China Infrastructure Investment CORP - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - China Infrastructure Investment CORP	Financial_Report.xls
EX-32 - EXHIBIT 32 - China Infrastructure Investment CORP	v239791_ex32.htm
EX-31.1 - EXHIBIT 31.1 - China Infrastructure Investment CORP	v239791_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - China Infrastructure Investment CORP	v239791_ex31-2.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, 2011

¨	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 ¨

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

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

Large accelerated filer ¨	Accelerated filer ¨

Non-accelerated filer ¨ (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 ¨ No x

As of October 13, 2011 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			F-1

ITEM 1. FINANCIAL STATEMENTS			F-1

Condensed Consolidated Balance Sheets at September 30, 2011 (Unaudited) and June 30, 2011			F-1

Condensed Consolidated Statements of Income and Comprehensive Income for the Three Months Ended September 30, 2011 and 2010 (Unaudited)			F-3

Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2011 and 2010 (Unaudited)			F-4

Notes to Condensed Consolidated Financial Statements for the Three Months Ended September 30, 2011 (Unaudited)			F-6

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS			1

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			17

ITEM 4. CONTROLS AND PROCEDURES			17

PART II OTHER INFORMATION			17

ITEM 1. LEGAL PROCEEDINGS			17

ITEM 1A. RISK FACTORS			17

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			17

ITEM 3. DEFAULTS UPON SENIOR SECURITIES			18

ITEM 4. (REMOVED AND RESERVED)			18

ITEM 5. OTHER INFORMATION			18

ITEM 6. EXHIBITS			18

SIGNATURES			19

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CHINA INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

ASSETS


	September 30, 2011		June 30, 2011

CURRENT ASSETS
Cash and cash equivalents	$	785,489	$	557,244
Restricted cash		9,417,044		24,265,291
Notes receivable		7,419,582		-
Accounts receivable, net of allowance for doubtful accounts of $58,230 and $57,554 at September 30, 2011 and June 30, 2011, respectively		906,387		1,476,668
Other receivables		140,376		145,791
Advances to related parties		-		8,618,665
Note receivable from a related party		7,982,625		-
Prepaid expenses		14,056		16,576
Deferred taxes, current		-		263,602
Other current assets		440,800		561,563
Total current assets		27,106,359		35,905,400

LONG-TERM ASSETS
Toll road infrastructures, net		444,511,270		442,125,289
Plant and equipment, net		15,242,104		15,278,459
Land use rights, net		45,829,791		45,826,301
Notes receivable from related parties, net of allowance for doubtful accounts of $110,919,976 and $109,536,486 at September 30, 2011 and June 30, 2011, respectively		57,840,755		57,169,593
Advance to a related party, net of allowance for doubtful accounts of $40,524,242 and $40,054,014 at September 30, 2011 and June 30, 2011, respectively		-		-
Long-term investment		3,381,075		3,341,843
Deferred taxes		3,156,867		3,301,384
Total long-term assets		569,961,862		567,042,869

TOTAL ASSETS	$	597,068,221	$	602,948,269

See accompanying notes to the condensed consolidated financial statements.

F-1

CHINA INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

LIABILITIES AND SHAREHOLDERS’ EQUITY


	September 30, 2011			June 30, 2011

CURRENT LIABILITIES
Other payables and accrued liabilities	$	2,421,307		$	2,762,343
Short-term bank loans		11,332,864			7,735,747
Current portion of long-term bank loans		10,957,189			7,735,747
Notes payable		16,905,377			31,382,178
Payable to contractors		13,159,710			12,478,734
Deferred taxes		397,313			-
Current portion of long-term deferred revenue		113,276			111,962
Due to a related party		163,966			-
Other current liabilities		185,018			689,640
Total current liabilities		55,636,020			62,896,351

LONG-TERM LIABILITIES
Long-term bank loans		477,846,130			480,037,132
Long-term deferred revenue		6,800,128			6,751,015
Total long-term liabilities		484,646,258			486,788,147

TOTAL LIABILITIES		540,282,278			549,684,498

CONTINGENCIES

SHAREHOLDERS’ EQUITY
Common stock, $.001 par value, 150,000,000 shares authorized, 80,000,000 shares issued and outstanding at September 30, 2011 and June 30, 2011		80,000			80,000
Additional paid-in capital		141,374,184			141,374,184
Accumulated other comprehensive income		35,447,788			34,815,258
Retained deficit (restricted portion was $43,234 at September 30, 2011 and June 30, 2011)		(120,116,029	)		(123,005,671	)
Total Shareholders’ Equity		56,785,943			53,263,771

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	597,068,221		$	602,948,269

See accompanying notes to the condensed consolidated financial statements.

F-2

CHINA INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES

CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(UNAUDITED)

	THREE MONTHS ENDED SEPTEMBER 30,
	2011			2010

REVENUES	$	17,126,444		$	13,100,836

OPERATING COSTS		1,041,765			2,226,236

DEPRECIATION AND AMORTIZATION		3,382,661			2,751,841

GROSS PROFIT		12,702,018			8,122,759

General and administrative expenses		1,065,754			1,063,388

INCOME FROM OPERATIONS		11,636,264			7,059,371

OTHER INCOME (EXPENSES)

Interest expense		(8,075,180	)		(7,209,501	)

Interest income from related parties		-			2,095,779

Other interest income		216,235			37,708

Other income, net		75,537			48,016

INCOME FROM OPERATIONS BEFORE INCOME TAXES		3,852,856			2,031,373

INCOME TAX EXPENSE		(963,214	)		(520,868	)

NET INCOME		2,889,642			1,510,505

OTHER COMPREHENSIVE INCOME

Foreign currency translation gain		632,530			3,048,929

COMPREHENSIVE INCOME	$	3,522,172		$	4,559,434

WEIGHTED AVERAGE SHARES OUTSTANDING, BASIC AND DILUTED		80,000,000			80,000,000

NET INCOME PER COMMON SHARE, BASIC AND DILUTED	$	0.04		$	0.02

See accompanying notes to the condensed consolidated financial statements.

F-3

CHINA INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	THREE MONTHS ENDED SEPTEMBER 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2,889,642		$	1,510,505
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for doubtful accounts		-			91,912
Depreciation and amortization		3,546,674			2,914,134
Deferred taxes		805,432			594,468
Deferred revenue		(167,261	)		(157,963	)
Imputed interest		137,189			131,281
Changes in operating assets and liabilities:
(Increase) Decrease In:
Accounts receivable		570,281			(494,821	)
Other receivables		5,414			(28,212	)
Other current assets		123,283			100,916
Increase (Decrease) In:
Other payables and accrued liabilities		(341,035	)		1,332,132
Other current liabilities		(504,622	)		(2,259,947	)
Net cash provided by operating activities		7,064,997			3,734,405

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of plant and equipment		(219	)		(36,068	)
Decrease in payable to contractors		680,976			(2,855,148	)
Increase in notes receivable		(7,402,318	)		-
Increase in notes receivable from related parties for interest		-			(2,095,779	)
Increase in principal of note receivable from related party		(7,982,625	)		-
Decrease (increase) in advances to related parties		8,718,131			(3,809,025	)
Net cash used in investing activities		(5,986,055	)		(8,796,020	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term bank loans		-			13,273,710
Repayments of long-term bank loans		(4,685,011	)		(1,474,857	)
Proceeds from short-term bank loans		3,498,142			-
Proceeds from notes payable		2,498,673			5,751,888
Repayments of notes payable		(17,309,353	)		(3,535,292	)
Proceeds from due to related parties		15,015,461			-
Prepayments of due to related parties		(14,851,877	)		2,804,981
Restricted cash		14,848,247			(7,851,078	)
Net cash (used in) provided by financing activities		(985,718	)		8,969,352

NET DECREASE IN CASH AND CASH EQUIVALENTS	$	93,224		$	3,907,737

See accompanying notes to the condensed consolidated financial statements.

