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CIIC > SEC Filings for CIIC > Form 8-K on 15-Jul-2011All Recent SEC Filings




Material Impairments

Item 2.06 Material Impairments.

Beginning in 2006, the Company provided working capital loans to Tai Ao Expressway Co., Ltd. and Xinyang Expressway Co., Ltd., companies which constructed and operate vehicle expressways in the PRC and are controlled by our Director, Chief Executive Officer and majority shareholder (the "Controlling Party"). On June 29, 2010, the Company entered into renewal agreements with Tai Ao and Xinyang that extended the maturity of these loans to June 29, 2011. These working capital loans were made based on the assumption that, once connecting toll roads in neighboring provinces were completed and functional, the traffic volume of the Tai Ao and Xinyang Expressways would increase significantly thereby generating sufficient revenues to enable Tai Ao and Xinyang to repay these loans in full. At March 31, 2011, outstanding principal and interest on these related party loans were approximately $83 million and $84 million, respectively.

On July 11, 2011, the Company's Board of Directors determined that adverse developments occurred with respect to these loans. This followed a review of the most recent operating performance of Tai Ao and Xinyang and the most recent traffic volume data which shows that the traffic volume on both the Tai Ao and Xinyang Expressways has not significantly increased even though connecting toll roads in the neighboring provinces are now complete and operating. As a result, neither Tai Ao nor Xinyang have been able to generate enough cash flow to pay any principal and interest of these related party loans.

In addition, on September 27, 2009, the Company entered into a letter of intent pursuant to which the Company agreed to acquire at least 51% of Tai Ao, for which the note receivable from Xinyang will be part of the consideration. The acquisition, however, is subject to the approval of the Reform and Development Commission of the PRC Central Government, which as of the date of this report has not been received and which the Board has determined may not be received. Furthermore, even if the Company were to receive regulatory approval, it is uncertain that sufficient revenues would be generated to repay the related party loans.

The Controlling Party has offered to transfer another asset of the Controlling Party to the Company in partial repayment for the related party loans. This asset consists of the Controlling Party's ownership interest in a commercial, residential real estate and retail shopping mall development project in Zhengzhou, China, where the Company's headquarters is located. The Board is currently evaluating this proposal and is seeking to engage a valuation expert to evaluate and value the proposed asset. Regardless, based on the above analysis, the Board believes that the Company is required to write off some or all of the related party loans. Until the necessary evaluation is completed, however, the Company's management will be unable to estimate the amount or a range of amounts of the impairment charge. Management does not believe that the impairment charge will result in future cash expenditures.

The Company will file an amended report on Form 8-K under this Item 2.06 within four business days after it makes a determination of such an estimate or range of estimates.

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