Attached files
file | filename |
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EX-31.1 - China Infrastructure Investment CORP | v202430_ex31-1.htm |
EX-32.2 - China Infrastructure Investment CORP | v202430_ex32-2.htm |
EX-31.2 - China Infrastructure Investment CORP | v202430_ex31-2.htm |
EX-32.1 - China Infrastructure Investment CORP | v202430_ex32-1.htm |
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended September 30, 2010
OR
o
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
|
For the
transition period from ______ to __________
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 incorporation or
organization)
|
(IRS
Employer Identification No.)
|
Room
D, 2F, Building 12, Xinxin Huayuan, Jinshui Road, Zhengzhou, Henan
Province
|
The
People’s Republic of China
|
(Address
of principal executive offices)
|
(011)
86-375-2754377
|
(Registrant’s
Telephone Number, Including Area
Code)
|
(Former
Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No o
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 o No o
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 o
|
Accelerated
filer o
|
Non-accelerated
filer o (Do
not check if a smaller reporting company)
|
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 o No x
As of
November 9, 2010 the registrant had 80,000,000 shares of common stock, par value
$0.001 per share, issued and outstanding.
TABLE OF
CONTENTS
PART
I FINANCIAL INFORMATION
|
1
|
|||
|
||||
ITEM
1. FINANCIAL STATEMENTS
|
1
|
|||
Condensed
Consolidated Balance Sheets at September 30, 2010
(Unaudited) and June 30, 2010
|
1
|
|||
Condensed
Consolidated Statements of Income and Comprehensive
Income for
the Three Months Ended September 30, 2010 and 2009
(Unaudited)
|
3
|
|||
Condensed
Consolidated Statements of Cash Flows for
the Three Months Ended September 30, 2010 and 2009
(Unaudited)
|
4
|
|||
|
||||
Notes to
Condensed Consolidated Financial Statements for
the Three Months Ended September 30, 2010
(Unaudited)
|
5
|
|||
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS AND RESULTS OF
OPERATIONS
|
28
|
|||
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
39
|
|||
ITEM
4. CONTROLS AND PROCEDURES
|
39
|
|||
PART
II OTHER INFORMATION
|
40
|
|||
ITEM
1. LEGAL PROCEEDINGS
|
40
|
|||
|
||||
ITEM
1A. RISK FACTORS
|
40
|
|||
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
40
|
|||
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
|
40
|
|||
ITEM
4. (REMOVED AND RESERVED)
|
40
|
|||
ITEM
5. OTHER INFORMATION
|
40
|
|||
ITEM
6. EXHIBITS
|
40
|
|||
SIGNATURES
|
41
|
PART
I FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
ASSETS
|
||||||||
September
30,
2010
|
June
30,
2010
|
|||||||
(Unaudited)
|
|
|||||||
CURRENT
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 5,060,814 | $ | 1,267,199 | ||||
Restricted
cash
|
11,812,305 | 3,961,227 | ||||||
Notes
receivable, net of allowance for doubtful accounts of $907,154
and
$892,432 at September 30, 2010 and June 30, 2010
|
- | - | ||||||
Accounts
receivable, net of allowance for doubtful accounts of
$55,538
and $54,637 at September 30, 2010 and June 30, 2010
respectively
|
503,633 | 8,812 | ||||||
Other
receivables
|
178,345 | 150,132 | ||||||
Advance
from a related party
|
447,888 | 146,873 | ||||||
Other
current assets
|
796,567 | 897,484 | ||||||
Total current
assets
|
18,799,552 | 6,431,727 | ||||||
LONG-TERM
ASSETS
|
||||||||
Toll
road infrastructures, net
|
433,506,074 | 428,661,699 | ||||||
Plant
and equipment, net
|
15,227,895 | 15,154,141 | ||||||
Land
use rights, net
|
45,750,635 | 45,509,651 | ||||||
Notes
receivable from related parties
|
162,988,727 | 158,347,962 | ||||||
Advance
to a related party
|
36,829,716 | 32,732,531 | ||||||
Long-term
investment
|
1,612,398 | 1,586,229 | ||||||
Deferred
taxes
|
3,997,497 | 4,213,238 | ||||||
Total long-term
assets
|
699,912,942 | 686,205,451 | ||||||
TOTAL
ASSETS
|
$ | 718,712,494 | $ | 692,637,178 |
See
accompanying notes to the condensed consolidated financial
statements.
1
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS’
EQUITY
|
||||||||
September
30,
2010
|
June
30,
2010
|
|||||||
(Unaudited)
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Other
payables and accrued liabilities
|
$ | 3,457,826 | $ | 2,125,696 | ||||
Short-term
bank loans
|
14,929,607 | 14,687,307 | ||||||
Current
portion of long-term bank loans
|
23,403,652 | 20,086,361 | ||||||
Notes
payable
|
5,822,493 | 3,520,608 | ||||||
Payable
to contractors
|
13,018,581 | 15,873,729 | ||||||
Deferred
taxes
|
8,665,672 | 8,286,945 | ||||||
Deferred
revenue, current
|
101,598 | 99,949 | ||||||
Due
to a related party
|
3,436,596 | 587,492 | ||||||
Advances
from customers
|
371,001 | 2,395,710 | ||||||
Other
current liabilities
|
144,691 | 379,929 | ||||||
Total
current liabilities
|
73,351,717 | 68,043,726 | ||||||
LONG-TERM
LIABILITIES
|
||||||||
Long-term
bank loans
|
450,718,861 | 434,591,546 | ||||||
Deferred
revenue, long-term
|
6,602,034 | 6,521,458 | ||||||
Total
long-term liabilities
|
457,320,895 | 441,113,004 | ||||||
TOTAL
LIABILITIES
|
530,672,612 | 509,156,730 | ||||||
CONTINGENCIES
|
||||||||
SHAREHOLDERS’
EQUITY
|
||||||||
Common
stock, $.001 par value, 150,000,000 shares authorized, 80,000,000
shares
issued
and outstanding as of September 30, 2010 and June 30, 2010,
respectively
|
80,000 | 80,000 | ||||||
Additional
paid-in capital
|
141,374,184 | 141,374,184 | ||||||
Accumulated
other comprehensive income
|
31,532,933 | 28,484,004 | ||||||
Retained
earnings, (restricted portion was $43,234 at September 30, 2010
and June 30, 2010)
|
15,052,765 | 13,542,260 | ||||||
Total
Shareholders’ Equity
|
188,039,882 | 183,480,448 | ||||||
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
$ | 718,712,494 | $ | 692,637,178 |
See
accompanying notes to the condensed consolidated financial
statements.