F-4

CHINA INFRASTRUCTURE INVESTMENT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	THREE MONTHS ENDED SEPTEMBER 30,
	2011		2010

Effect of exchange rate changes on cash	$	135,021	$	(114,122	)
Cash and cash equivalents at beginning of period		557,244		1,267,199
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	785,489	$	5,060,814

SUPPLEMENTAL CASHFLOW INFORMATION:
Interest paid	$	7,805,486	$	6,941,592
Income taxes paid	$	5,727	$	23,728

See accompanying notes to the condensed consolidated financial statements.

F-5

CHINA INFRASTRUCTURE INVESTMENT CORPORATIONAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES

China Infrastructure Investment Corporation and subsidiaries (“CIIC” or the “Company”) was incorporated under the laws of the State of Nevada on January 11, 2001.

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 unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and pursuant to the requirements for reporting on Form 10-Q, accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. However, the information included in these interim financial statements reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for the fair presentation of the consolidated financial position and the consolidated results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full year. The condensed consolidated balance sheet information as of June 30, 2011 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K. These interim financial statements should be read in conjunction with that Annual Report.

F-6

CHINA INFRASTRUCTURE INVESTMENT CORPORATIONAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(b)

Principles of Consolidation

The consolidated financial statements include the accounts of China Infrastructure Investment Corporation and the following subsidiaries:

(i)

Color Man Holdings Limited (“CMH”) (An inactive holding company, 100% subsidiary of CIIC).

(ii)

Wise On China Limited (“WOCL”) (An inactive holding company,100% subsidiary of CMH)

(iii)

Pingdingshan Pinglin Expressway Co., Ltd. (“Ping”) (100% subsidiary of WOCL)

Inter-company accounts and transactions have been eliminated in consolidation.

(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. (“Tai Ao”) as of September 30, 2011 and June 30, 2011. Also see Notes 7, and 8.

(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.

F-7

CHINA INFRASTRUCTURE INVESTMENT CORPORATIONAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(e)

Use of Estimates (Continued)

On July 11, 2011, the Company filed a board minute resolution to finalize the plan to resolve the notes receivable from and advances to the related parties Tai Ao and Xinyang. According to the minute, the management does not believe that Tai Ao and Xinyang will have sufficient cash flow to repay both principal and interests of the notes receivable and advance. Therefore, a write down of the balance of notes receivable from and advance to Tai Ao and Xinyang was approved. The bad debt was provided based on management’s best estimate of the realizable amount resulting from the lack of government approval of the acquisition of Tai Ao and deteriorating operations of Tai Ao, which resulted in the inability to pay the balances. On October 10, 2011, the Company entered into contractual agreements with the shareholder of Zhengzhou Simian Real Estate Co., Ltd (“Simian”). Pursuant to the arrangements, the Company will acquire a 51% equity interest in Simian, which is wholly owned by Henan Shenrun Real Estate Co., Ltd. Li Xipeng, the Chief Executive Officer, Chairman and significant shareholder of the Company is a 51% owner of Henan Shenrun Real Estate Co., Ltd. The consideration for such purchase would be settled with the note receivable from Tai Ao of $57,840,755, which is the Company’s current estimate of 51% equity interest of the audited net assets of Simian on a historical cost basis. A provision amounting to $26,759,489 and $40,524,242 was provided by the Company for the notes receivable from and advance to Tai Ao, and a provision amounting to $84,062,938 was provided for notes receivable to Xinyang as of September 30, 2011, respectively. Also see Notes 7, 8 and 22.

(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, 2011 and June 30, 2011.

F-8

CHINA INFRASTRUCTURE INVESTMENT CORPORATIONAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(g)

Plant and Equipment

Plant and equipment is carried at cost less accumulated depreciation and impairment losses. Depreciation is provided over the estimated useful lives, using the straight-line method. Estimated useful lives of the plant and equipment are as follows:

Motor vehicles	8 years
Machinery	8 years
Office equipment	6 years
Toll stations and ancillary facilities	27 years
Communication and monitoring equipment	10 years

The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The cost of maintenance and repairs is charged to expense as incurred, whereas significant renewals and betterments are capitalized.

(h)

Toll Road Infrastructures

Toll road infrastructures are carried at cost less accumulated depreciation and amortization. Depreciation and amortization of the toll road infrastructures are calculated to write off their cost, commencing from the date of commencement of commercial operation of the toll roads, based on the ratio of actual traffic volume compared to the total expected traffic volume of the toll roads as assessed by management each year. The total expected traffic volume is derived from a traffic projection report prepared by an independent PRC organization. Also see Note 2(e).

(i)

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.

(j)

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, 2011 and 2010.

F-9

CHINA INFRASTRUCTURE INVESTMENT CORPORATIONAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(k)

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.

(l)

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 Notes 17 and 18.

(m)

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 $34,355 and $107,358 were charged to operations for the three months ended September 30, 2011 and 2010.

(n)

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 (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There were no potentially dilutive securities for the three months ended September 30, 2011 and 2010.

(o)

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, 2011		June 30, 2011		September 30, 2010

Period ended RMB:US$ exchange rate		6.3885		6.4635		-
Average RMB: US$ exchange rate for period ended		6.4034		-		6.7803

F-10

CHINA INFRASTRUCTURE INVESTMENT CORPORATIONAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(p)

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.

(q)

Recent Accounting Pronouncements

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The guidance in ASU 2011-04 changes the wording used to describe the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements, including clarification of the FASB's intent about the application of existing fair value and disclosure requirements and changing a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this ASU should be applied prospectively and are effective for interim and annual periods beginning after December 15, 2011. Early adoption by public entities is not permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial position or results of operations.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The guidance in ASU 2011-05 applies to both annual and interim financial statements and eliminates the option for reporting entities to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. This ASU also requires consecutive presentation of the statement of net income and other comprehensive income. Finally, this ASU requires an entity to present reclassification adjustments on the face of the financial statements from other comprehensive income to net income. The amendments in this ASU should be applied retrospectively and are effective for fiscal year, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial position or results of operations.

In September 2011, the FASB issued ASU No. 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment. The guidance in ASU 2011-08 is intended to reduce complexity and costs by allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. The amendments also improve previous guidance by expanding upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Also, the amendments improve the examples of events and circumstances that an entity having a reporting unit with a zero or negative carrying amount should consider in determining whether to measure an impairment loss, if any, under the second step of the goodwill impairment test. The amendments in this ASU are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. The adoption of this guidance is not expected to have a material impact on the Company’s financial position or results of operations.

F-11

CHINA INFRASTRUCTURE INVESTMENT CORPORATIONAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

3.	GOING CONCERN

The Company had a working capital deficit of $28,529,661 and cash and cash equivalents of $785,489 on September 30, 2011. This was primarily due to the Company providing advances to its related parties for their highway construction and working capital. The Company currently generates its cash flow through its operating profit and borrowings from banks. During the reporting period, to increase its cash resources, the Company obtained a short-term loan of $3,498,142. The Company also had cash flow from operations of $7,064,997 for the three months ended September 30, 2011. As of the date of this report, the Company has not experienced any difficulty in raising funds through bank loans, and has not experienced any liquidity problems in settling payables in the normal course of business and repaying bank loans when they fall due. To improve liquidity, the Company may explore new expansion opportunities and external funding sources.

