UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-K





[X] Annual Report Pursuant to Section 13 or 15(d) of


The Securities Exchange Act of 1934





For the Fiscal Year Ended December 31, 2009





[ ] Transition Report Pursuant to Section 13or 15(d) of


The Securities Exchange Act of 1934





COMMISSION FILE NUMBER: 000-52440





CHINA SHUANGJI CEMENT LTD.


(Exact Name of Small Business Issuer as Specified in its Charter)





Delaware


(State of Incorporation)





95-3542340


(IRS Employer ID Number)





221 Linglong Road, Zhaoyuan City, Shandong Province


People’s Republic of China, 265400


(Address of principal executive offices)





(86) 535-8213217


(Registrant's telephone number, including area code)





None


Securities registered pursuant to Section 12(b) of the Exchange Act





Common Stock, par value $0.0001 per share


Securities registered pursuant to Section 12(g) of the Exchange Act:





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





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














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





Indicate by check mark if disclosure of delinquent filers in pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the 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. [X]





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





Large accelerated filer [  ]


Accelerated filer [  ]





Non-accelerated filer [  ]


Smaller reporting company [X]


(Do not check if a smaller reporting company)





Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act) [  ] Yes [X] No





State the aggregate market value of the voting and nonvoting common equity held by non-affiliates computed by reference to the price at which the stock was last sold, or the average bid and ask prices of such stock as of the last business day of the registrant’s most recently completed second fiscal quarter.





The aggregate market value of the voting and non-voting common stock of the issuer held by non-affiliates as of June 30, 2009 was approximately $11,384,019 based upon the closing price of the common stock ($1.50) as quoted by OTC Bulletin Board on such date.




As of April 7, 2010, there are 28,157,246 shares of common stock, par value $0.0001 issued and outstanding.








1





Table of Contents





PagePART IItem 1.
Description of Business
3Item 1A.
Risk Factors
12Item 1B.
Unresolved Staff Comments
12Item 2.
Description of Property
25Item 3.
Legal Proceedings
27Item 4.
(Removed and Reserved)
27PART IIItem 5.
Market for Common Equity and Related Stockholder Matters
27Item 6.
Selected Financial Data
29Item 7.
Management’s Discussion and Analysis of Financial Condition or Plan of Operation
29Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
33Item 8
Financial Statements and supplementary Data.
33Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
35Item 9A.
Controls and Procedures
35Item 9A(T)
Controls and Procedures
36Item 9B.
Other Information
36PART IIIItem 10.
Directors, Executive Officers, and Corporate Governance.
37Item 11.
Executive Compensation
40Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
41Item 13.
Certain Relationships and Related Transactions, and Director Independence
42Item 14.
Principal Accountant Fees and Services
43PART IVItem 15.
Exhibits, Financial Statement Schedules
44








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PART I





ITEM 1 - DESCRIPTION OF BUSINESS OVERVIEW





We are a supplier of high-grade portland cement to the industrial sector in the Shandong and Hainan provinces of the People’s Republic of China (PRC). Our processed cement products are primarily purchased by the cement industry for the purpose of making the cement required for the construction of buildings, roads, and other infrastructure projects. Our products have been sold nationally (in the PRC) and internationally in 10 countries.





Our principal executive office is located at 221 Linglong Road, Zhaoyuan City, Shandong Province, China, 265400. Our telephone number is +86 535-8213217 and its facsimile number is +86-535-8231341.





Our History and Background





We were organized under the laws of the State of California on September 15, 1980, as Trans-Science Corporation. On July 14, 2000, we were acquired by Composite Solutions, Inc. (“Composite”), a company which at the time was a publicly traded Florida corporation. On October 1, 2004, Composite became insolvent and both Composite and the company ceased all operations. On October 11, 2004, Composite filed a voluntary petition for bankruptcy under Chapter 7. The case was voluntarily dismissed on November 18, 2004 and on May 5, 2005 Composite filed a voluntary petition for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of California in San Diego (Case No. 05-04045). On December 4, 2006, the Bankruptcy Court approved the Plan of Reorganization proposed by Composite, the (“Plan”). Pursuant to the Plan, all creditors of Composite were paid their pro rata share of a pool of cash and their pro rata share of a pool of shares of common stock in Composite.





In addition, under the Plan we were “spun off” to the Composite’s creditors and existing shareholders. The shares were issued pursuant to Section 1145 of the Bankruptcy Code and are exempt from the registration requirements of Section 5 of the Securities Act of 1933 and any state or local law requiring registration for an offer or sale of securities.





During the period 2005 through October 3, 2007 the Company was involved in a search for a merger partner.  On October 3, 2007 a British Virgin Islands company named China Shuangji Cement Holdings, Ltd. (“Holdings”) purchased 16,000,000 shares of the Company’s common stock, which represented 74% of the total shares of Company stock outstanding. Holdings is owned by a group of shareholders who also own all of the equity interests of Zhaoyuan Shuangji Co. Ltd. (“Zhaoyuan Shuangji”), a cement manufacturer incorporated in the People’s Republic of China (PRC).





Effective October 31, 2007, we re-domiciled in Delaware, changed our name to China Shuangji Cement Ltd., and effected a two for one forward stock split of our outstanding common stock. These corporate events were approved by a majority of our shareholders. Please refer to our Definitive Proxy Statement filed with the Securities and Exchange Commission on October 15, 2007.  All per share information in this Form 10-K has been adjusted to reflect the forward split in accordance with SAB Topic 4C.