2
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
THREE
MONTHS ENDED SEPTEMBER
30,
|
||||||||
2010
|
2009
|
|||||||
REVENUES
|
$ | 13,100,836 | $ | 13,578,529 | ||||
OPERATING
COSTS
|
2,226,236 | 1,277,504 | ||||||
DEPRECIATION
AND AMORTIZATION
|
2,751,841 | 1,888,533 | ||||||
GROSS
PROFIT
|
8,122,759 | 10,412,492 | ||||||
General
and administrative expenses
|
1,063,388 | 1,368,500 | ||||||
INCOME
FROM OPERATIONS
|
7,059,371 | 9,043,992 | ||||||
OTHER
INCOME (EXPENSES)
|
||||||||
Interest
expense
|
(7,209,501 | ) | (7,531,649 | ) | ||||
Interest income from related
parties
|
2,095,779 | 2,120,065 | ||||||
Other interest
income
|
37,708 | 71,324 | ||||||
Other income,
net
|
48,016 | 282,949 | ||||||
INCOME
FROM OPERATIONS BEFORE INCOME TAXES
|
2,031,373 | 3,986,681 | ||||||
INCOME
TAX EXPENSE
|
(520,868 | ) | (1,052,175 | ) | ||||
NET
INCOME
|
1,510,505 | 2,934,506 | ||||||
OTHER
COMPREHENSIVE INCOME
|
||||||||
Foreign
currency translation gain
|
3,048,929 | 190,993 | ||||||
OTHER
COMPREHENSIVE INCOME
|
3,048,929 | 190,993 | ||||||
COMPREHENSIVE
INCOME
|
$ | 4,559,434 | $ | 3,125,499 | ||||
WEIGHTED
AVERAGE SHARES OUTSTANDING, BASIC AND DILUTED
|
80,000,000 | 80,000,000 | ||||||
NET
INCOME PER COMMON SHARE, BASIC AND DILUTED
|
$ | 0.02 | $ | 0.04 |
See
accompanying notes to the condensed consolidated financial
statements.
3
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three
Months Ended September
30,
|
||||||||
2010
|
2009
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
income
|
$ | 1,510,505 | $ | 2,934,506 | ||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Provision
for doubted accounts
|
91,912 | - | ||||||
Depreciation
and amortization
|
2,914,134 | 2,543,162 | ||||||
Deferred
taxes
|
594,468 | 1,052,599 | ||||||
Deferred
revenue
|
(157,963 | ) | (151,403 | ) | ||||
Imputed
interest
|
131,281 | 131,691 | ||||||
Expenses
paid by shareholder
|
- | 222,020 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
(Increase)
Decrease In:
|
||||||||
Accounts
receivable
|
(494,821 | ) | (237,557 | ) | ||||
Other
receivables
|
(28,212 | ) | (496 | ) | ||||
Other
current assets
|
100,916 | 257,257 | ||||||
Increase
(Decrease) In:
|
||||||||
Other
payables and accrued liabilities
|
1,332,132 | (242,190 | ) | |||||
Advances
from customers
|
(2,024,709 | ) | - | |||||
Other
current liabilities
|
(235,238 | ) | (8,221 | ) | ||||
Net
cash provided by operating activities
|
3,734,405 | 6,501,368 | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases
of plant and equipment
|
(36,068 | ) | (47,164 | ) | ||||
Decrease
in payable to contractors
|
(2,855,148 | ) | (1,347,206 | ) | ||||
Increase
in principal of notes receivable from related parties
|
- | (1,461,753 | ) | |||||
Increase
in notes receivable from related parties for interest
|
(2,095,779 | ) | (2,121,423 | ) | ||||
Increase
in advance to related parties
|
(3,809,025 | ) | - | |||||
Net
cash used in investing activities
|
(8,796,020 | ) | (4,977,546 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceeds
from long- term bank loans
|
13,273,710 | - | ||||||
Repayments
of long-term bank loans
|
(1,474,857 | ) | - | |||||
Proceeds
from notes payable
|
5,751,888 | - | ||||||
Repayments
of notes payable
|
(3,535,292 | ) | - | |||||
Increase
in due to a related party
|
2,804,981 | - | ||||||
Restricted
cash
|
(7,851,078 | ) | - | |||||
Net
cash provided in financing activities
|
8,969,352 | - | ||||||
NET
INCREASE IN CASH AND CASH EQUIVALENTS
|
3,907,737 | 1,523,822 | ||||||
Effect
of exchange rate changes on cash
|
(114,122 | ) | (23,957 | ) | ||||
Cash
and cash equivalents at beginning of period
|
1,267,199 | 1,614,260 | ||||||
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
$ | 5,060,814 | $ | 3,114,125 |
SUPPLEMENTAL
CASH FLOW INFORMATION:
|
||||||||
Interest
paid
|
$ | 6,941,592 | $ | 7,335,276 | ||||
Income
taxes paid
|
23,728 | - |
See
accompanying notes to the condensed consolidated financial
statements.
4
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(Unaudited)
1.
|
ORGANIZATION
AND PRINCIPAL ACTIVITIES
|
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.
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)
|
Basis
of presentation
|
The accompanying condensed financial
statements of the Company have been prepared without audit pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in the financial statements prepared
in accordance with accounting principles generally accepted in the United States
of America have been condensed or omitted pursuant to such rules and
regulations. The Company believes that the disclosures made are adequate to make
the information presented not misleading. The condensed consolidated balance
sheet information as of June 30, 2010 was derived from the audited consolidated
financial statements included in the Company’s Annual Report on Form 10-K. These
condensed financial statements should be read in conjunction with the
consolidated financial statements and related footnotes included in the
Company’s latest Annual Report on Form 10-K. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position of the Company as of September 30, 2010,
and the statements of its operations for the three months ended September 30,
2010 and 2009 and statements of cash flows for the three months ended September
30, 2010 and 2009 have been included. The results of operations for interim
periods are not necessarily indicative of the results which may be realized for
the full year.
(b)
|
Principles
of Consolidation
|
On July 1, 2009, the Company adopted
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) 105-10. ASC 105-10 establishes the FASB ASC as the source of
authoritative accounting principles recognized by the FASB to be applied in
preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America. The adoption of this
standard had no impact on the Company’s condensed consolidated financial
statements.
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.
6
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(Unaudited)
(c)
|
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 September 30 and June 30, 2010. Also see Notes 6 and
7.
(d)
|
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.
(e)
|
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(h).