The Company plans to renew short-term loans when due and obtain long-term loans, if necessary. There can be no assurance that the Company will be successful in renewing loans or obtaining new loans.

4.	RESTRICTED CASH

Restricted cash consists of the following:

	September 30, 2011		June 30, 2011

Deposits for notes payable	$	9,391,876	$	24,265,291
Prepaid deposits for notes payable		25,168		-
	$	9,417,044	$	24,265,291

F-12

CHINA INFRASTRUCTURE INVESTMENT CORPORATIONAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

5.	NOTES RECEIVABLE

Notes receivable from unrelated companies consist of the following:

	September 30, 2011			June 30, 2011

Notes receivable from unrelated companies	$	8,370,699		$	940,081
Less: Provision for doubtful accounts		(951,117	)		(940,081	)
	$	7,419,582		$	-

On June 20, 2007, the Company loaned Pingdingshan Traffic Administration $655,403 ($835,713 and $826,015 at September 30, 2011 and June 30, 2011, respectively). 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 age 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 on April 1, 2009. A full provision amounting to $835,713 was provided by the Company as of September 30, 2011.

On January 22, 2009, the Company loaned Pingdingshan Expressway Construction Co., Ltd. $104,676 ($115,404 and $114,066 at September 30, 2011 and June 30, 2011, respectively). The note is unsecured and was 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 on the due date. A full provision amounting to $115,404 was provided by the Company as of September 30, 2011.

On September 30, 2011, the Company loaned Henan Satellite TV Service Company $3,913,282. The note is unsecured and is due September 29, 2012, and bears a 6.56% interest rate per annum. The interest and principal will be paid to the Company on the due date.

On September 30, 2011, the Company loaned Henan Yunding Architect Construction Co., Ltd. $3,506,300. The note is unsecured and is due September 29, 2012, and bears a 6.56% interest rate per annum. The interest and principal will be paid to the Company on the due date.

There was no interest income from the notes receivable for the three months ended September 30, 2011 and 2010, respectively.

F-13

CHINA INFRASTRUCTURE INVESTMENT CORPORATIONAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

6.	ACCOUNTS RECEIVABLE

	September 30, 2011			June 30, 2011

Accounts receivable for tolling charges	$	890,420		$	1,454,892
Accounts receivable for rental income		74,197			79,330
		964,617			1,534,222
Less: Provision for doubtful accounts		(58,230	)		(57,554	)
	$	906,387		$	1,476,668

7.	NOTES RECEIVABLE FROM RELATED PARTIES

	September 30, 2011			June 30, 2011

Xinyang Expressway Co., Ltd.
Principal	$	74,646,552		$	73,780,382
Interest receivable		9,416,386			9,307,122
Less: Provision		(84,062,938	)		(83,087,504	)
		-			-

Henan Ruijia Industry Co., Ltd.
Interest receivable	$	73,075		$	72,227
Less: Provision		(73,075	)		(72,227	)
		-			-

Henan Hairun Trade Co., Ltd.
Interest receivable	$	24,474		$	24,190
Less: Provision		(24,474	)		(24,190	)
		-			-

Tai Ao Expressway Co., Ltd.
Principal	$	75,139,104		$	74,267,219
Interest receivable		9,461,140			9,351,356
Less: Provision		(26,759,489	)		(26,448,982	)
		57,840,755			57,169,593

Total notes receivable from related parties	$	57,840,755		$	57,169,593

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 would purchase at least 51% of Tai Ao. The consideration for such purchase would be settled first with the note receivable from Xinyang of $84,062,938, and the remainder in cash. If the Company successfully negotiated with Tai Ao’s shareholders, the consideration would be determined in accordance with the audited net assets of Tai Ao at the purchase date. If the Company consummated such a transaction, the transaction would have been accounted for as an acquisition of a company under common control.

F-14

CHINA INFRASTRUCTURE INVESTMENT CORPORATIONAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

7.	NOTES RECEIVABLE FROM RELATED PARTIES (CONTINUED)

On July 11, 2011, the Company filed a board minute resolution to finalize the plan to resolve the notes receivable from and advances to the related parties Tai Ao and Xinyang. According to the minute, the management does not believe that Tai Ao and Xinyang will have sufficient cash flow to repay both principal and interests of the notes receivable and advance. Therefore, a write down on the balance of notes receivable from and advance to Tai Ao and Xinyang was approved. The bad debt was provided based on management’s best estimate of the realizable amount resulting from the lack of government approval of the acquisition of Tai Ao and deteriorating operations of Tai Ao, which resulted in the inability to pay the balances. On October 10, 2011, the Company entered into contractual agreements with the shareholder of Zhengzhou Simian Real Estate Co., Ltd (“Simian”). Pursuant to the arrangements, the Company will acquire a 51% equity interest in Simian, which is wholly owned by Henan Shenrun Real Estate Co., Ltd. Li Xipeng, the Chief Executive Officer, Chairman and significant shareholder of the Company is a 51% owner of Henan Shenrun Real Estate Co., Ltd. The consideration for such purchase would be settled with the note receivable from Tai Ao of $57,840,755, which is the Company’s current estimate of 51% equity interest of the audited net assets of Simian on a historical cost basis. A provision amounting to $26,759,489 and $40,524,242 was provided by the Company for the notes receivable from and advance to Tai Ao, and a provision amounting to $84,062,938 was provided for notes receivable to Xinyang as of September 30, 2011, respectively. Also see Notes 8 and 22.

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 was due April 11, 2010, and bears a 5.31% interest rate per annum. The principal and the interest were payable 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 $73,075 was provided by the Company for the interest as of September 30, 2011.

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 was due July 27, 2010, and bears a 5.31% interest rate per annum. 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 $24,474 was provided by the Company for the interest as of September 30, 2011.

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 Ms. Lin Jie, the Vice President of Operations of the Company. The notes receivable are interest bearing and unsecured.

F-15

CHINA INFRASTRUCTURE INVESTMENT CORPORATIONAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

8.	ADVANCES TO RELATED PARTIES

	September 30, 2011			June 30, 2011
Current advances to related parties:

Zhengzhou Zhengdong Thermoelectricity Co., Ltd.		-			7,735,747
Henan Shenrun Venture Investment Co., Ltd.		-			874,022
Henan Hairun Trade Co., Ltd.	$	-			8,896
Total current advances		-			8,618,665

Long-term advance to a related party:

Tai Ao Expressway Co., Ltd.		40,524,242			40,054,014
Less: Provision		(40,524,242	)		(40,054,014	)
Total long-term advance	$	-			-

	$	-		$	8,618,665

The Company and Tai Ao Expressway Co., Ltd. have the same chairman, Li Xipeng. Li Xipeng owns 51% of the shares of Tai Ao. The Company made payments 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. Also see Note 7 for the resolution of advance to Tai Ao.

Henan Hairun Trade Co., Ltd. is substantially controlled by Ms. Lin Jie, the Vice President of Operations of the Company. The Company made payments to Hairun for its working capital needs. Hairun repaid the amount during the three months ended September 30, 2011. Also see Note 10.

The Company and Henan Shenrun Venture Investment Co., Ltd. have the same chairman, Li Xipeng. Li Xipeng owns 97% of the shares of Henan Shenrun Venture Investment Co., Ltd. The Company made payments to Henan Shenrun Venture Investment Co., Ltd. for its working capital needs. Henan Shenrun Venture Investment Co., Ltd. repaid the amount during the three months ended September 30, 2011.

The Company and Zhengzhou Zhengdong Thermoelectricity Co., Ltd. (“Zhengdong”) have the same chairman, Li Xipeng. Li Xipeng owns 80% of the shares of Zhengzhou Zhengdong Thermoelectricity Co., Ltd. The Company made payments to Zhengdong for its working capital needs. Zhengdong repaid the amount during the three months ended September 30, 2011. Also see Note 9.

