided a note receivable for $2,191,445 to Ruijia. Such
note receivable is due April 11, 2010, and bears a 5.31% interest rate per
annum. The principal and the interest are repaid at maturity. On November 12,
2009, the Company received the principal of such note receivable.
On July
28, 2009, Hairun entered into an agreement with the Company. Pursuant to the
agreement, the Company provided a note receivable for $1,465,975 to Hairun. Such
note receivable is due July 27, 2010, and bears a 5.31% interest rate per annum.
The principal and the interest are repaid at maturity. On November 12, 2009, the
Company received the principal of such note receivable.
The above
mentioned notes receivable were provided to these companies for their
construction and operation working capital. Tai Ao, Xinyang and Ruijia are
related to the Company through a common shareholder of the Company. Hairun is a
trading company substantially controlled by Lin Jie, the vice president of
operations of the Company. The notes receivable are interest bearing and
unsecured. Interest income was $8,379,605 and $9,335,849 for the years ended
June 30, 2010 and 2009, respectively.
The
Company made advances to suppliers on behalf of Tai Ao for the purchase of
construction materials commencing in 2006 in order to assist Tai Ao with its
working capital needs. For the years ended June 30, 2010 and 2009, the Company
made advances to suppliers on behalf of Tai Ao for the purchase of construction
materials amounting to $610,471 and $32,663,977, and the repayment from Tai Ao
was amounting to $731,350 and $ 21,808,400, respectively.
The Company made
prepayment to Hairun for its working capital needs. For the years ended
June 30, 2010 and 2009, the prepayments to Hairun were amounting to $731,350 and
$0, and the repayment from Hairun was amounting to $585,080 and $0,
respectively.
The
Company lent working capital from Zhengbian. For the years ended June 30,
2010 and 2009, the working capital lend from Zhengbian were amounting to
$585,080 and $0, and the repayment to Zhengbian was amounting to $0 and $0,
respectively.
Contingencies
In the normal course of business, we
are subject to contingencies, including legal proceedings and claims arising out
of the business that relate to a wide range of matters. We recognize a liability
for such contingency if we determine that it is probable that a loss has
incurred and a reasonable estimate of the loss can be made. We may consider many
factors in making these assessments, including past history and the specifics of
each matter.
On September 18, 2009, the Company
entered into a guarantee agreement with China Citic Bank Zhenzhou Branch.
Pursuant to the agreement, the Company provided corporate guarantees for bank
loans to our related party, Tai Ao Expressway Co., Ltd., with a debt ceiling of
Rmb 65 million (approximately $9,546,750). The guarantee period is from
September 18, 2010 to September 17, 2012.
The Company considered the risk of
default by Tai Ao Expressway Co., Ltd. is remote and therefore no liability for
the guarantor's obligation under the guarantee was recognized as of June 30,
2010.
Recent
Accounting Pronouncements
In January 2010, the FASB issued
guidance to amend the disclosure requirements related to recurring and
nonrecurring fair value measurements. The guidance requires disclosure of
transfers of assets and liabilities between Level 1 and Level 2 of the fair
value measurement hierarchy, including the reasons and the timing of the
transfers and information on purchases, sales, issuance, and settlements on a
gross basis in the reconciliation of the assets and liabilities measured under
Level 3 of the fair value measurement hierarchy. This guidance is effective for
the Company beginning March 1, 2010. The Company does not expect the adoption
will have an impact on its consolidated financial position or results of
operations.
In April 2009, the FASB updated
guidance related to fair-value measurements to clarify the guidance related to
measuring fair-value in inactive markets, to modify the recognition and
measurement of other-than-temporary impairments of debt securities, and to
require public companies to disclose the fair values of financial instruments in
interim periods. This updated guidance became effective for the Company
beginning June 1, 2009. The adoption of this guidance did not have an
impact on the Company’s consolidated financial position or results of
operations. See Note 2 (e) - Fair Value of Financial Instruments.
20
Results
of Operations
Results
of Operations for the Fiscal Year Ended June 30, 2010 Compared to the
Fiscal Year Ended June 30, 2009
The following table sets forth a
summary of certain key components of our results of operations for the periods
indicated, in dollars and as a percentage of revenues.
Years Ended
June 30
|
Years Ended
June 30
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Revenues
|
42,626,988 | 50,270,277 | 100.0 | % | 100.0 | % | ||||||||||
Operating
costs
|
3,622,060 | 5,603,843 | 8.5 | % | 11.1 | % | ||||||||||
Depreciation
and amortization
|
12,995,000 | 12,130,615 | 30.5 | % | 24.1 | % | ||||||||||
Gross
profit
|
26,009,928 | 32,535,819 | 61.0 | % | 64.7 | % | ||||||||||
General
and administrative expenses
|
4,197,729 | 5,404,212 | 9.8 | % | 10.8 | % | ||||||||||
Income
from operations
|
21,812,199 | 27,131,607 | 51.2 | % | 54.0 | % | ||||||||||
Interest
income from related parties
|
8,379,605 | 9,335,849 | 19.7 | % | 18.6 | % | ||||||||||
Other
interest income
|
189,641 | 65,129 | 0.4 | % | 0.1 | % | ||||||||||
Interest
expense, net
|
28,397,389 | 34,140,068 | 66.6 | % | 67.9 | % | ||||||||||
Other
income, net
|
1,474,458 | 676,601 | 3.5 | % | 1.3 | % | ||||||||||
Income
from operations before income taxes
|
3,458,514 | 3,069,118 | 8.1 | % | 6.1 | % | ||||||||||
Income
tax expense
|
981,384 | 859,412 | 2.3 | % | 1.7 | % | ||||||||||
Net
income
|
2,477,130 | 2,209,706 | 5.8 | % | 4.4 | % |
Revenues
Our revenues are derived from the
operation of the Expressway. Our revenues decreased by approximately $7.7
million, or 15.2%, from approximately $50.3 million for the year ended
June 30, 2009 to approximately $42.6 million for the year ended
June 30, 2010. The decrease was mainly due to that:
The converted average daily traffic
volume, a guideline specifically used in the toll road industry to evaluate
operational performance, decreased 626 units, or 4.7%, from 13,322 units for the
year ended June 30, 2009 to 12,696 units for the year ended June 30,
2010.
The decline of traffic volume is
partially due to an unprecedented heavy snow storm in November 2009. The severe
weather lasted over 20 days in Northern China resulting disruption in highway
transportation.
Another reason is the traffic detour as
the result of Lianhuo Expressway expansion project. Lianhuo Expressway connects
Pinglin Expressway from north. The expansion project reduces the incoming
traffic to Pinglin Expressway from north. The project is expected to complete in
June 2011.
Due to these factors set forth above,
our revenue for the year ended June 30, 2010 decreased 15.2% compared to the
year ended June 30, 2009.
Operating
Costs
Our operating costs mainly represent
the road maintenance costs, road management costs, direct construction costs and
labor costs associated with toll operations. For the year ended June 30,
2010, our operating costs decreased by approximately $2.0 million, or 35.4%, to
approximately $3.6 million, compared to approximately $5.6 million for the year
ended June 30, 2009. The decrease is mainly due to the decrease in our road
maintenance costs. Due to the decline in our revenues during the year ended
June 30, 2010, costs related only to routine maintenance and improvement of
traffic signs and road surfaces were incurred.
21
Depreciation
and Amortization
Our total depreciation and amortization
related to toll operations increased by approximately $0.9 million, or 7.1%,
from approximately $12.1 million for the year ended June 30, 2009 to
approximately $13.0 million for the year ended June 30, 2010. The increase
is mainly due to the increase in depreciation.
Depreciation of toll
road infrastructures is calculated on a units-of-usage basis. The
Company recorded the depreciation based on the ratio of actual traffic volume
during the period compared to the total expected traffic volume of the toll
roads during the operation licensing period, as estimated.
Management
assesses the future total expected traffic volume at each period end.
Considering the current economic environment and the actual traffic volume
evolvement during the year ended June 30, 2010, compared to prior years’
estimate, management believed that there was a significant decline in future
total anticipated volume. Based on such estimation, the depreciation for
the year ended June 30, 2010 increased 8.2% compared to the year ended June 30,
2009.
Gross
Profit
Our gross profit decreased by
approximately $6.5 million, or 20.1%, from approximately $32.5 million for the
year ended June 30, 2009 to approximately $26.0 million for the year ended
June 30, 2010. Such gross profit decrease is primarily due to that the
decrease in our revenues is more than the decrease in our operating
costs.
Gross profit as a percentage of
revenues decreased from 64.7% for the year ended June 30, 2009 to 61.0% for
the year ended June 30, 2010.
General
and Administrative Expenses
Our general and administrative expenses
mainly represent employee payroll and welfare, traveling expenses, vehicle
gasoline and maintenance costs, entertainment expenses, consulting fees,
provisions for doubtful accounts, depreciation and miscellaneous taxes. General
and administrative expenses decreased by approximately $1.2 million, or 22.3%,
from approximately $5.4 million for the year ended June 30, 2009 to
approximately $4.2 million for the year ended June 30, 2010. Such decrease
is primarily due to the decrease in the provision for doubtful accounts and
consulting fees amounting to approximately $0.6 million and $0.5 million,
respectively.
Interest
Income and Expense
Interest income from related parties
decreased by approximately $0.9 million, or 10.2%, from approximately $9.3
million for the year ended June 30, 2009 to approximately $8.4 million for the
year ended June 30, 2010. The decrease is primarily due to the Company received
the principal of note receivable from Ruijia and Hairun on November 12, 2009.
Accordingly, the principal and interest income from related parties
decreased.
Net
interest expense decreased by approximately $5.7 million, or 16.8%, from
approximately $34.1 million for the year ended June 30, 2009 to approximately
$28.4 million for the year ended June 30, 2010. This decrease is primarily due
to the decreased interest rate of our loans and the decrease in our loan
principal. The People’s Bank of China decreased the benchmark of the
interest rate for long-term loans over five years from 7.83% for the year ended
June 30, 2009 to 5.94% for the year ended June 30, 2010. Accordingly, our
lenders decreased their interest rates to some degree. Also, our loan principal
decreased approximately $6.3 million from June 30, 2009 to June 30, 2010, which
also decreased our interest expense.
Income
Tax Expense
Income tax expense increased by
approximately $0.1 million, or 14.2%, from approximately $0.9 million for the
year ended June 30, 2009 to approximately $1.0 million for the year ended June
30, 2010, as a result of the increase in our income from operations. Our
effective tax rate was 28% and 28% for the years ended June 30, 2010 and
2009.
Net
Income
Our net income increased by
approximately $0.3 million, or 12.1%, from approximately $2.2 million for the
year ended June 30, 2009 to approximately $2.5 million for the year ended June
30, 2010. This increase is primarily due to the decrease in our costs and
expenses, partially offset by the decrease in our revenues.
22
Liquidity
and Capital Resources
We generally finance our operations
through, to a substantial extent, operating profit and a combination of
borrowings from banks and capital contributions from Wise On China Limited.
During the reporting periods, we arranged a number of bank loans to satisfy our
financing needs. As of the date of this report, we have not experienced any
difficulty in raising funds by bank loans, and we have not experienced any
liquidity problems in settling our payables in the normal course of business and
repaying our bank loans when they fall due.
The following table sets forth the
summary of our cash flow, in dollars, for the periods indicated:
Year
ended June 30
|
||||||||
2010
|
2009
|
|||||||
Net
cash provided by operating activities
|
$ | 21,051,849 | $ | 15,275,166 | ||||
Net
cash used in investing activities
|
(12,669,560 | ) | (15,927,169 | ) | ||||
Net
cash used in financing activities
|
(8,629,941 | ) | (3,415,899 | ) | ||||
Net
decrease in cash and cash equivalents
|
(247,652 | ) | (4,067,902 | ) | ||||
Effect
of exchange rate changes on cash
|
(99,409 | ) | (87,182 | ) | ||||
Cash
and cash equivalents at beginning of year
|
1,614,260 | 5,769,344 | ||||||
Cash
and cash equivalents at end of year
|
$ | 1,267,199 | $ | 1,614,260 |
Operating
Activities
Net cash provided by operating
activities was approximately $21.1 million for the year ended June 30, 2010, as
compared to $15.3 million for the year ended June 30, 2009. This increase is
primarily due to the increase in our advance from customers, and to a lesser
extent, the delay of payment of relevant expenditures.
Investing
Activities
Net cash used in investing activities
was approximately $12.7 million for the year ended June 30, 2010 as compared to
approximately $15.9 million for the year ended June 30, 2009. The change is
primarily due to the fact that (a) we provided more working capital for a
related party company (Tai Ao) of $10.9 million for the year ended June 30,
2009, and (b) we settled more payables with our contractors during the year
ended June 30, 2010, as compared to the year ended June 30, 2009, which resulted
in a net cash outflow of approximately $4.1 million during the year ended June
30, 2010.
Financing
Activities
Net cash used in financing activities
was $8.6 million for the year ended June 30, 2010, as compared to approximately
$3.4 million for the year ended June 30, 2009. Such change is primarily due to
the fact that we repaid more long-term bank loans during the year ended June 30,
2010, as compared to the year ended June 30, 2009.
Working
Capital
Our working capital increased by
approximately $1.9 million from a deficit approximately $63.5 million as of June
30, 2009 to a deficit approximately $61.6 million as of June 30, 2010. This was
primarily due to an increase in advances from customers of approximately $2.4
million, a decrease in accounts receivable of approximately $1.1 million and a
decrease in current portion of long-term bank loans and payable to contractors
of approximately $7.7 million and $6.2 million, respectively, partially offset
by an increase in short-term bank loans of approximately $7.4 million. The
negative working capitals of the Company as of June 30, 2010 and 2009 are mainly
due to that the current notes receivables from related parties are reclassified
into long term assets.
On
September 27, 2009, the board of directors of the Company approved a share
purchase resolution. Pursuant to a letter of intent, the Company shall purchase
at least 51% of Tai Ao. The consideration for such purchase will be settled
first with the note receivable from Xinyang, and the remainder in cash. The
advance to Tai Ao will be also involved in the Company’s acquisition of Tai Ao.
The collectability of the notes receivables from related parties to the large
extent depends on completion of the share purchase resolution as above
mentioned. The transaction is the acquisition by a foreign company and is
required to be approved by the Bureau of Commerce in the PRC. The Company has
applied the share purchase application to the Pingdingshan Bureau of Commerce.
However, whether the application will be approved is still unclear as of June
30, 2010. Thus, there is uncertainty as to the collectability of the notes
receivables from related parties. At this time, the Company estimates that there
is no need for a reserve against the amounts due from related parties. If the
Company is unsuccessful in getting approval for the acquisition of Tai Ao, this
reserve estimate could change significantly.
23
The
Company currently generates its cash flow through operations and the Company
believes that its cash flow generated from operations will be sufficient to
sustain operations for the next twelve (12) months. From time to time, the
Company may explore new expansion opportunities and funding sources from which
our management may consider seeking external funding and financing.