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 agreed to purchase at least 51% of Tai Ao. The consideration for
the purchase will be settled first with the note receivable from Xinyang, and
the remainder in cash. The advance
to Tai Ao will also be settled in the Company’s acquisition of Tai Ao. The
collectibility of the notes receivable from these related parties depends to a
large extent on completion of the share purchase discussed above. The
transaction involves the acquisition of a PRC entity by a foreign company and is
required to be approved by the Bureau of Commerce in the PRC. The Company
submitted the share purchase resolution to the Pingdingshan Bureau of Commerce
for the necessary approval, however, whether the application will be approved
was still unclear as of November 15, 2010. Thus, there is uncertainty as to the
collectibility of the notes receivable and the advance from these related
parties. At this time, the Company estimates that there is no need for a reserve
against the amounts due from these related parties. If the Company is
unsuccessful in obtaining the necessary government approval for the acquisition
of Tai Ao, this reserve estimate could have a material impact on the financial
condition and results of operations of the Company. See Notes 6 and
7.
7
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(Unaudited)
(f)
|
Fair
Value of Financial Instruments
|
ASC 820-10, 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.
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 September 30 and June 30,
2010.
(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.
8
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(Unaudited)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
(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(e).
(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 three months ended September 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. 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 three months ended September 30, 2010 and
2009.
9
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(Unaudited)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
(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.
|
(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 $107,358 and $50,633 were
charged to operations for the three months ended September 30, 2010 and
2009.
(p)
|
Earnings
Per Share
|
Basic
earnings per share is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding during
the period. Diluted earnings per share is computed similar to basic earnings per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive.
There were no potentially dilutive securities outstanding for the three months
ended September 30, 2010 and 2009.
(q)
|
Foreign
Currency Translation
|
The
accompanying financial statements are presented in United States
dollars. The functional currency of the Company is the Renminbi
(RMB). The financial statements are translated into United States
dollars from RMB at year-end exchange rates as to assets and liabilities and
average exchange rates as to revenues and expenses. Capital accounts are
translated at their historical exchange rates when the capital transactions
occurred.
September 30,
2010
|
June 30,
2010
|
September 30,
2009
|
||||||||||
Period ended RMB: US$ exchange
rate
|
6.6981 | 6.8086 | - | |||||||||
Average RMB: US$
exchange rate
|
6.7803 | - | 6.8411 |
10
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(Unaudited)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
(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.
(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 adoption of these
disclosure requirements did not 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 (f) - Fair Value of Financial Instruments.
3.
|
LIQUIDITY
|
The
Company had a working capital deficit of $54,552,165 at September 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. During the reporting period, to increase its cash resources,
the Company obtained a long-term loan of $13,436,648. As of the date of this
report, the Company has not experienced any difficulty in raising funds by bank
loans, and has not experienced any liquidity problems in settling the payables
in the normal course of business and repaying the bank loans when they fall 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.
11
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(Unaudited)
4.
|
NOTES
RECEIVABLE
|
Notes
receivable from unrelated companies consist of the following:
September
30,
2010
(Unaudited)
|
June
30,
2010
|
|||||||
Notes
receivable from unrelated companies
|
$ | 907,154 | $ | 892,432 | ||||
Less:
Provision for doubtful accounts
|
907,154 | 892,432 | ||||||
$ | - | $ | - |
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 $797,084 was provided by the
Company as of September 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 $110,070 was provided by the
Company as of September 30, 2010.
Interest
income from the notes receivable for the three months ended September 30, 2010
and 2009 was $0 and $1,358, respectively.
5.
|
ACCOUNTS
RECEIVABLE
|
September
30,
2010
(Unaudited)
|
June
30,
2010
|
|||||||
Accounts
receivable
|
$ | 559,171 | $ | 63,449 | ||||
Less:
Provision for doubtful accounts
|
55,538 | 54,637 | ||||||
$ | 503,633 | $ | 8,812 |
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. terminated
the contract. The Company ceased accruing the rental income. A full provision
amounting to $55,538 was provided by the Company as of September 30,
2010.
As of
September 30, 2010, accounts receivable for tolling charges of $488,405 was
pledged as collateral for the bank loan from China Minsheng Banking Corp.,
Ltd. Also see Note 13.
12
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(Unaudited)
6.
|
NOTES
RECEIVABLE FROM RELATED PARTIES
|
September
30,
2010
(Unaudited)
|
June
30,
2010
|
|||||||
Xinyang Expressway Co.,
Ltd.
|
||||||||
Principal
|
$ | 71,196,234 | 70,040,757 | |||||
Interest
receivable
|
10,038,406 | 8,835,382 | ||||||
81,234,640 | 78,876,139 | |||||||
Henan Ruijia Industry Co.,
Ltd.
|
||||||||
Interest
receivable
|
$ | 69,697 | 68,566 | |||||
Less:
Provision
|
(69,697 | ) | - | |||||
- | 68,566 | |||||||
Henan Hairun Trade Co.,
Ltd.
|
||||||||
Interest
receivable
|
$ | 23,342 | 22,964 | |||||
Less:
Provision
|
(23,342 | ) | - | |||||
- | 22,964 | |||||||
Tai Ao Expressway Co., Ltd.
|
||||||||
Principal
|
$ | 71,666,020 | $ | 70,502,918 | ||||
Interest
receivable
|
10,088,067 | 8,877,375 | ||||||
81,754,087 | 79,380,293 | |||||||
Total
notes receivable from related parties
|
$ | 162,988,727 | $ | 158,347,962 |
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. Considering the Company has never received the interest
from the note, the Company’s management believes there is uncertainty as to
collection of the interest income. A full provision amounting to $69,697 was
provided by the Company for the interest as of September 30, 2010.
13
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(Unaudited)
6.
|
NOTES
RECEIVABLE FROM RELATED PARTIES
(CONTINUED)
|
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. Considering the Company has never received the interest from the
note, the Company’s management believes there is uncertainty as to collection of
the interest income. A full provision amounting to $23,342 was provided by the
Company for the interest as of September 30, 2010.
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
$2,095,779 and $2,120,065 for the three months ended September 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.
The
collectibility of the notes receivable from these related parties depends to a
large extent on the completion of the share purchase resolution discussed above.
The transaction involves the acquisition of a PRC entity by a foreign company
and is required to be approved by the Bureau of Commerce in the PRC. The Company
submitted the share purchase resolution to the Pingdingshan Bureau of Commerce
for approval, however, whether such approval will be obtained was still unclear
as of November 15, 2010. Thus, there is uncertainty as to the collectibility of
the notes receivable from these related parties. At this time, the Company
estimates that there is no need for a reserve against the amounts due from these
related parties. If the Company is unsuccessful in obtaining approval for the
acquisition of Tai Ao, this reserve estimate could have a material impact on the
financial condition and results of operations of the Company. Also see Note
7.