F-16

CHINA INFRASTRUCTURE INVESTMENT CORPORATIONAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

9.	NOTE RECEIVABLE FROM A RELATED PARTY

	September 30, 2011		June 30, 2011

Zhengzhou Zhengdong Thermoelectricity Co., Ltd.	$	7,982,625	$	-

Total	$	7,982,625	$	-

On September 30, 2011, Zhengdong entered into an agreement with the Company. Pursuant to the agreement, the Company provided a note receivable for $7,982,625 to Zhengdong. Such note receivable is due September 29, 2012, and bears a 6.56% interest rate per annum. The interest and principal will be paid to the Company on the due date.

10.	DUE TO A RELATED PARTY

	September 30, 2011		June 30, 2011

Henan Hairun Trade Co., Ltd.	$	163,966	$	-

Total	$	163,966	$	-

The Company borrowed working capital from Henan Hairun Trade Co., Ltd. For the three months ended September 30, 2011, the working capital borrowed from Hairun was $15,015,461 and the repayment to Hairun was $14,851,877. The balance of $163,966 at September 30, 2011 is unsecured, interest free and has no fixed repayment term.

F-17

CHINA INFRASTRUCTURE INVESTMENT CORPORATIONAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

11.	TOLL ROAD INFRASTRUCTURES, NET

Toll road infrastructures consist of the following:

	September 30, 2011		June 30, 2011

At cost:	$	489,118,351	$	483,442,808

Less: Accumulated depreciation		44,607,081		41,317,519
Toll road infrastructures, net	$	444,511,270	$	442,125,289

Depreciation expense for the three months ended September 30, 2011 and 2010 was $2,797,975 and $2,200,340, respectively. Also see Notes 2(e) and 2(h).

12.	PLANT AND EQUIPMENT, NET

Plant and equipment consist of the following:

	September 30, 2011		June 30, 2011
At cost:
Toll station and ancillary facilities	$	11,251,552	$	11,120,993
Communication and monitoring equipment		6,326,540		6,253,130
Motor vehicles		1,547,311		1,529,357
Machinery		318,948		315,247
Office equipment		748,743		739,837
		20,193,094		19,958,564
Less: Accumulated depreciation
Toll station and ancillary facilities		2,033,940		1,920,444
Communication and monitoring equipment		1,070,689		1,007,719
Motor vehicles		1,184,050		1,132,086
Machinery		205,272		193,334
Office equipment		457,039		426,522
		4,950,990		4,680,105
Plant and equipment, net	$	15,242,104	$	15,278,459

Depreciation expense for the three months ended September 30, 2011 and 2010 was $215,439 and $210,177, respectively.

F-18

CHINA INFRASTRUCTURE INVESTMENT CORPORATIONAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

13.	LAND USE RIGHTS

Land use rights consist of the following:

	September 30, 2011		June 30, 2011

Cost	$	57,554,831	$	56,886,986
Less: Accumulated amortization		11,725,040		11,060,685
Land use rights, net	$	45,829,791	$	45,826,301

Amortization expense for the three months ended September 30, 2011 and 2010 was $533,260 and $503,617, respectively.

Amortization expense for the next five years and thereafter is as follows:

September 30, 2012	$	2,138,016
September 30, 2013		2,138,016
September 30, 2014		2,138,016
September 30, 2015		2,138,016
September 30, 2016		2,138,016
Thereafter		35,139,711
Total	$	45,829,791

F-19

CHINA INFRASTRUCTURE INVESTMENT CORPORATIONAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

14.	LONG-TERM INVESTMENT

	September 30, 2011					June 30, 2011
	Ownership Interest			Net Book Value		Ownership Interest			Net Book Value

At cost:
Pingdingshan City Credit Corporation		1.62	%	$	3,381,075		2.79	%	$	3,341,843

The Company invested in Pingdingshan City Credit Corporation (“PCCC”), a commercial banking corporation established in 2005 by purchasing a 3% equity interest (10 million shares) for RMB 10 million (approximately $1.3 million) in December 2005. During the year 2009 and 2010, after PCCC increased its share capital, the Company’s share of the total equity interest in PCCC was diluted to 2.03%.

On March 1, 2011, pursuant to an agreement, the Company purchased an additional 0.77% equity interest in PCCC (10.8 million shares) from Tai Ao and obtained the share certificates on March 26, 2011. The consideration for the transaction was $1,648,830 (RMB 1.00 or $0.15 per share). After PCCC increased its share capital, the Company held 1.62% of the total equity interest in PCCC as of September 30, 2011.

As of September 30 and June 30, 2011, 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, 2011 and 2010.

F-20

CHINA INFRASTRUCTURE INVESTMENT CORPORATIONAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

15.	SHORT-TERM BANK LOANS

Short-term bank loans as of September 30 and June 30, 2011 consist of the following:

	September 30, 2011		June 30, 2011

Loan from China Citic Bank, due January 9, 2012, monthly interest only payments at 6.941% 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. Also see Note 21.		7,826,564		7,735,747

Loan from Pingdingshan Bank, due September 7, 2012, monthly interest only payments at 9.184% per annum, secured by Henan Shengrun Venture Investment Management Co., Ltd.		3,506,300		-

Total short-term bank loans	$	11,332,864	$	7,735,747

Interest expense for the three months ended September 30, 2011 and 2010 was $154,487 and $211,233, respectively.

F-21

CHINA INFRASTRUCTURE INVESTMENT CORPORATIONAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

16.	LONG-TERM BANK LOANS

Long-term bank loans consist of the following:

	September 30, 2011		June 30, 2011

Loan from National Development Bank of China Henan Branch, due May 20, 2017, 6.40% 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.	$	87,657,510	$	86,640,365

Loan from Agricultural Bank of China, due July 20, 2017, 6.40% 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.		21,914,377		24,754,390

Loan from Agricultural Bank of China, due February 20, 2019, 6.40% 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.		28,175,628		29,395,838

Loan from Industrial and Commercial Bank of China Pingdingshan Branch, due November 19, 2019, 5.76% 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.		174,645,065		172,618,550

Loan from National Development Bank of China Henan Branch, due November 28, 2022, 6.40% 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.		156,531,267		154,714,938

Loans from China Construction Bank, due August 17, 2013, 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.		14,087,814		13,924,344

F-22

CHINA INFRASTRUCTURE INVESTMENT CORPORATIONAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

16.	LONG-TERM BANK LOANS (CONTINUED)

	September 30, 2011		June 30, 2011

Loans from China Construction Bank, due December 31, 2013, the monthly interest only payments at a 5.5575% interest rate per annum, secured by the toll road operating right owned by the Company. Principal is to be repaid at maturity.		5,791,658		5,724,454
Total long-term bank loans		488,803,319		487,772,879
Less: current portion		10,957,189		7,735,747

Long-term portion	$	477,846,130	$	480,037,132

For the three months ended September 30, 2011 and 2010, interest expense was $7,510,635 and $6,731,447, 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 guarantees to other third party debt that exceeds 70% of the Company’s total assets. As of September 30, 2011, the guarantees provided by the Company to other third party debt did not exceed 70% of the Company’s total assets.

