10-K 1 v161405_10k.htm Unassociated Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

ANNUAL REPORT
ON FORM 10-K

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

For the Fiscal Year Ended June 30, 2009

Commission File Number 001-34150

CHINA INFRASTRUCTURE INVESTMENT CORPORATION
(Exact name of registrant as specified in its charter)

Nevada
 
88-0484183
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)

Room D, 2F, Building 12, Xinxin Huayuan, Jinshui Road, Zhengzhou, Henan Province, The People’s Republic of China
(Address, including zip code, of principal executive offices)

(011) 86-375-2754377
(Registrants’ telephone number, including area code)

Securities Registered Under Section 12(b) of the Exchange Act: Common Stock, par value $0.001 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨    No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes ¨    No x

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ('232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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

Large accelerated filer ¨  Accelerated filer ¨  Non-accelerated filer ¨ Smaller Reporting Company x

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

Aggregate market value of the voting stock held by non-affiliates of the registrant as of December 31, 2008 based upon the closing price was approximately $40,448,000.

The number of outstanding shares of the registrant’s Common Stock on September 28, 2009 was 80,000,000.

 
 

 

China Infrastructure Investment Corporation
Annual Report on Form 10-K
For the Year Ended June 30, 2009

Table of Contents

PART I DESCRIPTION OF BUSINESS
3
   
ITEM 1.
 
Business
3
       
ITEM 1A.
 
Risk Factors
11
       
ITEM 1B.
 
Unresolved Staff Comments
17
       
ITEM 2.
 
Properties
18
       
ITEM 3.
 
Legal Proceedings
18
       
ITEM 4.
 
Submission of Matters to a Vote of Security Holders
18
       
PART II
   
19
       
ITEM 5.
 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
19
       
ITEM 6.
 
Selected Financial Data
20
       
ITEM 7.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
21
       
ITEM 7A.
 
Quantitative and Qualitative Disclosures about Market Risk
30
       
ITEM 8.
 
Financial Statements and Supplementary Data
30
       
ITEM 9.
 
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
30
       
ITEM 9A(T).
 
Controls and Procedures
31
       
ITEM 9B.
 
Other Information
31
       
PART III
31
   
ITEM 10.
 
Directors, Executive Officers, and Corporate Governance
31
       
ITEM 11.
 
Executive Compensation
35
       
ITEM 12.
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
38
       
ITEM 13.
 
Certain Relationships and Related Transactions, and Director Independence
40
       
ITEM 14.
 
Principal Accountant Fees and Services
41
       
PART IV
   
41
       
ITEM 15.
 
Exhibits and Financial Statement Schedules
41

 
- 2 -

 
PART I
DESCRIPTION OF BUSINESS
 
ITEM 1.
Business
 
Forward Looking Statements
 
This Report contains forward-looking statements. Generally, the words “believes”, ”anticipates”, “may”, “will”, “should”, “expect”, “intend”, “estimate”, “continue” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents we file with the SEC from time to time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements. It is important to note that actual results could differ materially from historical results or those contemplated in the forward-looking statements. Forward-looking statements involve a number of risks and uncertainties, and include risks associated with our target markets and risks pertaining to competition, other trend information and our ability to successfully enhance our operations. Factors that could cause actual results to differ materially include, but are not limited to, those identified in “Item 1A-Risk Factors” and in other of our filings with the U.S. Securities and Exchange Commission. All references to “China Infrastructure Investment Corporation”, “us”, “we” or the “Company” in this Annual Report on Form 10-K mean China Infrastructure Investment Corporation, a Nevada corporation, and all entities owned or controlled by China Infrastructure Investment Corporation, except where it is made clear that the term only means the parent company.
 
Prior Operations of the Company
 
Learning Quest Technologies, Inc. (n/k/a China Infrastructure Investment Corporation and hereinafter the “Company”) was formed as a Nevada corporation on January 11, 2001, originally under the name of “Learning Quest Technologies, Inc.” We were in the business of developing, licensing and marketing educational products and services. Our business model centered on the development and distribution of high quality, educational tools and solutions for creating, authoring, publishing, presenting and selling education and training materials and content via the Internet. We commenced limited operations but were unsuccessful in fully implementing our business plan. We ceased operations and focused our efforts on seeking a business opportunity.

On February 8, 2008, we entered into a Share Exchange Agreement with Color Man Holdings Limited, a British Virgin Islands company (“CMH”) and Joylink Holdings Limited, a British Virgin Islands company and the sole stockholder of CMH (“Joylink”). As a result of the share exchange, we acquired all of the issued and outstanding securities of CMH from Joylink in exchange for 54,400,000 newly–issued shares of our common stock (the “Exchange”).
 
Current Operations of The Company
 
History and Organizational Structure of CMH and Wise On China Limited
 
CMH was formed on April 11, 2005 as a British Virgin Islands company. Upon the consummation of the Exchange, the Company acquired Ten (10) shares of CMH’s capital stock, representing one hundred percent (100%) of the total issued and outstanding shares of capital stock of CMH. Wise On China Limited (“WOC”) was established and incorporated on November 2, 2005. CMH’s sole business is to act as a holding company for WOC, and WOC’s sole business is to act as a holding company for Pingdingshan Pinglin Expressway Co., Ltd (“Ping”). CMH owns one (1) share of WOC. Neither CMH nor WOC have a Board of Directors, however each company has one (1) Executive Director that serves as the legal representative and which may appoint a General Manager to lead each company’s routine operations. CMH’s current Executive Director is RCD (Nominee) Limited and WOC’s current Executive Director is Siu Choi Fat. Both CMH and WOC have their office located at Room 42, 4F, New Henry House, 10 Ice House Street, Central, Hong Kong.

 
- 3 -

 

History of Ping and the Pinglin Expressway
 
In accordance with the PRC’s National Expressway Network Plan formulated by the State and “the Tenth Five-Year Plan” of Henan Province on the Comprehensive Traffic System Development Plan formulated by the Henan government for the purpose of completing the Pingdingshan-Linru portion of the Nanjing-Luoyang expressway (also referred to herein as the “Nanluo Expressway”), Ping competed in and won an open bid to fund, operate and manage such Pingdingshan-Linru portion in early 2003.
 
Thereafter, Ping was incorporated under the laws of the PRC on May 12, 2003 by four (4) investors, Henan Shengrun Venture Investment Management Co., Ltd. (“HSV”), Henan Pingdingshan Zhongya Road and Bridge Construction Co., Ltd. (“HPZ”), Pingdingshan Expressway Construction Co., Ltd. (“PECC”) and Zhongyuan Trust & Investment Co., Ltd. (“ZTI”). At establishment, the percentage of each party’s equity interest was 46%, 18%, 18% and 18%, respectively. In May 21, 2007, PECC, HPZ and ZTI transferred all of their shares to HSV and Li Xipeng. After the transfer, Ping was held by HSV and Li Xipeng with equity interests of 95% and 5%, respectively. On June 18, 2007 (effective July 30, 2007), HSV and Li Xipeng entered into an equity transfer agreement pursuant to which they transferred all of their shares to WOC. the Company’s approved operation tenure is thirty (30) years.
 
Currently, Ping is wholly-owned by WOC. WOC has contributed RMB 260,000,000 (US$33,090,802) in registered capital of Ping with a total investment equal to RMB 750,000,000 (US$95,454,237). Ping’s office is located at Pinglin Toll Road Station, New District, Pingdingshan City, Henan Province, the PRC.
 
Current Business of Ping
 
Ping was founded with the purpose of providing to society high quality infrastructure services and to promote regional economic development by investing in, constructing, operating and managing an expressway property from the cities of Linru to Pingdingshan in Luoyang-Nanjing, the PRC, and the rental of petrol stations and service districts along the toll roads thereon.  Such expressway is referred to hereinafter as the “Pinglin Expressway” or the “Expressway” .
 
With the approval from Henan Communications Bureau and the State Development and Reform Committee of China [NO. 2003-1784], the Company is permitted to construct and operate the Pinglin Expressway in Henan Province for thirty (30) years from 2003. Pursuant to the permission from Henan Communications Bureau and Henan Development and Reform Committee [NO. 2005-1885], the Company is entitled to operate six (6) toll gates. All the rates applicable to the automobiles are defined by the Henan Communications Bureau and Henan Development and Reform Committee.
 
The location of the Expressway is in Henan Province in central China, and is a hinge terminal of the traffic backbone throughout China. The “five (5) longitudinal roads and seven (7) transverse roads” in the national expressway network plan are intercrossed with each other in Henan, extending more than 1,000 km, and more than sixty percent (60%) of vehicles are those passing through Henan from other provinces.

The Pinglin Expressway is a significant part of the Nanluo Expressway, a national trunk in the expressway network in China. The Nanluo Expressway links the northwestern regions to the southeastern coastal regions of the PRC. The construction of Pinglin Expressway started from October 23, 2003 and completed in two (2) phases. The first phase of the construction which covered the part with a length of approximately 86 kilometers, linking Ruzhou and Pingdingshan in Henan Province, commercially opened on December 31, 2005. On May 31, 2006, the second phase of the construction, with the length of approximately 21 kilometers, linking Pingdingshan and Yexian in Henan Province was completed. With the operation of Pinglin Expressway, the key transport artery, national trunk Nanluo Expressway was entirely opened to traffic.

 
- 4 -

 

Today, the Pinglin Expressway is a dual carriageway four (4) lane expressway, the toll section of which is 106 km in length. Toll revenue from the passing vehicles through the Expressway’s six (6) toll gates (South Pingdingshan, Pingdingshan New Town, Baofeng, Xiaotun, Ruzhou and Wenquan) is the primary source of the Company’s earnings. The Expressway is also located between two (2) key cities, Luoyang and Luohe. The Expressway extends from east to west, from Shilipu (the end of the Luohe-Pingdingshan expressway), through Yexian and Pingdingshan and then to New Xiying village at the joint of Pingdingshan and Luoyang. The road is lined with the Lianhuo (Lianyungang-Huoerguosi) national highway through the ringroad in Luoyang, and then extends to the southeast of Luohe City and connects with the Beijing-Zhuhai national highway into a network to form a convenient channel between Luoyang and Luohe. In addition to the traffic flow of the line itself, we believe it also attracts the traffic flow from the Lianhuo highway to Zhengzhou then to the Beijing-Zhuhai national highway to alter to Luoyang-Luohe section of the Luonan route. Furthermore, the Expressway extends east to link the highway network of the Jiangsu and Anhui Provinces and also links the seaports, including Shanghai.
 
The Company’s operating income is primarily achieved through toll charges on vehicles passing through the Expressway’s toll gates. The standard of toll charges is approved and set by the provincial price administrative bureau. The Company's revenue equals the relevant standard toll rate of the type of vehicles multiplied by the relative miles of travel through the Expressway, and is cleared by the Henan Expressway System Toll Collection Center each month (the Expressway has a charge system and clearing center which calculates and allocates toll charge income according to the charge standards and the miles of travel of vehicles on the Expressway). The Company is specialized in the operation and management of expressways. The maintenance projects are outsourced to professional road construction enterprises.
 
The Company began generating operating revenue in January 2006.  The Expressway was not fully operational until June 2006, therefore our operating income was low and growth was moderate. After several years of operations, awareness of the Expressway has gradually increased, and passenger and commercial vehicle traffic continues to increase. We believe that along with income growth in the future, the profit earning capacity of the Company will improve steadily.

Enterprise Strategy
 
Henan is the province with the largest population in China.  However, its urbanization rate is far below the national average level. With rapid economic and social development and the accelerated process of urbanization in Henan, demand is growing rapidly for infrastructure, such as the Expressway and other transportation infrastructure, urban facilities such as heating, water supply, and sewerage treatment. The existing infrastructure can no longer meet the needs of the region’s social development.
 
Because the Chinese government’s financial revenue growth is limited, its investment alone is unable to build huge infrastructure projects in a relatively short period of time. In order to attract other funding, local governments are willing to grant to commercial companies the right to invest in the construction and operation of projects, or directly sell the equity of the established enterprises to recover their early input.
 
The Company plans to invest in the construction and purchase of additional expressways, thermoelectricity, water supply, sewage treatment facilities and other infrastructure assets with good profit prospects in the next few years. In doing so, it intends to seize the current historic opportunity of rapid development of infrastructure in China and Henan.  We believe that this will rapidly strengthen and expand the Company’s place in infrastructure industries.  This should also create advantages of scale thereby further reducing costs of operation.  The amount of investment in infrastructure is often relatively large, and investment funds need to be in position within two (2) or three (3) years in advance, therefore the amount of capital from the Company’s operations alone cannot meet the demand for investment in the future. The Company desires to actively participate in the capital markets and to use various channels of financing to enhance its ability to raise funds, thereby promoting and achieving its long-term development strategies.
 
Based on the operation and management of the Expressway, the Company desires to take full advantage of free cash flow and capital market instruments to invest in the construction or purchase of infrastructure assets and to exploit all the advantages in management, government relationships and stockholder support to make the Company a professional, continuously-growing infrastructure investment operator.

 
- 5 -

 

In addition, the Company intends to energetically push forward its standard management, human-based services, establish an information management platform and continue to improve the road conditions and traffic capacity so as to provide travelers with a smooth, safe and comfortable traveling environment. With the increasing influence of the Expressway on the substitution and division of other transportation lines in the context of the great macroeconomic environment which is resulting in continuous and rapid growth in China and given the specific area where the roads are located, we believe that the Company’s income from toll and profits will continue to increase.
 
General Overview on Industry and Market
 
General
 
With efforts to advance China’s expressway system out of the developmental stage, the PRC issued a series of polices to encourage the development of expressways. China’s main objectives with respect to road construction during the “Tenth Five-Year Plan” are (a) that total road mileage will reach 2.1~2.3 million km in 2010, (b) that the main national highways with “five (5) in longitudinal direction and seven (7) in transverse” will be built across China, (c) that eight (8) interprovincial roads will be built in the western areas where the expressway will connect ninety percent (90%) of the cities with more than 200,000 in population and (d) that the expressway network will be developed in the eastern parts of China. In 2020, the PRC estimates that China’s total road mileage will extend more than 70,000 km, connecting all cities with more than 200,000 in population and forming a nationwide expressway network.