14
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(Unaudited)
7.
|
ADVANCES
TO RELATED PARTIES
|
September
30,
2010
(Unaudited)
|
June
30,
2010
|
|||||||
Current
advances to related parties:
|
||||||||
Xinyang
Hongqiao Heat Co., Ltd
|
447,888 | - | ||||||
Henan
Hairun Trade Co., Ltd.
|
$ | - | 146,873 | |||||
447,888 | 146,873 | |||||||
Long-term
advance to a related party:
|
||||||||
Tai
Ao Expressway Co., Ltd.
|
$ | 36,829,716 | 32,732,531 | |||||
$ | 37,277,604 | $ | 32,879,404 |
The
Company and Tai Ao Expressway Co., Ltd. are held by the same shareholder, 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.
The
Company made payments to Tai Ao for working capital. For the three months ended
September 30, 2010, the payments to Tai Ao amounted to $4,129,599, and the
repayments from Tai Ao amounted to $615,545. The balances of $36,829,716 and
$32,732,531 at September 30, 2010 and June 30, 2010, 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 agreed to
purchase at least 51% of Tai Ao. The consideration for the purchase will be
settled first with the note receivable from Xinyang, and the remainder in cash.
The advance to Tai Ao will also be part of the Company’s acquisition of Tai Ao.
The collectibility of the notes receivable and the advance from related parties
to the large extent depends on completion of the share purchase resolution. The
transaction involves the acquisition of a PRC entity by a foreign company and is
required to be approved by the Bureau of Commerce in the PRC. The Company
submitted the share purchase resolution to the Pingdingshan Bureau of Commerce
for such approval. However, whether the application will be approved is still
unclear as of November 15, 2010. Thus, there is uncertainty as to the
collectibility of the notes receivable and the advance from these related
parties. At this time, the Company estimates that there is no need for a reserve
against the amounts due from these related parties. If the Company is
unsuccessful in obtaining the necessary government for the acquisition of Tai
Ao, this reserve estimate could have a material impact on the financial
condition and results of operations of the Company. 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 three months ended September 30,
2010, the prepayments to Hairun were $0, and the repayments from Hairun were
$146,873. The balances at
September 30, 2010 and June 30, 2010 were $0 and $146,873,
respectively.
The
Company and Xinyang Hongqiao Heat Co., Ltd are held by the same shareholder, Li
Xipeng. The Company made
advances to Xinyang
Hongqiao Heat Co., Ltd for its
working capital needs. For the three months ended September 30, 2010, the
advances to Xinyang Hongqiao Heat Co., Ltd amounted to $447,888. The balance at September 30, 2010
is unsecured, interest free and due on demand.
15
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(Unaudited)
8.
|
DUE
TO A RELATED PARTY
|
September
30,
2010
(Unaudited)
|
June
30,
2010
|
|||||||
Zhengzhou
Zhengbian Tap Water Co., Ltd
|
$ | - | $ | 587,492 | ||||
ZhengzhouZhengdong
Thermoelectricity Co., Ltd
|
3,436,596 | - | ||||||
Total
|
$ | 3,436,596 | $ | 587,492 |
The
Company borrowed working capital from Zhengzhou Zhengbian Tap Water Co., Ltd,
which is controlled by the same shareholder of the Company, Li Xipeng. The
Company repaid the amount during the three months ended September 30,
2010.
The
Company borrowed working capital from Zhengzhou Zhengdong Thermoelectricity Co.,
Ltd, which is controlled by a shareholder of the Company, Li Xipeng. For the
three months ended September 30, 2010, the working capital borrowed from
Zhengzhou Zhengdong Thermoelectricity Co., Ltd was $7,374,283 and the repayment
to Zhengzhou Zhengdong Thermoelectricity Co., Ltd was $3,979,360. The balance of
$3,436,596 at September 30, 2010 is unsecured, interest free and has no fixed
repayment term.
9.
|
TOLL
ROAD INFRASTRUCTURES, NET
|
Toll road
infrastructures consist of the following:
September
30,
2010
(Unaudited)
|
June
30,
2010
|
|||||||
At
cost:
|
$ | 466,510,293 | $ | 458,939,075 | ||||
Less: Accumulated
depreciation
|
33,004,219 | 30,277,376 | ||||||
Toll
road infrastructures, net
|
$ | 433,506,074 | $ | 428,661,699 |
Depreciation
expense for the three months ended September 30, 2010 and 2009 was $2,200,340
and $1,837,534, respectively. Also see Notes 2(e) and 2(h).
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.
16
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(Unaudited)
10.
|
PLANT
AND EQUIPMENT, NET
|
Plant and
equipment consist of the following:
September
30,
2010
(Unaudited)
|
June
30,
2010
|
|||||||
At
cost:
|
||||||||
Toll
station and ancillary facilities
|
$ | 10,731,482 | $ | 10,557,317 | ||||
Communication
and monitoring equipment
|
5,948,708 | 5,852,164 | ||||||
Motor
vehicles
|
1,558,967 | 1,533,666 | ||||||
Machinery
|
304,206 | 299,269 | ||||||
Office
equipment
|
661,538 | 614,884 | ||||||
19,204,901 | 18,857,300 | |||||||
Less: Accumulated
depreciation
|
||||||||
Toll
station and ancillary facilities
|
1,592,942 | 1,481,751 | ||||||
Communication
and monitoring equipment
|
827,076 | 766,348 | ||||||
Motor
vehicles
|
1,057,144 | 993,498 | ||||||
Machinery
|
158,899 | 147,249 | ||||||
Office
equipment
|
340,945 | 314,313 | ||||||
3,977,006 | 3,703,159 | |||||||
Plant
and equipment, net
|
$ | 15,227,895 | $ | 15,154,141 |
Depreciation
expense for the three months ended September 30, 2010 and 2009 was $210,177 and
$206,487, respectively.
17
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(Unaudited)
11.
|
LAND
USE RIGHTS
|
Land use
rights consist of the following:
September
30,
2010
(Unaudited)
|
June
30,
2010
|
|||||||
Cost
|
$ | 54,894,528 | $ | 54,003,618 | ||||
Less:
Accumulated amortization
|
9,143,893 | 8,493,967 | ||||||
Land
use rights, net
|
$ | 45,750,635 | $ | 45,509,651 |
Amortization
expense for the three months ended September 30, 2010 and 2009 was $503,617 and
$499,142, respectively.