The repayment schedule for the long-term bank loans is as follows:

September 30, 2012	$	10,957,189
September 30, 2013		53,771,621
September 30, 2014		41,286,687
September 30, 2015		35,495,030
September 30, 2016		28,964,546
Thereafter		318,328,246
Total	$	488,803,319

F-23

CHINA INFRASTRUCTURE INVESTMENT CORPORATIONAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

17.	NOTES PAYABLE

	September 30, 2011		June 30, 2011

Bank acceptance notes		16,592,314		31,382,178
Commercial acceptance notes		313,063		-

Total	$	16,905,377	$	31,382,178

Notes payables of $14,400,877 were issued to the Company’s contractors through Shanghai Pudong Development Bank; notes payables of $2,191,437 were issued through China Citic Bank; notes payables of $313,063 were third party acceptance notes issued to Zhengzhou Yihe Hospital.

Notes payable as of September 30, 2011 and June 30, 2011 consist of the following:

	September 30, 2011		June 30, 2011

Notes payable issued on June 29, 2011 and due December 29, 2011		14,400,877		14,233,774

Notes payable issued on September 9, 2011 and due March 9, 2012		2,191,437		-

Notes payable issued on July 20, 2011 and due November 10, 2011		313,063		-

Notes payable issued before June 30, 2011 and repaid on their due dates		-		17,148,404

Total	$	16,905,377		31,382,178

Restricted cash of $9,391,876 and $24,265,291 collateralized the notes at September 30, 2011 and June 30, 2011, respectively. All the bank acceptance notes are subject to bank charges of 0.05% of the principal as a commission on their loan transaction.

F-24

CHINA INFRASTRUCTURE INVESTMENT CORPORATIONAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

18	LONG-TERM DEFERRED REVENUE

	September 30, 2011			June 30, 2011

Long-term deferred revenue	$	15,789,112		$	15,771,607
Imputed interest discount		(8,875,708	)		(8,908,630	)
Total		6,913,404			6,862,977
Less: current portion		113,276			111,962

Long-term portion	$	6,800,128		$	6,751,015

On January 1, 2006, the Company rented four gas stations to Petro China Company Limited Pingdingshan Branch (“PCCL”) for 30 years. The Company received the entire 30 year rental fee of $5,372,708 from PCCL in 2006. The amount received was net of business tax.

The Company imputed interest on the amount using an 8% discount rate, under the effective interest rate method. The rental income recognized during the three months ended September 30, 2011 and 2010 was $161,752 and $152,760 respectively. The imputed interest for the three months ended September 30, 2011 and 2010 was $137,189 and $131,281, respectively.

On August 1, 2009, the Company rented communication channels along the expressway to China Mobile Company Limited Pingdingshan Branch for 15 years. The total rental fee is $309,782, which is paid in 3 installments of $103,261 in July every 5th year for 15 years. The amount received was before tax. The Company amortized deferred revenue under the straight-line method. The rental income recognized for the three months ended September 30, 2011 and 2010 was $5,510 and $5,203 respectively.

F-25

CHINA INFRASTRUCTURE INVESTMENT CORPORATIONAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

19.	SERVICE ZONE DEFERRED REVENUE

	September 30, 2011		June 30, 2011

Jiaxin Shitong Highway Service Management Limited Company	$	7,827	$	54,150
Xinle Huitong Enterprise and Service Management Co., Ltd.		7,304		50,541

Total	$	15,131	$	104,691

On June 26, 2010, the Company rented the West Pingdingshan Service Zone to Jiaxin Shitong Highway Service Management Limited Company for five years beginning October 16, 2010. The total rental fee is $928,290, and is payable in 5 annual installments of $181,056. The Company amortized revenue under the straight-line method. The rental income recognized during the three months ended September 30, 2011 was $46,850.

On June 26, 2010, the Company rented the West Pingdingshan and Ruzhou Service Zone to Xinle Huitong Enterprise and Service Management Co., Ltd. for five years beginning October 16, 2010. The total rental fee is $866,404, and is payable in 5 annual installments of $168,985. The Company amortized revenue under the straight-line method. The rental income recognized during the three months ended September 30, 2011 was $43,727.

The service zone deferred revenue is included in other current liabilities in the condensed consolidated balance sheets at September 30, 2011 and June 30, 2011.

F-26

CHINA INFRASTRUCTURE INVESTMENT CORPORATIONAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

20.	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 became effective on January 1, 2008.Under the new CIT Law, the corporate income tax rate applicable to the Company starting January 1, 2008 is 25%. The new CIT Law impacted 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 the new law in the future. The effects arising from the enforcement of the new CIT law have been reflected in the accounts.

ASC 740-10 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 fifty percent likelihood of being realized upon ultimate settlement. ASC 740-10 also provides guidance on recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of September 30, 2011, the Company did not have a liability for unrecognized tax benefits.

Income tax expense is summarized as follows:

	Three Months Ended September 30,
	2011		2010
Current	$	117,901	$	-
Deferred		845,313		520,868
Income tax expense	$	963,214	$	520,868

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,
	2011		2010
Computed “expected” expense	$	963,214	$	507,843
Valuation allowance		-		13,025
Income tax expense	$	963,214	$	520,868

F-27

CHINA INFRASTRUCTURE INVESTMENT CORPORATIONAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

20.	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, 2011			June 30, 2011

G&A expenses	$	756,667		$	737,344
Interest expense		-			254,899
Road maintenance costs		250,284			464,535
Other expenses		162,841			133,161
Payroll expenses		-			64,416
Bad debts		30,647			30,292
US loss carry forward		242,352			236,102
Valuation allowance		(242,352	)		(236,102	)
Total deferred tax assets		1,200,439			1,684,647

Sales cut-off		(1,328,797	)		(1,191,430	)
Interest income		397			-
Interest expense		(62,375	)		(53,923	)
Consulting fees		(3,451	)		(3,411	)
Other expenses		(203,526	)		(172,281	)
Total deferred tax liabilities		(1,597,752	)		(1,421,045	)

Net current deferred tax (liabilities) assets	$	(397,313	)	$	263,602

Non-current portion:

Rental income	$	124,291		$	130,229
Capitalized interest		2,393,678			2,365,902
Amortization		2,931,260			2,765,171
Bad debts		2,884,088			2,850,623
Total deferred tax assets		8,333,317			8,111,925

Depreciation		(5,176,450	)		(4,810,541	)
Total deferred tax liabilities		(5,176,450	)		(4,810,541	)

Net non-current deferred tax assets	$	3,156,867		$	3,301,384

As of September 30, 2011, the U.S. loss-carried-forward is $242,352. The net operating loss carry forward will expire in 2030. The Company estimated that there will not be sufficient profits available within the loss-carried-forward period and the loss-carried-forward will not be realized and therefore has reserved the entire amount.

F-28

CHINA INFRASTRUCTURE INVESTMENT CORPORATIONAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

21.	CONTINGENCIES

Litigation

From time to time the Company is involved in litigation primarily resulting from construction contract disputes. In the management’s 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 $10,174,532). The guarantee period is from September 1, 2010 to December 31, 2011. As of September 30, 2011, Tai Ao borrowed Rmb 50 million (approximately $7,826,564), due September 15, 2012 and this was also guaranteed by the Company.

Associated with the corporate guarantee, Tai Ao also provided a cross guarantee for bank loans of $7,826,564 to the Company. Also see Note 15.

The Company’s management considered the risk of default by Tai Ao as remote, and therefore no liability for the guarantor's obligation under the guarantee was recognized as of September 30, 2011. No fee was paid to Tai Ao for its guarantee.

NASDAQ Listing

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 was given 180 calendar days, or until March 8, 2011, to regain compliance with the minimum bid price requirement. On March 9, 2011, the Company was provided an additional 180 calendar days, or until September 6, 2011, to regain compliance.