As compared with common roads, the expressways have distinct economic and technical characteristics and are indicative of the advanced productivity in road transportation. According to the Pingdingshan-Linru Expressway Project Feasibility Study Report, although expressways only account for approximately 1.72% of the total road mileage in China, the traffic volume undertaken thereby is a quarter of the total volume. At present, the running speed of China’s motor vehicles in the expressways are two times that of secondary roads; a two-way expressway with four (4) lanes covers an area 2.5 times that of a common secondary road, and its traffic capacity is eight (8) to ten (10) times that of the latter (as such figures are represented in the aforementioned PL Report). We believe that once the expressways are connected with each other, it will have an immense opportunity for economic growth.
 
We believe that as a result of recent progress in the social and economic development in China, road transportation has taken on an important position among the five (5) areas constituting the comprehensive transportation system (road, railway, airway, watercourse and pipeline). We believe that the expressway as a modern traffic infrastructure have become a backbone channel due to its many characteristics such as large traffic volume, high speed, far-reaching influence and extensive penetration, thus establishing its crucial position in China’s comprehensive transportation system. We believe that expressways highlight the road grade standard and running speed and thus effectively improve the “bottleneck” situation with traffic transportation in some areas as well as promote the optimization and upgrade of the road network. Along with national economic development, we believe China’s passenger and freight transportation will continue to rise. We believe that demand for special transportation, land development, regional economic development and an increase in people’s travel demands have resulted from an increase in economic income and a change in life style, and that such demands will require continued development of expressways to satisfy such demands.
 
Socio-Economic Conditions of Henan Province and Pingdingshan
 
Henan Province has the largest population in China and its GDP in 2008 ranked fifth (5th) in the whole country. In 2008, Henan’s GDP growth increased by 12.1% up from the previous year, higher than the national growth rate of 9.0%. Pingdingshan is an important energy base and industrial city in Henan Province, which has abundant coal and salt resources. Coal mining, electricity, chemicals, and the steel and mechanical industries are the pillar industries of the city. In 2008, Pingdingshan’s GDP ranked fourth in Henan Province and its growth rate was higher than the average level of the whole province.  Pingdingshan had a population of 5.06 million in 2006.

 
- 6 -

 

The Road Network Conditions of Henan Province and Pingdingshan City
 
Henan Province, which we believe has unique road advantages, is located in the central part of China. There are nine (9) national expressways including Lianhuo and Beijing-Hong Kong-Macao, and nine (9) national ways including No. 107 and No. 310, both of which pass through Henan. At the end of 2008, the total provincial traffic mileage had achieved 240,000 km. The density of the road network reached 144.1 km per hundred square kilometer and with the rapid development of expressways, traffic mileage had reached 4,841 km by the end of 2008, ranking first in the country (these figures have been quoted from the 2008 Annual Report of the PRC listed company Central Expressway, Symbol: 600020).
 
According to the Annual Report cited above, there are two (2) expressways, two (2) national roads and four (4) provincial roads which pass through Pingdingshan. However, the proportion of high-grade roads mileage is very low. The comprehensive technical level of the city road network ranges between level three (3) and level four (4), and it is accompanied by serious problems such as disorderly traffic, accidents and traffic jams. The average speed of the road network is only 37.61 km and the integrated saturation is 1.5, fifty percent (50%) over the normal capacity. As expressways under-construction become open to traffic in succession, we believe road network conditions will gradually improve.

Main Advantages
 
Geographic Location
 
The infrastructure has a natural characteristic of regional monopolization, and there is no other resource to replace it within a specific region. Therefore, the geographic location decides the market space of infrastructure assets and has a substantial influence on the profit-earning capability of such assets, and so does the expressway industry. The Pinglin Expressway is located between Luoyang and Pingdingshan, two (2) major industrial cities among the city group in central China and Henan Province. In the north, the Expressway connects with the northwest area through the Lianyungang-Huo’erguosi expressway in Luoyang, and in the east connects to Anhui, Jiangsu, Zhejiang and Shanghai through Luohe city. In the south, the Expressway connects with the Beijing-Zhuhai expressway through Luohe City. With the gradual emergence of the effects produced by China’s initialization of its domestic demand policy, we believe the logistics between the coastal areas and inland China will result in further growth.
 
Ping’s Corporate Governance Structure
 
The Company has a standard and highly effective corporate governance structure. Ping has implemented a management system of responsibility by the General Manager under the leadership of its Board of Directors and has established an internal control system. Ping currently implements a series of incentive and binding policies to encourage management to create value for its stockholder, thus avoiding the defects commonly encountered in state-owned enterprises such as internally-connected person control and absence of the owners. We believe these standards and practices will ensure that the Company’s operating activities will not deviate from the track of healthy development.
 
Governmental Relationships

The operation of the infrastructure industry will not be separated from the support and cooperation of the governmental departments. Whether the infrastructure is working at optimum levels is associated with the integral competitiveness of a city and even a district. Therefore, each local government attaches great importance to the construction and operation of the infrastructure and provides a strategic priority to its development. Henan is located in central China, and has been positioned as an agricultural province for a long time, where the urbanization rate is lower than the average level of the whole country, the infrastructures are backward and the local governments have more eagerness to advance the infrastructure. However, due to certain restrictions on local finance, it is impossible to complete such a significant project only by depending on the investment from the government. During the construction of Pinglin Expressway, the Company experienced many links such as project examination and approval, bank funding, license authorization, charging approval and governmental custody and high efficiency management. As a result, we believe Ping has achieved recognition from the various governmental departments and has established a good cooperative relationship with them. We believe this will also establish a solid basis for long-term development of the Company.

 
- 7 -

 
 
Financial Advantages
 
We believe the Company's major financial advantages to be (a) sound operation, (b) low market risk, (c) no cyclical fluctuation, (d) strong capacity of cash flow from operation, (e) large free cash flow and (f) strong solvency and capital accumulation capacity. Furthermore, infrastructure industries are in line with the state’s industrial policy and concessions on charge standards and interest rates on bank loans.

Qualifications
 
The Company entered into that certain Chartered Right Agreement on Pingdingshan-Linru Expressway Project on April 10, 2003 with the Pingdingshan Communications Bureau (authorized by Pingdingshan People’s Government), upon which, the Company is entitled to the rights of construction, operation and toll collection. A copy of such Agreement is referenced to this Report as Exhibit 10.2.
 
In accordance with Y. F. G. S. F. [2006] No. 1460 filed jointly by Henan Provincial Development and Reform Commission and Henan Provincial Department of Communications, the toll collection standard of Pingdingshan-Linru expressway was specially increased on October 20, 2006, and the charging standard after the adjustment is as follows:
 
   
Type of Vehicle
 
Charging:
RMB:
Yuan/car km
   
Charging:
USD:
Dollar/car km
 
Type A
 
Small passenger car, truck loaded below 2 tons
 
0.55
   
0.0759
 
Type B
 
Middle-sized passenger car, truck loaded 2-5 tons
 
0.75, 0.80
   
0.1035, 0.1104
 
Type C
 
Large-sized passenger car, truck loaded 5-8 tons
 
1.10, 1.40
   
0.1518, 0.1931
 
Type D
 
Truck loaded 8-20 tons l
 
1.75
   
0.2414
 
Type E
 
Truck loaded 20-40 tons
 
2.10
   
0.2897
 
Type F
 
Truck loaded more than 40 tons
 
RMB0.08/ton. km
   
0.0110/ton.km
 
 
Technical Information
 
According to the rules in “Road Engineering Technical Standard” issued by Ministry of Communications of PRC, the main technical indexes of Pinglin Expressway are in the table as follows:
 
Construction mileage
107km
Grade of the Road
Dual-carriageway with two (2) lanes each direction
Design Speed
120km/h
Road Surface Type
Asphalt concrete
Design Load for Bridge/Culvert
Automobile - S 20, Trailer-120
Terrain
Plain lightly undulate area

Employees
 
Ping attaches great importance to the cultivation of professional managerial persons and pursues a talent policy of retaining professionals by undertaking an enterprise culture. Through continuously improving its corporate governance structure, management system and talent introduction and incentive system, Ping has created an excellent working atmosphere and development opportunity, which integrates the individual occupational plan with the Company’s development and reduces the turnover of the employees, especially the core technicians, thus forming a relatively stable and high-quality employee team. Figure 1 below sets forth the current institutional structure of Ping:

 
- 8 -

 
 
 
As of June 30, 2009, we had approximately 375 full-time employees. The number of employees by functions is listed below:
 
   
Number of Employees
 
% of Total Employees
 
Toll Collection Operations
   
264
 
70.4
 
Maintenance and Operations
   
43
 
11.5
 
Finance and Accounting
   
5
 
1.2
 
Administration
   
52
 
14.0
 
Executive Management
   
11
 
2.9
 
Total
   
375
 
100
 
 
Institutional Structure
 
There are six (6) departments in the Company, and the main function of each department is as follows:
 
Operation and Management Department: This Department is responsible for toll collection management, routine maintenance of operating facilities and statistics of traffic volume.
 
Engineering Maintenance Department: This Department is responsible for the organization of Expressway maintenance, for managing infrastructure and maintenance projects, for coordinating the relationship between the parties participating in the projects, for managing project quality and for selecting and purchasing fixed assets and project materials.

 
- 9 -

 

Road Administration Department: This Department is responsible for implementing national laws and regulations on the expressways, maintaining road assets and property rights according to the law, supervising and investigating expressway cases and other road administration such as comprehensive management and special treatment and supervising the maintenance work.

Planned Finance Department: This Department is responsible for setting and optimizing the financial system and flow, conducting basic accounting checks, controlling and managing financial matters, managing capital plans, managing contracts, researching and preparing mid and long term development plans, conducting internal audits and other matters related to industry, commerce and taxation.
 
Human Resources Department: This Department is responsible for drafting human resources plans and allocating the staff, organizing and implementing staff training and career development, providing performance and salary management as well as other personnel services.
 
Office Department: This Department is responsible for managing administrative affairs, drafting the Company’s systems and documents, managing the archives, stamps and vehicles and organizing and administrating conference-related matters.
 
Intellectual Property
 
We currently do not own any copyrights, trademarks or patents.
 
Competition
 
Our competition consists of other expressways. As newly-constructed expressways continue to open, the expressway network improves and the density of road network increases, a portion of traffic flow will change whereby travelers will opt for shorter traveling routes, while the expressway network has the clustering effect on traffic flow. Thus, relevant expressways will form competition against each other. The Pinglin Expressway has its competitive advantage in route; according to China’s expressway general plan, it will be the shortest route in the province.
 
Secondly, the common roads have competition between each other. Although on the common roads there are some problems such as low velocity, high oil consumption and low safety, the charges for the vehicle are inexpensive so that some of the traffic flow may be attracted. However, as the economy grows and people’s income rises, we believe time and safety factors will be more of a priority, especially in long distance road transportation, and the advantage of expressways will be prominent.
 
Thirdly, there are competitions from railways and air transportation. The capacity of air-express is limited, and it costs much more than expressways do, so it is restrained in its availability to the general public. The railway transportation has a lower cost, but it is different from the road transportation due to different service objects. Moreover, the total social demand for passenger and freight transportation is increasing, so the increase in the railway transportation capacity can’t completely offset by the growth in demand for expressways.
 
Research and Development

The Company did not incur any expenses on research and development during the fiscal years ended June 30, 2009 or June 30, 2008.

Environmental Laws
 
The Company did not incur any expenses in connection with compliance with environmental laws (federal, state, local and foreign) during the fiscal year ended June 30, 2009.

 
- 10 -

 

ITEM 1A.
Risk Factors
 
The financial condition, business, operations, and prospects of the Company involve a high degree of risk. You should carefully consider the risks and uncertainties described below, which constitute the material risks relating to the Company, and the other information in this report. If any of the following risks are realized, the Company’s business, operating results and financial condition could be harmed and the value of the Company’s stock could suffer. This means that investors and stockholders of the Company could lose all or a part of their investment.
 
RISKS RELATING TO THE PEOPLE’S REPUBLIC OF CHINA
 
Certain Political and Economic Considerations Relating to China Could Adversely Affect Our Company.
 
The PRC is transitioning from a planned economy to a market economy. While the PRC government has pursued economic reforms since its adoption of the open-door policy in 1978, a large portion of the PRC economy is still operating under five-year plans and annual state plans. Through these plans and other economic measures, such as control on foreign exchange, taxation and restrictions on foreign participation in the domestic market of various industries, the PRC government exerts considerable direct and indirect influence on the economy. Many of the economic reforms carried out by the PRC government are unprecedented or experimental, and are expected to be refined and improved.
 
Other political, economic and social factors can also lead to further readjustment of such reforms. This refining and readjustment process may not necessarily have a positive effect on our operations or future business development. Our operating results may be adversely affected by changes in the PRC’s economic and social conditions as well as by changes in the policies of the PRC government, such as changes in laws and regulations (or the official interpretation thereof), measures which may be introduced to control inflation, changes in the interest rate or method of taxation, and the imposition of additional restrictions on currency conversion.
 
The Chinese Government Exerts Substantial Influence Over The Manner In Which We Must Conduct Our Business Activities Which Could Adversely Affect Our Company.
 
China only recently has permitted provincial and local economic autonomy and private economic activities. The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and State ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to toll collection standards, taxation, import and export tariffs, environmental regulations, land use rights, property and other matters. We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations.
 
Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties or joint ventures.

The Chinese Legal System Has Inherent Uncertainties That Could Limit The Legal Protections Available To You.
 
Our contractual arrangements are governed by the laws of the People’s Republic of China. China’s legal system is based upon written statutes. Prior court decisions may be cited for reference but are not binding on subsequent cases and have limited value as precedents. Since 1979, the Chinese legislative bodies have promulgated laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. However, because these laws and regulations are relatively new, and because of the limited volume of published decisions and their non-binding nature, the interpretation and enforcement of these laws and regulations involve uncertainties, and therefore you may not have legal protections for certain matters in China.

 
- 11 -

 
 
All Of Our Assets Are Located In China, Any Dividends Of Proceeds From Liquidation Is Subject To The Approval Of The Relevant Chinese Government Agencies.
 