Amortization
expense for the next five years and thereafter is as follows:
September
30, 2011
|
$ | 2,039,192 | ||
September
30, 2012
|
2,039,192 | |||
September
30, 2013
|
2,039,192 | |||
September
30, 2014
|
2,039,192 | |||
September
30, 2015
|
2,039,192 | |||
Thereafter
|
35,554,675 | |||
Total
|
$ | 45,750,635 |
12.
|
LONG-TERM
INVESTMENT
|
September
30, 2010
(Unaudited)
|
June
30, 2010
|
|||||||||||||||
Ownership
Interest
|
Net
Book Value
|
Ownership
Interest
|
Net
Book Value
|
|||||||||||||
At
cost:
|
||||||||||||||||
Pingdingshan
City Credit Corporation
|
2.39 | % | $ | 1,612,398 | 2.39 | % | $ | 1,586,229 |
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, 2010 and June 30, 2010,
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. No dividend income was recognized for the three
months ended September 30, 2010 and 2009.
18
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(Unaudited)
13.
|
SHORT-TERM
BANK LOAN
|
Short-term
bank loan as of September 30, 2010 and June 30, 2010 consist of the
following:
September
30,
2010
(Unaudited)
|
June
30,
2010
|
|||||||
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 for tolling charges owned by the
Company. Also see Note 5.
|
7,464,803 | 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.
|
7,464,804 | 7,343,653 | ||||||
Total
short-term bank loans
|
$ | 14,929,607 | $ | 14,687,307 |
Interest
expense for the three months ended September 30, 2010 and 2009 was $211,233 and
$97,024, respectively.
19
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(Unaudited)
14.
|
LONG-TERM
BANK LOANS
|
Long-term
bank loans consist of the following:
September
30,
2010
(Unaudited)
|
June
30,
2010
|
|||||||
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.
|
$ | 89,577,641 | $ | 88,123,843 | ||||
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.
|
26,873,292 | 26,437,154 | ||||||
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.
|
28,366,253 | 29,374,614 | ||||||
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.
|
166,572,610 | 163,869,224 | ||||||
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.
|
149,296,069 | 146,873,072 | ||||||
Loans
from China Construction Bank, due August 17, 2013, bearing a 5.13%
interest rate per annum, secured by the toll road operating right owned by
the Company. Principal is to be repaid at maturity, and interest is paid
monthly.
|
13,436,648 | - | ||||||
Total
long-term bank loans
|
474,122,513 | 454,677,907 | ||||||
Less:
current portion
|
23,403,652 | 20,086,361 | ||||||
Long-term
portion
|
$ | 450,718,861 | $ | 434,591,546 |
20
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(Unaudited)
14.
|
LONG-TERM
BANK LOANS (CONTINUED)
|
For the
three months ended September 30, 2010 and 2009, interest expense was $6,731,447
and $7,236,096, 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.
The
repayment schedule for the long-term bank loans is as follows:
September
30, 2011
|
$ | 23,403,652 | ||
September
30, 2012
|
30,384,736 | |||
September
30, 2013
|
51,286,186 | |||
September
30, 2014
|
33,854,377 | |||
September
30, 2015
|
33,854,377 | |||
Thereafter
|
301,339,185 | |||
Total
|
$ | 474,122,513 |
15.
|
NOTES
PAYABLE
|
September
30,
2010
(Unaudited)
|
June
30,
2010
|
|||||||
Bank
acceptance notes
|
$ | 5,822,493 | $ | 3,520,608 |
Notes
payable were issued to the Company’s contractors through China Construction
Bank. The notes are interest free. Notes payable of $4,161,713 were issued at
July 1, 2010 and are due December 1, 2010, notes payable of $1,243,725 were
issued at July 6, 2010 and are due December 6, 2010, and notes payable of
$417,055 were issued at August 27, 2010 and are due February 26,
2011.
Restricted
cash of $582,249 collateralize the notes at September 30, 2010.
21
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(Unaudited)
16.
|
DEFERRED
REVENUE
|
September
30,
2010
(Unaudited)
|
June
30,
2010
|
|||||||
Deferred
revenue
|
$ | 15,698,916 | $ | 15,601,437 | ||||
Imputed interest
discount
|
(8,995,284 | ) | (8,980,030 | ) | ||||
Total
|
6,703,632 | 6,621,407 | ||||||
Less:
current portion
|
101,598 | 99,949 | ||||||
Long-term
portion
|
$ | 6,602,034 | $ | 6,521,458 |
The
Company leases four gas stations to Petro China Company Limited Pingdingshan
Branch (“PCCL”) pursuant to a 30 year lease beginning January 1, 2006. 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 three
months ended September 30, 2010 and 2009 was $152,760 and $151,403 respectively.
The imputed interest for the three months ended September 30, 2010 and 2009 was
$131,281 and $131,691, respectively.
The
Company leases communication channels along the expressway to China Mobile
Company Limited Pingdingshan Branch pursuant to a 15 year lease beginning August
1, 2009. The total rental fee is $312,180, which will be paid in 3 installments
of $104,060 in July of every 5th year.
The amount received is before tax. The Company amortized deferred revenue under
the straight-line method. The rental income recognized for the three months
ended September 30, 2010 and 2009 was $5,203 and $0, respectively.
17.
|
ADVANCES
FROM CUSTOMERS
|
September
30,
2010
(Unaudited)
|
June
30,
2010
|
|||||||
Henan Expressway Management
Bureau
|
$ | - | $ | 2,019,532 | ||||
Jiaxin
Shitong Highway Service Management Limited Company
|
179,155 | 176,248 | ||||||
Xinle
Huitong Enterprise and Service Management Co., Ltd
|
167,212 | 164,498 | ||||||
Others
|
24,634 | 35,432 | ||||||
Total
|
$ | 371,001 | $ | 2,395,710 |
22
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(Unaudited)
17.
|
ADVANCE
FROM CUSTOMERS (CONTINUED)
|
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 is $895,775, which is to be paid in five
annual installments of $179,155. The advance from customers for rental income as
of September 30, 2010 was $179,155. Also see Note 5.
On June
26, 2010, the Company rented the West Pingdingshan and 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 $836,060, which will be paid
in five annual installments of $167,212. The advance from customers for rental
income as of September 30, 2010 was $167,212. Also see Note 5.
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 beginning 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. 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 ASC 740-10, the Company 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 50% 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 September 30, 2010,
the Company did not have a liability for unrecognized tax
benefits.