Capital
Expenditures
We made
capital expenditures of approximately $0.2 million and $2.2 million for the year
ended June 30, 2010 and 2009, respectively. Capital expenditures principally
consisted of toll road infrastructures, toll stations and ancillary facilities,
communication and monitoring equipment and other equipment related to our toll
operations. If we are permitted to construct and operate a new toll road or
invest other toll road companies, we may require additional funds. We have no
current plans to construct or invest in any new toll road companies at this
time.
Off-Balance
Sheet Arrangements
We do not
have any outstanding derivative financial instruments, off-balance sheet
guarantees, interest rate swap transactions or foreign currency forward
contracts. Furthermore, we do not have any retained or contingent interest in
assets transferred to an unconsolidated entity that serves as credit, liquidity
or market risk support to such entity. We do not have any variable interest in
an unconsolidated entity that provides financing, liquidity, market risk or
credit support to us or that engages in leasing, hedging or research and
development services with us.
Contractual
obligations
The following table summarizes our
significant contractual obligations as of June 30, 2010:
Payments
due by period
|
||||||||||||||||||||
Less
than 1
year
|
1-3
years
|
3-5
years
|
More
than 5
years
|
Total
|
||||||||||||||||
Long-term
debt obligations
|
$ | 20,086,361 | $ | 65,658,138 | $ | 66,609,876 | $ | 302,323,532 | $ | 454,677,907 | ||||||||||
Purchase
obligations
|
$ | 2,925,261 | - | - | - | $ | 2,925,261 | |||||||||||||
Total
|
$ | 23,011,622 | $ | 65,658,138 | $ | 66,609,876 | $ | 302,323,532 | $ | 457,603,168 |
Long-term
debt obligations:
Amounts
represent principal and interest cash payments over the life of the debt
obligations. Any future settlement of convertible debt would impact our cash
payments.
Purchase
obligations:
Purchase
obligations represent commitments for the construction or maintenance companies.
They were not recorded as liabilities on our consolidated balance sheets as of
June 30, 2010, as we had not yet received the related goods or
services.
The
expected timing of payments of the obligations above are estimates based on
current information. Timing of payments and actual amounts paid may be
different, depending on the time of receipt of goods or services, or changes to
agreed-upon amounts for some obligations.
ITEM 7A.
|
Quantitative and Qualitative
Disclosures about Market
Risk
|
Interest
Rate Risk
Our
exposure to interest rate risk for changes in interest rates relates primarily
to the interest expense incurred by the bank loans and the interest income
generated by the loans to our related parties or bank deposits. We have not used
any derivative financial instruments in our investment portfolio or for cash
management purposes. Interest-earning instruments carry a degree of interest
rate risk. We have not been exposed nor do we anticipate being exposed to
material risks due to changes in interest rates. However, our future interest
expense or interest income may increase of expectations due to changes in
interest rates in the PRC.
24
Foreign
Exchange Risk
We do not
hold any derivative instruments and do not engage in any hedging activities.
Because most of our purchases and sales are made in RMB, any exchange rate
change affecting the value of the RMB relative to the U.S. dollar could have an
effect on our financial results as reported in U.S. dollars. If the RMB were to
depreciate against the U.S. dollar, amounts reported in U.S. dollars would be
correspondingly reduced. If the RMB were to appreciate against the U.S. dollar,
amounts reported in U.S. dollars would be correspondingly
increased.
ITEM 8.
|
Financial Statements and
Supplementary Data
|
Reference
is made to pages F-1 through F-28 comprising a portion of this Annual Report
immediately following the signature page of this Form 10-K.
ITEM 9.
|
Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosures
|
None.
ITEM 9A.
|
Controls and
Procedures
|
Evaluation
of Disclosure Controls and Procedures
We are
required to maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our reports under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded,
processed, summarized and reported within the time periods specified in the
Commission’s rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer (“CEO”)
and Chief Financial Officer (“CFO”) as appropriate, to allow timely decisions
regarding required disclosure.
In
connection with the preparation of this Form 10-K for the year ended June 30,
2010 our management, under the supervision of the CEO and CFO, conducted an
evaluation of disclosure controls and procedures. A control system, no matter
how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control systems are met. Based on that
evaluation, our CEO and CFO concluded that our disclosure controls and
procedures were effective as of June 30, 2010.
Management’s
Annual Report on Internal Control over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control
structure and procedures over financial reporting (as defined in Rules 13a-15(f)
and 15d-15(f)) under the Exchange Act. Our management conducted an assessment of
the effectiveness of our internal control over financial reporting as of June
30, 2010 based on the framework set forth in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
Internal
control over financial reporting cannot provide absolute assurance of achieving
financial reporting objectives because of its inherent limitations. Internal
control over financial reporting is a process that involves human diligence and
compliance and is subject to lapses in judgment and breakdowns resulting from
human failures. Because of such limitations, there is a risk that material
misstatements may not be prevented or detected on a timely basis by internal
control over financial reporting. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Based on
that evaluation, our CEO and CFO concluded that our internal control over
financial reporting as of June 30, 2010 was effective.
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.
25
Changes
in Internal Control over Financial Reporting
Except as
disclosed above, there were no changes in our internal control over financial
reporting that occurred during our last fiscal quarter that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
ITEM 9B.
|
Other
Information
|
None.
PART
III
ITEM 10.
|
Directors, Executive Officers,
and Corporate
Governance
|
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Set forth
below are the names of the Company’s directors and officers, their business
experience during the last five (5) years, their ages and all positions and
offices that they shall hold with the Company following the expiration of the
ten (10) day time period following the mailing of an Information Statement
complying with Form 14F-1 under the Exchange Act in connection with the
Exchange. The Company has no “significant employees”.
Name
|
Age
|
Position(s)
|
||
Li
Xipeng
|
47
|
Chief
Executive Officer and Chairman of the Board
|
||
Zhang
Chunxian
|
45
|
Chief
Financial Officer and Director
|
||
Lin
Jie
|
49
|
Vice
President of Operations
|
||
Wu
Lei
|
33
|
Vice
President of Strategy Development
|
||
Wang
Feng
|
37
|
Secretary
|
||
Sun
Jianhao
|
47
|
Director
|
||
Huang
Yuemin
|
53
|
Director
|
||
Xu
Huiqing
|
56
|
Director
|
||
Li
Changlai
|
46
|
Director
|
||
Mu Xinjie(1)
|
40
|
Director
|
||
Aaron Zhu(2)
|
42
|
Director
|
(1)Mr. Mu
was not nominated for election as a director and his term expired on June 18,
2010.
(2)Mr. Zhu
was elected as a director on June 18, 2010.
Board
Leadership Structure
The Board
of Directors believes that Mr. Li Xipeng’s service as Chairman of the Board is
in the best interest of the Company and its stockholders. Mr. Li possesses
detailed and in-depth knowledge of the issues, opportunities and challenges
facing the Company and its business and is thus best positioned to develop
agendas that ensure that the Board’s time and attention are focused on the most
critical matters. His combined role enables decisive leadership, ensures clear
accountability, and enhances the Company’s ability to communicate its message
and strategy clearly and consistently to the Company’s shareholders, employees,
customers and suppliers.
Family
Relationships
There are
no family relationships between or among the members of the Board of Directors
or other executives. None of our directors and officers are directors or
executive officers of any company that files reports with the SEC, except that
Mu Xinjie previously served as Chief Financial Officer of Jingwei International
Limited (JNGW.OB).
Biographies
(Business Experience)
Li
Xipeng has served as Chief Executive Officer of the Company and has
served as a Director of the Company since the closing date of the Exchange and
as Chairman of Ping since May 2003. Prior to that, Mr. Li served as Chairman of
HSV in the PRC since May 2001 and prior to that he served as Chairman of Henan
Shengrun Real Estate Co., Ltd. in the PRC since May 2000. Mr. Li is also
currently the legal representative of Ping. Mr. Li graduated from Zhongnan
University of Economics and Law and he earned his EMBA at Cheung Kong Graduate
School of Business.
26
Zhang
Chunxian has served as Chief Financial Officer of the Company since March
9, 2008 and has served as Chief Financial Officer of Ping since May 2003. Prior
to that, Mr. Zhang served as Manager in the Trust and Investment Department of
Zhongyuan Trust and Investment Co., Ltd. in the PRC. Mr. Zhang is a Chinese
Certified Public Accountant.
Lin
Jie has served as a Vice President of Operations of the Company since
March 9, 2008 and has served as Manager of the Finance Department and as
Assistant to the General Manager of Ping since May 2003. Prior to that, Ms. Lin
served as Manager of the Finance Department of Henan Shengrun Real Estate Co.,
Ltd. in the PRC since March 2000.
Wu
Lei has served as Vice President of Strategy Development of the Company
since March 9, 2008. Ms. Wu earned her BSc. at Wuhan University (Law) in 2000
and her Masters degree in economics in 2006. Ms. Wu has no prior work
experience.
Wang
Feng has served as corporate Secretary of the Company since March 9, 2008
and has served as the corporate Secretary of Ping since May 2007. Prior to that,
Mr. Wang served as Investment Manager of Henan Hi-Tech Venture Capital Co., Ltd.
in the PRC from March 2006 to May 2007 and as Investment Manager of Zhongyuan
Trust and Investment Co., Ltd. in the PRC from November 2003 through February
2006. Prior to that Mr. Wang earned his Master’s degree from Beijing Information
Science and Technology University and his BSc. at Hunan University. Mr. Wang is
a Chinese Certified Public Accountant.
Sun
Jianhao has served as a Director of the Company since March 9, 2008 and
has served as Chairman of Pingdingshan Zhongya Road and Bridge Construction Co.,
Ltd. in the PRC since November 2004. Prior to that Mr. Sun served as Deputy
Director of Pingdingshan Development and Planning Commission in the PRC from
September 2004 through October 2004. Prior to that Mr. Sun served as Deputy
Director of Pingdingshan New District Management Commission in the PRC from
August 1999 through August 2004.
Huang
Yuemin has served as a Director of the Company since March 9, 2008 and
has served as Manager in the International Operations Department, General
Manager and Chairman of Zhongyuan Trust and Investment Co., Ltd. in the PRC
since March 1990. Prior to that, Mr. Huang served as Director in the Investment
Department of Henan Development and Planning Commission in the PRC since August
1984 through February 1990. Mr. Huang earned his Associate’s degree from Tianjin
University.
Xu
Huiqing has served as a Director of the Company since March 9, 2008 and
has served as Chairman and General Manager of Pingdingshan High Way Construction
Co., Ltd. in the PRC since June 2003. Prior to that, Mr. Xu served as Deputy
Director of Pingdingshan Bureau of Communications in the PRC from March 2002
through June 2003. Prior to that, Mr. Xu served as Deputy Director General for
Pingdingshan Geography and Mine Bureau in the PRC from May 1994 through March
2002.
Li
Changlai has served as a Director of the Company since March 9, 2008 and
has served as General Manager of Weilan Highway Investment Construction Co.,
Ltd. since December 2004. Prior to that, Mr. Li served as Chief Engineer of
Henan Highway Development Co., Ltd. from June 2002 through December 2004. Prior
to that Mr. Li served as Manager of Department of Zhumadian Expressway Managing
for Henan Highway Development Co., Ltd. in the PRC from October 2001 through
June 2002. Mr. Li earned his Master’s degree at Changan
University.
Mu
Xinjie has served as a Director of the Company since March 9, 2008. From
April 2007 through December 2007, Mr. Mu served as Chief Financial Officer of
Jingwei International Limited (OTCBB: JNGW.OB). Prior to that, Mr. Mu served as
Senior Accountant for Geller and Company in the department serving exclusively
Bloomberg, LLP from January 2006 through April 2007. Prior to that, Mr. Mu
served as Chief Financial Officer of Tongyuan Technology Company from March 2005
through October 2005. Prior to that, Mr. Mu served as Senior Accountant of
Flightsafety International, Inc., a wholly-owned subsidiary of Berkshire
Hathaway from September 1999 through March 2005. Mr. Mu earned his BCs at Hebei
University of Science and Technology (Chemical Engineering) and his MBA at the
City University of New York.
27
Aaron
Zhu has served as a director of the Company since June 18, 2010. Mr. Zhu
is an Independent Investment and Finance Consultant at Convergence International
in Mansfield, Ohio and has served in such capacity since February 2006. From
January 1997 through March 2000, Mr. Zhu served as Corporate Controller of
Harrington Signal Corporation, a US company based in Illinois. Mr. Zhu then
served as Executive Director of Dichain Holdings from April 2000 through March
2003, as Executive Director of China Merchants Dichain (Asia), public company in
Hong Kong (HKSE: 00632) from March 2003 through September 2004, as Executive
Director and Chief Financial Officer of DF China Technology (NASDAQ: DFCT) from
April 2003 through October 2004, Co-Chief Executive Officer of China Technology
Development Corp. (NASDAQ: CTDC) from May 2005 through February 2006 and as a
Financial Advisor at Morgan Stanley from April 2007 through February 2008. Mr.
Zhu also currently serves as an Adjunct Professor at North Central State College
and at Mount Vernon Nazarene University in Ohio. Mr. Zhu received his Bachelors
degree in Management from the University of Shenzhen China and his MBA from
Regent University in Virginia.
Involvement
in Certain Legal Proceedings
None of
our directors or executive officers has, during the past ten years:
(a)
|
Had
any bankruptcy petition filed by or against any business of which such
person was a general partner or executive officer either at the time of
the bankruptcy or within two years prior to that
time;
|
(b)
|
Been
convicted in a criminal proceeding or subject to a pending criminal
proceeding;
|
(c)
|
Been
subject to any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction or any
federal or state authority, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of business,
securities, futures, commodities or banking activities;
and
|
(d)
|
Been
found by a court of competent jurisdiction (in a civil action), the
Securities and Exchange Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities or commodities
law, and the judgment has not been reversed, suspended, or
vacated.
|
Promoters
and Control Persons
None.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires our officers and directors, and persons who
own more than ten percent (10%) of a registered class of our equity securities,
to file reports of ownership and changes in ownership with the SEC. Officers,
directors and greater than ten percent (10%) stockholders are required by SEC
regulation to furnish us with copies of all Section 16(a) forms they
file.