Our assets are located inside China. Under the laws governing foreign invested enterprises in China, dividend distribution and liquidation are allowed but subject to special procedures under the relevant laws and rules. Any dividend payments will be subject to the decision of our Board of Directors and subject to foreign exchange rules governing such repatriation. Any liquidation is subject to both the relevant government agency’s approval and supervision as well the foreign exchange control. This may generate additional risk for our investors in case of dividend payments and liquidation.
 
Future Inflation In China May Inhibit Our Activity To Conduct Business In China.
 
In recent years, the Chinese economy has experienced periods of rapid expansion and high rates of inflation. These factors have led to the adoption by Chinese government, from time to time, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. While inflation has been more moderate since 1995, high inflation may in the future cause Chinese government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China and thereby harm our business operations.
 
Currency Conversion And Exchange Rate Volatility Could Adversely Affect Our Financial Condition.
 
The PRC government imposes control over the conversion of Renminbi into foreign currencies. Under the current unified floating exchange rate system, the People’s Bank of China (PBOC) publishes an exchange rate, which we refer to as the PBOC exchange rate, based on the previous day’s dealings in the inter-bank foreign exchange market. Financial institutions authorized to deal in foreign currency may enter into foreign exchange transactions at exchange rates within an authorized range above or below the PBOC exchange rate according to market conditions.
 
Pursuant to the Foreign Exchange Control Regulations of the PRC issued by the State Council which came into effect on April 1, 1996, and the Regulations on the Administration of Foreign Exchange Settlement, Sale and Payment of the PRC which came into effect on July 1, 1996, regarding foreign exchange control, conversion of Renminbi into foreign exchange by Foreign Investment Enterprises (“FIEs”), for use on current account items, including the distribution of dividends and profits to foreign investors, is permissible. FIEs are permitted to convert their after-tax dividends and profits to foreign exchange and remit such foreign exchange to their foreign exchange bank accounts in the PRC. Conversion of Renminbi into foreign currencies for capital account items, including direct investment, loans, and security investment, is still under certain restrictions. On January 14, 1997, the State Council amended the Foreign Exchange Control Regulations and added, among other things, an important provision, which provides that the PRC government shall not impose restrictions on recurring international payments and transfers under current account items.

Enterprises in the PRC (including FIEs) which require foreign exchange for transactions relating to current account items, may, without approval of the State Administration of Foreign Exchange, or SAFE, effect payment from their foreign exchange account or convert and pay at the designated foreign exchange banks by providing valid receipts and proofs.
 
Convertibility of foreign exchange in respect of capital account items, such as direct investment and capital contribution, is still subject to certain restrictions, and prior approval from the SAFE or its relevant branches must be sought.

 
- 12 -

 

Since 1994, the exchange rate for Renminbi against the United States dollars has remained relatively stable, most of the time in the region of approximately RMB8.3 to US$1.00. However, in 2005, the Chinese government announced that would begin pegging the exchange rate of the Chinese Renminbi against a number of currencies, rather than just the U.S. Dollar. As our operations are primarily in China, any significant revaluation of the Chinese Renminbi may materially and adversely affect our cash flows, revenues and financial condition. For example, to the extent that we need to convert United States dollars into Chinese Renminbi for our operations, appreciation of this currency against the United States dollar could have a material adverse effect on our business, financial condition and results of operations. Conversely, if we decide to convert Chinese Renminbi into United States dollars for other business purposes and the United States dollar appreciates against this currency, the United States dollar equivalent of the Chinese Renminbi we convert would be reduced.
 
The Value Of Our Securities Will Be Affected By The Foreign Exchange Rate Between U.S. Dollars And Renminbi.
 
The value of the Company’s Common Stock will be affected by the foreign exchange rate between U.S. dollars and Renminbi, and between those currencies and other currencies in which our sales may be denominated. For example, to the extent that we need to convert U.S. dollars into Renminbi for our operational needs and should the Renminbi appreciate against the U.S. dollar at that time, our financial position, the business of the Company, and the price of our Common Stock may be harmed. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of declaring dividends on our Common Stock or for other business purposes and the U.S. dollar appreciates against the Renminbi, the U.S. dollar equivalent of our earnings from our China operations would be reduced.
 
You May Experience Difficulties In Effecting Service Of Legal Process, Enforcing Foreign Judgments Or Bringing Original Actions In China Based On United States Or Other Foreign Laws Against Us.
 
We conduct our operations in China and a significant portion of our assets is located in China. In addition, our directors and executive officers reside within China, and substantially all of the assets of these persons are located within China. As a result, it may not be possible to effect service of process within the United States or elsewhere outside China upon those directors or executive officers, including with respect to matters arising under U.S. federal securities laws or applicable state securities laws. Moreover, our Chinese counsel has advised us that China does not have treaties with the U.S. and many other countries that provide for the reciprocal recognition and enforcement of judgment of courts. As a result, recognition and enforcement in China of judgments of a court of the U.S. or any other jurisdiction in relation to any matter may be difficult or impossible.

Our Significant Amount Of Deposits In Certain Banks In China May Be At Risk If These Banks Go Bankrupt During Our Deposit Period.
 
As of June 30, 2009, we had approximately RMB35.4 million (approximately US$5.2 million) in banks in China, which almost constitute all of our total cash. The terms of these deposits are, in general, up to twelve (12) months. Historically, deposits in Chinese banks are secure due to the state policy on protecting depositors’ interests. However, China promulgated a new Bankruptcy Law in August 2006, which has come into effect on June 1, 2007, which contains a separate article expressly stating that the State Council may promulgate implementation measures for the bankruptcy of Chinese banks based on the Bankruptcy Law. Under the new Bankruptcy Law, a Chinese bank may go bankrupt. In addition, since China’s concession to WTO, foreign banks have been gradually permitted to operate in China and have been severe competitors against Chinese banks in many aspects, especially since the opening of Renminbi business to foreign banks in late 2006. Therefore, the risk of bankruptcy of those banks in which we have deposits has increased. In the event of bankruptcy of one of the banks which holds our deposits, we are unlikely to recover our deposits back in full since we are unlikely to be classified as a secured creditor based on PRC laws.

 
- 13 -

 

RISKS RELATING TO OUR BUSINESS
 
Because Our Operating History Is Limited And The Revenue And Income Potential Of Our Business And Markets Are Unproven, We Cannot Predict Whether We Will Meet Internal or External Expectations Of Future Performance.
 
We believe that our future success depends on our ability to significantly increase revenue from toll collections, of which we have a limited history. The Expressway marketplace features high investment and a long recovery period. The main market risk in connection with our Company is the future traffic volume less than the predicted amount. Accordingly, our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies with a limited operating history. These risks include our ability to:

 
·
offer new and innovative services on the Expressway;
 
 
·
attract billboard advertisers;

 
·
attract more travelers;
 
 
·
respond effectively to competitive pressures and address the effects of strategic relationships or corporate combinations;
 
 
·
maintain our current, and develop new, strategic relationships;
 
 
·
increase awareness of the Expressway and continue to build traveler loyalty;
 
 
·
attract and retain qualified management and employees; and
 
 
·
upgrade our technology to support increased traffic and expanded services.
 
Our Business And Growth Could Suffer If We Are Unable To Hire And Retain Key Personnel That Are In High Demand.
 
We depend upon the continued contributions of our senior management and other key personnel, including Li Xipeng and Zhang Chunxian. The loss of the services of any of our executive officers or other key employees could have a material adverse effect on our business, operations, revenues or prospects. We do not maintain key man insurance on the lives of these individuals at present. As we plan to expand, we will have to attract managerial staff. We may not be able to identify and retain qualified personnel due to our lack of understanding of different cultures and lack of local contacts. This may impede any potential expansion. Our future success will also depend on our ability to attract and retain highly skilled and qualified technical, engineering, managerial, finance, marketing, security and customer service personnel in China. Qualified individuals are in high demand, and we may not be able to successfully attract, assimilate or retain the personnel we need to succeed.
 
If We Need Additional Capital To Fund Our Growing Operations, We May Not Be Able To Obtain Sufficient Capital And May Be Forced To Limit The Scope Of Our Operations.
 
We may experience increased capital needs and we may not have enough capital to fund our future operations without additional capital investments. Our capital needs will depend on numerous factors, including (i) our profitability; (ii) the success of our competitors; (iii) the amount of our capital expenditures; and (iv) new infrastructure project investment. We cannot assure you that we will be able to obtain capital in the future to meet our needs.

 
- 14 -

 

If we cannot obtain additional funding, we may be required to:

 
·
reduce our investments in infrastructure industry;
 
 
·
limit our expansion efforts; and
 
 
·
decrease or eliminate capital expenditures.
 
Such reductions could materially adversely affect our business and our ability to compete. Even if we do find a source of additional capital, we may not be able to negotiate terms and conditions for receiving the additional capital that are acceptable to us. Any future capital investments could dilute or otherwise materially and adversely affect the holdings or rights of our existing stockholders. We cannot give you any assurance that any additional financing will be available to us, or if available, will be on terms favorable to us.
 
Competition With The Railways and Airways in China May Have A Negative Impact On Our Business
 
With the rapid development of the domestic expressway, China is also giving great support to the development of railways and airways. The construction of a special passenger railway and the speed-up of railways in general will be able to greatly improve the transport capacity of passengers and freight by railway and bring about a division of the target clients of the Expressway which could be an impediment to our growth and have a negative impact on our revenues.
 
RISKS RELATING TO OUR COMMON STOCK
 
Our Common Stock Price Is Volatile And Could Decline In The Future.
 
The stock market in general and the market price for other companies based in the PRC have experienced extreme stock price fluctuations. In some cases, these fluctuations have been unrelated to the operating performance of the affected companies. Many companies in the toll road industry have experienced dramatic volatility in the market prices of their common stock. We believe that a number of factors, both within and outside of our control, could cause the price of our Common Stock to fluctuate, perhaps substantially. Factors such as the following could have a significant adverse impact on the market price of our Common Stock:

 
·
announcements of technological innovations by us or our competitors;
 
 
·
our ability to obtain additional financing and, if available, the terms and conditions of the financing;
 
 
·
our financial position and results of operations;
 
 
·
litigation;
 
 
·
period-to-period fluctuations in our operating results;
 
 
·
changes in estimates of our performance by any securities analysts;
 
 
·
new regulatory requirements and changes in the existing regulatory environment;
 
 
·
the issuance of new equity securities in a future offering;

 
- 15 -

 

 
·
changes in interest rates;
 
 
·
changes in toll road standards;
 
 
·
market conditions of securities traded on the NASDAQ Capital Market;
 
 
·
investor perceptions of us and the toll road industry generally; and
 
 
·
general economic and other national conditions.
 
We May Have Difficulty Raising Necessary Capital To Fund Operations As A Result Of Market Price Volatility For Our Shares Of Common Stock.
 
In recent years, the securities markets in the United States have experienced a high level of price and volume volatility, and the market price of securities of many companies have experienced wide fluctuations that have not necessarily been related to the operations, performances, underlying asset values or prospects of such companies. For these reasons, our shares of Common Stock can also be expected to be subject to volatility resulting from purely market forces over which we will have no control. If our business development plans are successful, we may require additional financing to continue to develop and exploit existing and new technologies and to expand into new markets. The exploitation of our technologies may, therefore, be dependent upon our ability to obtain financing through debt and equity or other means.
 
Our Common Stock Is Considered A “Penny Stock” And As A Result, Related Broker-Dealer Requirements Affect Its Trading And Liquidity.
 
Our common stock is deemed to be “penny stock” as that term is defined in Rule 3a51-1 promulgated under the Exchange Act. Penny stocks are stocks:

 
·
With a price of less than $5.00 per share;

 
·
That are not traded on a “recognized” national exchange; or

 
·
In issuers with net tangible assets less than $2.0 million (if the issuer has been in continuous operation for at least three years) or $5.0 million (if in continuous operation for less than three years), or with average revenues of less than $6.0 million for the last three (3) years.

Broker/dealers dealing in penny stocks are required to provide potential investors with a document disclosing the risks of penny stocks. Moreover, broker/dealers are required to determine whether an investment in a penny stock is a suitable investment for a prospective investor. These requirements may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to resell shares to third parties or to otherwise dispose of them. This could cause our stock price to decline.
 
Shares Eligible For Future Sale May Adversely Affect The Market Price Of Our Common Stock.
 
From time to time, certain of our stockholders may be eligible to sell all or some of their shares of Common Stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144, promulgated under the Securities Act of 1933, as amended, subject to certain limitations. In general, effective February 15, 2008, pursuant to Rule 144, a stockholder (or stockholders whose shares are aggregated) who has satisfied a six (6) months holding period may, under certain circumstances, sell within any three (3) month period a number of securities which does not exceed one percent (1%) of the then outstanding shares of common stock. In addition, effective February 15, 2008, Rule 144 also permits, under certain circumstances, the sale of securities, without any limitations, by a non-affiliate of our company that has satisfied a one (1) year holding period. Any substantial sale of common stock pursuant to Rule 144 may have an adverse effect on the market price of our Common Stock.

 
- 16 -

 
 
One Stockholder Which is 50% Controlled By Our Chief Executive Officer and Chairman of the Board of The Company Exercises Significant Control Over Matters Requiring Stockholder Approval.
 
After giving effect to the issuance of all the shares of Common Stock, Joylink has voting power equal to sixty-eight percent (68%) of our voting securities as of the date of this Report. Moreover, Joylink is fifty percent (50%) controlled by Li Xipeng, the Company’s Chief Executive Officer and Chairman of the Board. As a result, Joylink, and our CEO through such stock ownership, exercises control over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership in Joylink may also have the effect of delaying or preventing a change in control of us that may be otherwise viewed as beneficial by stockholders other than Joylink.

We May Incur Significant Costs To Ensure Compliance With U.S. Corporate Governance And Accounting Requirements.
 
We may incur significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the SEC. We expect all of these applicable rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
 
We May Be Required To Raise Additional Financing By Issuing New Securities With Terms Or Rights Superior To Those Of Our Shares Of Common Stock, Which Could Adversely Affect The Market Price Of Our Shares Of Common Stock.
 