On September 7, 2011, the Company received a Staff Determination Letter (the “Letter”) from NASDAQ informing the Company that the Company has not regained compliance with Listing Rule 5550(a)(2) prior to the expiration of the second 180 day compliance period. The Letter indicated that NASDAQ would delist the Company’s securities from the Capital Market on September 16, 2011 and a Form 25-NSE would be filed with the Securities and Exchange Commission (the “SEC”), unless the Company requested an appeal of the delisting determination to a NASDAQ Listing Qualification Panel (the “Panel”) pursuant to the procedures set forth in the NASDAQ Listing Rule 5800 Series.

NASDAQ stated in the Letter that if the Company appealed the delisting determination and requested a hearing by 4pm Eastern Time on or before September 14, 2011, the delisting of the Company’s securities would be stayed pending the Panel’s decision after hearing the Company’s case.

On September 13, 2011, the Company formally appealed the delisting determination contained in the Letter and requested an oral hearing in front of the Panel. As a result of such appeal and hearing request, the Company’s common stock will not be delisted from NASDAQ until, and unless, the Panel makes a determination of delisting the Company’s common stock after a formal hearing.

F-29

CHINA INFRASTRUCTURE INVESTMENT CORPORATIONAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

21.	CONTINGENCIES (CONTINUED)

NASDAQ Listing (Continued)

On October 17, the Company received another letter from Nasdaq regarding additional staff determination on public interest concerns under Listing Rule 5101.1 Nasdaq staff believes that the Company failed to undertake sufficient efforts to collect the amounts due on the related party loans and advances, instead accepting rights to control a separate related party, the value of which was much less than the outstanding principal and interest balances. Nasdaq staff believes the failure to aggressively pursue collection efforts, and the subsequent transactions, were done for the benefit of Li Xipeng, the Company’s Chief Executive Officer and largest shareholder, and to the detriment of non-affiliated shareholders. Accordingly, this matter serves as an additional basis for delisting the Company’s securities from The Nasdaq Stock Market.

The Company rebutted Nasdaq's additional determination in writing on October 21, 2011.

The Company's legal counsel and independent director attended a Nasdaq Listing Qualification Hearing on October 27, 2011 in Washington, DC which was also attended by two independent Listing Hearing Panelists appointed by the Nasdaq and Nasdaq staff. The hearing results are pending as of the filing of this Form 10-Q.

F-30

CHINA INFRASTRUCTURE INVESTMENT CORPORATIONAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

22.	SUBSEQUENT EVENT

On October 10, 2011, the Company entered into contractual agreements (known as a “variable interest entity” (VIE) arrangement) with shareholder of Zhengzhou Simian Real Estate Co., Ltd (“Simian”), which is wholly owned by Henan Shenrun Real Estate Co., Ltd. Li Xipeng, the Chief Executive Officer, Chairman and significant shareholder of the Company is a 51% owner of Henan Shenrun Real Estate Co., Ltd.. According to the arrangements, the Company acquired a 51% equity interest of Simian by a series of variable interest entity (“VIE”) contractual arrangements, which will be settled with the note receivable from Tai Ao of $57,169,593. The consolidation of Simian as a variable interest entity will be in accordance with the audited historical cost basis of the net assets of Simian at the purchase date. The Company will account for the transaction as an acquisition of a company under common control. Also see Note 7.

The following unaudited pro forma information for the three months ended September 30, 2011 and 2010 have been prepared as if the acquisition had occurred on July 1, 2011 and 2010. The information is based on accounting for the business acquisition as an acquisition of a company under common control. The pro forma information may not be indicative of the results that actually would have occurred if the acquisition had been in effect from and on the dates indicated or which may be obtained in the future.

	Unaudited Pro Forma Combined Three Months Ended September 30,
	2011		2010

Revenues	$	17,126,444	$	13,100,836

Income from Operations		11,518,414		7,044,059

Net Income	$	2,859,160	$	1,494,960

Net Income Per Share
Basic	$	0.04	$	0.02
Diluted	$	0.04	$	0.02
Weighted Average Number of Shares Outstanding
Basic		80,000,000		80,000,000
Diluted		80,000,000		80,000,000

F-31

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.

The Pinglin Expressway is a dual carriageway four lane expressways, the toll section 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 LuoheCity and connects with the Beijing-Zhuhai national highway to form a convenient channel between Luoyang and Luohe. In addition to the traffic flow of the line itself, we believe it also attracts the traffic flow from the Lianhuo highway to Zhengzhou and then to the Beijing-Zhuhai national highway to alter the route of the Pinglin Expressway. Furthermore, the Expressway extends east to link the highway network of the Jiangsu and Anhui provinces and also links seaports, including Shanghai.

The Company’s operating revenue is generated through toll charges on vehicles that pass through the toll gate. The standard 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 on 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. 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 investments alone are 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 economics of scale 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.

This section should be read together with the Summary of Significant Accounting Policies included as Note 2 to the consolidated financial statements included herein.

On July 11, 2011, the Company filed a board minute resolution to finalize the plan to resolve the notes receivable from and advances to the related parties Tai Ao and Xinyang. According to the minute, the management does not believe that Tai Ao and Xinyang will have sufficient cash flow to repay both principal and interests of the notes receivable and advance. Therefore, a write down on the balance of notes receivable from and advance to Tai Ao and Xinyang was approved. The bad debt was provided based on management’s best estimate of the realizable amount resulting from the lack of government approval of the acquisition of Tai Ao and deteriorating operations of Tai Ao, which resulted in the inability to pay the balances. On October 10, 2011, the Company entered into contractual agreements with the shareholder of Zhengzhou Simian Real Estate Co., Ltd (“Simian”). Pursuant to the arrangements, the Company will acquire a 51% equity interest in Simian, which is wholly owned by Henan Shenrun Real Estate Co., Ltd. Li Xipeng, the Chief Executive Officer, Chairman and significant shareholder of the Company is a 51% owner of Henan Shenrun Real Estate Co., Ltd. The consideration for such purchase would be settled with the note receivable from Tai Ao of $57,840,755, which is the Company’s current estimate of 51% equity interest of the audited net assets of Simian on a historical cost basis. A provision amounting to $26,759,489 and $40,524,242 was provided by the Company for the notes receivable from and advance to Tai Ao, and a provision amounting to $84,062,938 was provided for notes receivable to Xinyang as of September 30, 2011, respectively.

Revenue Recognition

The Company’s revenue represents toll revenue net of business tax, and is recognized when all of the following criteria are met:

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.

Rental income is measured at the fair value of the consideration receivable and represents amounts receivable for services provided in the normal course of business, net of discounts and sales tax.

Fair Value of Financial Instruments

Depreciation of Toll Road Infrastructures

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.

Impairment of Long-Lived Assets

We periodically review the carrying amounts of long-lived assets including toll road infrastructures, property, plant and equipment, land use rights, 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, 2011 and 2010.

Related Party 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:

Company name		Relationship with the Company

Tai Ao Expressway Co., Ltd. (“Tai Ao”)		Li Xipeng, the Chief Executive Officer, Chairman and significant shareholder of the Company is the Chairman and 51% owner of Tai Ao.

Xinyang Expressway Co., Ltd. (“Xinyang”)		Li Xipeng, the Chief Executive Officer, Chairman and significant shareholder of the Company is the Chairman and 100% owner of Xinyang.

Henan Ruijia Industry Co., Ltd. (“Ruijia”)		Li Xipeng, the Chief Executive Officer, Chairman and significant shareholder of the Company is the Chairman and 60% owner of Ruijia.

Henan Hairun Trade Co., Ltd. (“Hairun”)		Substantially controlled by the Vice President of Operations of the Company

Henan Shenrun Venture Investment Co.Ltd. (“Shenrun”)		Li Xipeng, the Chief Executive Officer, Chairman and significant shareholder of the Company is the Chairman and 97% owner of Shenrun.