Income
tax expense is summarized as follows:
Three
Months Ended
September
30,
|
|||||||||
2010
(Unaudited)
|
2009
(Unaudited)
|
||||||||
Current
|
$ | - | $ | 3,405 | |||||
Deferred
|
520,868 | 1,048,770 | |||||||
Income
tax expense
|
$ | 520,868 | $ | 1,052,175 |
23
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(Unaudited)
18.
|
INCOME
TAX (CONTINUED)
|
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:
Three
Months Ended
September
30,
|
||||||||
2010
(Unaudited)
|
2009
(Unaudited)
|
|||||||
Computed
“expected” expense
|
$ | 507,843 | $ | 996,670 | ||||
Valuation
allowance
|
13,025 | - | ||||||
Permanent
difference
|
- | 55,505 | ||||||
Income
tax expense
|
$ | 520,868 | $ | 1,052,175 |
24
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(Unaudited)
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:
|
September
30,
2010
(Unaudited)
|
June
30,
2010
|
||||||
G&A
expenses
|
$ | 326,548 | $ | 330,313 | ||||
Road
maintenance costs
|
591,834 | 316,408 | ||||||
Other
expenses
|
128,497 | 126,412 | ||||||
Payroll
expenses
|
- | 58,368 | ||||||
Bad
debts
|
13,885 | 13,659 | ||||||
US
loss carry forward
|
281,733 | 268,708 | ||||||
Valuation
allowance
|
(281,733 | ) | (268,708 | ) | ||||
PRC
loss carry forward
|
505,071 | 939,492 | ||||||
Total
deferred tax assets
|
1,565,835 | 1,784,652 | ||||||
Sales
cut-off
|
(1,222,273 | ) | (920,961 | ) | ||||
Welfare
|
(13,360 | ) | - | |||||
Interest
income
|
(8,679,360 | ) | (8,940,112 | ) | ||||
Interest
expense
|
(74,768 | ) | (34,583 | ) | ||||
Consulting
fees
|
(77,940 | ) | (113,393 | ) | ||||
Timing
difference between PRC book and tax return
|
(88,783 | ) | - | |||||
Other
expenses
|
(75,023 | ) | (62,548 | ) | ||||
Total
deferred tax liabilities
|
(10,231,507 | ) | (10,071,597 | ) | ||||
Net
deferred tax liabilities
|
$ | (8,665,672 | ) | $ | (8,286,945 | ) | ||
Non-current portion: | ||||||||
Rental
income
|
$ | 145,727 | $ | 149,941 | ||||
Capitalized
interest
|
2,283,037 | 2,245,984 | ||||||
Amortization
|
2,285,973 | 2,123,492 | ||||||
Bad
debts
|
2,750,780 | 2,706,136 | ||||||
Total
deferred tax assets
|
7,465,517 | 7,225,553 | ||||||
Depreciation
|
(3,468,020 | ) | (3,012,315 | ) | ||||
Total
deferred tax liabilities
|
(3,468,020 | ) | (3,012,315 | ) | ||||
Net
deferred tax assets
|
$ | 3,997,497 | $ | 4,213,238 |
As of
September 30, 2010, the PRC loss carry forward of $505,071 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.
25
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(Unaudited)
18.
|
INCOME
TAX (CONTINUED)
|
As of
September 30, 2010, the US losses carried forward is $281,733. 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
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.
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
The
Company entered into a guarantee agreement with China Citic Bank Zhengzhou
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 $9,704,244). The guarantee period is from September 1, 2010 to
December 31, 2011. As of September 30, 2010, Tai Ao borrowed the loan of
Rmb 50 million (approximately $7,464,803), due September 15, 2011.
Associated
with the corporate guarantee, Tai Ao also provided a cross guarantee for the
bank loans of $7,464,803 the Company borrowed from the Bank. Also see Note
13.
As of
September 30, 2010, restricted cash of $7,464,803 was pledged to Zhengzhou
Zhengdong Thermoelectricity Co., Ltd for the notes payable issued by the Company
to Zhengzhou Zhengdong Thermoelectricity Co., Ltd.
The
Company’s management considers the risk of default by Tai Ao to be remote and
therefore no liability for the
guarantor's obligation under the guarantee was recognized as of September
30, 2010. No fee was paid to Tai Ao for their guarantee.
The
Company’s management considers the risk of default by Zhengzhou Zhengdong
Thermoelectricity Co., Ltd to be remote and therefore no liability for the
pledgor's obligation under the
mortgagee was recognized
as of September 30, 2010. No fee was paid to Zhengzhou Zhengdong
Thermoelectricity Co., Ltd for their mortgagee.
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.
26
CHINA
INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(Unaudited)
21.
|
SUBSEQUENT
EVENTS
|
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.
27
ITEM
2. 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.
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.
28
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.
29
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 also be
settled in the Company’s acquisition of Tai Ao. The
collectibility of the notes receivables from these related parties depends to a
large extent on completion of the share purchase discussed above. The
transaction involves the acquisition of a PRC entity by a foreign company and is
required to be approved by the Bureau of Commerce in the PRC. The Company has
submitted the share purchase to the Pingdingshan Bureau of Commerce for the
necessary approval, however, whether the application will be approved was still
unclear as of November 15, 2010. Thus, there is uncertainty as to the
collectibility of the notes receivables from these related parties. At this
time, the Company estimates that there is no need for a reserve against the
amounts due from these related parties. If the Company is unsuccessful in
obtaining the necessary government approval for the acquisition of Tai Ao, this
reserve estimate could have a material impact on the financial condition and
results of operations of the Company.
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.
30
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
September 30, 2010 and June 30,
2010.
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.
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 three months ended September 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”)
|
hold by the same shareholder with
the Company
|
Xinyang Expressway Co., Ltd.
(“Xinyang”)
|
hold 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”)
|
hold by the same shareholder with
the Company
|
Xinyang Hongqiao Heat Co., Ltd.
(“Hongqiao”)
|
hold by the same shareholder with
the Company
|
Zhengzhou Zhengdong
Thermoelectricity
Co., Ltd. (“Zhengdong”)
|
hold by the same shareholder with
the Company
|
Zhengzhou Zhengbian Tap Water Co.,
ltd.(“Zhengbian”)
|
hold by the same shareholder with
the Company
|
31
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 agreed to
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 also be
settled in the Company’s acquisition of Tai Ao. The
collectibility of the notes receivable and the advance from these related
parties depends to a large extent on completion of the share purchase discussed
above. The transaction involves the acquisition of a PRC entity by a foreign
company and is required to be approved by the Bureau of Commerce in the PRC. The
Company submitted the share purchase resolution to the Pingdingshan Bureau of
Commerce for the necessary approval, however, whether the application will be
approved was still unclear as of November 15, 2010. Thus, there is uncertainty
as to the collectibility of the notes receivable and the advance from these
related parties. At this time, the Company estimates that there is no need for a
reserve against the amounts due from these related parties. If the Company is
unsuccessful in obtaining the necessary government approval for the acquisition
of Tai Ao, this reserve estimate could have a material impact on the financial
condition and results of operations of the Company.
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 were repaid at
maturity. On November 12, 2009, the Company received the principal of such note receivable. Considering
the Company has never received the interest from the note, the
Company’s management believes there is
uncertainty as to collection of the interest income. A full provision amounting
to $69,697 was provided by the Company for the interest as of September
30, 2010.