We may require additional financing to fund future operations, including expansion in current and new markets, programming development and acquisition, capital costs and the costs of any necessary implementation of technological innovations or alternative technologies. We may not be able to obtain financing on favorable terms, if at all. If we raise additional funds by issuing equity securities, the percentage ownership of our current stockholders will be reduced, and the holders of the new equity securities may have rights superior to those of the holders of shares of Common Stock, which could adversely affect the market price and the voting power of shares of our Common Stock. If we raise additional funds by issuing debt securities, the holders of these debt securities would similarly have some rights senior to those of the holders of shares of Common Stock, and the terms of these debt securities could impose restrictions on operations and create a significant interest expense for us.
 
We Do Not Foresee Paying Cash Dividends In The Foreseeable Future.
 
We have not paid cash dividends on our stock and we do not plan to pay cash dividends on our stock in the foreseeable future.

ITEM 1B.
Unresolved Staff Comments
 
None.

 
- 17 -

 

ITEM 2.
Properties
 
DESCRIPTION OF PROPERTIES
 
All land in China is owned by the State. Individuals and companies are permitted to acquire rights to use land or land use rights for specific purposes. In the case of land used for industrial purposes, the land use rights are granted for a period of fifty (50) years. This period may be renewed at the expiration of the initial and any subsequent terms. Granted land use rights are transferable and may be used as security for borrowings and other obligations.
 
Ping owns land use rights with respect to its office location at Pinglin Toll Road Station, New District, Pingdingshan City, Henan Province, the PRC. Pursuant to the approval from The Ministry of Land and Resources of the PRC [No. 2004-289] dated September 10, 2004, Ping was granted approximately Seven Hundred (700) hectares land use right for construction purpose, among which approximately Eight (8) hectares were used in association with the office and service facilities and the others were used for the construction of toll road infrastructures.
 
CMH and WOC share offices at Room 42, New Henry House, 10 Ice House Street, Central, Hong Kong. This office consists of approximately Three Thousand (3,000) square feet.

We believe that all of our properties and equipment have been adequately maintained, are generally in good condition, and are suitable and adequate for our business.
 
LEGAL PROCEEDINGS
 
ITEM 3.
Legal Proceedings
 
In the normal course of business, we are named as defendant in lawsuits in which claims are asserted against us. In our opinion, the liabilities, if any, which may ultimately result from such lawsuits, are not expected to have a material adverse effect on our financial position, results of operations or cash flows. As of the date hereof, there is no outstanding litigation with the Company except as set forth below.

The Company entered into an agreement to purchase a land use right from Pingdingshan No. 3 Cement Factory for $1,843,646. However, the Company was not informed that such land use right was pledged by the cement factory as collateral for loans from Pingdingshan Suburb Huancheng Credit Corporation (“PSHCC”).  Pingdingshan No. 3 Cement Factory went bankrupt and PSHCC who loaned them money then sued the Company for the loss of the collateral. On July 13, 2006, judgment was made by the Henan Pingdingshan Intermediary Court in which the Company was required to pay PSHCC $485,851. The amount was paid in August 2006 and was netted against Other Income, Net in the statement of income for the year ended June 30, 2007. The Company appealed the ruling to Henan Pingdingshan Intermediary Court again. Pursuant to the final judgment made on April 25, 2008, the compensating claim from PSHCC was rejected. Currently, the Company is in the progress of pursuing the amount paid. While during the pursuing progress, PSHCC appealed such final judgment to Henan Higher Court and is waiting for the judgment. No receivable for the contingency was recorded as of June 30, 2009 or 2008.
 
ITEM 4.
Submission of Matters to a Vote of Security Holders
 
None.

 
- 18 -

 

PART II
 
ITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S
COMMON EQUITY AND OTHER STOCKHOLDER MATTERS

The Registrant’s Common Stock is traded on the NASDAQ Capital Market under the symbol “CIIC”. The following table sets forth on a per share basis for the periods shown, the high and low closing bid prices of our Common Stock. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
 
Closing Bid Prices 
 
High
   
Low
 
Calendar Year Ending December 31, 2009
           
1st Quarter (excluding March 3rd):
  $ 1.88     $ 1.00  
2nd Quarter:
  $ 1.68     $ 0.76  
                 
Calendar Year Ended December 31, 2008
               
1st Quarter:
  $ 5.10     $ 4.30  
2nd Quarter:
  $ 5.00     $ 4.15  
3rd Quarter (July 1 through August 11):
  $ 4.50     $ 4.00  
NASDAQ STOCK MARKET:
               
3rd Quarter (August 11 through September 30):
  $ 4.10     $ 3.00  
4th Quarter (excluding October 27th and October 29th):
  $ 3.40     $ 1.35  
                 
Calendar Year Ended December 31, 2007
               
1st Quarter:
 
NONE
   
NONE
 
2nd Quarter:
 
NONE
   
NONE
 
3rd Quarter:
  $ 0.05     $ 0.05  
4th Quarter (through December 18th prior 1 for 2 reverse split):
  $ 0.05     $ 0.05  
4th Quarter (from December 19th after 1 for 2 reverse split):
  $ 0.02     $ 0.02  
 
When the trading price of the Company’s Common Stock is below $5.00 per share, the Common Stock is considered to be a “penny stock” that is subject to rules promulgated by the SEC (Rule 15-1 through 15g-9) under the Exchange Act. These rules impose significant requirements on brokers under these circumstances, including: (a) delivering to customers the SEC’s standardized risk disclosure document; (b) providing customers with current bid and ask prices; (c) disclosing to customers the brokers-dealer’s and sales representatives compensation; and (d) providing to customers monthly account statements.
 
Holders of Common Equity
 
As of September 25, 2009 and as of the date of this Report, the Company has an aggregate of 80,000,000 shares of its Common Stock issued and outstanding and eight (8) stockholders of record.
 
Dividends

Prior to the closing of the Exchange, the Company effectuated a 2-1 reverse stock split for the issued and outstanding shares of its Common Stock. The effective date for this reverse split was December 3, 2007.

On January 22, 2008, the Company completed a dividend distribution to its shareholders of record as of January 18, 2008 in the amount equal to five percent (5%) (1,250,005 shares) of the then issued and outstanding Common Stock.  Following the dividend distribution and immediately prior to the consummation of the Exchange, the Company had 26,250,005 shares of Common Stock issued and outstanding.
 
The further issuance of dividends, if any, will be contingent upon our revenues and earnings, if any, capital requirements and financial conditions. The payment of dividends, if any, will be within the discretion of the Company’s Board of Directors. The company presently intends to retain all earnings, if any, for use in its business operations and accordingly, the Board does not anticipate declaring any cash dividends for the foreseeable future. We have not paid any cash dividends on our Common Stock.

 
- 19 -

 
 
Securities Authorized for Issuance under Equity Compensation Plans

The following table discloses information as of June 30, 2009 with respect to compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance.
 
   
(a)
   
(b)
   
(c)
 
Plan Category
 
Number of securities to be 
issued upon exercise of 
outstanding options, 
warrants and rights
   
Weighted-average 
exercise price of 
outstanding options, 
warrants and rights
   
Number of securities 
remaining available for 
future issuance under 
equity compensation plans 
(excluding securities 
reflected in column (a)
 
N/A
    -0-       -0-       -0-  
Total
    -0-       -0-       -0-  
 
Options and Warrants
 
As of the date of this Report, we have no outstanding options or warrants.
 
Transfer Agent
 
Interwest Transfer Company, Inc., 1981 East Murray Holladay Road, Suite 100, P.O. Box 17136, Salt Lake City, UT 84117, telephone (801) 272-9294, facsimile (801) 277-3147 currently acts as our transfer agent and registrar.

Performance Graph

Not required for a smaller reporting company.
 
Recent Sales of Unregistered Securities

The Company effectuated a 2-1 reverse split of its Common Stock effective on December 3, 2007 effectively reducing the number of issued and outstanding shares of Common Stock to 25,000,000 shares.

On January 22, 2008, the Company completed a dividend distribution to its shareholders of record as of January 18, 2008 in the amount equal to five percent (5%) (1,250,005 shares) of the then issued and outstanding Common Stock.  Following the dividend distribution and immediately prior to the consummation of the Exchange, the Company had 26,250,005 shares of Common Stock issued and outstanding.
 
On February 8, 2008, pursuant to the terms of the Exchange Agreement, the Company acquired all of the issued and outstanding capital stock of CMH in exchange for the issuance by the Company of 54,400,000 newly-issued shares of Common Stock to the Stockholder (Joylink Holdings, Inc.).

ITEM 6.
Selected Financial Data
 
Not required for a smaller reporting company.

 
- 20 -

 

ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements
 
The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our consolidated financial statements and their related notes included in this Report. This Report contains forward-looking statements. Generally, the words “believes”, ”anticipates”, “may”, “will”, “should”, “expect”, “intend”, “estimate”, “continue” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents we file with the SEC from time to time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements.
 
Business Overview

The Company is engaged in the investment, construction, operation and management of the Pinglin Expressway toll road 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 (6) toll gates. All the rates applicable to the automobiles are defined by the Henan Communications Bureau and Henan Development and Reform Committee.
 
The Pinglin Expressway is a significant part of the Nanluo Expressway, a key national trunk highway in China which connects Nanjing to Luoyang.  The Nanluo Expressway links the northwestern regions to the southeastern coastal regions of China. The construction of the Pinglin Expressway started on October 23, 2003 and was completed in two (2) phases. The first phase of the construction (covering a section of approximately 86 kilometers in length) linking Ruzhou and Pingdingshan in Henan Province, began commercial operations on December 31, 2005.  On May 31, 2006, the second phase of the construction (covering a section of approximately 21 kilometers in length) linking Pingdingshan to Yexian in Henan Province was completed. With the operation of Pinglin Expressway the Nanluo Expressway became completely operational.
 
The Pinglin Expressway is a dual carriageway four (4) lane expressway, the toll section of which is 106 km in length. Toll revenue from vehicles passing through the Expressway’s six (6) toll gates (South Pingdingshan, Pingdingshan New Town, Baofeng, Xiaotun, Ruzhou and Wenquan) is the primary source of the Company’s revenue.  The Expressway is also located between two (2) key cities, Luoyang and Luohe. The Expressway extends from east to west, from Shilipu (the end of the Luohe-Pingdingshan expressway), through Yexian and Pingdingshan and then to New Xiying village at the joint of Pingdingshan and Luoyang.  The road is linked with the Lianhuo (Lianyungang-Huoerguosi) national highway in Luoyang, and then extends to the southeast of Luohe City and connects with the Beijing-Zhuhai national highway to form a convenient channel between Luoyang and Luohe. In addition to the traffic flow of the line itself, we believe it also attracts the traffic flow from the Lianhuo highway to Zhengzhou and then to the Beijing-Zhuhai national highway to alter the route of the Pinglin Expressway.  Furthermore, the Expressway extends east to link the highway network of the Jiangsu and Anhui provinces and also links seaports, including Shanghai.
 
The Company’s operating revenue is generated through toll charges on vehicles that pass through the toll gate. The standard of toll charges is approved and set by the provincial price administrative bureau. The Company’s revenue is equal to the relevant standard toll rate for the types of vehicles, multiplied by the relative miles of travel through the Expressway which the Company is operating, and is cleared by the Henan Expressway System Toll Collection Center each month (Henan Expressway has a system of charges and a clearing center which calculates and allocates toll charge income according to the charge standards and the miles of vehicle travel in the Expressway). The Company specializes in the operation and management of expressways, and maintenance projects are outsourced to professional road construction enterprises.

 
- 21 -

 
 
The Company began generating operating revenue in January 2006.  The Expressway was not fully operational until June 2006, therefore our operating income was low and growth was moderate. After several years of operations, awareness of the Expressway has gradually increased, and passenger and commercial vehicle traffic continues to increase. We believe that along with income growth in the future, the profit earning capacity of the Company will improve steadily.
 
Enterprise Strategy
 
Henan is the province with the largest population in China.  However, its urbanization rate is far below the national average level. With rapid economic and social development and the accelerated process of urbanization in Henan, demand is growing rapidly for infrastructure, such as the Expressway and other transportation infrastructure, urban facilities such as heating, water supply, and sewerage treatment. The existing infrastructure can no longer meet the needs of the region’s social development.
 
Because the Chinese government’s financial revenue growth is limited, its investment alone is unable to build huge infrastructure projects in a relatively short period of time. In order to attract other funding, local governments are willing to grant to commercial companies the right to invest in the construction and operation of projects, or directly sell the equity of the established enterprises to recover their early input.
 
The Company plans to invest in the construction and purchase of additional expressways, thermoelectricity, water supply, sewage treatment facilities and other infrastructure assets with good profit prospects in the next few years. In doing so, it intends to seize the current historic opportunity of rapid development of infrastructure in China and Henan.  We believe that this will rapidly strengthen and expand the Company’s place in infrastructure industries.  This should also create advantages of scale thereby further reducing costs of operation.  The amount of investment in infrastructure is often relatively large, and investment funds need to be in position within two (2) or three (3) years in advance, therefore the amount of capital from the Company’s operations alone cannot meet the demand for investment in the future. The Company desires to actively participate in the capital markets and to use various channels of financing to enhance its ability to raise funds, thereby promoting and achieving its long-term development strategies.
 
Based on the operation and management of the Expressway, the Company desires to take full advantage of free cash flow and capital market instruments to invest in the construction or purchase of infrastructure assets and to exploit all the advantages in management, government relationships and stockholder support to make the Company a professional, continuously-growing infrastructure investment operator.
 
In addition, the Company intends to energetically push forward its standard management, human-based services, establish an information management platform and continue to improve the road conditions and traffic capacity so as to provide travelers with a smooth, safe and comfortable traveling environment. With the increasing influence of the Expressway on the substitution and division of other transportation lines in the context of the great macroeconomic environment which is resulting in continuous and rapid growth in China and given the specific area where the roads are located, we believe that the Company’s income from toll and profits will increase.
 
Significant Accounting Policies
 
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.

 
- 22 -

 
 
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.
 