Based
solely on a review of the copies of such forms furnished to us, we believe that
during the year ended June 30, 2010 all officers, directors and ten percent
(10%) beneficial owners who were subject to the provisions of Section 16(a)
complied with all of the filing requirements during the year, except for the
following persons have failed to file the corresponding documents set forth
below:
Name
|
|
Form
Type(s)
|
|
Type of
Holder
|
Li
Xipeng
|
Form
3, Form 4
|
Chief
Executive Officer and Chairman of the Board
|
||
Zhang
Chunxian
|
Form
3, Form 4
|
Chief
Financial Officer and Director
|
||
Lin
Jie
|
Form
3, Form 4
|
Vice
President of Operations
|
||
Wu
Lei
|
Form
3, Form 4
|
Vice
President of Strategy Development
|
||
Wang
Feng
|
Form
3
|
Secretary
|
||
Sun
Jianhao
|
Form
3, Form 4
|
Director
|
||
Huang
Yuemin
|
Form
3
|
Director
|
||
Xu
Huiqing
|
Form
3
|
Director
|
||
Li
Changlai
|
Form
3
|
Director
|
||
Mu
Xinjie
|
Form
3, Form 4
|
Director
|
||
Joylink
Holdings, Inc.
|
Form
3, Form 4
|
10%
Holder
|
||
Aaron
Zhu
|
Form
3
|
Director
|
28
Code
of Ethics
We have
adopted a Code of Ethics, as required by the rules of the SEC and NASDAQ. This
Code of Ethics applies to all of our directors, officers and employees. The Code
of Ethics, and any amendments to, or waivers from, the Code of Ethics, is
available in print, at no charge, to any stockholder who requests such
information.
Committees
of our Board of Directors
Our Board
of Directors has an Audit Committee, a Compensation Committee and a Nominating
Committee. A brief description of each committee is set forth
below.
Audit
Committee – The purpose of the Audit Committee is to provide assistance
to our Board of Directors in fulfilling their oversight responsibilities
relating to our consolidated financial statements and financial reporting
process and internal controls in consultation with our independent registered
public accountants and internal auditors. The Audit Committee is also
responsible for ensuring that the independent registered public accountants
submit a formal written statement to us regarding relationships and services
which may affect the auditors’ objectivity and independence. During the fiscal
year ended June 30, 2010, members of the Audit Committee were independent
directors Huang Yuemin, Xu Huiqing, Mu Xinjie (member until June 18, 2010) and
Aaron Zhu (member since June 18, 2010). Our Audit Committee financial experts
are Mu Xinjie and Aaron Zhu, both are independent directors. The Audit Committee
met 4 times during the fiscal year ended June 30, 2010.
Compensation
Committee – Independent directors Xu Huiqing, Huang Yuemin and Li
Changlai were members of our Compensation Committee during the fiscal year ended
June 30,2 010. The purpose of the Compensation Committee is to review and make
recommendations to our Board of Directors regarding all forms of compensation to
be provided to the executive officers and directors of our company, including
stock compensation and loans, and all bonus and stock compensation to all
employees. The Compensation Committee met 2 times during
the fiscal year ended June 30, 2010.
Nominating
Committee – Independent directors Li Changlai, Huang Yuemin and Xu
Huiqing were members of our Nominating Committee, effective May 21, 2008. The
purpose of the Nominating Committee is to review the composition and evaluate
the performance of the Board, recommend persons for election to the Board and
evaluate director compensation; The nominating committee is also responsible for
reviewing the composition of committees of the Board and recommending persons to
be members of such committees, and maintaining compliance of committee
membership with applicable regulatory requirements. The Nominating Committee met
2 times
during the fiscal year ended June 30, 2010. The Company has not adopted
procedures by which security holders may recommend nominees to the Company’s
Board of Directors.
29
ITEM 11.
|
Executive
Compensation
|
Compensation
Discussion and Analysis
Not
required for smaller reporting companies.
Summary
Compensation Table
The
following table sets forth certain information with respect to the compensation
paid to the Named Executive Officers of the Company during the years ended June
30, 2010 and June 30, 2009.
Name And
Principal
Function
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Employer’s
Contribution to
Mandatory Pension
and other
benefits
|
|
Total
|
|
|||
(a)
|
(b)
|
($)
(c)
|
($)
(d)
|
($)
|
($)
(j)
|
|||||||||
Li
Xipeng,
Chief
Executive Officer (1)
|
2010
2009
|
-0-
-0-
|
-0-
-0-
|
-0-
-0-
|
-0-
-0-
|
|||||||||
Zhang
Chunxian, Chief
Financial
Officer (2)
|
2010
2009
|
15,929
16,283
|
6,582
7,309
|
-0-
-0-
|
22,511
23,592
|
|||||||||
Lin
Jie,
Vice
President of
Operations
(3)
|
2010
2009
|
12,418
12,655
|
5,120
5,824
|
-0-
-0-
|
17,538
18,479
|
|||||||||
Wu
Lei
Vice
President of
Strategy
Development (4)
|
2010
2009
|
6,884
11,237
|
1,500
4,875
|
637
4,506
|
9,021
20,654
|
|||||||||
Wang
Feng, Secretary (5)
|
2010
2009
|
11,909
12,376
|
3,657
5,211
|
439
877
|
16,005
18,464
|
Narrative
Disclosure to Summary Compensation Table
During
the year ended June 30, 2010, we paid an aggregate of approximately $176,766 in
cash compensation to our management team members, including $123,249 for salary,
$50,500 for bonus and $23,017 for benefits. We paid an aggregate of
approximately $65,075 to our senior executive officers, including salary, bonus
and benefits. During the year ended June 30, 2009, we paid an aggregate of
approximately $214,547 in cash compensation to our management team members,
including $129,331 for salary, $55,179 for bonus and $30,037 for benefits. We
paid an aggregate of approximately $81,369 to our senior executive officers,
including salary, bonus and benefits. Our senior executive officers are eligible
to receive cash bonuses which are paid on the basis of their success in
achieving designated individual goals and the Company’s success in achieving
specific company-wide goals. The amount of the bonus is determined by our board
compensation committee at the end of each fiscal
year.
In order
to retain experienced and senior level executives, we believe the salary and
bonus compensation of our senior executives is one of the highest among local
equivalent companies. The Company will continue to provide competitive salary
and bonus compensation to retain and recruit high quality executives and
employees.
The
Company will introduce option and equity based incentive scheme in the future as
compensation for our senior executives and independent directors for the
successful operation results.
All
senior executives have the standard three-year employment service contracts in
accordance with applicable PRC regulations. None of these service contracts
provides benefits upon termination. These are standard employment service
contracts without any specific terms and duration for any positions that the
senior executives are holding. In addition, we did not provide any pension or
retirement plans for senior executives other than the mandatory plans required
by the PRC government.
30
The
Company currently does not have an equity/option – based compensation plan for
senior executives. None of the senior executives has been granted any rights to
equity or options.
Grants
of
Plan-Based Awards
None.
Outstanding
Equity
Awards at Fiscal Year-End
None.
Option
Exercises
and Stock Vested
None.
Pension
Benefits
None.
Non-Qualified
Deferred
Compensation
None.
Potential
Payments
Upon Termination or Change of Control
None.
Additional
Narrative
Disclosure
None.
Director
Compensation
The
following table sets forth certain information relative to compensation paid to
outside directors as of years ended June 30, 2010 and June 30,
2009:
Name
And Principal
Function
|
Year
|
Salary
|
Bonus
|
other
benefits
|
Total
|
|||||||||||||
(a)
|
(b)
|
($)
(c)
|
($)
(d)
|
($)
|
($)
(j)
|
|||||||||||||
Huang
Yuemin
|
2010
|
-0-
|
-0-
|
- 0
–
|
-0-
|
|||||||||||||
2009
|
-0-
|
-0-
|
- 0
–
|
-0-
|
||||||||||||||
Mu Xinjie(1)
|
2010
|
52,657
|
-0-
|
-0-
|
52,657
|
|||||||||||||
2009
|
52,560
|
-0-
|
-0-
|
52,560
|
||||||||||||||
Sun
Jianhao
|
2010
|
-0-
|
-0-
|
-0-
|
-0-
|
|||||||||||||
2009
|
-0-
|
-0-
|
-0-
|
-0-
|
||||||||||||||
Xu
Huiqing
|
2010
|
-0-
|
-0-
|
-0-
|
-0-
|
|||||||||||||
2009
|
-0-
|
-0-
|
-0-
|
-0-
|
||||||||||||||
Li
Changlai
|
2010
|
-0-
|
-0-
|
-0-
|
-0-
|
|||||||||||||
2009
|
-0-
|
-0-
|
-0-
|
-0-
|
||||||||||||||
Aaron Zhu(2)
|
2010
|
-0-
|
-0-
|
-0-
|
-0-
|
(1)Mr. Mu
was not nominated for election as a director and his term expired on June 18,
2010.
(2)Mr. Zhu
was elected as a director on June 18, 2010.
31
Narrative
To Director Compensation Table
During
the fiscal year ended June 30, 2010, we paid $52,657 to one
independent director, Mr. Xinjie Mu, for his financial and accounting expertise
on the Audit Committee. Commencing in February 2008, the Company pays him $4,388
(RMB 30,000) per month. We did not have any other compensation arrangement for
any other directors in 2010. The Company did not pay salaries or any other
bonuses or benefits to other directors.
During
the fiscal year ended June 30, 2009, we paid $52,570 to one
independent director, Mr. Xinjie Mu, for his financial and accounting expertise
on the Audit Committee. Commencing in February 2008, the Company pays him $4,380
(RMB 30,000) per month. We did not have any other compensation arrangement for
any other directors in 2009. The Company did not pay salaries or any other
bonuses or benefits to other directors.
We intend
to implement compensation arrangements for independent directors in fiscal year
2009, which will include both cash and stock option plans which may include fees
for retainers, committee services, services as chairman of the board or on
committees and meeting attendance.
Employee
Agreement
We have
entered into three-year service contracts with all of our employees in
accordance with applicable PRC regulations. None of these service contracts
provides benefits upon termination. We were required by PRC law to make monthly
contributions in amounts equal to 20.0%, 8.2%, and 10% of our employees’ average
monthly salary in the preceding year to a pension plan, a medical insurance
plan, and employee housing plan, respectively, each for the benefit of our
employees subject to certain statutory limits.
Our
employees are not subject to any collective bargaining agreement. We have not
been involved in any material labor disputes. We believe that we have a good
relationship with our employees.
We may
terminate his or her employment for cause at any time, with prior written
notice, for certain acts of the executive officer, including but not limited to,
a conviction of a felony, or willful gross misconduct by the executive officer
in connection with his or her employment, and in each case if such acts have
resulted in material and demonstrable financial harm to us. An executive officer
may, with prior written notice, terminate his or her employment at any time for
any material breach of the employment agreement by us that is not remedied
promptly after receiving the remedy request from the employee. Furthermore,
either party may terminate the employment agreement at any time without cause
upon advance written notice to the other party. Upon termination, the executive
officer is generally entitled to a severance pay of at least one (1) month but
not exceeding twelve (12) months amount of salary.
Each
executive officer has agreed to hold, both during and subsequent to the terms of
his or her agreement, in confidence and not to use, except in pursuance of his
or her duties in connection with the employment, any of our confidential
information, technological secrets, commercial secrets and
know-how.
32
ITEM12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
The
following table sets forth each person known by us to be the beneficial owner of
five (5%) percent or more of our Common Stock, all directors individually and
all directors and officers as a group as of September 8, 2010. Each person named
below has sole voting and investment power with respect to the shares shown
unless otherwise indicated.
Name
and Address of
Beneficial Owner (1)
|
Amount
of
Direct
Ownership
After
Exchange
|
Amount
of
Indirect
Ownership
After
Exchange
|
Total
Beneficial
ownership
After
Exchange
|
Percentage
of
Class (2)
|
||||||||||||
Li
Xipeng, Chief Executive Officer and Chairman of the Board
|
0
|
34,086,250
|
(3)
|
34,086,250
|
(3)
|
42.6
|
%
|
|||||||||
Zhang
Chunxian, Chief Financial Officer and Director
|
0
|
6,817,250
|
(4)
|
6,817,250
|
(4)
|
8.52
|
%
|
|||||||||
Lin
Jie, Vice President of Operations
|
0
|
6,817,250
|
(5)
|
6,817,250
|
(5)
|
8.52
|
%
|
|||||||||
Wu
Lei, Vice President of Strategy Development
|
0
|
6,817,250
|
(6)
|
6,817,250
|
(6)
|
8.52
|
%
|
|||||||||
Wang
Feng, Secretary
|
0
|
0
|
0
|
0
|
%
|
|||||||||||
Sun
Jianhao, Director
|
0
|
6,817,250
|
(7)
|
6,817,250
|
(7)
|
8.52
|
%
|
|||||||||
Huang
Yuemin, Director
|
0
|
0
|
0
|
0
|
%
|
|||||||||||
Xu
Huiqing, Director
|
0
|
0
|
0
|
0
|
%
|
|||||||||||
Li
Changlai, Director
|
0
|
0
|
0
|
0
|
%
|
|||||||||||
Mu
Xinjie, Director
|
0
|
0
|
0
|
0
|
%
|
|||||||||||
Aaron
Zhu, Director
|
0
|
0
|
0
|
0
|
%
|
|||||||||||
ALL
DIRECTORS AND OFFICERS AS A GROUP (10 PERSONS):
|
0
|
61,355,250
|
61,355,250
|
76.69
|
%
|
|||||||||||
Joylink
Holdings Limited
Room
42, 4F, New Henry House
10
Ice House Street
Central,
Hong Kong
|
68,172,500
|
0
|
68,172,500
|
85.21
|
%
|
|||||||||||
Shu
Hongying
Room
14 Unit 4, 11 Building Sichangdong Street
Zhengzhou,
Henan the PRC
|
0
|
6,817,250
|
(8)
|
6,817,250
|
(8)
|
8.52
|
%
|
(1)
|
Unless
otherwise noted, each beneficial owner has the same address as the
Company.
|
(2)
|
Applicable
percentage of ownership is based on 80,000,000 shares of our Common Stock
outstanding as of September 8, 2010, together with securities exercisable
or convertible into shares of Common Stock within sixty (60) days of
September 8, 2010 for each stockholder. Beneficial ownership is determined
in accordance with the rules of the SEC and generally includes voting or
investment power with respect to securities. Shares of Common Stock are
deemed to be beneficially owned by the person holding such securities for
the purpose of computing the percentage of ownership of such person, but
are not treated as outstanding for the purpose of computing the percentage
ownership of any other person. Note that affiliates are subject to Rule
144 and Insider trading regulations - percentage computation is for form
purposes only.
|
33
(3)
|
Li
Xipeng, the Company’s Chairman and Chief Executive Officer, owns 50% of
Joylink Holdings Limited, which owns 68,172,500 shares of the Company’s
Common Stock. Therefore, Li Xipeng may be considered to beneficially own
34,086,250 shares.
|
(4)
|
Zhang
Chunxian, the Company’s Chief Financial Officer and Director, owns 10% of
Joylink Holdings Limited, which owns 68,172,500 shares of the Company’s
Common Stock. Therefore, Zhang Chunxian may be considered to beneficially
own 6,817,250 shares.
|
(5)
|
Lin
Jie, the Company’s Vice President, owns 10% of Joylink Holdings Limited,
which owns 68,172,500 shares of the Company’s Common Stock. Therefore, Lin
Jie may be considered to beneficially own 6,817,250
shares.
|
(6)
|
Wu
Lei, the Company’s Vice President, owns 10% of Joylink Holdings Limited,
which owns 68,172,500 shares of the Company’s Common Stock. Therefore, Wu
Lei may be considered to beneficially own 6,817,250
shares.
|
(7)
|
Sun
Jianhao, the Company’s Vice President, owns 10% of Joylink Holdings
Limited, which owns 68,172,500 shares of the Company’s Common Stock.