ZhengZhou Zhengbian Heat Ltd. (“Zhengbian Heat”)		Li Xipeng, the Chief Executive Officer, Chairman and significant shareholder of the Company is the Chairman and 80% owner of Zhengbian Heat.

Xinyang Hongqiao Heat Co., Ltd. (“Hongqiao”)		Li Xipeng, the Chief Executive Officer, Chairman and significant shareholder of the Company is the Chairman and 92% owner of Hongqiao.

Zhengzhou Zhengdong Thermoelectricity Co., Ltd. (“Zhengdong”)		Li Xipeng, the Chief Executive Officer, Chairman and significant shareholder of the Company is the Chairman and 80% owner of Zhengdong.

Zhengzhou Zhengbian Tap Water Co., Ltd.(“Zhengbian”)		Li Xipeng, the Chief Executive Officer, Chairman and significant shareholder of the Company is the Chairman and 80% owner of Zhengbian.

The material related party transactions of the Company mainly relate to borrowings and loans for working capital needs, which are disclosed as follows:

On July 11, 2011, the Company filed a board minute resolution to finalize the plan to resolve the notes receivable from and advances to the related parties Tai Ao and Xinyang. According to the minute, the management does not believe that Tai Ao and Xinyang will have sufficient cash flow to repay both principal and interests of the notes receivable and advance. Therefore, a write down on the balance of notes receivable from and advance to Tai Ao and Xinyang was approved. The bad debt was provided based on management’s best estimate of the realizable amount resulting from the lack of government approval of the acquisition of Tai Ao and deteriorating operations of Tai Ao, which resulted in the inability to pay the balances. On October 10, 2011, the Company entered into contractual agreements with the shareholder of Zhengzhou Simian Real Estate Co., Ltd (“Simian”). Pursuant to the arrangements, the Company will acquire a 51% equity interest in Simian, which is wholly owned by Henan Shenrun Real Estate Co., Ltd. Li Xipeng, the Chief Executive Officer, Chairman and significant shareholder of the Company is a 51% owner of Henan Shenrun Real Estate Co., Ltd. The consideration for such purchase would be settled with the note receivable from Tai Ao of $57,840,755, which is the Company’s current estimate of 51% equity interest of the audited net assets of Simian on a historical cost basis. A provision amounting to $26,759,489 and $40,524,242 was provided by the Company for the notes receivable from and advance to Tai Ao, and a provision amounting to $84,062,938 was provided for notes receivable to Xinyang as of September 30, 2011, respectively.

The Company and Zhengzhou Zhengdong Thermoelectricity Co., Ltd. (“Zhengdong”) have the same chairman, Li Xipeng. Li Xipeng owns 80% of the shares of Zhengdong. The Company made payments to Zhengdong for its working capital needs. Zhengdong repaid the amount during the three months ended September 30, 2011.

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.

Tai Ao generally finances its operations through operating profits and a combination of borrowings from banks. As of September 30, 2011, Tai Ao has not experienced any difficulty in raising funds through bank loans, or any difficulty in repaying bank loans when they fall due. Therefore, the Company’s management considers the risk of default by Tai Ao as remote, and no liability for the guarantor's obligation under the guarantee was recognized as of September 30, 2011. No fee was paid to Tai Ao for its guarantee.

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 was given 180 calendar days, or until March 8, 2011, to regain compliance with the minimum bid price requirement. On March 9, 2011, the Company was provided an additional 180 calendar days, or until September 6, 2011, to regain compliance.

The Company rebutted Nasdaq's additional determination in writing on October 21, 2011.

Recent Accounting Pronouncements

Results of Operations

Results of Operations for the Three Months Ended September 30, 2011 Compared to the Three Months Ended September 30, 2010

The following table sets forth a summary of certain key components of our results of operations for the years indicated, in dollars and as a percentage of revenues.

	Three Months Ended September 30, (Unaudited)				Three Months Ended September 30, (Unaudited)
	2011		2010		2011			2010

Revenues		17,126,444		13,100,836		100.0	%		100.0	%
Operating costs		1,041,765		2,226,236		6.1	%		17.0	%
Depreciation and amortization		3,382,661		2,751,841		19.8	%		21.0	%
Gross profit		12,702,018		8,122,759		74.1	%		62.0	%
General and administrative expenses		1,065,754		1,063,388		6.2	%		8.1	%
Income from operations		11,636,264		7,059,371		67.9	%		53.9	%
Interest income from related parties		-		2,095,779		-			16.0	%
Other interest income		216,235		37,708		1.3	%		0.3	%
Interest expense		8,075,180		7,209,501		47.1	%		55.0	%
Other income, net		75,537		48,016		0.4	%		0.4	%
Income from operations before income taxes		3,852,856		2,031,373		22.5	%		15.5	%
Income tax expense		963,214		520,868		5.6	%		4.0	%
Net income		2,889,642		1,510,505		16.9	%		11.5	%

Revenues

Our revenues are derived from the operation of the Pinglin Expressway. Our revenues increased by approximately $4.0 million, or 30.7%, from approximately $13.1 million for the three months ended September 30, 2010 to approximately $17.1 million for the three months ended September 30, 2011. The increase was mainly due to the following:

1) The converted average daily traffic volume, a guideline specifically used in the toll road industry to evaluate operational performance, increased 3,228 units, or 21.2%, from 15,240 units for the three months ended September 30, 2010 to 18,468 units for the three months ended September 30, 2011.

2) Pinglin Expressway is part of Ningnuo Expressway, which intersects and is a part of the Lianhuo Expressway (the main freight channel from east to west) at Luoyang. Due to the rebuilding of the Lianhuo Expressway, which finished in October 2010, trucks chose alternative routes for part of fiscal year 2010 and the first quarter of fiscal year 2011. Upon completion of the construction, trucks chose our Expressway because of the improved road conditions and additional traffic lanes. With the completion of the rebuilding of the Lianhuo Expressway, the traffic volume of the Expressway returned back to normal volume. As a result, the long-haul truck flow through Pinglin Expressway for the three months ended September 30, 2011 increased approximately 21% compared to the same period in 2010. Thus, the revenues increased accordingly.

3) With the continuous development of the domestic economy, the coal demand for industry increased. Therefore, the weight and flow rate of trucks carrying coal through Pinglin Expressway increased accordingly.

Operating Costs

Our operating costs mainly represent the road maintenance costs, road management costs and labor costs associated with the toll operations. Our operating costs decreased by approximately $1.2 million, or 53.2%, from approximately $2.2 million for the three months ended September 30, 2010 to approximately $1.0 million for the three months ended September 30, 2011. The decrease is mainly due to the decrease in the specific project costs. The Company had two special maintenance projects for the repair and evenness of the road surface in order to satisfy a State Highway Management Bureau inspection during the year ended June 30, 2011, which caused the increase in maintenance cost for the three months ended September 30, 2010. This maintenance cost did not occur for the three months ended September 30, 2011. Thus, the operating costs decreased accordingly.

Depreciation and Amortization

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.

Our total depreciation and amortization related to toll operations increased by approximately $0.6 million, or 22.9%, from approximately $2.8 million for the three months ended September 30, 2010 to approximately $3.4 million for the three months ended September 30, 2011. The increase was mainly due to that the converted average daily traffic volume increased 3,228 units, or 21.2%, from 15,240 units for the three months ended September 30, 2010 to 18,468 units for the three months ended September 30, 2011.