Revenue Recognition
 
The Company’s revenue represents toll revenue net of business tax, and is recognized when all of the following criteria are met:
 
 
·
The amount of revenue can be measured reliably;
 
 
·
It is probable that the economic benefits associated with the transaction will flow to the enterprise;
 
 
·
The costs incurred or to be incurred in respect of the transaction can be measured reliably; and
 
 
·
Collectibility is reasonably assured.
 
The rental income is measured at the fair value of the consideration receivable and represents amounts receivable for services provided in the normal course of business, net of discounts and sales tax.
 
Fair Value of Financial Instruments
 
The Company’s financial instruments include restricted cash, accounts receivable, notes receivable, due from related parties, other receivables, other payables and accrued liabilities, short-term bank loans, payable to contractors, other current liabilities and deferred taxes. We estimated that the carrying amount approximates fair value due to their short-term nature. The fair value of the Company’s long-term bank loans and deferred revenue are estimated based on the current rates offered to the Company for debt of similar terms and maturities.  The Company’s fair value of long-term bank loans and deferred revenue was not significantly different from the carrying value at June 30, 2009 and 2008.
 
Impairment of Long-Lived Assets
 
We review periodically the carrying amounts of long-lived assets including toll road infrastructures, property, plant and equipment, land use rights, construction in progress, long-term investment and long-term deferred assets with finite useful lives or beneficial periods, to assess whether they are impaired. We evaluate these assets for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable such as a change of business plan or a period of continuous losses. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its projected future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. In determining estimates of future cash flows, significant judgment in terms of projection of future cash flows and assumptions is required. There were no impairments for the years ended June 30, 2009 and 2008.

 
- 23 -

 
 
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. As we have not become aware of any toll related claim since operations commenced, we have not recognized such a liability for the years ended June 30, 2009 and 2008.
 
Recent Accounting Pronouncements
 
In December 2008, the Financial Accounting Standards Board (FASB”) approved FSP No. FAS 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets, which provides guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. These disclosures include how investment allocation decisions are made, information about major categories of plan assets, significant concentrations of risks within plan assets, and fair value measurements of plan assets. Our effective date is June 30, 2009.  The adoption of FSP No. FAS 132(R)-1 did not have an impact on the Company’s financial statements.
 
In April 1, 2009, the FASB approved FSP FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies, which amends Statement 141(R) and eliminates the distinction between contractual and non-contractual contingencies. Under FSP FAS 141(R), an acquirer is required to recognize at fair value an asset acquired or liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the measurement period. If the acquisition-date fair value cannot be determined, the acquirer applies the recognition criteria in SFAS No. 5, Accounting for Contingencies and Interpretation 14, “Reasonable Estimation of the Amount of a Loss – and interpretation of FASB Statement No. 5,” to determine whether the contingency should be recognized as of the acquisition date or after it. The adoption of FSP FAS 141(R)-1 did not have an impact on the Company’s financial statements.

FSP FAS 115-2 and FAS 124-2 amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. It did not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. We are required to adopt this FSP for our interim and annual reporting periods ending after June 15, 2009. This FSP does not require disclosures for periods presented for comparative purposes at initial adoption. The adoption of FSP FAS 115-2 and FAS 124-2 did not have an impact on the Company’s financial statements.

On April 9, 2009, the FASB also approved FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments to require disclosures about fair value of financial instruments in interim period financial statements of publicly traded companies and in summarized financial information required by APB Opinion No. 28, Interim Financial Reporting. We are required to adopt this FSP for our interim and annual reporting periods ending after June 15, 2009. This FSP does not require disclosures for periods presented for comparative purposes at initial adoption.  The adoption of FSP FAS 107-1 and APB 28-1 did not have an impact on the Company’s financial statements.

In February 2008, the FASB issued Financial Staff Position (FSP) SFAS 157-2, Effective Date of FASB Statement No. 157 (FSP 157-2), which delays the effective date of SFAS No. 157, Fair Value Measurement (SFAS No. 157), for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). SFAS No. 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements. FSP 157-2 partially defers the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of this FSP. The adoption of SFAS No. 157 for all non-financial assets and non-financial liabilities is effective for us beginning July 1, 2009. Its not expected that this adoption will have a material impact on the Company.

 
- 24 -

 

In May 2009, the FASB issued SFAS No. 165, Subsequent Events, (“SFAS No. 165”). SFAS NO. 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS No. 165 is effective for interim and annual periods ending after June 15, 2009.

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS 167”). SFAS 167 amends FASB 46(R) to require an enterprise to perform an analysis and ongoing reassessments to determine whether the enterprises variable interest or interests give it a controlling financial interest in a variable interest entity and amends certain guidance for determining whether an entity is a variable interest entity. It also requires enhanced disclosures that will provide users of financial statements with more transparent information about an enterprises involvement in a variable interest entity. SFAS 167 is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009 and for all interim reporting periods after that.  and is not anticipated to have any material impact on the Company’s consolidated financial statements. The Company is currently evaluating the impact of the adoption of SFAS 167.

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles-a replacement of FASB Statement No. 162, (“SFAS No. 168”). SFAS No. 168 establishes that the FASB Accounting Standards Codification TM (“Codification”) will become the source for authoritative United States generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Effective for financial statements issued for interim and annual periods ending after September 15, 2009 the Codification will supersede all then-existing non-SEC accounting and reporting standards. Effective for the first quarter of 2010 references to legacy GAAP will be replaced by references to the Codification, where appropriate.
 
Results of Operations
 
Results of Operations for the Fiscal Year Ended June 30, 2009 Compared to the Fiscal Year Ended June 30, 2008
 
The following table sets forth a summary of certain key components of our results of operations for the periods indicated, in dollars and as a percentage of revenues.

 
- 25 -

 
 
   
Fiscal Years Ended
June 30
   
Fiscal Years Ended
June 30
 
   
2009
   
2008
   
2009
   
2008
 
               
% of Revenue
 
                         
Revenues
  $ 50,270,277     $ 56,424,236       100.0 %     100.0 %
                                 
Operating costs
    5,603,843       6,814,079       11.2 %     12.1 %
                                 
Depreciation and amortization
    12,130,615       6,483,911       24.1 %     11.5 %
                                 
Gross profit
    32,535,819       43,126,246       64.7 %     76.4 %
                                 
General and administrative expenses
    5,404,212       3,268,346       10.7 %     5.8 %
                                 
Income from operations
    27,131,607       39,857,900       54.0 %     70.6 %
                                 
Interest expense, net
    24,739,090       23,941,036       49.2 %     42.4 %
                                 
Other income, net
    676,601       905,832       1.3 %     1.6 %
                                 
Income from operations before income taxes
    3,069,118       16,822,696       6.1 %     29.8 %
                                 
Income tax expense
    859,412       4,287,907       1.7 %     7.6 %
                                 
Net income
  $ 2,209,706     $ 12,534,789       4.4 %     22.2 %

 
- 26 -

 
 
Revenues
 
Our revenues are derived from the operation of the Expressway. Our revenues decreased approximately $6.1 million, or 10.9%, from approximately $56.4 million for the year ended June 30, 2008 to approximately $50.3 million for the year ended June 30, 2009. The decrease was mainly attributable to the decrease in the traffic volume of commercial vehicles, a toll free policy introduced by the Chinese government and the cancellation of the toll stations of nearby local trunk road.
 
On December 26, 2005, the first phase of the Expressway was completed and we commenced toll operations. On May 31, 2006, with the completion of the remaining part (second phase), the entire Expressway was put into operation. A key transport artery, the national trunk Nanluo Expressway, was entirely put into operation as well. The converted average daily traffic volume, a guideline specifically used in the toll road industry to evaluate operational performance, decreased 936 units, or 6.6%, from 14,258 units for the year ended June 30, 2008 to 13,322 units for the year ended June 30, 2009, which is mainly due to the following factors:
 
Commercial vehicles, especially coal trucks, are one of the main categories of vehicles on the Expressway with a high toll rate. During the year ended June 30, 2009, due to the spread of the sub-prime mortgage crisis throughout the world, China’s coal market decreased. On the other hand, incidents of coal mine accidents in China lead to a suspension of operations of coal mines in Henan province. As a result, the traffic volume of commercial vehicles as a component of our total traffic volume decreased approximately 3.3%, from approximately 72.5% for the year ended June 30, 2008 to approximately 69.2% for the year ended June 30, 2009.
 
In 2008, the Chinese government introduced regulations to reduce increases in the market price of certain products. The regulations prescribed that a toll free policy should be applied to those vehicles transporting fruit, vegetables, fowl, marine products, eggs and milk. As a result, a portion of our traffic volume was toll free.
 
From May 1, 2009, in response to the regulation introduced by the Chinese government, the government of Henan province removed the toll stations of certain local trunk roads in Henan province. Then, a portion of the vehicles, especially the short-distance vehicles, chose to utilize the toll free local trunk roads instead. As a result, the converted average daily traffic volume decreased 10.6% and 8.3%, respectively, from 12,582 units in April, to 11,246 units and 11,543 units in May and June, respectively.
 
Due to these factors set forth above, our revenue for the year ended June 30, 2009 decreased 10.9% compared to the year ended June 30, 2008.
 
Operating Costs
 
Our operating costs mainly represent the road maintenance costs, road management costs, direct construction costs and labor costs associated with the toll operations. For the year ended June 30, 2009, our operating costs decreased approximately $1.2 million, or 17.8%, to approximately $5.6 million, compared to approximately $6.8 million for the year ended June 30, 2008. This decrease is mainly due to the decrease of road maintenance costs. Due to the decline in our revenues in the fiscal year ended June 30, 2009, costs only related to routine maintenance, improvement of traffic symbols and road surface were planned and expended.
 
Depreciation and Amortization
 
Our total depreciation and amortization related to toll operations sharply increased approximately $5.6 million, or 87.1%, from approximately $6.5 million for the year ended June 30, 2008 to approximately $12.1 million for the year ended June 30, 2009.
 
Depreciation of toll road infrastructures is calculated to write-off their cost on a units-of-usage basis.  The Company depreciated and recorded the depreciation based on the ratio of actual traffic volume incurred during the period compared to the total expected traffic volume of the toll roads during the operation licensing period, as estimated.

 
- 27 -

 
 
Management assessed the future total expected traffic volume at each period end. Considering the current economy environment and the actual traffic volume evolvement during the year ended June 30, 2009, compared to prior years’ estimate, management believed that a significant decline in the future total anticipated volume occurred. As a result, the depreciation for the year ended June 30, 2009 sharply increased because of the reduction in estimated total anticipated traffic using units-of-usage basis.
 
Gross Profit
 
Our gross profit decreased approximately $10.6 million, or 24.6%, from approximately $43.1 million for the year ended June 30, 2008 to approximately $32.5 million for the year ended June 30, 2009.  Such gross profit decrease is primarily due to the decrease in our revenues.
 
Gross profit as a percentage of revenues decreased from 76.4% for the year ended June 30, 2008 to 64.7% for the year ended June 30, 2009.
 
General and Administrative Expenses
 
Our general and administrative expenses mainly represent the employee payroll and welfare, traveling expenses, vehicle gasoline and maintenance costs, entertainment expenses, consulting fees, provisions for doubtful debts, depreciation and miscellaneous taxes. General and administrative expenses increased approximately $2.1 million, or 65.4%, from $3.3 million for the year ended June 30, 2008 to approximately $5.4 million for the year ended June 30, 2009. The increase in our administration expenses was mainly due to the following: (a) due to the upgrade of the service fee from our agencies and an increase in lawsuits during the fiscal year ended June 30, 2009, our consulting and audit fees increased approximately amounted to $1.3 million and (b) provision for a doubtful third party note receivable approximately amounted to $0.8 million was provided during the fiscal year ended June 30, 2009.
 
Interest Expense, Net
 
Net interest expense increased approximately $0.8 million, or 3.3%, from approximately $23.9 million for the year ended June 30, 2008 to approximately $24.7 million for the year ended June 30, 2009. This increase is mainly due to the change in the exchange rate.
 
Income Tax Expense
 
Income tax expense decreased approximately $3.4 million, or 80.0%, from approximately $4.3 million for the year ended June 30, 2008 to approximately $0.9 million for the year ended June 30, 2009, as a result of the decrease in our income from operations. Our effective tax rate was 28% and 25% for the years ended June 30, 2009 and 2008, respectively.
 
Net Income
 
Our net income decreased approximately $10.3 million, or 82.4%, from approximately $12.5 million for the year ended June 30, 2008 to approximately $2.2 million for the year ended June 30, 2009. This decrease is primarily due to the decrease in our revenues and the increase in depreciation and amortization and general and administrative expenses.
 
Liquidity and Capital Resources
 
We generally finance our operations through, to a substantial extent, operating profit and a combination of borrowings from banks and capital contributions from Wise On China Limited. During the reporting periods, we arranged a number of bank loans to satisfy our financing needs. As of the date of this Report, we have not experienced any difficulty in raising funds by bank loans, and we have not experienced any liquidity problems in settling our payables in the normal course of business and repaying our bank loans when they fall due.

 
- 28 -

 
 
The following table sets forth the summary of our cash flow, in dollars, for the periods indicated:
 
   
Years Ended June 30
 
   
2009
   
2008
 
Net cash provided by operating activities
  $ 5,936,909     $ 16,719,854  
Net cash (used in) provided by investing activities
    (6,588,912 )     2,008,190  
Net cash used in financing activities
    (3,415,899 )     (16,841,173 )
Net (decrease) increase in cash and cash equivalents
    (4,067,902 )     1,886,871  
Effect of exchange rate changes on cash
    (87,182 )     (1,948,489 )
Cash and cash equivalents at beginning of period
    5,769,344       5,830,962  
Cash and cash equivalents at end of period
  $ 1,614,260     $ 5,769,344  
 
Operating Activities
 
Net cash provided by operating activities was approximately $5.9 million for the year ended June 30, 2009, as compared to $16.7 million for the year ended June 30, 2008.  This decrease is mainly due to the decrease of net income.
 
Investing Activities
 
Net cash used in investing activities was approximately $6.6 million for the year ended June 30, 2009, as compared to approximately $2.0 million net cash provided by investing activities for the year ended June 30, 2008.  The change is mainly due to the following:  (a) a related party company (Tai Ao) commenced its toll operation in December 2008. At the beginning, Tai Ao lacked working capital to fulfill its daily operations. As a result, we provided an additional payment on behalf of Tai Ao for approximately $10.9 million for the year ended June 30, 2009; and (b) our payments associated with toll road construction decreased approximately $4.3 million during the year ended June 30, 2009.
 