Therefore, Sun Jianhao may be considered to beneficially own 6,817,250
shares.
|
(8)
|
Shu
Hongying owns 10% of Joylink Holdings Limited, which owns 68,172,500
shares of the Company’s Common Stock. Therefore, Shu Hongying may be
considered to beneficially own 6,817,250
shares.
|
ITEM 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
Transactions
With Related Persons
Notes
Receivable to Related Persons
On June
29, 2010, Tai Ao Expressway Co., Ltd. (“Tai Ao”) entered into a renewal
agreement with the Company. Pursuant to the agreement, the note receivable from
Tai Ao was extended to June 29, 2011 with a 5.94% interest rate per annum.
Interest shall be paid annually and the principal shall be repaid at maturity.
The
note
receivable from Tai
Ao is
classified as a
non-current
asset because the
Company expects
to purchase a controlling interest in Tai Ao and the receivable will be part of
the cost of acquiring the ownership interest.
Also see September 27, 2009 letter of intent below.
On June
29, 2010, Xinyang Expressway Co., Ltd. (“Xinyang”) entered into a renewal
agreement with the Company. Pursuant to the agreement, the note receivable to
Xinyang was extended to June 29, 2011 with a 5.94% interest rate per annum.
Interest is paid annually and the principal is repaid at maturity. Also see
September 27, 2009 letter of intent below.
On April
12, 2009, Henan Ruijia Industry Co., Ltd. (“Ruijia”) entered into an agreement
with the Company. Pursuant to the agreement, the Company provided a note
receivable for $2,191,445 to Ruijia. Such note receivable is due April 11, 2010,
and bears a 5.31% interest rate per annum. The principal and the interest are
repaid at maturity. On November 12, 2009, the Company received the principal of
such note receivable.
On July
28, 2009, Henan Hairun Trade Co., Ltd. (“Hairun”) entered into an agreement with
the Company. Pursuant to the agreement, the Company provided a note receivable
for $1,465,975 to Hairun. Such note receivable is due July 27, 2010, and bears a
5.31% interest rate per annum. The principal and the interest are repaid at
maturity. On November 12, 2009, the Company received the principal of such note
receivable.
The notes
receivable were provided to these companies for their construction and operation
working capital. Tai Ao, Xinyang and Ruijia are related to the Company through a
common shareholder of the Company. Hairun is a trading company substantially
controlled by Lin Jie, the vice president of operations of the Company. The
notes receivable are interest bearing and unsecured. Interest income was
$8,379,605 and $9,335,849 for the years ended June 30, 2010 and 2009,
respectively.
On
September 27, 2009, the board of directors of the Company approved a share
purchase resolution. Pursuant to a letter of intent dated September 27, 2009,
the Company shall purchase at least 51% of Tai Ao. The consideration for such
purchase will be settled first with the note receivable from Xinyang of
$78,876,139, and the remainder in cash. If the Company successfully negotiates
with Tai Ao’s shareholders, the consideration will be determined in accordance
with the audited net assets of Tai Ao at the purchase date. If the Company
consummates such transaction, the transaction is expected to be accounted for as
an acquisition of a company under common control. Also see Notes 6 and
7.
34
Advances
Made on Behalf of Related Person
The
Company and Tai Ao Expressway Co., Ltd. are held by the same shareholder with
the company, Li Xipeng. The Company made advances to suppliers on behalf of Tai
Ao for the purchase of construction materials commencing in 2006 in order to
assist Tai Ao with its working capital needs.
For the
years ended June 30, 2010 and 2009, the Company made advances to suppliers on
behalf of Tai Ao for the purchase of construction materials amounting to
$610,471 and $32,663,977, and the repayment from Tai Ao was amounting to
$731,350 and $ 21,808,400, respectively. The balances of $32,732,531 and
$32,680,154 at June 30, 2010 and 2009, respectively, are unsecured, interest
free and due on demand.
The
advance to Tai Ao is classified as a non-current asset because the
Company plans to acquire a controlling interest in Tai Ao. Also see Notes 6
and 7.
Henan Hairun Trade Co., Ltd. is substantially controlled
by Ms. Lin Jie, the Vice President of Operations of the Company. The
Company made prepayment to Hairun for its working capital needs. For the
years ended June 30, 2010 and 2009, the prepayments to Hairun were amounting to
$731,350 and $0, and the repayment from Hairun was amounting to $585,080 and $0,
respectively. The
balances at June 30, 2010 and 2009 were $146,873 and $0,
respectively.
Due
to Related Party
Due to a
related party was working capital lend from Zhengzhou Zhengbian Tap Water Co.,
Ltd, which was controlled by Henan Shengrun Venture Investment Management Co.,
Ltd., the same shareholder of the Company. For the years ended June 30, 2010 and
2009, the working capital lend from Zhengzhou Zhengbian Tap Water Co., Ltd were
amounting to $585,080 and $0, and the repayment to Zhengzhou Zhengbian Tap Water
Co., Ltd was amounting to $0 and $0, respectively. The balances at June 30, 2010
and 2009 were $587,492 and $0, respectively.
Agreements
With Promoters and Certain Control Persons
None.
Director
Independence
The
following directors are independent: Sun Jianhao, Huang Yuemin, Xu Huiqing, Li
Changlai, Mu Xinjie and Aaron Zhu. The following directors are not independent:
Li Xipeng and Zhang Chunxian.
ITEM 14.
|
Principal
Accountant Fees and
Services
|
Audit
Fees
During
the fiscal years ended June 30, 2010 and 2009, the fees for our principal
accountant were approximately $255,000 and $310,000,
respectively, representing services for quarterly reviews and the year end
audits.
Audit-Related
Fees
During
the fiscal years ended June 30, 2010 and 2009, the fees for our principal
accountant’s audit related services were $2,250 and $1,125, respectively, and
were reasonably related to the performance of the audit or review of financial
statements.
Tax
Fees
During
the fiscal years ended June 30, 2010 and 2009, our principal accountant did not
render tax compliance, tax advice and tax planning services.
35
All
Other Fees
During
the fiscal years ended June 30, 2010 and 2009, there were no fees for products
and services provided by the principal accountant other than those set forth
above.
Audit
Committee Pre-Approval
The
policy of the Audit Committee is to pre-approve all audit and non-audit services
provided by the independent accountants. These services may include audit
services, audit-related services, tax fees, and other services. Pre-approval is
generally provided for up to one year and any pre-approval is detailed as to the
particular service or category of services and is subject to a specific budget.
The Audit Committee has delegated pre approval authority to certain committee
members when expedition of services is necessary. The independent accountants
and management are required to periodically report to the full Audit Committee
regarding the extent of services provided by the independent accountants in
accordance with this pre-approval delegation, and the fees for the services
performed to date. All of the services described above in this Item 14 were
approved in advance by the Audit Committee during the fiscal year ended June 30,
2010.
PART
IV
ITEM 15.
|
Exhibits
and Financial Statement
Schedules
|
(a)
|
Financial
Statements and Schedules
|
The
financial statements are set forth under Item 8 of this Annual Report on
Form 10-K. Financial statement schedules have been omitted since they are either
not required, not applicable, or the information is otherwise
included.
(b)
|
Exhibits
|
EXHIBIT NO.
|
DESCRIPTION
|
LOCATION
|
||
3.1
|
Articles
of Incorporation of Learning Quest Technologies, Inc.
|
Incorporated
by reference to Exhibit 3.01 to the Company’s Form 10-SB as filed with the
SEC on December 17, 2004.
|
||
3.2
|
Amended
and Restated Bylaws of China Infrastructure Investment Corporation, dated
as of May 21, 2008.
|
Incorporated
by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K as
filed with the SEC on May 22, 2008.
|
||
3.3
|
Certificate
of Incorporation of Color Man Holdings Limited
|
Incorporated
by reference to that Company’s Current Report on Form 8-K as filed with
the SEC on February 11, 2008.
|
||
3.4
|
Certificate
of Incorporation of Wise On China Limited
|
Incorporated
by reference to that Company’s Current Report on Form 8-K as filed with
the SEC on February 11, 2008.
|
||
3.5
|
Certificate
of Incorporation of Pingdingshan Pinglin Expressway Co.,
Ltd.
|
Incorporated
by reference to that Company’s Current Report on Form 8-K as filed with
the SEC on February 11, 2008.
|
||
3.6
|
Company
Charter of Color Man Holdings Limited (Memorandum of Association and
Articles of Association
|
Incorporated
by reference to that Company’s Current Report on Form 8-K as filed with
the SEC on February 11, 2008.
|
||
3.7
|
Company
Charter of Wise On China Limited
|
Incorporated
by reference to that Company’s Current Report on Form 8-K as filed with
the SEC on February 11, 2008.
|
||
3.8
|
Articles
of Association of Pingdingshan Pinglin Expressway Co.,
Ltd.
|
Incorporated
by reference to that Company’s Current Report on Form 8-K as filed with
the SEC on February 11, 2008.
|
||
10.1
|
Share
Exchange Agreement, dated February 8, 2008, by and among Learning Quest
Technologies, Inc., Color Man Holdings Ltd. and Joylink Holdings
Ltd.
|
Incorporated
by reference to that Company’s Current Report on Form 8-K as filed with
the SEC on February 11, 2008.
|
||
10.2
|
Chartered
Rights Agreement on Pingdingshan-Linru Expressway Project, dated April 10,
2003, by and between Pingdingshan Pinglin Expressway Co., Ltd. and
Pingdingshan Bureau of Communications
|
Incorporated
by reference to that Company’s Current Report on Form 8-K as filed with
the SEC on February 11,
2008.
|
36
EXHIBIT NO.
|
DESCRIPTION
|
LOCATION
|
||
10.3
|
Loan
Contract of the Year 2004, dated December 28, 2004, by and between the
China Development Bank and Pingdingshan Pinglin Expressway Co.,
Ltd.
|
Incorporated
by reference to that Company’s Current Report on Form 8-K as filed with
the SEC on February 11, 2008.
|
||
10.4
|
Loan
Contract of the Fixed Assets (No. YBZ No. 0054, 2005), dated July 29,
2005, by and between The Pingdingshan Branch of Industrial and Commerical
Bank of China and Pingdingshan Pinglin Expressway Co.,
Ltd.
|
Incorporated
by reference to that Company’s Current Report on Form 8-K as filed with
the SEC on February 11, 2008.
|
||
10.5
|
Loan
Contract, dated February 25, 2005, by and between the Agricultural Bank of
China, Xinhua Branch of Pingdingshan City and Pingdingshan Pinglin
Expressway Co., Ltd.
|
Incorporated
by reference to that Company’s Current Report on Form 8-K as filed with
the SEC on February 11, 2008.
|
||
10.6
|
Loan
Contract of the Year 2007, dated September 28, 2007, by and between the
China Development Bank and Pingdingshan Pinglin Expressway Co.,
Ltd.
|
Incorporated
by reference to that Company’s Current Report on Form 8-K as filed with
the SEC on February 11, 2008.
|
||
10.7
|
Loan
Contract, dated June 7, 2005, by and between the Agricultural Bank of
China, Xinhua Branch of Pingdingshan City and Pingdingshan Pinglin
Expressway Co., Ltd.
|
Incorporated
by reference to that Company’s Current Report on Form 8-K as filed with
the SEC on February 11, 2008.
|
||
10.8
|
General
Loan Contract, dated November 29, 2004, by and between the China
Development Bank and Pingdingshan Pinglin Expressway Co.,
Ltd.
|
Incorporated
by reference to that Company’s Current Report on Form 8-K as filed with
the SEC on February 11, 2008.
|
||
10.9
|
Loan
Contract of the Fixed Assets (No. YBZ No. 0051, 2005), dated July 29,
2005, by and between The Pingdingshan Branch of Industrial and Commerical
Bank of China and Pingdingshan Pinglin Expressway Co.,
Ltd.
|
Incorporated
by reference to that Company’s Current Report on Form 8-K as filed with
the SEC on February 11, 2008.
|
||
14.1
|
Code
of Ethics
|
Incorporated
by reference to the Company’s Annual Report on Form 10-K as filed with the
SEC on September 29, 2008
|
||
16.1
|
Auditor
Letter
|
Incorporated
by reference to the Company’s Annual Report on Form 10-K as filed with the
SEC on September 29, 2008
|
||
21
|
List
of Subsidiaries
|
Provided
herewith
|
||
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
Provided
herewith
|
||
31.2
|
Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
Provided
herewith
|
||
32.1
|
Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
Provided
herewith
|
||
32.2
|
Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
Provided
herewith
|
||
99.1
|
Audit
Committee Charter of the Company
|
Incorporated
by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K
as filed with the SEC on May 22, 2008
|
||
99.2
|
Compensation
Committee Charter of the Company
|
Incorporated
by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K
as filed with the SEC on May 22, 2008
|
||
99.3
|
Corporate
Governance and Nominating Committee Charter of the Company
|
Incorporated
by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K
as filed with the SEC on May 22,
2008
|
37
SIGNATURES
In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on our behalf by the
undersigned, thereunto duly authorized.
CHINA INFRASTRUCTURE INVESTMENT
CORPORATION
|
||
Date:
September 28, 2010
|
||
By:
|
/s/Li Xipeng
|
|
Li Xipeng
|
||
Chief Executive Officer, Principal Executive
Officer and Chairman of the Board
|
||
/s/Zhang Chunxian
|
||
Zhang Chunxian
|
||
Chief Financial Officer, Principal Financial and
Accounting Officer and Director
|
In
accordance with the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the dates indicated.
Signatures
|
Title
|
Date
|
||
/s/
Li Xipeng
|
Chief Executive Officer,
|
September
28, 2010
|
||
Li Xipeng
|
Principal Executive Officer and
|
|||
Chairman of the Board
|
||||
/s/
Zhang Chunxian
|
Chief Financial Officer,
|
September
28, 2010
|
||
Zhang Chunxian
|
Principal Financial and
|
|||
Accounting Officer and
|
||||
Director
|
||||
/s/
Sun Jianhao
|
Director
|
September
28, 2010
|
||
Sun Jianhao
|
||||
/s/
Huang Yuemin
|
Director
|
September
28, 2010
|
||
Huang Yuemin
|
||||
/s/ Xu Huiqing
|
Director
|
September
28, 2010
|
||
Xu Huiqing
|
||||
/s/
Li Changlai
|
Director
|
September
28, 2010
|
||
Li Changlai
|
||||
/s/
Aaron Zhu
|
Director
|
September
28, 2010
|
||
Aaron
Zhu
|
38
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders of:
China
Infrastructure Investment Corporation and Subsidiaries
We have
audited the accompanying consolidated balance sheets of China Infrastructure
Investment Corporation and subsidiaries (the “Company”) as of June 30, 2010 and
2009, and the related consolidated statements of income and comprehensive
income, changes in shareholders’ equity and cash flows for the years then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriated in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of China Infrastructure
Investment Corporation and subsidiaries as of June 30, 2010 and 2009, and the
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.
