China Infrastructure Inv. Corp. (fka CIIC)

[Frankiy]

CIIC 10k For the Fiscal Year Ended June 30, 2011
http://www.otcmarkets.com/edgar/GetFilingHtml?FilingID=8188624

The number of outstanding shares of the registrant’s Common Stock on October 13, 2011 was 80,000,000.

NET INCOME (LOSS) PER COMMON SHARE, BASIC AND DILUTED $ (1.71)

Our revenues are derived from the operation of Pinglin Expressway. Our revenues increased by approximately $13.2 million, or 30.9%, from approximately $42.6 million for the year ended June 30, 2010 to approximately $55.8 million for the year ended June 30, 2011.

Our operating costs mainly represent the road maintenance costs, road management costs and labor costs associated with the toll operations. Our operating costs increased by approximately $2.4 million, or 67.2%, from approximately $3.6 million for the year ended June 30, 2010 to approximately $6.0 million for the year ended June 30, 2011. The increase is mainly due to the increase in the specific project costs and the road management costs due to the upgrade of express network charging system for the year ended June 30, 2011.

Our total depreciation and amortization related to toll operations decreased by approximately $1.5 million, or 11.9%, from approximately $12.9 million for the year ended June 30, 2010 to approximately $11.4 million for the year ended June 30, 2011. The decrease was mainly caused by the 2010 reassessment of the future expected traffic volume.

Our gross profit increased by approximately $12.3 million, or 47.3%, from approximately $26.0 million for the year ended June 30, 2010 to approximately $38.3 million for the year ended June 30, 2011. Such gross profit increase is primarily due to the increase in our revenues and decrease in our depreciation and amortization expenses, partially offset by the increase in operating cost.

Gross profit as a percentage of revenues increased from 61.0% for the year ended June 30, 2010 to 68.6% for the year ended June 30, 2011 as a result of the explanation above.

Our general and administrative expenses mainly represent employee payroll and welfare, traveling expenses, vehicle gasoline and maintenance costs, entertainment expenses, consulting fees, provisions for doubtful accounts and miscellaneous taxes. General and administrative expenses increased by approximately $1.7 million, or 41.0%, from approximately $4.2 million for the year ended June 30, 2010 to approximately $5.9 million for the year ended June 30, 2011. Such increase is primarily due to the increase in consulting fee from ICBC and CCB.

Bad Debts for Notes Receivable and Advances to Related Parties

Our bad debt for notes receivables from related parties for the year ended June 30, 2011 mainly due to that the Company entered into a renewal agreement with Tai Ao and Xinyang to resolve the notes receivable from the related parties. The agreement was renewed based on management’s estimate of the realizable amount resulting from the lack of government approval of the acquisition of Tai Ao and deteriorating operations of Tai Ao, which resulted in the inability to the pay balances. Pursuant to the agreement, the principal and interest of notes receivables from Tai Ao and Xinyang was decreased to $57,169,593, since the Company’s management believes there is uncertainty as to collection of some of the notes receivables and advance to related parties, and a bad debt provision amounting to $145.9 million was provided by the Company for the notes receivable from and advance to Tai Ao and Xinyang.

Interest Income and Expense

Interest income from related parties decreased by approximately $8.4 million, or 100.0%, from approximately $8.4 million for the year ended June 30, 2010 to approximately $0 million for the year ended June 30, 2011. The decrease is primarily due to the Company’s management’s decision to cease to accrue the interest income from notes receivable from related parties for the year ended June 30, 2011.

Interest expense increased by approximately $3.0 million, or 10.6%, from approximately $28.4 million for the year ended June 30, 2010 to approximately $31.4 million for the year ended June 30, 2011. This increase is primarily due to the increase of the principle and the floating interest rate for the year ended June 30, 2011.

Income Tax Benefit (Expense)

Income tax expense decreased by approximately $8.5 million, or 870.9%, from income tax expense of approximately $0.9 million for the year ended June 30, 2010 to income tax benefit of approximately $7.6 million for the year ended June 30, 2011, as a result of the significant decrease in our income from operations due to the significant bad debt provisions. The Company accrued interest income for the related party loans in prior years, which resulted in the deferred tax liabilities. Due to the significant bad debt provisions for the principal and interest of notes receivable, the Company believes the related deferred tax effect caused by the interest income of prior years should also be reversed since they will not be recognized as an income in the future. Therefore, a tax benefit occurred in this period. Our effective tax rate was 5% and 28% for the year ended June 30, 2011 and 2010, respectively.

Net (Loss) Income

Our net (loss) income decreased by approximately $139.0 million, or 5612.3%, from net income of approximately $2.5 million for the year ended June 30, 2010 to net loss of approximately $136.5 million for the year ended June 30, 2011. This decrease is primarily due to the significant bad debt provisions amounting to $149.6 million provided by the Company due to the resolve the notes receivable from the related parties for the year ended June 30, 2011.

Liquidity and Capital Resources

The consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company had a net loss of $136,547,931 for the year ended June 30, 2011. This was primarily due to the Company plans to resolve the related party notes receivable and advances, resulting in a bad debt provision of $149,590,500 which was provided for the notes receivable from and advances to related parties. The Company derives revenues from the operations of the Pinglin Expressway and the revenues increased by approximately 31% for the year ended June 30, 2010 compared to the year ended June 30, 2011.

The Company had a working capital deficit of $26,990,951 and cash and cash equivalents of $557,244 on June 30, 2011. This was primarily due to the Company providing advances to its related parties for their highway construction and working capital. The Company currently generates its cash flow through its operating profit and borrowings from banks. During the reporting period, to increase its cash resources, the Company obtained a long-term loan of $19,161,715. The Company also had cash flow from operations of $11,225,711 for the year ended June 30, 2011. As of the date of this report, the Company has not experienced any difficulty in raising funds through bank loans, and has not experienced any liquidity problems in settling payables in the normal course of business and repaying bank loans when they fall due. To improve liquidity, the Company may explore new expansion opportunities and external funding sources.

We generally finance our operations through, to a substantial extent, from operating profit and a combination of borrowings from banks. We use cash generated from operations to pay current liabilities. To increase our cash resources, we will renew short-term loans when due and obtain long-term loans, if necessary. There can be no assurance that we will be successful in renewing loans or obtaining new loans.