Gross Profit

Our gross profit increased by approximately $4.6 million, or 56.4%, from approximately $8.1 million for the three months ended September 30, 2010 to approximately $12.7 million for the three months ended September 30, 2011. Such gross profit increase is primarily due to the increase in our revenues and decrease in our operating cost, partially offset by the increase in depreciation and amortization expenses.

Gross profit as a percentage of revenues increased from 62.0% for the three months ended September 30, 2010 to 74.2% for the three months ended September 30, 2011 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 and miscellaneous taxes. General and administrative expenses increased by approximately $0.02 million, or 0.2%, from approximately $1.063 million for the three months ended September 30, 2010 to approximately $1.065 million for the three months ended September 30, 2011.

Interest Income and Expense

Interest income from related parties decreased by approximately $2.1 million, or 100.0%, from approximately $2.1 million for the three months ended September 30, 2010 to $0 million for the three months ended September 30, 2011. The decrease is primarily due to the Company’s management decision to cease to accrue the interest income from notes receivable from related parties from October 1, 2010.

Interest expense increased by approximately $0.9 million, or 12.0%, from approximately $7.2 million for the three months ended September 30, 2010 to approximately $8.1 million for the three months ended September 30, 2011. This increase is primarily due to the increase in the floating interest rate for the three months ended September 30, 2011.

Income Tax Expense

Income tax expense increased by approximately $0.4 million, or 84.9%, from approximately $0.5 million for the three months ended September 30, 2010 to approximately $0.9 million for the three months ended September 30, 2011, as a result of the increase in our income. Our effective tax rate was 25% and 26% for the three months ended September 30, 2011 and 2010, respectively.

Net Income

Our net income increased by approximately $1.4 million, or 91.3%, from approximately $1.5 million for the three months ended September 30, 2010 to approximately $2.9 million for the three months ended September 30, 2011. This increase is primarily due to the increase in our revenues and the decrease in operating costs, partially offset by the increase in depreciation and amortization expenses and interest expenses.

Liquidity and Capital Resource

Going Concern

We had a working capital deficit of $28,529,661 and cash and cash equivalents of $785,489 on September 30, 2011. This was primarily the result of providing advances to our related parties for their highway construction and working capital. We currently generate cash flow through our operating profit and borrowings from banks. During the reporting period, to increase our cash resources, we obtained a short-term loan of $3,498,142. We also had cash flow from operations of $7,064,997 for the three months ended September 30, 2011. As of the date of this report, we have not experienced any difficulty in raising funds through bank loans, and have not experienced any liquidity problems in settling payables in the normal course of business and repaying bank loans when they fall due. To improve liquidity, we may explore new expansion opportunities and external funding sources.

We plan to renew short-term loans when due and obtain long-term loans, if necessary. There can be no assurance that we will be successful in renewing loans or obtaining new loans.

We generally finance our operations through, to a substantial extent, from operating profit and a combination of borrowings from banks. We use cash generated from operations and bank borrowings to pay current liabilities. To increase our cash resources, we will renew short-term loans when due and obtain long-term loans, if necessary.

As of the date of this report, we have not experienced (1) any difficulty in raising funds by bank loans, (2) any liquidity problems in settling the payables in the normal course of business, and (3) any difficulty in repaying 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. There can be no assurance that we will be successful in renewing loans or obtaining new loans.

The following table sets forth the summary of our cash flow, in dollars, for the three months ended September 30 indicated:

	Three Months Ended September 30 (Unaudited)
	2011			2010
Net cash provided by operating activities	$	7,064,997		$	3,734,405

Net cash used in investing activities		(5,986,055	)		(8,796,020	)

Net cash (used in) provided in financing activities		(985,718	)		8,969,352

Net decrease in cash and cash equivalents		93,224			3,907,737

Effect of exchange rate changes on cash		135,021			(114,122	)

Cash and cash equivalents at beginning of period		557,244			1,267,199

Cash and cash equivalents at end of period	$	785,489		$	5,060,814

Operating Activities

Net cash provided by operating activities was approximately $7.1 million for the three months ended September 30, 2011, as compared to $3.7 million for the three months ended September 30, 2010. This increase is primarily due to the increase in our net income of approximately $1.4 million due to the increase of converted average daily traffic volume for the three months ended September 30, 2011. In addition, cash used in settling other current liabilities decreased from approximately $2.3 million to $0.5 million for the three months ended September 30, 2011.

Investing Activities

Net cash used in investing activities was approximately $6.0 million for the three months ended September 30, 2011 as compared to approximately $8.8 million for the three months ended September 30, 2010. The change is primarily due to the fact that (a) we provided an additional $7.4 million notes receivables to two unrelated companies for their assistance in obtaining financing for the three months ended September 30, 2011; (b) we ceased to accrue the interest income from notes receivable from related parties for the three months ended September 30, 2011, which was approximately $2.1 million accrued for the three months ended September 30, 2010; (c) we provided an additional $8.0 million notes receivables to related parties and received approximately $8.7 million advance to related parties for the three months ended September 30, 2011; (d) we settled less payables to contractors of approximately $3.5 million for the three months ended September 30, 2011, which was mainly due to that we arranged a lot of settlement and payment to contractors for the three months ended September 30, 2010 with the final settlement of the toll road construction, and the increase of approximately $4.0 million payable to contractors at September 30, 2011 with the settlement of special maintenance projects.

Financing Activities

Net cash used in financing activities was approximately $1.0 million for the three months ended September 30, 2011 as compared to net cash provided of approximately $9.0 million for the three months ended September 30, 2010. Such change is primarily due to the fact that (a) we received $3.5 million in proceeds from short-term bank loans due to working capital needs for the three months ended September 30, 2011 as compared to $13.3 million in proceeds from long-term bank loans the three months ended September 30, 2010; and (b) the repayment of long-term bank loans increased approximately $3.2 million for the three months ended September 30, 2011 as compared to the three months ended September 30, 2010; and (c) the restricted cash increased approximately $22.7 million for the three months ended September 30, 2011 as compared to the three months ended September 30, 2010; (d) the repayment of notes payable increased approximately $13.8 million for the three months ended September 30, 2011 as compared to the three months ended September 30, 2010.

Working Capital

Our working capital decreased by approximately $1.5 million from a deficit of approximately $27.0 million as of June 30, 2011 to a deficit of approximately $28.5 million as of September 30, 2011. The negative working capital of the Company as of September 30, 2011 and June 30, 2011 is primarily due to the Company providing advances to its related parties for their highway construction and working capital.

The Company currently generates its cash flow through operations and bank loans, and the Company believes that its cash flow generated from operations and the renewal of existing bank loans and proceeds from new loans will be sufficient to sustain operations for the next twelve (12) months. The Company also had cash flow from operations of approximately $7.1 million for the three months ended September 30, 2011. 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. There can be no assurance that we will be successful in renewing loans or obtaining new loans.

Capital Expenditures

We made capital expenditures of approximately $0 and $0 million for the three months ended September 30, 2011 and 2010, 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 in other toll road companies, we may require additional funds.

Off-Balance Sheet Arrangements

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.

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.

ITEM 1A. RISK FACTORS

Not required.

ITEM 2. UREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the quarter ended September 30, 2011, 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

EXHIBIT NO.		DESCRIPTION

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		Certifications pursuant to Section 906 of Sarbanes Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November 14, 2011	By:	/s/ Li Xipeng
		Name: Li Xipeng
		Chief Executive Officer, Principal
		Executive Officer and Chairman of the Board

Date: November 14, 2011	By:	/s/ Li Lei
		Name: Li Lei
		Chief Financial Officer, Principal Financial and Accounting Officer and Director

China Infrastructure Investment CORP - FORM 10-Q - November 14, 2011

Attached files

China Infrastructure Investment CORP Reports