As
discussed in Notes 6 and 7 to the consolidated financial statements,
the settlement of approximately $191,000,000 in related party notes receivable
and an advance is highly dependent upon the Chinese government’s approval of the
Company’s acquisition of Tai Ao Expressway Co., Ltd. If the Company
is unsuccessful in effectuating the acquisition, there could be a material
adverse effect on the Company’s operating results.
/s/
Weinberg & Company, P.A.
Weinberg
& Company, P.A.
Boca
Raton, Florida
September
21, 2010
F-1
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
June 30,
2010
|
June 30,
2009
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 1,267,199 | $ | 1,614,260 | ||||
Restricted
cash
|
3,961,227 | 3,550,761 | ||||||
Notes
receivable, net of allowance for doubtful accounts of
$892,432
and
$780,001 at June 30, 2010 and 2009, respectively
|
- | 104,676 | ||||||
Accounts
receivable, net of allowance for doubtful accounts of
$54,637
and $0 at June 30, 2010 and 2009, respectively
|
8,812 | 1,089,546 | ||||||
Other
receivables
|
150,132 | 148,934 | ||||||
Advance
to a related party
|
146,873 | - | ||||||
Other
current assets
|
897,484 | 940,712 | ||||||
Total current
assets
|
6,431,727 | 7,448,889 | ||||||
LONG-TERM
ASSETS
|
||||||||
Toll
road infrastructures, net
|
428,661,699 | 437,178,980 | ||||||
Plant
and equipment, net
|
15,154,141 | 15,662,302 | ||||||
Land
use rights, net
|
45,509,651 | 47,264,452 | ||||||
Notes
receivable from related parties
|
158,347,962 | 151,332,301 | ||||||
Advance
to a related party
|
32,732,531 | 32,680,154 | ||||||
Long-term
investment
|
1,586,229 | 1,577,840 | ||||||
Deferred
taxes
|
4,213,238 | 4,725,650 | ||||||
Total long-term
assets
|
686,205,451 | 690,421,679 | ||||||
TOTAL
ASSETS
|
$ | 692,637,178 | $ | 697,870,568 |
See
accompanying notes to the consolidated financial statements.
F-2
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
June
30,
2010
|
June
30,
2009
|
|||||||
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Other
payables and accrued liabilities
|
$ | 2,125,696 | $ | 2,191,314 | ||||
Short-term
bank loans
|
14,687,307 | 7,304,815 | ||||||
Current
portion of long-term bank loans
|
20,086,361 | 27,767,064 | ||||||
Notes
payable
|
3,520,608 | 3,521,542 | ||||||
Payable
to contractors
|
15,873,729 | 22,090,622 | ||||||
Deferred
taxes
|
8,286,945 | 7,852,128 | ||||||
Deferred
revenue, current
|
99,949 | 78,803 | ||||||
Due
to a related party
|
587,492 | - | ||||||
Advances
from customers
|
2,395,710 | 21,367 | ||||||
Other
current liabilities
|
379,929 | 141,763 | ||||||
Total
current liabilities
|
68,043,726 | 70,969,418 | ||||||
LONG-TERM
LIABILITIES
|
||||||||
Long-term
bank loans
|
434,591,546 | 440,585,554 | ||||||
Deferred
revenue, long-term
|
6,521,458 | 6,502,203 | ||||||
Total
long-term liabilities
|
441,113,004 | 447,087,757 | ||||||
TOTAL
LIABILITIES
|
509,156,730 | 518,057,175 | ||||||
CONTINGENCIES
|
||||||||
SHAREHOLDERS’
EQUITY
|
||||||||
Common
stock, $.001 par value, 150,000,000 shares authorized, 80,000,000
shares
issued and outstanding as of June 30, 2010 and 2009,
respectively
|
80,000 | 80,000 | ||||||
Additional
paid-in capital
|
141,374,184 | 141,152,164 | ||||||
Accumulated
other comprehensive income
|
28,484,004 | 27,516,099 | ||||||
Retained
earnings, (restricted portion was $43,234 at June 30, 2010 and
2009)
|
13,542,260 | 11,065,130 | ||||||
Total
Shareholders’ Equity
|
183,480,448 | 179,813,393 | ||||||
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
$ | 692,637,178 | $ | 697,870,568 |
See
accompanying notes to the consolidated financial statements.
F-3
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
STATEMENTS
OF INCOME AND COMPREHENSIVE INCOME
Years Ended June
30,
|
||||||||
2010
|
2009
|
|||||||
REVENUES
|
$ | 42,626,988 | $ | 50,270,277 | ||||
OPERATING
COSTS
|
3,622,060 | 5,603,843 | ||||||
DEPRECIATION
AND AMORTIZATION
|
12,995,000 | 12,130,615 | ||||||
GROSS
PROFIT
|
26,009,928 | 32,535,819 | ||||||
General
and administrative expenses
|
4,197,729 | 5,404,212 | ||||||
INCOME
FROM OPERATIONS
|
21,812,199 | 27,131,607 | ||||||
OTHER
INCOME (EXPENSES)
|
||||||||
Interest
expense
|
(28,397,389 | ) | (34,140,068 | ) | ||||
Interest income from related
parties
|
8,379,605 | 9,335,849 | ||||||
Other interest
income
|
189,641 | 65,129 | ||||||
Other income,
net
|
1,474,458 | 676,601 | ||||||
INCOME
FROM OPERATIONS BEFORE INCOME TAXES
|
3,458,514 | 3,069,118 | ||||||
INCOME
TAX EXPENSE
|
(981,384 | ) | (859,412 | ) | ||||
NET
INCOME
|
2,477,130 | 2,209,706 | ||||||
OTHER
COMPREHENSIVE INCOME
|
||||||||
Foreign
currency translation gain
|
967,905 | 697,568 | ||||||
OTHER
COMPREHENSIVE INCOME
|
967,905 | 697,568 | ||||||
COMPREHENSIVE
INCOME
|
$ | 3,445,035 | $ | 2,907,274 | ||||
WEIGHTED
AVERAGE SHARES OUTSTANDING, BASIC AND DILUTED
|
80,000,000 | 80,000,000 | ||||||
NET
INCOME PER COMMON SHARE, BASIC AND DILUTED
|
$ | 0.03 | $ | 0.03 |
See
accompanying notes to the consolidated financial statements.
F-4
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR
THE YEARS ENDED JUNE 30, 2010 AND 2009
Common Stock
|
Additional
|
Accumulated
Other
|
||||||||||||||||||||||
Number of
shares
|
Par value
|
Paid-in
Capital
|
Comprehensive
Income
|
Retained
Earnings
|
Total
|
|||||||||||||||||||
BALANCE
AT JULY 1, 2008
|
80,000,000 | $ | 80,000 | $ | 140,573,673 | $ | 26,818,531 | $ | 8,855,424 | $ | 176,327,628 | |||||||||||||
Foreign
currency translation gain
|
- | - | - | 697,568 | - | 697,568 | ||||||||||||||||||
Contributed
capital
|
- | - | 578,491 | - | - | 578,491 | ||||||||||||||||||
Net
income
|
- | - | - | - | 2,209,706 | 2,209,706 | ||||||||||||||||||
BALANCE
AT JUNE 30, 2009
|
80,000,000 | 80,000 | 141,152,164 | 27,516,099 | 11,065,130 | 179,813,393 | ||||||||||||||||||
Foreign
currency translation gain
|
- | - | - | 967,905 | - | 967,905 | ||||||||||||||||||
Contributed
capital
|
- | - | 222,020 | - | - | 222,020 | ||||||||||||||||||
Net
income
|
- | - | - | - | 2,477,130 | 2,477,130 | ||||||||||||||||||
BALANCE
AT JUNE 30, 2010
|
80,000,000 | $ | 80,000 | $ | 141,374,184 | $ | 28,484,004 | $ | 13,542,260 | $ | 183,480,448 |
See
accompanying notes to the consolidated financial statements.
F-5
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Years
Ended June 30,
|
||||||||
2010
|
2009
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
income
|
$ | 2,477,130 | $ | 2,209,706 | ||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Provision
for doubtful accounts
|
159,088 | 779,615 | ||||||
Investment
income from non-affiliated company
|
- | (116,819 | ) | |||||
Depreciation
and amortization
|
13,625,751 | 12,740,142 | ||||||
Deferred
taxes
|
947,229 | 629,665 | ||||||
Deferred
revenue
|
(606,004 | ) | (604,984 | ) | ||||
Imputed
interest
|
527,107 | 532,054 | ||||||
Expenses
paid by shareholder
|
222,020 | 578,491 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
(Increase)
Decrease In:
|
||||||||
Accounts
receivable
|
1,026,322 | 917,302 | ||||||
Other
receivables
|
(1,198 | ) | 270,708 | |||||
Other
current assets
|
43,228 | 51,056 | ||||||
Increase
(Decrease) In:
|
||||||||
Other
payables and accrued liabilities
|
(65,618 | ) | (2,648,985 | ) | ||||
Deferred
revenue
|
84,287 | - | ||||||
Advances
from customers
|
2,374,343 | 13,363 | ||||||
Other
current liabilities
|
238,164 | (76,148 | ) | |||||
Net
cash provided by operating activities
|
21,051,849 | 15,275,166 | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases
of construction in progress
|
- | (1,844,237 | ) | |||||
Purchases
of plant and equipment
|
(241,722 | ) | (318,481 | ) | ||||
Increase
in notes receivable
|
- | (102,217 | ) | |||||
Decrease
in payable to contractors
|
(6,216,893 | ) | (2,133,417 | ) | ||||
Proceeds
from interest of notes receivable from related parties
|
- | 10,232,171 | ||||||
Decrease
(increase) in principal of notes receivable from related
parties
|
2,194,051 | (1,567,154 | ) | |||||
Increase
in notes receivable from related parties for interest
|
(8,379,605 | ) | (9,338,257 | ) | ||||
Increase
in advance to related parties
|
(25,391 | ) | (10,855,577 | ) | ||||
Net
cash used in investing activities
|
(12,669,560 | ) | (15,927,169 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Repayments
of long-term bank loans
|
(16,098,481 | ) | (10,715,240 | ) | ||||
Proceeds
from short- term bank loans
|
14,627,004 | 7,301,199 | ||||||
Repayments
of short-term bank loans
|
(7,313,502 | ) | - | |||||
Proceeds
from notes payable
|
3,944,964 | 3,519,799 | ||||||
Repayments
of notes payable
|
(3,964,540 | ) | - | |||||
Increase
in due to a related party
|
585,080 | - | ||||||
Restricted
cash
|
(410,466 | ) | (3,521,657 | ) | ||||
Net
cash used in financing activities
|
(8,629,941 | ) | (3,415,899 | ) | ||||
NET
DECREASE IN CASH AND CASH EQUIVALENTS
|
(247,652 | ) | (4,067,902 | ) | ||||
Effect
of exchange rate changes on cash
|
(99,409 | ) | (87,182 | ) | ||||
Cash
and cash equivalents at beginning of year
|
1,614,260 | 5,769,344 | ||||||
CASH
AND CASH EQUIVALENTS AT END OF YEAR
|
$ | 1,267,199 | $ | 1,614,260 |
F-6
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Years
Ended June 30,
|
||||||||
2010
|
2009
|
|||||||
SUPPLEMENTAL
CASH FLOW INFORMATION:
|
||||||||
Interest
paid
|
$ | 27,835,512 | $ | 33,499,020 | ||||
Income
taxes paid
|
69,333 | 89,606 |
SUPPLEMENTAL
NON-CASH DISCLOSURES:
|
1.
|
During
the years ended June 30, 2010 and 2009, $0 and $1,693,861 were transferred
from construction in progress to toll road infrastructures,
respectively.
|
|
2.
|
During
the years ended June 30, 2010 and 2009, $0 and $150,375 were transferred
from construction in progress to plant and equipment,
respectively.
|
See
accompanying notes to the consolidated financial statements.
F-7
CHINA INFRASTRUCTURE
INVESTMENT CORPORATION AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2010 AND 2009
1.
|
ORGANIZATION
AND PRINCIPAL ACTIVITIES
|
China
Infrastructure Investment Corporation and subsidiaries (“CIIC” or the “Company”)
was incorporated under the laws of the State of Nevada on January 11, 2001.
On
February 8, 2008, the Company entered into a Share Exchange Agreement (the
“Exchange Agreement”) with Color Man Holdings Limited, a British Virgin Islands
company (“CMH”) and Joylink Holdings Limited, a British Virgin Islands company
and the sole stockholder of CMH (the “Stockholder”). As a result of the share
exchange, CIIC acquired all of the issued and outstanding securities of CMH, an
inactive holding company, from the Stockholder in exchange for 54,400,000
newly-issued shares of CIIC’s common stock, par value $0.001 per share (“Common
Stock”), representing 68% of CIIC’s issued and outstanding Common Stock (the
“Exchange”). The Company effectuated a 2-1 reverse split of its Common Stock
effective on December 3, 2007 effectively reducing the number of issued and
outstanding shares of Common Stock to 25,000,000 shares. On January 22, 2008,
the Company completed a dividend distribution to its shareholders of record as
of January 18, 2008 in the amount equal to five percent (5%) (1,250,005 shares)
of the then issued and outstanding Common Stock. There were 26,250,005 shares
outstanding in CIIC immediately before the Share Exchange Transaction and the
cancellation of 650,005 shares at the time of the Exchange. The Exchange was
intended to constitute a tax-free reorganization pursuant to the provisions of
Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended. As a
result of the Exchange, CMH became a wholly-owned subsidiary of CIIC. Generally
accepted accounting principles require that a company whose shareholders retain
the majority interest in a combined business be treated as the acquirer for
accounting purpose, resulting in a reverse acquisition. Accordingly, the share
exchange transaction has been accounted for as a recapitalization of
CIIC.
CMH was
formed on April 11, 2005 as a British Virgin Islands company with authorized
capital of US$50,000 divided into 50,000 shares, each having a par value of
US$1.00. Wise On China Limited (“WOCL”) was established and
incorporated on November 2, 2005 with authorized share capital of HK$10,000
(approximately US$1,279.44) divided into 10,000 shares, each having a par value
of HK$1.00 (approximately US$0.13). CMH’s sole business is to act as
a holding company for WOCL, and WOCL’s sole business is to act as a holding
company for the Company. CMH owns one share of WOCL approximately
equal to US$0.13 in registered capital.