Financing Activities
 
Net cash used in financing activities was $3.4 million for the year ended June 30, 2009, as compared to approximately $16.8 million for the year ended June 30, 2008. Such change is mainly due to: (a) our repayment of short-term bank loans and notes payable during the year ended June 30, 2008 which amounted to approximately $11.0 million and $5.5 million; (b) proceeds from short-term bank loans amounted to approximately $7.3 million for the year ended June 30, 2009, designed to fulfill our working capital demands; and (c) our repayment of the mature part of our long-term bank loans approximately amounting to $10.7 million during the year ended June 30, 2009.
 
Working Capital
 
Our working capital increased by approximately $127.2 million from a working capital deficiency of approximately $6.7 million as of June 30, 2008 to approximately $120.5 million as of June 30, 2009.  This was primarily due to our increase in restricted cash, current portion of notes receivable from related parties and advance to a related party approximately amounted to $3.5 million, $141.1 million and $10.9 million, respectively, and a decrease in other payables and accrued liabilities and payable to contractors of approximately $2.6 million and $2.1 million, respectively, partially offset by a decrease in cash and cash equivalents and accounts receivable which approximately amounted to $4.2 million and $0.9 million, respectively, and an increase in short-term bank loans, a current portion of long-term loans and notes payable amounting to approximately $7.3 million, $17.1 million and $3.5 million, respectively. The increase in restricted cash represented our pledge deposit for the issuance of notes payable. The increase in our current portion of notes receivable from related parties represent the increase in relevant principals, which will come to maturity during the coming year. The increase in advances to a related party represented our additional payment on behalf of Tai Ao during the year. The decrease in accounts receivable represented our declined monthly revenues. To remedy our working capital deficiency, we received proceeds from short-term bank loans which amounted to approximately $7.3 million during the year ended June 30, 2009.
 
 
- 29 -

 

The Company currently generates its cash flow through operations and the Company believes that its cash flow generated from operations will be sufficient to sustain operations for the next twelve (12) months. Also, from time to time, the Company may come up with new expansion opportunities for which our management may consider seeking external funding and financing.
 
Capital Expenditures
 
We made capital expenditures of approximately $2.2 million and $6.7 million for the year ended June 30, 2009 and 2008, respectively. The capital expenditures principally consisted of toll road infrastructures, toll stations and ancillary facilities, communication and monitoring equipments and other equipment related to our toll operations. If we are permitted to construct and operate a new toll road or invest other toll road companies, we may require additional funds.
 
Off-Balance Sheet Arrangements
 
We do not have any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency forward contracts. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and development services with us. 
 
ITEM 7A.     Quantitative and Qualitative Disclosures about Market Risk
 
Interest Rate Risk
 
Our exposure to interest rate risk for changes in interest rates relates primarily to the interest expense incurred by the bank loans and the interest income generated by the loans to our related parties or bank deposits. We have not used any derivative financial instruments in our investment portfolio or for cash management purposes. Interest-earning instruments carry a degree of interest rate risk. We have not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates. However, our future interest expense or interest income may increase of expectations due to changes in interest rates in the PRC.
 
Foreign Exchange Risk
 
We do not hold any derivative instruments and do not engage in any hedging activities. Because most of our purchases and sales are made in RMB, any exchange rate change affecting the value of the RMB relative to the U.S. dollar could have an effect on our financial results as reported in U.S. dollars. If the RMB were to depreciate against the U.S. dollar, amounts reported in U.S. dollars would be correspondingly reduced. If the RMB were to appreciate against the U.S. dollar, amounts reported in U.S. dollars would be correspondingly increased.
 
ITEM 8.
Financial Statements and Supplementary Data
 
Reference is made to pages F-1 through F-28 comprising a portion of this Annual Report immediately following the signature page of this Form 10-K.
 
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
 
None.

 
- 30 -

 

ITEM 9A(T).
Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
We are required to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) as appropriate, to allow timely decisions regarding required disclosure.
 
In connection with the preparation of this Form 10-K for the year ended June 30, 2009 our management, under the supervision of the CEO and CFO, conducted an evaluation of disclosure controls and procedures. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of June 30, 2009.

Management’s Annual Report on Internal Control over Financial Reporting
 
Management is responsible for establishing and maintaining adequate internal control structure and procedures over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)) under the Exchange Act. Our management conducted an assessment of the effectiveness of our internal control over financial reporting as of June 30, 2009 based on the framework set forth in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
 
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Based on that evaluation, our CEO and CFO concluded that our internal control over financial reporting as of June 30, 2009 was effective.
 
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
 
Changes in Internal Control over Financial Reporting
 
Except as disclosed above, there were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
ITEM 9B.
Other Information
 
None.

PART III
 
ITEM10.
Directors, Executive Officers, and Corporate Governance
 
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
 
Set forth below are the names of the Company’s directors and officers, their business experience during the last five (5) years, their ages and all positions and offices that they shall hold with the Company following the expiration of the ten (10) day time period following the mailing of an Information Statement complying with Form 14F-1 under the Exchange Act in connection with the Exchange. The Company has no “significant employees”.

 
- 31 -

 
 
Name
 
Age
 
Position(s)
Li Xipeng
 
46
 
Chief Executive Officer and Chairman of the Board
Zhang Chunxian
 
44
 
Chief Financial Officer and Director
Lin Jie
 
48
 
Vice President of Operations
Wu Lei
 
32
 
Vice President of Strategy Development
Wang Feng
 
36
 
Secretary
Sun Jianhao
 
46
 
Director
Huang Yuemin
 
52
 
Director
Xu Huiqing
 
55
 
Director
Li Changlai
 
45
 
Director
Mu Xinjie
 
39
 
Director
 
Family Relationships
 
There are no family relationships between or among the members of the Board of Directors or other executives. None of our directors and officers are directors or executive officers of any company that files reports with the SEC, except that Mu Xinjie previously served as Chief Financial Officer of Jingwei International Limited (JNGW.OB).
 
Biographies (Business Experience)
 
Li Xipeng has served as Chief Executive Officer of the Company and has served as a Director of the Company since the closing date of the Exchange and as Chairman of Ping since May 2003. Prior to that, Mr. Li served as Chairman of HSV in the PRC since May 2001 and prior to that he served as Chairman of Henan Shengrun Real Estate Co., Ltd. in the PRC since May 2000. Mr. Li is also currently the legal representative of Ping. Mr. Li graduated from Zhongnan University of Economics and Law and he earned his EMBA at Cheung Kong Graduate School of Business.
 
Zhang Chunxian has served as Chief Financial Officer of the Company since March 9, 2008 and has served as Chief Financial Officer of Ping since May 2003. Prior to that, Mr. Zhang served as Manager in the Trust and Investment Department of Zhongyuan Trust and Investment Co., Ltd. in the PRC. Mr. Zhang is a Chinese Certified Public Accountant.
 
Lin Jie has served as a Vice President of Operations of the Company since March 9, 2008 and has served as Manager of the Finance Department and as Assistant to the General Manager of Ping since May 2003. Prior to that, Ms. Lin served as Manager of the Finance Department of Henan Shengrun Real Estate Co., Ltd. in the PRC since March 2000.

Wu Lei has served as Vice President of Strategy Development of the Company since March 9, 2008. Ms. Wu earned her BSc. at Wuhan University (Law) in 2000 and her Masters degree in economics in 2006. Ms. Wu has no prior work experience.
 
Wang Feng has served as corporate Secretary of the Company since March 9, 2008 and has served as the corporate Secretary of Ping since May 2007. Prior to that, Mr. Wang served as Investment Manager of Henan Hi-Tech Venture Capital Co., Ltd. in the PRC from March 2006 to May 2007 and as Investment Manager of Zhongyuan Trust and Investment Co., Ltd. in the PRC from November 2003 through February 2006. Prior to that Mr. Wang earned his Masters degree from Beijing Information Science and Technology University and his BSc. at Hunan University. Mr. Wang is a Chinese Certified Public Accountant.
 
Sun Jianhao has served as a Director of the Company since March 9, 2008 and has served as Chairman of Pingdingshan Zhongya Road and Bridge Construction Co., Ltd. in the PRC since November 2004. Prior to that Mr. Sun served as Deputy Director of Pingdingshan Development and Planning Commission in the PRC from September 2004 through October 2004. Prior to that Mr. Sun served as Deputy Director of Pingdingshan New District Management Commission in the PRC from August 1999 through August 2004.

 
- 32 -

 
 
Huang Yuemin has served as a Director of the Company since March 9, 2008 and has served as Manager in the International Operations Department, General Manager and Chairman of Zhongyuan Trust and Investment Co., Ltd. in the PRC since March 1990. Prior to that, Mr. Huang served as Director in the Investment Department of Henan Development and Planning Commission in the PRC since August 1984 through February 1990. Mr. Huang earned his Associate’s degree from Tianjin University.
 
Xu Huiqing has served as a Director of the Company since March 9, 2008 and has served as Chairman and General Manager of Pingdingshan High Way Construction Co., Ltd. in the PRC since June 2003. Prior to that, Mr. Xu served as Deputy Director of Pingdingshan Bureau of Communications in the PRC from March 2002 through June 2003. Prior to that, Mr. Xu served as Deputy Director General for Pingdingshan Geography and Mine Bureau in the PRC from May 1994 through March 2002.
 
Li Changlai has served as a Director of the Company since March 9, 2008 and has served as General Manager of Weilan Highway Investment Construction Co., Ltd. since December 2004. Prior to that, Mr. Li served as Chief Engineer of Henan Highway Development Co., Ltd. from June 2002 through December 2004. Prior to that Mr. Li served as Manager of Department of Zhumadian Expressway Managing for Henan Highway Development Co., Ltd. in the PRC from October 2001 through June 2002. Mr. Li earned his Masters degree at Changan University.
 
Mu Xinjie has served as a Director of the Company since March 9, 2008. From April 2007 through December 2007, Mr. Mu served as Chief Financial Officer of Jingwei International Limited (OTCBB: JNGW.OB). Prior to that, Mr. Mu served as Senior Accountant for Geller and Company in the department serving exclusively Bloomberg, LLP from January 2006 through April 2007. Prior to that, Mr. Mu served as Chief Financial Officer of Tongyuan Technology Company from March 2005 through October 2005. Prior to that, Mr. Mu served as Senior Accountant of Flightsafety International, Inc., a wholly-owned subsidiary of Berkshire Hathaway from September 1999 through March 2005. Mr. Mu earned his BCs at Hebei University of Science and Technology (Chemical Engineering) and his MBA at the City University of New York.

Involvement in Certain Legal Proceedings
 
None of the members of the Board of Directors or other executives has been involved in any bankruptcy proceedings, criminal proceedings, any proceeding involving any possibility of enjoining or suspending members of our Board of Directors or other executives from engaging in any business, securities or banking activities, and have not been found to have violated, nor been accused of having violated, any federal or state securities or commodities laws.
 
Promoters and Control Persons

None.

Section 16(a) Beneficial Ownership Reporting Compliance
 
Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than ten percent (10%) of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than ten percent (10%) stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.
 
Based solely on a review of the copies of such forms furnished to us, we believe that during the year ended June 30, 2009 all officers, directors and ten percent (10%) beneficial owners who were subject to the provisions of Section 16(a) complied with all of the filing requirements during the year, except for the following persons have failed to file the corresponding documents set forth below:

 
- 33 -

 

Name
 
Form Type(s)
 
Type of Holder
Li Xipeng
 
Form 3, Form 4
 
Chief Executive Officer and Chairman of the Board
Zhang Chunxian
 
Form 3, Form 4
 
Chief Financial Officer and Director
Lin Jie
 
Form 3, Form 4
 
Vice President of Operations
Wu Lei
 
Form 3, Form 4
 
Vice President of Strategy Development
Wang Feng
 
Form 3
 
Secretary
Sun Jianhao
 
Form 3, Form 4
 
Director
Huang Yuemin
 
Form 3
 
Director
Xu Huiqing
 
Form 3
 
Director
Li Changlai
 
Form 3
 
Director
Mu Xinjie
 
Form 3, Form 4
 
Director
Joylink Holdings, Inc.
 
Form 3, Form 4
 
10% Holder

Code of Ethics
 
We have adopted a Code of Ethics, as required by the rules of the SEC and NASDAQ (referenced hereto as Exhibit 14.1). This Code of Ethics applies to all of our directors, officers and employees. The Code of Ethics, and any amendments to, or waivers from, the Code of Ethics, is available in print, at no charge, to any stockholder who requests such information.

Committees of our Board of Directors
 
Our Board of Directors has an Audit Committee, a Compensation Committee and a Nominating Committee. A brief description of each committee is set forth below.
 
 
·
Audit Committee – The purpose of the Audit Committee is to provide assistance to our Board of Directors in fulfilling their oversight responsibilities relating to our consolidated financial statements and financial reporting process and internal controls in consultation with our independent registered public accountants and internal auditors. The Audit Committee is also responsible for ensuring that the independent registered public accountants submit a formal written statement to us regarding relationships and services which may affect the auditors’ objectivity and independence. During fiscal 2009, members of the Audit Committee were independent directors Huang Yuemin, Xu Huiqing and Mu Xinjie. Our Audit Committee financial expert is Mu Xinjie, an independent director. The Audit Committee met 2 times during the fiscal year ended June 30, 2009.
 
 
·
Compensation Committee – Independent directors Xu Huiqing, Huang Yuemin and Li Changlai were members of our Compensation Committee during fiscal 2008. The purpose of the Compensation Committee is to review and make recommendations to our Board of Directors regarding all forms of compensation to be provided to the executive officers and directors of our company, including stock compensation and loans, and all bonus and stock compensation to all employees. The Compensation Committee met 2 times during the fiscal year ended June 30, 2009.
 