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. Considering the Company has never received the interest from the
note, the Company’s management believes there is
uncertainty as to collection of the interest income. A full provision amounting
to $23,342 was provided by the Company for the interest as of September 30,
2010.
32
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 $2,095,779
and $2,120,065 for the three months ended September 30, 2010 and 2009,
respectively.
The Company made payments to Tai Ao for
working capital. For the
three months ended September 30, 2010, the payments to Tai Ao amounted to
$4,129,599, and the repayments from Tai Ao were $615,545. The balances are
unsecured, interest free and due on demand.
The Company made payments to Hairun for its working capital needs.
For the three months ended September 30, 2010, the payments to Hairun
were $0, and the repayments from Hairun were $146,873.
Xinyang Hongqiao Heat Co., Ltd is
substantially held by the same shareholder of the Company, Li Xipeng.
The Company made advances to Hongqiao for its working capital needs. For the
three months ended September 30, 2010, the advances to Hongqiao amounted to
$447,888. The balance at September 30, 2010 is unsecured, interest free and due on
demand.
The Company borrowed working capital
from Zhengdong, which is held by the same shareholder of the Company, Li Xipeng.
For the three months ended September 30, 2010, the working capital borrowed from
Zhengdong was $7,374,283 and the repayment to Zhengdong was amounting
to $3,979,360. The balances are unsecured, interest free and have no fixed
repayment term.
The Company lent working capital from
Zhengbian. The Company repaid the amount $587,492 during the three months ended
September 30,
2010.
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.
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 $9,704,244). The
guarantee period is from September 1, 2010
to December 31, 2011. As of September 30, 2010, Tai Ao borrowed the
loan of Rmb 50 million (approximately $7,464,803), due September 15, 2011.
Associated with the corporate guarantee, Tai Ao also provided a cross
guarantee for the bank loans of
$7,464,803 the Company borrowed from the Bank.
As of September 30, 2010, restricted
cash of $7,464,803 was pledged to Zhengzhou Zhengdong Thermoelectricity Co., Ltd
for the notes payable issued by the Company to Zhengzhou Zhengdong Thermoelectricity Co.,
Ltd.
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 September
30, 2010.
33
The Company’s management considered the risk of default
by Zhengzhou Zhengdong Thermoelectricity Co., Ltd is remote and therefore no
liability for the pledgor's obligation under the mortgagee was recognized as of
September 30, 2010. No fee was paid to Zhengzhou Zhengdong Thermoelectricity Co., Ltd for their
mortgagee.
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 adoption of these
disclosure requirements did not 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.
Results of
Operations
Results of Operations for the Three (3)
Months Ended September 30, 2010 Compared to the Three (3) Months Ended September
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.
Three
Months Ended
September 30
(Unaudited)
|
Three
Months Ended
September 30
(Unaudited)
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Revenues
|
13,100,836 | 13,578,529 | 100.0 | % | 100.0 | % | ||||||||||
Operating
costs
|
2,226,236 | 1,277,504 | 17.0 | % | 9.4 | % | ||||||||||
Depreciation
and amortization
|
2,751,841 | 1,888,533 | 21.0 | % | 13.9 | % | ||||||||||
Gross
profit
|
8,122,759 | 10,412,492 | 62.0 | % | 76.7 | % | ||||||||||
General
and administrative expenses
|
1,063,388 | 1,368,500 | 8.1 | % | 10.1 | % | ||||||||||
Income
from operations
|
7,059,371 | 9,043,992 | 53.9 | % | 66.6 | % | ||||||||||
Interest
income from related parties
|
2,095,779 | 2,120,065 | 16.0 | % | 15.6 | % | ||||||||||
Other
interest income
|
37,708 | 71,324 | 0.3 | % | 0.5 | % | ||||||||||
Interest
expense
|
7,209,501 | 7,531,649 | 55.0 | % | 55.5 | % | ||||||||||
Other
income, net
|
48,016 | 282,949 | 0.4 | % | 2.1 | % | ||||||||||
Income
from operations before income taxes
|
2,031,373 | 3,986,681 | 15.5 | % | 29.4 | % | ||||||||||
Income
tax expense
|
520,868 | 1,052,175 | 4.0 | % | 7.7 | % | ||||||||||
Net
income
|
1,510,505 | 2,934,506 | 11.5 | % | 21.6 | % |
34
Revenues
Our revenues are derived from the
operation of the Expressway. Our revenues decreased by approximately $0.5
million, or 3.5%, from approximately $13.6 million for the three months ended September 30, 2009 to
approximately $13.1 million for the three months ended September 30, 2010. The
decrease was mainly due to the following factors:
Average daily traffic volume decreased
due to competition from nearly toll highways and toll-free roads.
The Lianhuo Expressway expansion
project, which
forced a detour of traffic away from the Pingling Expressway. Lianhuo
Expressway connects the Pinglin Expressway from the north. The Lianhuo Expressway expansion project
is expected to be completed in June 2011. Until
completion of this project, the Company expects traffic volume on the Pingling
Expressway to be adversely impacted.
Due to these factors set forth above,
our revenues for the three months ended September 30, 2010 decreased 3.5%
compared to the three months ended September 30, 2009.
Operating Costs
Our operating costs mainly represent the
road maintenance costs, road management costs, direct construction costs and
labor costs associated with the toll operations. For the three months ended
September 30, 2010, our operating costs increased by approximately $0.9 million, or 74.3%, to
approximately $2.2 million, compared to approximately $1.3 million for the three
months ended September 30, 2009. The increase is mainly due to the increase in
our specific project costs and the road surface evenness project for three months ended September 30,
2010.
Depreciation and
Amortization
Our total depreciation and amortization
related to toll operations increased by approximately $0.9 million, or 45.7%,
from approximately $1.9 million for the three months ended September 30, 2009 to approximately $2.8 million
for the three months ended September 30, 2010. The increase is mainly
contributed to the increase in depreciation, which was mainly caused by the
reassessment of the future expected traffic volume.
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 estimated operation licensing
period.
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 period ended
September 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 three months ended September 30, 2010
increased compared to the three months ended September 30, 2009.
Gross Profit
Our gross profit decreased by
approximately $2.3 million, or 22.0%, from approximately $10.4 million for the
three months ended September 30, 2009 to approximately $8.1 million for the
three months ended September 30, 2010. Such gross profit decrease is primarily due to the
decrease in our revenues and the increase in our operating
costs.
35
Gross profit as a percentage of revenues
decreased from 76.7% for the three months ended September 30, 2009 to 62.0% for
the three months ended September 30, 2010 as a result of the
explanation above.
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 $0.3 million, or 22.3%, from
approximately $1.4 million for the three months ended September 30,
2009 to approximately $1.1 million for the
three months ended September 30, 2010. Such decrease is primarily due to the
decrease in consulting fees.