Pingdingshan
Pinglin Expressway Co., Ltd (“Ping”) was incorporated under the laws of the
People’s Republic of China (“PRC”) on May 12, 2003 by four investors, namely,
Henan Shengrun Venture Investment Management Co., Ltd. (“SVIC”), Henan
Pingdingshan Zhongya Road and Bridge Construction Co., Ltd. (“PZRB”),
Pingdingshan Expressway Construction Co., Ltd. (“PECC”), and Zhongyuan Trust
& Investment Co., Ltd. (“ZTIC”). At establishment, the percentage of each
party’s equity interests was 46%, 18%, 18% and 18% respectively. On May 21,
2007, PZRB, PECC, and ZTIC transferred their equity interests in Ping to SVIC
and LI, Xi Peng. As a result, Ping is held by SVIC and Li, Xi Peng with equity
interests of 95% and 5%, respectively. Ping’s approved operation tenure is 30
years from May 21, 2007. On July 30, 2007, Ping’s shareholders completed an
acquisition and exchange transaction with WOCL. After the transfer, WOCL owned
100% interest of Ping.
With the
approval from Henan Transportation Bureau and the State Development and
Revolution Committee of China [NO. 2003-1784], the Company is permitted to
construct and operate the toll road from Pingdingshan to Linru, Henan, China,
for 30 years from 2003. Pursuant to the permission from Henan Transportation
Bureau and Henan Development and Revolution Committee [NO. 2005-1885], the
Company is entitled to operate 6 toll gates. All the rates applicable to the
automobiles are defined by the Henan Transportation Bureau and Henan Development
and Revolution Committee.
F-8
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2010 AND 2009
1. ORGANIZATION
AND PRINCIPAL ACTIVITIES (CONTINUED)
The
principal activities of the Company are investment, construction, operation, and
management of the Pingdingshan – Linru section (“Pinglin Expressway”), and the
rent of petrol stations and service districts along the toll
roads. Currently, all the operations of the Company are in the
People’s Republic of China (“PRC”).
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
(a)
|
Principles
of Consolidation
|
The
consolidated financial statements include the accounts of China Infrastructure
Investment Corporation and the following subsidiaries:
(i)
|
Color
Man Holdings Limited (“CMH”) (An inactive holding company, 100% subsidiary
of CIIC).
|
(ii)
|
Wise
On China Limited (“WOCL”) ( An inactive holding company,100% subsidiary of
CMH)
|
(iii)
|
Pingdingshan
Pinglin Expressway Co., Ltd. (“Ping”) ( 100% subsidiary of
WOCL)
|
Inter-company
accounts and transactions have been eliminated in consolidation.
|
(b)
|
Concentrations
|
The
location of the toll road and the operations of the Company are solely in the
Henan Province, PRC.
The
Company has a concentration of related party receivables from Tai Ao Expressway
Co., Ltd. and Xinyang Expressway Co., Ltd. as of June 30, 2010 and 2009. Also
see Notes 6 and 7.
|
(c)
|
Economic
and Political Risks
|
|
The
Company’s operations are conducted in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced
by the political, economic and legal environment in the PRC, and by the
general state of the PRC
economy.
|
F-9
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2010 AND 2009
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
(d) Use
of Estimates
The
preparation of the financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods.
A
significant estimate of the Company is the estimate of future total traffic
volume. This estimate is used for the calculation of depreciation relating to
the toll road. Also see Note 2(g).
Management
makes these estimates using the best information available at the time the
estimates are made. Actual results could differ materially from those
estimates.
The board
of directors of the Company approved a share purchase resolution. Pursuant to a
letter of intent, the Company shall purchase at least 51% of Tai Ao. The
consideration for such purchase will be settled first with the note receivable
from Xinyang, and the remainder in cash. The advance to Tai Ao will be also
involved in the Company’s acquisition of Tai Ao. The collectibility of the notes
receivables from related parties to a large extent depends on completion of the
share purchase resolution as mentioned above. The transaction is the acquisition
by a foreign company and is required to be approved by the Bureau of Commerce in
the PRC. The Company has applied the share purchase application to the
Pingdingshan Bureau of Commerce. However, whether the application will be
approved is still unclear as of June 30, 2010. Thus, there is uncertainty as to
the collectibilty of the notes receivables from related parties. At this time,
the Company estimates that there is no need for a reserve against the amounts
due from related parties. If the Company is unsuccessful in getting approval for
the acquisition of Tai Ao, this reserve estimate could change
significantly.
(e) Fair
Value of Financial Instruments
ASC
820-10 (formerly SFAS No. 157, fair value measurement)
establishes a three-tier fair value hierarchy, which prioritizes the inputs used
in measuring fair value. The hierarchy prioritizes the inputs into three levels
based on the extent to which inputs used in measuring fair value are observable
in the market.
These
tiers include:
•
Level 1—defined as observable inputs such as quoted prices in active
markets;
•
Level 2—defined as inputs other than quoted prices in active markets that
are either directly or indirectly observable; and
•
Level 3—defined as unobservable inputs in which little or no market data
exists, therefore requiring an entity to develop its own
assumptions.
Cash and
cash equivalents consist primarily of highly rated money market funds at a
variety of well-known institutions with original maturities of three months or
less. The original cost of these assets approximates fair value due to their
short term maturity. The Company does not maintain any bank accounts in the
United States of America.
F-10
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2010 AND 2009
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
(f) Fair
Value of Financial Instruments (Continued)
The
Company’s financial instruments include restricted cash, accounts receivable,
notes receivable, due from related parties, other receivables, other payables
and accrued liabilities, short-term bank loans, payable to contractors, other
current liabilities and deferred taxes. We estimated that the carrying amount
approximates fair value due to their short-term nature. The fair value of the
Company’s long-term bank loans and deferred revenue are estimated based on the
current rates offered to the Company for debt of similar terms and maturities.
The Company’s fair value of long-term bank loans and deferred revenue was not
significantly different from the carrying value at June 30, 2010 and
2009.
(g) Plant
and Equipment
Plant and
equipment is carried at cost less accumulated depreciation and impairment
losses. Depreciation is provided over the estimated useful lives, using the
straight-line method. Estimated useful lives of the plant and
equipment are as follows:
Motor
vehicles
|
8
years
|
Machinery
|
8
years
|
Office
equipment
|
6
years
|
Toll
stations and ancillary facilities
|
27
years
|
Communication
and monitoring equipment
|
10
years
|
The cost
and related accumulated depreciation of assets sold or otherwise retired are
eliminated from the accounts and any gain or loss is included in the statement
of income. The cost of maintenance and repairs is charged to expense as
incurred, whereas significant renewals and betterments are
capitalized.
(h) Toll
Road Infrastructures
Toll road
infrastructures are carried at cost less accumulated depreciation and
amortization. Depreciation and amortization of the toll road infrastructures are
calculated to write off their cost, commencing from the date of commencement of
commercial operation of the toll roads, based on the ratio of actual traffic
volume compared to the total expected traffic volume of the toll roads as
assessed by management each year. The total expected traffic volume is derived
from a traffic projection report prepared by an independent PRC organization.
Also see Note 2(d).
F-11
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2010 AND 2009
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
(i) Construction
in Progress
Construction
in progress represents costs incurred in the construction of expressways and
bridges. The costs include development expenditures and other direct costs,
including interest cost on the related borrowed funds during the construction
period attributable to the development of plant and equipment and toll road
infrastructures. Construction in progress is transferred to the appropriate
category of plant and equipment and toll road infrastructures when completed and
ready for intended use. Depreciation commences when the assets are ready for
their intended use.
(j) Capitalized
Interest
The
Company capitalizes interest as a component of communication and monitoring
equipment and toll road construction costs. No interest expense was capitalized
by the Company for the years ended June 30, 2010 and 2009, since construction
was completed.
(k) Land
Use Rights
According
to the laws of China, land in the PRC is owned by the Government and cannot be
sold to an individual or company. However, the government grants the user
a “land use right” to use the land. The land use rights granted
to the Company are being amortized when the toll road is ready to operate, using
the straight-line method over the approved toll road operating period of 27
years.
(l) Impairment
of Long-Term Assets
Long-term
assets of the Company are reviewed annually as to whether their carrying value
has become impaired, pursuant to the guidelines established in ASC 360-10
(formerly SFAS No. 144). The Company considers assets to be impaired if the
carrying value exceeds the future projected cash flows from the related
operations. The Company also re-evaluates the periods of amortization to
determine whether subsequent events and circumstances warrant revised estimates
of useful lives. There were no impairments for the years ended June 30, 2010 and
2009.
(m) Revenue
Recognition
Revenue
represents toll revenue net of business tax, and is recognized when all of the
following criteria are met:
-
|
The
amount of revenue can be measured
reliably,
|
|
-
|
It
is probable that the economic benefits associated with the transaction
will flow to the enterprise,
|
|
-
|
The
costs incurred or to be incurred in respect of the transaction can be
measured reliably, and
|
-
|
Collectibility
is reasonably assured.
|
F-12
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2010 AND 2009
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
(n) Rental
Income
The
Company rents gas stations, advertising booths and toll road service districts
to lessees. Rental income is measured at the fair value of the consideration
receivable and represents amounts receivable for services provided in the normal
course of business, net of discounts and sales tax. Also see Note
16.
(o) Retirement
Benefits
Retirement
benefits in the form of contributions under defined contribution retirement
plans to the relevant authorities are charged to operations as
incurred. Retirement benefits amounting to $235,595 and $120,676 were
charged to operations for the years ended June 30, 2010 and 2009.
(p) Earnings
Per Share
Basic
earnings per share is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding during
the period. Diluted earnings per share is computed similar to basic earnings per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive.
There were no potentially dilutive securities for the years ended June 30, 2010
and 2009.
(q) Foreign
Currency Translation
The
accompanying financial statements are presented in United States
dollars. The functional currency of the Company is the Renminbi
(RMB). The financial statements are translated into United States
dollars from RMB at year-end exchange rates as to assets and liabilities and
average exchange rates as to revenues and expenses. Capital accounts are
translated at their historical exchange rates when the capital transactions
occurred.
June 30,
2010
|
June 30,
2009
|
|||||||
Periods
ended RMB: US$ exchange rate
|
6.8086 | 6.8448 | ||||||
Average
RMB: US$ exchange rate for the year ended
|
6.8367 | 6.8482 |
(r) Comprehensive
Income
Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other
disclosures, all items that are required to be recognized under current
accounting standards as components of comprehensive income should be reported in
a financial statement that is presented with the same prominence as other
financial statements. The Company’s only component of comprehensive income is
the foreign currency translation adjustment.
F-13
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2010 AND 2009
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
(s) Recent
Accounting Pronouncements
In
January 2010, the FASB issued guidance to amend the disclosure requirements
related to recurring and nonrecurring fair value measurements. The guidance
requires disclosure of transfers of assets and liabilities between Level 1 and
Level 2 of the fair value measurement hierarchy, including the reasons and the
timing of the transfers and information on purchases, sales, issuance, and
settlements on a gross basis in the reconciliation of the assets and liabilities
measured under Level 3 of the fair value measurement hierarchy. This guidance is
effective for the Company beginning March 1, 2010. The Company does not expect
the adoption will have an impact on its consolidated financial position or
results of operations.
In April
2009, the FASB updated guidance related to fair-value measurements to clarify
the guidance related to measuring fair-value in inactive markets, to modify the
recognition and measurement of other-than-temporary impairments of debt
securities, and to require public companies to disclose the fair values of
financial instruments in interim periods. This updated guidance became effective
for the Company beginning June 1, 2009. The adoption of this guidance did not
have an impact on the Company’s consolidated financial position or results of
operations. See Note 2 (e) - Fair Value of Financial Instruments.
3.
|
LIQUIDITY
|
The
Company has a working capital deficit of $61,611,999 at June 30, 2010. This was
principally due to the Company providing notes receivables to its related
parties, Xinyang and Tai Ao for their construction and operation working
capital. The Company currently generates its cash flow through operating profit
and a combination of borrowings from banks and capital contributions from Wise
On China Limited. To increase its cash resources, the Company obtained two
short-term bank loans of $14,687,307 (See Note 13) and a long-term loan of
$13,218,577 (see Note 21). As of the date of this report, the Company has not
experienced any difficulty in raising funds through bank loans, and has not
experienced any liquidity problems in settling payables in the normal course of
business and repaying the bank loans when they become due. To improve liquidity,
the Company may explore new expansion opportunities and funding sources from
which the management may consider seeking external funding and
financing.
4.
|
NOTES
RECEIVABLE
|
Notes
receivable from unrelated companies consist of the following:
June 30,
2010
|
June 30,
2009
|
|||||||
Notes
receivable from unrelated companies
|
$ | 892,432 | $ | 884,677 | ||||
Less:
Provision for doubtful accounts
|
892,432 | 780,001 | ||||||
$ | - | $ | 104,676 |
F-14
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2010 AND 2009
4.
|
NOTES
RECEIVABLE (CONTINUED)
|
On June
20, 2007, the Company loaned Pingdingshan Traffic Administration $655,403. The
note is unsecured and was due December 20, 2007, bearing a 5.85% interest rate
per annum. On December 20, 2007, the Company entered into a renewal agreement
with Pingdingshan Traffic Administration, whereby the note was extended to
December 20, 2008 with a 7.47% interest rate per annum. Considering the aging of
the note receivable has exceeded two years and the Company has never received
the interest or principal from the note, the Company’s management believes there
is uncertainty as to collection of the note and stopped accruing interest income
from April 1, 2009. A full provision amounting to $784,148 was provided by the
Company as of June 30, 2010.
On
January 22, 2009, the Company loaned Pingdingshan Expressway Construction Co.,
Ltd. $104,676. The note is unsecured and is due January 21, 2010, and bears a
5.31% interest rate per annum. Considering the Company has never received the
interest or principal from the note, the Company’s management believes there is
uncertainty as to collection of the note and stopped accruing interest income
from the due date. A full provision amounting to $108,284 was provided by the
Company as of June 30, 2010.
Interest
income from the notes receivable for the years ended June 30, 2010 and 2009 was
$3,038 and $2,407, respectively.
5.
|
ACCOUNTS
RECEIVABLE
|
June 30,
2010
|
June 30,
2009
|
|||||||
Accounts
receivable
|
$ | 63,449 | $ | 1,089,546 | ||||
Less:
Provision for doubtful accounts
|
54,637 | - | ||||||
$ | 8,812 | $ | 1,089,546 |
In 2006,
the Company leased the operation right of its two service districts to Tongxiang
Yali Industry Co., Ltd. In 2009, Tongxiang Yali Industry Co., Ltd. had a serious
operating crisis and would be bankrupt. The Company stopped accruing the rental
income. A full provision amounting to $54,637 was provided by the Company as of
June 30, 2010.
On June
26, 2010, the Company entered into new rental agreements for the two
service districts with new lessees. Also see Note 17.