 
·
Nominating Committee – Independent directors Li Changlai, Huang Yuemin and Xu Huiqing were members of our Nominating Committee, effective May 21, 2008. The purpose of the Nominating Committee is to review the composition and evaluate the performance of the Board, recommend persons for election to the Board and evaluate director compensation; The nominating committee is also responsible for reviewing the composition of committees of the Board and recommending persons to be members of such committees, and maintaining compliance of committee membership with applicable regulatory requirements. The Nominating Committee met 2 times during the fiscal year ended June 30, 2009. The Company has not adopted procedures by which security holders may recommend nominees to the Company’s Board of Directors.

 
- 34 -

 

ITEM 11.
Executive Compensation
 
Compensation Discussion and Analysis
 
Not required for smaller reporting companies.
 
Summary Compensation Table
 
The following table sets forth certain information with respect to the compensation paid to the Named Executive Officers of the Company during the years ended June 30, 2009 and June 30, 2008.
 
 
 
Name And Principal
 Function
  
Year
  
Salary
  
Bonus
  
Employer’s 
Contribution to 
Mandatory Pension 
and other benefits
  
Total
  
(a)
 
(b)
 
($)
(c)
 
($)
(d)
 
($)
 
($)
(j)
 
Li Xipeng,
Chief Executive Officer (1)
   
2009
2008
 
-0-
-0-
   
-0-
-0-
 
-0-
- 0-
   
-0-
-0-
 
                             
Zhang Chunxian, Chief
Financial Officer (2)
   
2009
2008
 
16,283
15,000
   
7,309
7,517
 
-0-
5,730
   
23,592
28,247
 
                             
Lin Jie,
Vice President of
Operations (3)
   
2009
2008
 
12,655
11,706
   
5,824
5,998
 
-0-
4,472
   
18,479
22,176
 
                             
Wu Lei
Vice President of
Strategy Development (4)
   
2009
2008
 
11,237
4,713
   
4,875
1,100
 
4,506
1,800
   
20,654
7,613
 
                             
Wang Feng, Secretary (5)
   
2009
2008
 
12,376
11,623
   
5,211
4,619
 
877
4,440
   
18,464
20,682
 

Narrative Disclosure to Summary Compensation Table

During the year ended June 30, 2009, we paid an aggregate of approximately $214,547 in cash compensation to our management team members, including $129,331 for salary, $55,179 for bonus and $30,037 for benefits. We paid an aggregate of approximately $81,369 to our senior executive officers, including salary, bonus and benefits.  During the year ended June 30, 2008, we paid an aggregate of approximately $205,683 in cash compensation to our management team members, including $109,568 for salary, $54,260 for bonus and $41,855 for benefits. We paid an aggregate of approximately $78,718 to our senior executive officers, including salary, bonus and benefits. Our senior executive officers are eligible to receive cash bonuses which are paid on the basis of their success in achieving designated individual goals and the Company’s success in achieving specific company-wide goals. The amount of the bonus is determined by our board compensation committee at the end of each fiscal year.

 
- 35 -

 

In order to retain experienced and senior level executives, we believe the salary and bonus compensation of our senior executives is one of the highest among local equivalent companies. The Company will continue to provide competitive salary and bonus compensation to retain and recruit high quality executives and employees.

The Company will introduce option and equity based incentive scheme in the future as compensation for our senior executives and independent directors for the successful operation results.

All senior executives have the standard three-year employment service contracts in accordance with applicable PRC regulations. None of these service contracts provides benefits upon termination. These are standard employment service contracts without any specific terms and duration for any positions that the senior executives are holding. In addition, we did not provide any pension or retirement plans for senior executives other than the mandatory plans required by the PRC government.

The Company currently does not have an equity/option – based compensation plan for senior executives. None of the senior executives has been granted any rights to equity or options.

Grants of Plan-Based Awards
 
None.
 
Outstanding Equity Awards at Fiscal Year-End
 
None.
 
Option Exercises and Stock Vested
 
None.
 
Pension Benefits
 
None.
 
Non-Qualified Deferred Compensation

None.

Potential Payments Upon Termination or Change of Control

None.

Additional Narrative Disclosure

None.

Director Compensation
 
The following table sets forth certain information relative to compensation paid to outside directors as of years ended June 30, 2009 and June 30, 2008:

 
- 36 -

 
 
Name And Principal
 Function
  
Year
  
Salary
  
Bonus
  
 
other benefits
  
Total
 
(a)
 
(b)
 
($)
(c)
 
($)
(d)
 
($)
 
($)
(j)
 
Huang Yuemin (1)
   
2009
2008
 
-0-
-0-
   
-0-
-0-
 
- 0 –
- 0 –
   
-0-
-0-
 
                             
Mu Xinjie (2)
   
2009
2008
 
52,560
14,211
   
-0-
-0-
 
-0-
-0-
   
52,560
14,211
 
                             
Sun Jianhao (3)
   
2009
2008
 
-0-
-0-
   
-0-
-0-
 
-0-
-0-
   
-0-
-0-
 
                             
Xu Huiqing (4)
   
2009
2008
 
-0-
-0-
   
-0-
-0-
 
-0-
-0-
   
-0-
-0-
 
                             
Li Changlai (5)
   
2009
2008
 
-0-
-0-
   
-0-
-0-
 
-0-
-0-
   
-0-
-0-
 

Narrative To Director Compensation Table
 
During the fiscal year ended June 30, 2009, we paid $52,570 to one independent director, Mr. Xinjie Mu, for his financial and accounting expertise on the Audit Committee. Commencing in February 2008, the Company pays him $4,380 (RMB 30,000) per month. We did not have any other compensation arrangement for any other directors in 2009. The Company did not pay salaries or any other bonuses or benefits to other directors.

During the fiscal year ended June 30, 2008, we paid $14,211 to one independent director, Mr. Xinjie Mu, for his financial and accounting expertise on the Audit Committee. Commencing in February 2008 (the Company pays him $4,139 (RMB 30,000) per month). We did not have any other compensation arrangement for any other directors in 2008. The Company did not pay salaries or any other bonuses or benefits to other directors.

We intend to implement compensation arrangements for independent directors in fiscal year 2009, which will include both cash and stock option plans which may include fees for retainers, committee services, services as chairman of the board or on committees and meeting attendance.

Employee Agreement

We have entered into three-year service contracts with all of our employees in accordance with applicable PRC regulations. None of these service contracts provides benefits upon termination. We were required by PRC law to make monthly contributions in amounts equal to 20.0%, 8.2%, and 10% of our employees’ average monthly salary in the preceding year to a pension plan, a medical insurance plan, and employee housing plan, respectively, each for the benefit of our employees subject to certain statutory limits.
 
Our employees are not subject to any collective bargaining agreement. We have not been involved in any material labor disputes. We believe that we have a good relationship with our employees.

 
- 37 -

 

We may terminate his or her employment for cause at any time, with prior written notice, for certain acts of the executive officer, including but not limited to, a conviction of a felony, or willful gross misconduct by the executive officer in connection with his or her employment, and in each case if such acts have resulted in material and demonstrable financial harm to us. An executive officer may, with prior written notice, terminate his or her employment at any time for any material breach of the employment agreement by us that is not remedied promptly after receiving the remedy request from the employee. Furthermore, either party may terminate the employment agreement at any time without cause upon advance written notice to the other party. Upon termination, the executive officer is generally entitled to a severance pay of at least one (1) month but not exceeding twelve (12) months amount of salary.
 
Each executive officer has agreed to hold, both during and subsequent to the terms of his or her agreement, in confidence and not to use, except in pursuance of his or her duties in connection with the employment, any of our confidential information, technological secrets, commercial secrets and know-how.

ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 
 
The following table sets forth each person known by us to be the beneficial owner of five (5%) percent or more of our Common Stock, all directors individually and all directors and officers as a group as of September 25, 2009. Each person named below has sole voting and investment power with respect to the shares shown unless otherwise indicated.
 
Name and Address of
Beneficial Owner (1)
  
Amount of
Direct
Ownership
After
Exchange
  
Amount of
Indirect
Ownership After
Exchange
    
Total Beneficial
ownership After
Exchange
    
Percentage of
Class (2)
 
                         
Li Xipeng, Chief Executive Officer and Chairman of the Board
   
0
 
32,486,250
(3)  
 
32,486,250
(3)  
 
40.61
%
                         
Zhang Chunxian, Chief Financial Officer and Director
   
0
 
6,497,250
(4)
 
6,497,250
(4)
 
8.13
%
                         
Lin Jie, Vice President of Operations
   
0
 
6,497,250
(5)
 
6,497,250
(5)
 
8.13
%
                         
Wu Lei, Vice President of Strategy Development
   
0
 
6,497,250
(6)
 
6,497,250
(6)
 
8.13
%
                         
Wang Feng, Secretary
   
0
 
0
   
0
   
0
%
                         
Sun Jianhao, Director
   
0
 
6,497,250
(7)
 
6,497,250
(7)
 
8.13
%
                         
Huang Yuemin, Director
   
0
 
0
   
0
   
0
%
                         
Xu Huiqing, Director
   
0
 
0
   
0
   
0
%
                         
Li Changlai, Director
   
0
 
0
   
0
   
0
%
                         
Mu Xinjie, Director
   
0
 
0
   
0
   
0
%
                         
ALL DIRECTORS AND OFFICERS AS A GROUP (10 PERSONS):
   
0
 
58,475,250
   
58,475,250
   
73.10
%
                         
Joylink Holdings Limited
Room 42, 4F, New Henry House
10 Ice House Street
Central, Hong Kong
   
64,972,500
 
0
   
64,972,500
   
81.22
%
                         
Shu Hongying
Room 14 Unit 4, 11 Building Sichangdong Street
Zhengzhou, Henan the PRC
   
0
 
6,497,250
(8)
 
6,497,250
(8)
 
8.13
%

 
- 38 -

 
 
(1)
Unless otherwise noted, each beneficial owner has the same address as the Company.
 
(2)
Applicable percentage of ownership is based on 80,000,000 shares of our Common Stock outstanding as of September 25, 2009, together with securities exercisable or convertible into shares of Common Stock within sixty (60) days of September 25, 2009 for each stockholder. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of Common Stock are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Note that affiliates are subject to Rule 144 and Insider trading regulations - percentage computation is for form purposes only.
 
(3)
Li Xipeng, the Company’s Chairman and Chief Executive Officer, owns 50% of Joylink Holdings Limited, which owns 64,972,500 shares of the Company’s Common Stock. Therefore, Li Xipeng may be considered to beneficially own 32,486,250 shares.
 
(4)
Zhang Chunxian, the Company’s Chief Financial Officer and Director, owns 10% of Joylink Holdings Limited, which owns 64,972,500 shares of the Company’s Common Stock. Therefore, Zhang Chunxian may be considered to beneficially own 6,497,250 shares.
 
(5)
Lin Jie, the Company’s Vice President, owns 10% of Joylink Holdings Limited, which owns 64,972,500 shares of the Company’s Common Stock. Therefore, Lin Jie may be considered to beneficially own 6,497,250 shares.
 
(6)
Wu Lei, the Company’s Vice President, owns 10% of Joylink Holdings Limited, which owns 64,972,500 shares of the Company’s Common Stock. Therefore, Wu Lei may be considered to beneficially own 6,497,250shares.
 
(7)
Sun Jianhao, the Company’s Vice President, owns 10% of Joylink Holdings Limited, which owns 64,972,500 shares of the Company’s Common Stock. Therefore, Sun Jianhao may be considered to beneficially own 6,497,250 shares.
 
(8)
Shu Hongying owns 10% of Joylink Holdings Limited, which owns 64,972,500 shares of the Company’s Common Stock. Therefore, Shu Hongying may be considered to beneficially own 6,497,250 shares.

 
- 39 -

 
 
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence
 
Transactions With Related Persons

Notes Receivable to Related Persons

On October 1, 2007, the Company issued a note to Tai Ao Expressway Co., Ltd. (“Tai Ao”) in the principal amount of approximately $70,130,050 for Tai Ao’s construction working capital.  The note was originally due on        June 30, 2008 and bore an interest rate equal to 7.83%, with interest to be paid annually and the principal to be paid at maturity.  Tai Ao is controlled by Henan Shengrun Venture Investment Management Co., Ltd., whose controlling shareholder is Li Xipeng, the Company’s Director and Chief Executive Officer and Ping’s Chairman.  On June 26, 2008, the Company and Tai Ao entered into a renewal agreement pursuant to which the note was extended to June 29, 2010, bearing interest at a rate of 7.83% per annum.  Interest shall be paid annually and the principal shall be repaid at maturity.  During the fiscal year ended June 30, 2009, the Company received $0 in principal and $4,935,189 in interest payments on the note.  As of September 18, 2009, a total of $74,794,750 was outstanding under the note.
 
On October 1, 2007, the Company issued a note to Xinyang Expressway Co., Ltd (“Xinyang”) in the principal amount of approximately $69,670,334 for Xinyang’s construction working capital.  The note was originally due on June 30, 2008 and bore an interest rate equal to 7.83%, with interest to be paid annually and the principal to be paid at maturity.  Xinyang is controlled by Henan Yuao Bailing Investment Co., Ltd., whose controlling shareholder is Li Xipeng, the Company’s Director and Chief Executive Officer and Ping’s Chairman.  On June 26, 2008, the Company and Xinyang entered into a renewal agreement pursuant to which the note was extended to June 29, 2010, bearing interest at a rate of 7.83% per annum.  Interest shall be paid annually and the principal shall be repaid at maturity.  During the fiscal year ended June 30, 2009, the Company received $623,206 in principal and $5,261,827 in interest payments on the note.  As of September 18, 2009, a total of $74,320,570 was outstanding under the note.  
 
On April 12, 2009, the Company issued a note to Henan Ruijia Industry Co., Ltd (“Ruijia”) in the principal amount of approximately US$2,191,445 for Ruijia’s working capital demand.  Ruijia is controlled by Henan Yuao Bailing Investment Co., Ltd., whose controlling shareholder is Li Xipeng, the Company’s Director and Chief Executive Officer and Ping’s Chairman.  Such note is due on April 11, 2010, bearing interest at a rate of 5.31% per annum. The principal and the interest shall be repaid at maturity.  During the fiscal year ended June 30, 2009, the Company received $0 in principal and $0 in interest payments on the note.  As of September 18, 2009, a total of $2,216,980 was outstanding under the note.  
 