Interest Income and
Expense
Interest income from related parties
decreased by approximately $0.02 million, or 1.1%, from approximately $2.12 million
for the three months ended September 30, 2009 to approximately $2.10 million for
the three months ended September 30, 2010. The decrease is primarily due to the
Company received the principal of notes receivable from Ruijia and Hairun on November 12,
2009. Accordingly, the interest income from related parties decreased for the
three months ended September 30, 2010.
Interest expense decreased by
approximately $0.3 million, or 4.3%, from approximately $7.5 million
for the three months ended
September 30, 2009 to approximately $7.2 million for the three months ended
September 30, 2010. This decrease is primarily due to the decreased interest
rate of our loans. 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 three months ended September 30, 2009 to 5.94% for
the three months ended September 30, 2010. Accordingly, our lenders decreased
their interest rates to some degree.
Income Tax Expense
Income tax expense decreased by
approximately $0.6 million, or 50.5%, from approximately $1.1 million for the
three months ended September 30, 2009 to approximately $0.5 million for the
three months ended September 30, 2010, as a result of the decrease
in our income from operations. Our
effective tax rate was 26% for the three months ended September 30, 2010 and
2009.
Net Income
Our net income decreased by
approximately $1.4 million, or 48.5%, from approximately $2.9 million for the
three months ended September 30, 2009 to approximately $1.5
million for the three months ended September 30, 2010. This decrease is
primarily due to the decrease in our revenues and increase in our
costs.
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, to
increase its cash resources, we obtained a long-term loan of $13,436,648. As of
the date of this report, we have not
experienced any difficulty in raising funds by bank loans, and has not
experienced any liquidity problems in settling the payables in the normal course
of business and repaying the bank loans when they fall due. To
improve liquidity, we may explore new expansion
opportunities and funding sources from which the management may consider seeking
external funding and financing.
36
The following table sets forth the
summary of our cash flow, in dollars, for the periods
indicated:
Three
Months Ended September 30
|
||||||||
2010
|
2009
|
|||||||
Net
cash provided by operating activities
|
$ | 3,734,405 | $ | 6,501,368 | ||||
Net
cash used in investing activities
|
(8,796,020 | ) | (4,977,546 | ) | ||||
Net
cash provided in financing activities
|
8,969,352 | - | ||||||
Net
decrease in cash and cash equivalents
|
3,907,737 | 1,523,822 | ||||||
Effect
of exchange rate changes on cash
|
(114,122 | ) | (23,957 | ) | ||||
Cash
and cash equivalents at beginning of period
|
1,267,199 | 1,614,260 | ||||||
Cash
and cash equivalents at end of period
|
$ | 5,060,814 | $ | 3,114,125 |
Operating Activities
Net cash provided by operating
activities was approximately $3.7 million for the three months ended September
30, 2010, as compared to $6.5 million for the three months ended September 30,
2009. This decrease is primarily due to the decrease in our advance from customers and other
current liabilities.
Investing Activities
Net cash used in investing activities
was approximately $8.8 million for the three months ended September 30, 2010 as
compared to approximately $5.0 million for the three months ended September 30,
2009. The change is primarily due to the fact that (a) we provided
more working capital for a related party company (Zhengdong) of $3.4 million for
the three months ended September 30, 2010, and (b) we settled more payables with
our contractors during the three months
ended September 30, 2010, as compared to the three months ended September 30,
2009.
Financing Activities
Net cash provided in financing
activities was $9.0 million for the three months ended September 30, 2010, as
compared to $0 for the
three months ended September 30, 2009. Such change is primarily due to the fact
that we received a long-term bank loans of $13.3 million from China
Construction Bank due to the working capital need.
Working Capital
Our working capital increased by approximately $7.0 million
from a deficit approximately $61.6 million as of June 30, 2010 to a deficit
approximately $54.6 million as of September 30, 2010. This was
primarily due to an increase in cash and cash equivalents of
approximately $3.8 million, restricted cash of
approximately $7.9 million, a decrease in payable to contractors of
approximately $2.9 million, partially offset by an increase in current portion
of long-term loans of approximately $3.3 million, due to a related party
of approximately 2.8 million. The negative
working capitals of the Company as of September 30, 2010 and June 30, 2010 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
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 September 30, 2010. Thus, there is uncertainty as to the
collectibility 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 have a material impact on the financial
condition of the Company.
37
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 and $0 for the three months ended September 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.
38
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
required
ITEM
4. CONTROLS AND PROCEDURES
Disclosure
Controls and Procedures
Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act.
Based on this evaluation, our management, including our principal executive
officer and our principal financial officer, concluded that our disclosure
controls and procedures were effective as of the fiscal quarter covered by this
Report, to ensure that information required to be disclosed by us in the reports
filed or submitted by us under the Exchange Act (i) is recorded, processed,
summarized and reported within the time period specified in SEC rules and forms,
and (ii) is accumulated and communicated to our management, including our
principal executive officer and our principal financial officer, as appropriate
to allow appropriate decisions on a timely basis regarding required
disclosure.
Internal
Control over Financial Reporting
There
were no changes in internal control over financial reporting that occurred
during the fiscal quarter covered by this report that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
39
PART
II OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
In the
normal course of business, we are named as 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.
As of the date hereof, there is no outstanding litigation with the Company
except as set forth below.
ITEM
1A. RISK FACTORS
Not
required.
ITEM
2. UREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During
the quarter ended September 30, 2010, the Company had no unregistered sales of
equity securities.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4. (REMOVED AND RESERVED)
ITEM
5. OTHER INFORMATION
None.
ITEM
6. EXHIBITS
(a) | Exhibits | |
31.1
|
Certification
pursuant to Section 302 of Sarbanes Oxley Act of 2002.
|
|
31.2
|
Certification
pursuant to Section 302 of Sarbanes Oxley Act of 2002.
|
|
32.1
|
Certification
pursuant to Section 906 of Sarbanes Oxley Act of 2002.
|
|
32.2
|
Certification
pursuant to Section 906 of Sarbanes Oxley Act of
2002.
|
40
SIGNATURES
Pursuant
to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this Quarterly Report on Form
10-Q report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date:
November 15, 2010
|
By:
|
/s/
Li Xipeng
|
|
Name:Li
Xipeng
|
|||
Chief
Executive Officer, Principal
Executive
|
|||
Officer
and Chairman of the Board
|
Date:
November 15, 2010
|
By:
|
/s/
Zhang Chunxian
|
|
Name:Zhang
Chunxian
|
|||
Chief
Financial Officer, Principal
Financial
and
|
|||
Accounting
Officer and Director
|
41