F-15
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2010 AND 2009
6.
|
NOTES
RECEIVABLE FROM RELATED PARTIES
|
June 30,
2010
|
June 30,
2009
|
|||||||
Xinyang Expressway Co.,
Ltd.
|
||||||||
Principal
|
70,040,757 | 69,670,334 | ||||||
Interest
receivable
|
8,835,382 | 4,650,237 | ||||||
78,876,139 | 74,320,571 | |||||||
Henan Ruijia Industry Co.,
Ltd.
|
||||||||
Principal
|
- | 2,191,445 | ||||||
Interest
receivable
|
68,566 | 25,535 | ||||||
68,566 | 2,216,980 | |||||||
Henan Hairun Trade Co.,
Ltd.
|
||||||||
Interest
receivable
|
22,964 | - | ||||||
22,964 | - | |||||||
Tai Ao Expressway Co., Ltd.
|
||||||||
Principal
|
$ | 70,502,918 | $ | 70,130,050 | ||||
Interest
receivable
|
8,877,375 | 4,664,700 | ||||||
79,380,293 | 74,794,750 | |||||||
Total
notes receivable from related parties
|
$ | 158,347,962 | $ | 151,332,301 |
F-16
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2010 AND 2009
6.
|
NOTES
RECEIVABLE FROM RELATED PARTIES
(CONTINUED)
|
On June
29, 2010, Tai Ao Expressway Co., Ltd. (“Tai Ao”) entered into a renewal
agreement with the Company. Pursuant to the agreement, the note receivable from
Tai Ao was extended to June 29, 2011 with a 5.94% interest rate per annum.
Interest shall be paid annually and the principal shall be repaid at maturity.
The note receivable from Tai Ao is classified as a non-current asset because the
Company expects to purchase a controlling interest in Tai Ao and the receivable
will be part of the cost of acquiring the ownership interest. Also see September
27, 2009 letter of intent below.
On June
29, 2010, Xinyang Expressway Co., Ltd. (“Xinyang”) entered into a renewal
agreement with the Company. Pursuant to the agreement, the note receivable to
Xinyang was extended to June 29, 2011 with a 5.94% interest rate per annum.
Interest is paid annually and the principal is repaid at maturity. Also see
September 27, 2009 letter of intent below.
On April
12, 2009, Henan Ruijia Industry Co., Ltd. (“Ruijia”) entered into an agreement
with the Company. Pursuant to the agreement, the Company provided a note
receivable for $2,191,445 to Ruijia. Such note receivable is due April 11, 2010,
and bears a 5.31% interest rate per annum. The principal and the interest were
repaid at maturity. On November 12, 2009, the Company received the principal of
such note receivable.
On July
28, 2009, Henan Hairun Trade Co., Ltd. (“Hairun”) entered into an agreement with
the Company. Pursuant to the agreement, the Company provided a note receivable
for $1,465,975 to Hairun. Such note receivable is due July 27, 2010, and bears a
5.31% interest rate per annum. The principal and the interest are repaid at
maturity. On November 12, 2009, the Company received the principal of such note
receivable.
The notes
receivable were provided to these companies for their construction and operation
working capital. Tai Ao, Xinyang and Ruijia are related to the Company through a
common shareholder of the Company. Hairun is a trading company substantially
controlled by Lin Jie, the vice president of operations of the Company. The
notes receivable are interest bearing and unsecured. Interest income was
$8,379,605 and $9,335,849 for the years ended June 30, 2010 and 2009,
respectively.
On
September 27, 2009, the board of directors of the Company approved a share
purchase resolution. Pursuant to a letter of intent dated September 27, 2009,
the Company shall purchase at least 51% of Tai Ao. The consideration for such
purchase will be settled first with the note receivable from Xinyang of
$78,876,139, and the remainder in cash. If the Company successfully negotiates
with Tai Ao’s shareholders, the consideration will be determined in accordance
with the audited net assets of Tai Ao at the purchase date. If the Company
consummates such transaction, the transaction is expected to be accounted for as
an acquisition of a company under common control.
Due to
the lack working capital of Tai Ao and Xinyang, the collectibility of the notes
receivables from related parties to the large extent depends on completion of
the share purchase resolution as above mentioned. The transaction is the
acquisition by a foreign company and is required to be approved by the Bureau of
Commerce in the PRC. The Company has applied the share purchase application to
the Pingdingshan Bureau of Commerce. However, whether the application will be
approved is still unclear as of June 30, 2010. Thus, there is uncertainty as to
the collectibilty of the notes receivables from related parties. At this time,
the Company estimates that there is no need for a reserve against the amounts
due from related parties. If the Company is unsuccessful in getting approval for
the acquisition of Tai Ao, this reserve estimate could change significantly.
Also see Note 7.
F-17
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2010 AND 2009
7.
|
ADVANCE
TO RELATED PARTIES
|
June 30,
2010
|
June 30,
2009
|
|||||||
Current
advance to a related party:
|
||||||||
Henan
Hairun Trade Co., Ltd.
|
$ | 146,873 | - | |||||
|
||||||||
Long-term
advance to a related party:
|
||||||||
Tai
Ao Expressway Co., Ltd.
|
$ | 32,732,531 | 32,680,154 | |||||
$ | 32,879,404 | $ | 32,680,154 |
The
Company, Tai Ao Expressway Co., Ltd. and Li Xipeng are related parties through
common ownership. The Company made advances to suppliers on behalf of Tai Ao for
the purchase of construction materials commencing in 2006 in order to assist Tai
Ao with its working capital needs.
For the
years ended June 30, 2010 and 2009, the Company made advances to suppliers on
behalf of Tai Ao for the purchase of construction materials amounting to
$610,471 and $32,663,977, and the repayment from Tai Ao was amounting to
$731,350 and $ 21,808,400, respectively. The balances of $32,732,531 and
$32,680,154 at June 30, 2010 and 2009, respectively, are unsecured, interest
free and due on demand.
On
September 27, 2009, the board of directors of the Company approved a share
purchase resolution. Pursuant to a letter of intent, the Company shall purchase
at least 51% of Tai Ao. The consideration for such purchase will be settled
first with the note receivable from Xinyang, and the remainder in cash. The
advance to Tai Ao will be also involved in the Company’s acquisition of Tai Ao.
The collectibility of the notes receivables from related parties to the large
extent depends on completion of the share purchase resolution as above
mentioned. The transaction is the acquisition by a foreign company and is
required to be approved by the Bureau of Commerce in the PRC. The Company has
applied the share purchase application to the Pingdingshan Bureau of Commerce.
However, whether the application will be approved is still unclear as of June
30, 2010. Thus, there is uncertainty as to the collectibilty of the notes
receivables from related parties. At this time, the Company estimates that there
is no need for a reserve against the amounts due from related parties. If the
Company is unsuccessful in getting approval for the acquisition of Tai Ao, this
reserve estimate could change significantly. Also see Note 6.
Henan
Hairun Trade Co., Ltd. is substantially controlled by Ms. Lin Jie, the Vice
President of Operations of the Company. The Company made prepayment to Hairun
for its working capital needs. For the years ended June 30, 2010 and 2009, the
prepayments to Hairun were amounting to $731,350 and $0, and the repayment from
Hairun was amounting to $585,080 and $0, respectively. The balances at June 30,
2010 and 2009 were $146,873 and $0, respectively.
F-18
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2010 AND 2009
8.
|
DUE
TO A RELATED PARTY
|
June 30,
2010
|
June 30,
2009
|
|||||||
Zhengzhou
Zhengbian Tap Water Co., Ltd
|
$ | 587,492 | $ | - |
Due to a
related party was working capital borrowed from Zhengzhou Zhengbian Tap Water
Co., Ltd, which is controlled by Henan Shengrun Venture Investment Management
Co., Ltd., the same shareholder of the Company. For the years ended June 30,
2010, the working capital borrowed from Zhengzhou Zhengbian Tap Water Co., Ltd
was $585,080. The balance at June 30, 2010 was $587,492. The outstanding balance
at June 30, 2010 is interest free, unsecured and has no fixed repayment
term.
9.
|
TOLL
ROAD INFRASTRUCTURES, NET
|
Toll road
infrastructures consist of the following:
June 30,
2010
|
June 30,
2009
|
|||||||
At
cost:
|
$ | 458,939,075 | $ | 456,511,890 | ||||
Less: Accumulated
depreciation
|
30,277,376 | 19,332,910 | ||||||
Toll
road infrastructures, net
|
$ | 428,661,699 | $ | 437,178,980 |
Depreciation
expense for the years ended June 30, 2010 and 2009 was $10,797,163 and
$9,932,916, respectively. Also see Notes 2(d) and 2(g).
The
Company financed its construction of the toll road infrastructures substantially
through long-term loans from banks. These bank loans were secured by the toll
road operating right owned by the Company. Also see Note 14.
F-19
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2010 AND 2009
10.
|
PLANT
AND EQUIPMENT, NET
|
Plant and
equipment consist of the following:
June 30,
2010
|
June 30,
2009
|
|||||||
At
cost:
|
||||||||
Toll
station and ancillary facilities
|
$ | 10,557,317 | $ | 10,422,227 | ||||
Communication
and monitoring equipment
|
5,852,164 | 5,757,340 | ||||||
Motor
vehicles
|
1,533,666 | 1,466,485 | ||||||
Machinery
|
299,269 | 297,686 | ||||||
Office
equipment
|
614,884 | 572,395 | ||||||
18,857,300 | 18,516,133 | |||||||
Less: Accumulated
depreciation
|
||||||||
Toll
station and ancillary facilities
|
1,481,751 | 1,136,852 | ||||||
Communication
and monitoring equipment
|
766,348 | 575,571 | ||||||
Motor
vehicles
|
993,498 | 804,005 | ||||||
Machinery
|
147,249 | 110,376 | ||||||
Office
equipment
|
314,313 | 227,027 | ||||||
3,703,159 | 2,853,831 | |||||||
Plant
and equipment, net
|
$ | 15,154,141 | $ | 15,662,302 |
Depreciation
expense for the years ended June 30, 2010 and 2009 was $830,728 and $812,726,
respectively.
11.
|
LAND
USE RIGHTS
|
Land use
rights consist of the following:
June 30,
2010
|
June 30,
2009
|
|||||||
Cost
|
$ | 54,003,618 | $ | 53,718,010 | ||||
Less:
Accumulated amortization
|
8,493,967 | 6,453,558 | ||||||
Land
use rights, net
|
$ | 45,509,651 | $ | 47,264,452 |
Amortization
expense for the years ended June 30, 2010 and 2009 was $1,997,860 and
$1,994,500, respectively.
Amortization
expense for the next five years and thereafter is as follows:
June
30, 2011
|
$ | 2,006,097 | ||
June
30, 2012
|
2,006,097 | |||
June
30, 2013
|
2,006,097 | |||
June
30, 2014
|
2,006,097 | |||
June
30, 2015
|
2,006,097 | |||
Thereafter
|
35,479,166 | |||
Total
|
$ | 45,509,651 |
F-20
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2010 AND 2009
12.
|
LONG-TERM
INVESTMENT
|
June 30, 2010
|
June 30, 2009
|
|||||||||||||||
Ownership
Interest
|
Net Book
Value
|
Ownership
Interest
|
Net Book
Value
|
|||||||||||||
At
cost:
|
||||||||||||||||
Pingdingshan
City Credit Corporation
|
2.39 | % | $ | 1,586,229 | 2.39 | % | $ | 1,577,840 |
The
Company invested in Pingdingshan City Credit Corporation (“PCCC”), a commercial
banking corporation established in 2005. The Company deposited Rmb20 million
(approximately $2.5 million) in December 2005 and then purchased 3% of the total
equity interest in PCCC in exchange for Rmb10 million (approximately $1.3
million) in 2007. As a consequence, Rmb10 million (approximately $1.3 million)
was refunded to the Company in 2007. As of September 30, 2009 and June 30, 2009,
the Company does not have more than a 20% interest in the investment and does
not exercise significant influence over the investee. The Company accounts for
the investment under the cost method. Investment income is recognized
by the Company when the investee declares a dividend and the Company believes it
is collectible. Dividend income for the fiscal years ended June 30,
2010 and 2009 was $126,377 and $116,819, respectively.
On March
29, 2006, Ping entered into a share purchase agreement with PCCC, a local
financial institution. Pursuant to the agreement, the Company
obtained 3% of the total equity interest of PCCC with the consideration
amounting to Rmb10 million (approximately US$1.3 million). After PCCC increased
its share capital, the Company’s share of the total equity interest of the total
equity interest in PCCC was diluted to 2.39%. Management of the Company adopted
the cost method for the accounting of such investment.
13.
|
SHORT-TERM
BANK LOAN
|
Short-term
bank loan as of June 30, 2010 and 2009 consist of the following:
June 30,
2010
|
June 30,
2009
|
|||||||
Loan
from China Minsheng Banking Corp., Ltd., due March 23, 2010, monthly
interest only payments at 5.31% per annum, co-secured by Tai Ao Expressway
Co., Ltd., the chief executive officer Mr. Li Xipeng and the expressway
toll right owned by the Company.
|
$ | - | $ | 7,304,815 | ||||
Loan
from China Minsheng Banking Corp., Ltd., due March 22, 2011, monthly
interest only payments at 5.841% per annum, co-secured by the chief
executive officer Mr. Li Xipeng, Henan Shengrun Land Investment Co., Ltd.
and accounts receivable owned by the Company.
|
7,343,654 | - | ||||||
Loan
from China Citic Bank, due January 11, 2011, monthly interest only
payments at 5.31% per annum, co-secured by Tai Ao Expressway Co., Ltd.,
the chief executive officer Mr. Li Xipeng, and Henan Shengrun Venture
Investment Management Co., Ltd.
|
7,343,653 | - | ||||||
Total
short-term bank loans
|
$ | 14,687,307 | $ | 7,304,815 |
Interest
expense for the years ended June 30, 2010 and 2009 was $575,218 and $103,434,
respectively.
F-21
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2010 AND 2009
13.
|
SHORT-TERM
BANK LOAN (CONTINUED)
|
As of
June 30, 2010, accounts receivable from “HPCD” were pledged as collateral for
the bank loan from China Minsheng Banking Corp., Ltd. The carrying amount of
accounts receivable from “HPCD” for tolling change as of June 30, 2010 was
$0.
On March
22, 2010, Henan Shengrun Land Investment Co., Ltd., a company under common
control of Li Xipeng, the chief executive officer of the Company, entered into
an guarantee agreement with China Minsheng Banking Corp., Ltd. Pursuant to the
agreement, Henan Shengrun Land Investment Co., Ltd. provided corporate
guarantees for bank loan to the Company, with a debt ceiling of Rmb50 million
(approximately $7,343,654). The guarantee period is from March 22, 2011 to March
22, 2013.