The Company generated interest income on such notes receivable equal to $9,335,849 and $9,668,217 in the aggregate for the years ended June 30, 2009 and 2008, respectively.

Advances Made on Behalf of Related Person

During the 2008 fiscal year, the Company made advances to suppliers on behalf of Tai Ao for the purchase of construction materials, amounting to approximately $22 million as of June 30, 2008 in order to assist them with their working capital needs.  The Company provided an additional payment on behalf of Tai Ao equal to approximately $11 million for the year ended June 30, 2009 bringing the total advance amount to approximately $33 million.  Such balance of $33 million as of September 18, 2009 is unsecured, interest free and due on demand.

Agreements With Promoters and Certain Control Persons
 
None.

 
- 40 -

 

Director Independence

The following directors are independent: Sun Jianhao, Huang Yuemin, Xu Huiqing, Li Changlai and Mu Xinjie. The following directors are not independent: Li Xipeng and Zhang Chunxian.
 
ITEM 14.
Principal Accountant Fees and Services
 
Audit Fees
 
During the fiscal years ended June 30, 2009 and 2008, the fees for our principal accountant were approximately $310,000 and $265,000, respectively, representing services for quarterly reviews and the year end audits.
 
Audit-Related Fees
 
During the fiscal years ended June 30, 2009 and 2008, the fees for our principal accountant’s audit related services were $1,125 and $0, respectively, and were reasonably related to the performance of the audit or review of financial statements.

Tax Fees
 
During the fiscal years ended June 30, 2009 and 2008, our principal accountant did not render tax compliance, tax advice and tax planning services.
 
All Other Fees
 
During the fiscal years ended June 30, 2009 and 2008, there were no fees for products and services provided by the principal accountant other than those set forth above.
 
Audit Committee Pre-Approval
 
The policy of the Audit Committee is to pre-approve all audit and non-audit services provided by the independent accountants. These services may include audit services, audit-related services, tax fees, and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is subject to a specific budget. The Audit Committee has delegated pre approval authority to certain committee members when expedition of services is necessary. The independent accountants and management are required to periodically report to the full Audit Committee regarding the extent of services provided by the independent accountants in accordance with this pre-approval delegation, and the fees for the services performed to date. All of the services described above in this Item 14 were approved in advance by the Audit Committee during the fiscal year ended June 30, 2009.

PART IV
 
ITEM 15.
Exhibits and Financial Statement Schedules
 
 
(a)
Financial Statements and Schedules
 
The financial statements are set forth under Item 8 of this Annual Report on Form 10-K. Financial statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise included.

 
- 41 -

 


 
(b)
Exhibits
 
EXHIBIT NO.
 
DESCRIPTION
 
LOCATION 
         
3.1
 
 
Articles of Incorporation of Learning Quest Technologies, Inc.
 
 
Incorporated by reference to Exhibit 3.01 to the Company’s Form 10-SB as filed with the SEC on December 17, 2004.
 
3.2
 
 
Amended and Restated Bylaws of China Infrastructure Investment Corporation, dated as of May 21, 2008.
 
 
Incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K as filed with the SEC on May 22, 2008.
 
3.3
 
 
Certificate of Incorporation of Color Man Holdings Limited
 
 
Incorporated by reference to that Company’s Current Report on Form 8-K as filed with the SEC on February 11, 2008.
 
3.4
 
 
Certificate of Incorporation of Wise On China Limited
 
 
Incorporated by reference to that Company’s Current Report on Form 8-K as filed with the SEC on February 11, 2008.
 
3.5
 
 
Certificate of Incorporation of Pingdingshan Pinglin Expressway Co., Ltd.
 
 
Incorporated by reference to that Company’s Current Report on Form 8-K as filed with the SEC on February 11, 2008.
 
3.6
 
 
Company Charter of Color Man Holdings Limited (Memorandum of Association and Articles of Association
 
 
Incorporated by reference to that Company’s Current Report on Form 8-K as filed with the SEC on February 11, 2008.
 
3.7
 
 
Company Charter of Wise On China Limited
 
 
Incorporated by reference to that Company’s Current Report on Form 8-K as filed with the SEC on February 11, 2008.
 
3.8
 
 
Articles of Association of Pingdingshan Pinglin Expressway Co., Ltd.
 
 
Incorporated by reference to that Company’s Current Report on Form 8-K as filed with the SEC on February 11, 2008.
 
10.1
 
 
Share Exchange Agreement, dated February 8, 2008, by and among Learning Quest Technologies, Inc., Color Man Holdings Ltd. and Joylink Holdings Ltd.
 
 
Incorporated by reference to that Company’s Current Report on Form 8-K as filed with the SEC on February 11, 2008.
 
10.2
 
 
Chartered Rights Agreement on Pingdingshan-Linru Expressway Project, dated April 10, 2003, by and between Pingdingshan Pinglin Expressway Co., Ltd. and Pingdingshan Bureau of Communications
 
 
Incorporated by reference to that Company’s Current Report on Form 8-K as filed with the SEC on February 11, 2008.
 
10.3
 
 
Loan Contract of the Year 2004, dated December 28, 2004, by and between the China Development Bank and Pingdingshan Pinglin Expressway Co., Ltd.
 
 
Incorporated by reference to that Company’s Current Report on Form 8-K as filed with the SEC on February 11, 2008.
 

 
- 42 -

 

10.4
 
 
Loan Contract of the Fixed Assets (No. YBZ No. 0054, 2005), dated July 29, 2005, by and between The Pingdingshan Branch of Industrial and Commerical Bank of China and Pingdingshan Pinglin Expressway Co., Ltd.
 
 
Incorporated by reference to that Company’s Current Report on Form 8-K as filed with the SEC on February 11, 2008.
 
10.5
 
 
Loan Contract, dated February 25, 2005, by and between the Agricultural Bank of China, Xinhua Branch of Pingdingshan City and Pingdingshan Pinglin Expressway Co., Ltd.
 
 
Incorporated by reference to that Company’s Current Report on Form 8-K as filed with the SEC on February 11, 2008.
 
10.6
 
 
Loan Contract of the Year 2007, dated September 28, 2007, by and between the China Development Bank and Pingdingshan Pinglin Expressway Co., Ltd.
 
 
Incorporated by reference to that Company’s Current Report on Form 8-K as filed with the SEC on February 11, 2008.
 
10.7
 
 
Loan Contract, dated June 7, 2005, by and between the Agricultural Bank of China, Xinhua Branch of Pingdingshan City and Pingdingshan Pinglin Expressway Co., Ltd.
 
 
Incorporated by reference to that Company’s Current Report on Form 8-K as filed with the SEC on February 11, 2008.
 
10.8
 
 
General Loan Contract, dated November 29, 2004, by and between the China Development Bank and Pingdingshan Pinglin Expressway Co., Ltd.
 
 
Incorporated by reference to that Company’s Current Report on Form 8-K as filed with the SEC on February 11, 2008.
 
10.9
 
 
Loan Contract of the Fixed Assets (No. YBZ No. 0051, 2005), dated July 29, 2005, by and between The Pingdingshan Branch of Industrial and Commerical Bank of China and Pingdingshan Pinglin Expressway Co., Ltd.
 
 
Incorporated by reference to that Company’s Current Report on Form 8-K as filed with the SEC on February 11, 2008.
 
14.1
 
 
Code of Ethics
 
 
Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on September 29, 2008
 
16.1
 
 
Auditor Letter
 
 
Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on September 29, 2008
 
31.1
 
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
Provided herewith
 
31.2
 
 
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
Provided herewith
 

 
- 43 -

 

32.1
 
 
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
Provided herewith
 
32.2
 
 
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
Provided herewith
 
99.1
 
 
Audit Committee Charter of the Company
 
Incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K as filed with the SEC on May 22, 2008
 
99.2
 
 
Compensation Committee Charter of the Company
 
Incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K as filed with the SEC on May 22, 2008
 
99.3
 
 
Corporate Governance and Nominating Committee Charter of the Company
 
Incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K as filed with the SEC on May 22, 2008
 

SIGNATURES
 
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on our behalf by the undersigned, thereunto duly authorized.
 
 
CHINA INFRASTRUCTURE INVESTMENT 
CORPORATION
Date: September 28, 2009
 
   
 
By:
/s/Li Xipeng
   
Li Xipeng
   
Chief Executive Officer, Principal Executive 
Officer and Chairman of the Board
     
   
/s/Zhang Chunxian
   
Zhang Chunxian
   
Chief Financial Officer, Principal Financial and 
Accounting Officer and Director
 
In accordance with the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the dates indicated.

Signatures
 
Title
 
Date
         
/s        Li Xipeng
   
Chief Executive Officer,
 
September 28, 2009
   
Principal Executive Officer and
   
Li Xipeng
 
Chairman of the Board
   
         
/s/        Zhang Chunxian
   
   
September 28, 2009
   
Chief Financial Officer,
   
Zhang Chunxian
 
Principal Financial and
   
   
Accounting Officer and
   
   
Director
   
         
/s/        Sun Jianhao
 
Director
 
September 28, 2009
         
Sun Jianhao
       
         
/s/        Huang Yuemin
 
Director
 
September 28, 2009
         
Huang Yuemin
       
         
/s/        Xu Huiqing
 
Director
 
September 28, 2009
         
Xu Huiqing
       
         
/s/        Li Changlai
 
Director
 
September 28, 2009
         
Li  Changlai
       
         
/s/        Mu Xinji
 
Director
 
September 28, 2009
         
Mu Xinjie
       

 
- 44 -

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACOUNTING FIRM

To the Board of Directors and Shareholders of:
China Infrastructure Investment Corp.

We have audited the accompanying consolidated balance sheets of China Infrastructure Investment Corp. and Subsidiaries (the “Company”) as of June 30, 2009 and 2008, and the related consolidated statements of income and comprehensive income, changes in shareholders' equity and cash flows for the years then ended.  These consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of China Infrastructure Investment Corp. and Subsidiaries as of June 30, 2009 and 2008, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Weinberg & Company, P.A.

Boca Raton, Florida
September 16, 2009, except for Note 17 which
is as of September 27, 2009

 
F-1

 

CHINA INFRASTRUCTURE INVESTMENT CORPORATION
(FORMERLY LEARNING QUEST TECHNOLOGIES, INC.) AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

ASSETS
 
             
   
June 30,
2009
   
June 30,
2008
 
             
CURRENT ASSETS
           
Cash and cash equivalents
  $ 1,614,260     $ 5,769,344  
Restricted cash
    3,550,761       29,104  
Notes receivable, net
    104,676       776,936  
Accounts receivable
    1,089,546       2,006,848  
Other receivables
    148,934       419,642  
Notes receivable from related parties, current
    151,332,301       10,197,016  
Advance to a related party
    32,680,154       21,733,471  
Other current assets
    940,712       991,768  
Total current assets
    191,461,344       41,924,129  
                 
Toll road infrastructures, net
    437,178,980       443,672,007  
Plant and equipment, net
    15,662,302       15,943,451  
Land use rights, net
    47,264,452       49,066,392  
Long-term investment
    1,577,840       1,455,223  
Notes receivable from related parties, long-term
    -       139,872,158  
Deferred taxes
    4,725,650       6,059,721  
Total long-term assets
    506,409,224       656,068,952  
                 
TOTAL ASSETS
  $ 697,870,568     $ 697,993,081  

See accompanying notes to the consolidated financial statements.

 
F-2

 

CHINA INFRASTRUCTURE INVESTMENT CORPORATION
(FORMERLY LEARNING QUEST TECHNOLOGIES, INC.) AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
             
   
June 30,
2009
   
June 30,
2008
 
             
             
CURRENT LIABILITIES
           
Other payables and accrued liabilities
  $ 2,191,314     $ 4,840,299  
Short-term bank loans
    7,304,815       -  
Current portion of long-term bank loans
    27,767,064       10,678,425  
Notes payable
    3,521,542       -  
Payable to contractors
    22,090,622       24,224,039  
Deferred taxes
    7,852,128       8,556,534  
Deferred revenue, current
    78,803       72,679  
Other current liabilities
    163,130       225,915  
Total current liabilities
    70,969,418       48,597,891  
                 
LONG-TERM LIABILITIES
               
Long-term bank loans
    440,585,554       466,512,413  
Deferred revenue, long-term
    6,502,203       6,555,149  
Total long-term liabilities
    447,087,757       473,067,562  
                 
TOTAL LIABILITIES
    518,057,175       521,665,453  
                 
CONTINGENCIES
               
                 
SHAREHOLDERS’ EQUITY
               
Common stock, $.001 par value, 150,000,000 shares authorized, 80,000,000 shares issued and outstanding as of June 30, 2009 and June 30, 2008, respectively
    80,000       80,000  
Additional paid-in capital
    141,152,164       140,573,673  
Accumulated other comprehensive income
    27,516,099       26,818,531  
Retained earnings
    11,065,130       8,855,424  
Total Shareholders’ Equity
    179,813,393       176,327,628  
                 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 697,870,568     $ 697,993,081  

See accompanying notes to the consolidated financial statements.

 
F-3

 

CHINA INFRASTRUCTURE INVESTMENT CORPORATION
(FORMERLY LEARNING QUEST TECHNOLOGIES, INC.) AND SUBSIDIARIES
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

   
YEARS ENDED JUNE 30,
 
   
2009
   
2008
 
             
REVENUES
  $ 50,270,277     $ 56,424,236  
                 
OPERATING COSTS
    5,603,843       6,814,079  
                 
DEPRECIATION AND AMORTIZATION
    12,130,615       6,483,911  
                 
GROSS PROFIT
    32,535,819       43,126,246  
                 
General and administrative expenses
    5,404,212       3,268,346  
                 
INCOME FROM OPERATIONS
    27,131,607       39,857,900  
                 
OTHER INCOME (EXPENSES)
               
                 
Interest expense
    (34,140,068 )     (33,745,902 )
                 
Interest income
    9,400,978       9,804,866  
                 
Other income, net
    676,601       905,832  
                 
INCOME FROM OPERATIONS BEFORE INCOME TAXES
    3,069,118       16,822,696  
                 
INCOME TAX EXPENSE
    (859,412 )     (4,287,907