On March
22, 2010, Mr. Li Xipeng entered into an individual maximum guarantee agreement
with China Minsheng Banking Corp., Ltd. Pursuant to the agreement, Li Xipeng
provided personal guarantee for bank loan to the Company. The guarantee period
is from March 22, 2011 to March 22, 2013.
On
January 12, 2010, Tai Ao Expressway Co., Ltd. entered into a guarantee agreement
with China Citic Bank. Pursuant to the agreement, Tai Ao Expressway Co., Ltd.
provided corporate guarantees for a bank loan to the Company. The guarantee
period is from January 11, 2011 to January 11, 2013.
On
January 12, 2010, Mr. Li Xipeng entered into an individual maximum guarantee
agreement with China Citic Bank. Pursuant to the agreement, Li Xipeng provided a
personal guarantee for a bank loan to the Company. The guarantee period is from
January 11, 2011 to January 11, 2013.
On
January 12, 2010, Henan Shengrun Venture Investment Management Co., Ltd., a
company under common control of Li Xipeng, the chief executive officer of the
Company, entered into a guarantee agreement with China Citic Banking Corp., Ltd.
Pursuant to the agreement, Henan Shengrun Venture Investment Management Co.,
Ltd. provided corporate guarantees for a bank loan to the Company, with a debt
ceiling of Rmb50 million (approximately $7,343,654). The guarantee period is
from January 11, 2011 to January 11, 2013.
F-22
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2010 AND 2009
14.
|
LONG-TERM
BANK LOANS
|
Long-term
bank loans consist of the following:
June 30,
2010
|
June 30,
2009
|
|||||||
Loan
from National Development Bank of China Henan Branch, due May 20, 2017,
bearing a 5.94% interest rate per annum, secured by the toll road
operating right owned by the Company. Principal is repaid every
6 months in 20 unequal installments from November 2007, and interest is
paid quarterly.
|
$ | 88,123,843 | $ | 93,501,636 | ||||
Loan
from Agricultural Bank of China, due July 20, 2017, bearing a 5.94%
interest rate per annum, secured by the toll road operating right owned by
the Company. Principal is to be repaid every year in 10 equal
installments from February 2010, and interest is paid
monthly.
|
26,437,154 | 29,219,261 | ||||||
Loan
from Agricultural Bank of China, due February 20, 2019, bearing a 5.94%
interest rate per annum, secured by the toll road operating right owned by
the Company. Principal is to be repaid every year in 10 equal
installments, and interest is paid monthly.
|
29,374,614 | 29,219,261 | ||||||
Loan
from Industrial and Commercial Bank of China Pingdingshan Branch, due
November 19, 2019, bearing a 5.35% interest rate per annum, secured by the
toll road operating right owned by the Company. Principal is
repaid every year in 26 unequal installments from November 2007, and
interest is paid monthly.
|
163,869,224 | 170,316,152 | ||||||
Loan
from National Development Bank of China Henan Branch, due November 28,
2022, bearing a 5.94% interest rate per annum, secured by the toll road
operating right owned by the Company. Principal is to be repaid every 6
months in 12 unequal installments from May 2017, and interest is paid
quarterly.
|
146,873,072 | 146,096,308 | ||||||
Total
long-term bank loans
|
454,677,907 | 468,352,618 | ||||||
Less:
current portion
|
20,086,361 | 27,767,064 | ||||||
Long-term
portion
|
$ | 434,591,546 | $ | 440,585,554 |
F-23
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2010 AND 2009
14.
|
LONG-TERM
BANK LOANS (CONTINUED)
|
For the
years ended June 30, 2010 and 2009, interest expense was $27,260,294 and
$33,499,020, respectively. No interest was capitalized as a component
of construction costs during the reporting periods.
According
to the loan agreements with National Development Bank of China Henan Branch, the
bank has the right to demand repayment of the loans in full if the Company
provides any guarantee to other third party debt that exceeds 70% of the
Company’s total assets. As of June 30, 2010, the Company provided a corporate
guarantee for Tai Ao’s bank loan. The guarantee did not exceed 70% of the
Company’s total assets. Also see Note 19.
The
repayment schedule for the long-term bank loans is as follows:
June
30, 2011
|
$ | 20,086,361 | ||
June
30, 2012
|
29,891,607 | |||
June
30, 2013
|
35,766,531 | |||
June
30, 2014
|
33,304,938 | |||
June
30, 2015
|
33,304,938 | |||
Thereafter
|
302,323,532 | |||
Total
|
$ | 454,677,907 |
15.
|
NOTES
PAYABLE
|
June 30,
2010
|
June 30,
2009
|
|||||||
Bank
acceptance notes
|
$ | 3,520,608 | $ | 3,521,542 |
Notes
payable were issued to the Company’s contractors through China Citic Bank. The
notes are interest free and due in 6 months.
Restricted
cash of $3,961,227 and $3,550,761 collateralizes the notes as of June 30, 2010
and 2009, respectively.
F-24
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2010 AND 2009
16.
|
DEFERRED
REVENUE
|
June 30, 2010
|
June 30, 2009
|
|||||||
Deferred
revenue
|
$ | 15,601,437 | $ | 16,040,024 | ||||
Imputed
interest discount
|
(8,980,030 | ) | (9,459,018 | ) | ||||
Total
|
6,621,407 | 6,581,006 | ||||||
Less:
current portion
|
99,949 | 78,803 | ||||||
Long-term
portion
|
$ | 6,521,458 | $ | 6,502,203 |
The
Company rents four gas stations to Petro China Company Limited Pingdingshan
Branch (“PCCL”) from January 1, 2006 for 30 years. The Company received the
entire 30 year rental fee of $5,372,708 from PCCL in 2006. The amount received
was net of business tax.
The
Company imputed interest on the amount using an 8% discount rate, under the
effective interest rate method. The rental income recognized during the years
ended June 30, 2010 and 2009 was $606,004 and $604,984 respectively. The imputed
interest for the years ended June 30, 2010 and 2009 was $527,107 and $532,054,
respectively.
The
Company rents communication channels along the expressway to China Mobile
Company Limited Pingdingshan Branch from August 1, 2009 for 15 years. The total
rental fee will be $309,782, which will be paid in 3 installments in amount of
$103,261 on July every 5 years. The amount received was before tax. The Company
amortized deferred revenue under the straight-line method. The rental income
recognized during the years ended June 30, 2010 and 2009 was $18,921 and $0
respectively.
17.
|
ADVANCE
FROM CUSTOMERS
|
June 30, 2010
|
June 30, 2009
|
|||||||
Henan
Expressway Management Bureau
|
$ | 2,019,532 | $ | - | ||||
Jiaxin
Shitong Highway Service Management Limited Company
|
176,248 | - | ||||||
Xinle
Huitong Enterprise and Service Management Co., Ltd
|
164,498 | - | ||||||
Others
|
35,432 | 21,367 | ||||||
Total
|
$ | 2,395,710 | $ | 21,367 |
The
Company received toll charge in advance from Henan Expressway Management Bureau,
which amounted to $2,019,532 as of June 30, 2010.
On June
26, 2010, the Company rented the West Pingdingshan Service Zone to Jiaxin
Shitong Highway Service Management Limited Company from October 16, 2010 to
October 15, 2015. The total rental fee will be $881,240, which will be paid in 5
installments in amount of $176,248 every year. The advance from customers for
rental income as of June 30, 2010 was $176,248. Also see Note 5.
On June
26, 2010, the Company rented the West Pingdingshan Service Zone and
the Ruzhou Service Zone to Xinle Huitong Enterprise and Service Management
Co., Ltd from October 16, 2010 to October 15, 2015. The total rental fee will be
$822,490, which will be paid in 5 installments in amount of $164,498 every year.
The advance from customers for rental income as of June 30, 2010 was $164,498.
Also see Note 5.
F-25
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2010 AND 2009
18.
|
INCOME
TAX
|
On March
16, 2007, the National People’s Congress of China approved the Corporate Income
Tax Law of the People’s Republic of China (the “new CIT Law”), which was
effective on January 1, 2008.Under the new CIT Law, the corporate income tax
rate applicable to the Company starting from January 1, 2008 will be 25%. The
new CIT Law has an impact on the deferred tax assets and liabilities of the
Company. The Company adjusted deferred tax balances as of December 31, 2009
based on their best estimates and will continue to assess the impact of such new
law in the future. The effects arising from the enforcement of the new CIT law
have been reflected in the accounts.
The
Company uses ASC 740-10 (formerly FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes). The Interpretation addresses the determination of whether tax
benefits claimed or expected to be claimed on a tax return should be recorded in
the financial statements. Under FIN 48, we may recognize the tax benefit from an
uncertain tax position only if it is more likely than not that the tax position
will be sustained on examination by the taxing authorities, based on the
technical merits of the position. The tax benefits recognized in the financial
statements from such a position should be measured based on the largest benefit
that has a greater than fifty percent likelihood of being realized upon ultimate
settlement. ASC 740-10 also provides guidance on recognition, classification,
interest and penalties on income taxes, accounting in interim periods and
requires increased disclosures. As of June 30, 2010, the Company did not have a
liability for unrecognized tax benefits.
Income
tax expense is summarized as follows:
Years Ended
June 30,
|
||||||||
2010
|
2009
|
|||||||
Current
|
$ | 34,155 | $ | 239,903 | ||||
Deferred
|
947,229 | 619,509 | ||||||
Income
tax expense
|
$ | 981,384 | $ | 859,412 |
The
Company’s income tax expense differs from the “expected” tax expense (computed
by applying the CIT rate of 25% percent to income before income taxes) as
follows:
Years Ended
June 30,
|
||||||||
2010
|
2009
|
|||||||
Computed
“expected” expense
|
$ | 864,629 | $ | 767,279 | ||||
Valuation
allowance
|
90,415 | 107,008 | ||||||
Permanent
difference
|
26,340 | (14,875 | ) | |||||
Income
tax expense
|
$ | 981,384 | $ | 859,412 |
F-26
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2010 AND 2009
18.
|
INCOME
TAX (CONTINUED)
|
The tax
effects of temporary differences that give rise to the Company’s net deferred
tax assets and liabilities are as follows:
Current portion:
|
June 30,
2010
|
June 30,
2009
|
||||||
G&A
expenses
|
$ | 330,313 | $ | 349,858 | ||||
Road
maintenance costs
|
316,408 | 438,142 | ||||||
Other
expenses
|
126,412 | 125,742 | ||||||
Payroll
expenses
|
58,368 | - | ||||||
Bad
debts
|
13,659 | - | ||||||
US
loss carry forward
|
268,708 | 178,293 | ||||||
Valuation
allowance
|
(268,708 | ) | (178,293 | ) | ||||
PRC
loss carry forward
|
939,492 | 413,130 | ||||||
Total
deferred tax assets
|
1,784,652 | 1,326,872 | ||||||
Sales
cut-off
|
(920,961 | ) | (999,885 | ) | ||||
Interest
income
|
(8,940,112 | ) | (7,478,740 | ) | ||||
Interest
expense
|
(34,583 | ) | (533,679 | ) | ||||
Consulting
fees
|
(113,393 | ) | (124,968 | ) | ||||
Other
expenses
|
(62,548 | ) | (41,728 | ) | ||||
Total
deferred tax liabilities
|
(10,071,597 | ) | (9,179,000 | ) | ||||
Net
deferred tax liabilities
|
$ | (8,286,945 | ) | $ | (7,852,128 | ) | ||
Non-current
portion:
|
||||||||
Rental
income
|
$ | 149,941 | $ | 112,064 | ||||
Capitalized
interest
|
2,245,984 | 2,234,106 | ||||||
Amortization
|
2,123,492 | 1,613,390 | ||||||
Bad
debts
|
2,706,136 | 2,691,824 | ||||||
Total
deferred tax assets
|
7,225,553 | 6,651,384 | ||||||
Depreciation
|
(3,012,315 | ) | (1,925,734 | ) | ||||
Total
deferred tax liabilities
|
(3,012,315 | ) | (1,925,734 | ) | ||||
Net
deferred tax assets
|
$ | 4,213,238 | $ | 4,725,650 |
As of
June 30, 2010, the PRC loss carry forward of $939,492 represents the net
operating loss of the Company’s subsidiary Ping. According to the new CIT Law of
China, such loss can be carried forward to the succeeding years, but the limit
of the carrying forward may not exceed five years. The net operating loss carry
forward expires in year 2015.
As of
June 30, 2010, the US losses carried forward is $268,708. Such loss can be
carried forward to the succeeding years, but the limit of the carrying forward
may not exceed 20 years. The net operating loss carry forward will expire in the
year 2030. The Company estimated that there are no sufficient profits available
within the loss-carried-forward period and the losses carried forward have not
been realized.
F-27
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2010 AND 2009
19.
|
CONTINGENCIES
|
Litigation
From time
to time the Company is involved in litigation primarily resulting from
construction contract disputes. In management opinion, they do not believe the
outcome of such litigation will, individually or in the aggregate, have a
material adverse effect on the Company's financial position.
Guarantee
On
September 18, 2009, the Company entered into a guarantee agreement with China
Citic Bank Zhenzhou Branch (the “Bank”). Pursuant to the agreement, the Company
provided corporate guarantees for bank loans to Tai Ao, with a debt ceiling of
Rmb 65 million (approximately $9,546,750). The guarantee period is from
September 18, 2010 to September 17, 2012. Associated with the corporate
guarantee, Tai Ao also provided a cross guarantee for the bank loans of
$7,343,654 the Company borrowed from the Bank. Also see Note
13.
The
Company’s management considered the risk of default by Tai Ao is remote and
therefore no liability for the guarantor's obligation under the guarantee was
recognized as of June 30, 2010. No fee was paid to Tai Ao for their
guarantee.
20.
|
CONTRIBUTED
CAPITAL
|
Included
in additional paid-in capital is a contribution from a shareholder of the
Company. Long Triumph Investments Limited (“LTII”) paid certain expenses on
behalf of the Company. The expenses of $222,020 and $578,491 were considered a
capital contribution by LTII for the years ended June 30, 2010 and 2009,
respectively.
21.
|
SUBSEQUENT
EVENTS
|
On August
17, 2010, the Company entered into a loan contract with China Construction Bank
Pingdingshan Branch. Pursuant to the contract, the Company borrowed loan of
$13,218,577 from China Construction Bank Pingdingshan Branch, due August 17,
2013, bearing a 5.13% interest rate per annum and secured by the toll road
operating rights owned by the Company. Principal is repaid on August
17, 2013, and interest is paid monthly.
On
September 9, 2010, the Company received a letter from The NASDAQ Stock Market
LLC (“NASDAQ”) advising that for the previous 30 consecutive business days, the
closing bid price of the Company’s common stock was below the minimum $1.00 per
share requirement for continued listing on NASDAQ Capital Market pursuant to
NASDAQ Marketplace Rule 5550(a)(2). The company will be provided 180
calendar days, or until March 8, 2011, to regain compliance with the minimum bid
price requirement.
F-28