As part of a plan to effect control of Zhaoyuan Shuangji, on December 1, 2007, the Company acquired 100% of the outstanding capital stock of Chine Holdings, Ltd. (“Chine Holdings”), a British Virgin Islands corporation incorporated on June 28, 2007, from Wenji Song for an aggregate purchase price of $16,000.  At the closing of the acquisition of Chine Holdings, the Company did not pay a cash consideration of $16,000 but accounted for the purchase price in the form of a $16,000 loan.





Chine Holdings owns 100% of Jili Zhaoyuan Investment Consulting Co. Ltd. (“JZIC”), a Wholly Foreign-Owned Entity formed under the laws of the PRC on March 9, 2007.  On September 13, 2007, Chine Holdings acquired 100% of the outstanding equity of JZIC from Holdings.  As such, as of December 1, 2007, Chine Holdings is a direct wholly-owned subsidiary of the Company, and JZIC is an indirect wholly-owned subsidiary of the Company.







3





On August 9, 2008, an aggregate of 20,250,000 shares of Series 2008 preferred stock of the Company were issued to Wenji Song, the Company’s president and majority shareholder.  Of the 20,250,000 shares, 4,250,000 shares were issued for a purchase price of $4,250 and 16,000,000 shares of Series 2008 preferred stock were issued as consideration for the cancellation of the $16,000 loan due to Wenji Song that had been used to purchase Chine Holdings.





We are currently organized using an offshore holding structure commonly used by foreign investors with operations in China. As a Delaware corporation, we wholly-own Chine Holdings Ltd. (“Chine Holdings”), a company incorporated in the British Virgin Islands; which owns Jili Zhaoyuan Investment Consulting Co., Ltd. (“JZIC”), a Wholly Foreign-Owned Enterprise (WFOE) established under the laws of the PRC. Through contractual agreements in place between our affiliates and other commonly controlled entities, since August 2008 we have controlled  our operating cement company Zhaoyuan Shuangji Co. Ltd, a PRC company (“Zhaoyuan Shuangji”). However, our control is subject to certain risks and uncertainties. See “Item 1A Risk Factors”below. Zhaoyuan Shuangji, the operating PRC entity, produces high-grade cement to the industrial sectors in the PRC and internationally.





The abovementioned contractual arrangements are comprised of a series of agreements, including a Strategic Consulting Service Agreement and Operating Agreement, through which JZIC has the right to advise, consult, manage and operate Zhaoyuan Shuangji for a fee. In order to further reinforce JZIC’s rights to control and operate Zhaoyuan Shuangji and to collect consulting and services fees provided by JZIC to Zhaoyuan Shuangji, Zhaoyuan Shuangji’s shareholders have granted JZIC the exclusive right and option to acquire all of their equity interests and voting rights in Zhaoyuan Shuangji through an Exclusive Option Agreement and Authorization Agreements. Pursuant to these agreements, JZIC operates and controls the business of Zhaoyuan Shuangji Under the present structure, there is no change in personnel of Zhaoyuan Shuangji and our agreements with the Zhaoyuan Shuangji have a term of ten years with an option to renew.





The Company’s current structure is set forth in the diagram below:


























On April 16, 2009, the Company affected a reverse split of its common stock under whereby its shareholders received one share of common stock for every four shares then-owned.










4





History and Background of Zhaoyuan Shuangji Co., Ltd.





Zhaoyuan Shuangji was founded in 1971 as a state-owned enterprise.  On March 29, 2002, Zhaoyuan Shuangji was purchased by 198 shareholders and reorganized as a privately held corporation.  As of December 31, 2009 has total assets of approximately $38 million, total staff of more than 620, and is one of the strongest 500 building materials enterprises in China. Zhaoyuan Shuangji has received “AA credit taxpayer” status, a AAA bank credit rating in the PRC and an ISO 9001 Quality Certificate. In the last few years, we have received the National Environmental Protection Advanced Enterprise Award and Quality Management Prize from the National Building Materials Bureau.





Our Zhaoyuan cement plant commenced operations in 1971 with an initial annual capacity of 80,000 metric tons (MT) of cement. In 1992, the annual capacity increased to 400,000 MT, and a new cement plant was built in Hainan Province called Dongfang Shuangji cement plant with an annual production of 500,000 MT of cement. Shandong Zhaoyuan Shuangji Group Co., Ltd., a state-owned company, was formed in 1992 to incorporate the operations of both cement plants. In 2002, the state-owned company was restructured as part of a privatization buyout by Wenji Song, our Chairman, and 197 other employees, in which Zhaoyuan Shuangji was formed. Zhaoyuan Shuangji purchased our Hainan Danzhou cement plant in 2002 to add another 500,000 MT of production. During the fourth quarter of 2008, at the request of the city of Zhaoyuan, we ceased operations of our Zhaoyuan plant and began the relocation of the old facility and construction of new facility within the city of Zhaoyuan. For more information on the cement plants see “Item 2. Description of Properties” below.





Cement Industry in China and Competition





The demand for cement in China has been and continues to be substantial.  Cement in China, the 2009 study by US-based research company, The Freedonia Group, forecasts that China’s cement consumption is expected to grow 6.0% annually through 2012 to 1.8 billion MT.  In 2009, the Chinese National Bureau of Statistics announced that China’s GDP had grown by 8.7% in 2009.  This is on top of 9% growth in 2008 and 13% growth in 2007 as published by the World Bank.  In March 2010, the World Bank increased its GDP growth forecast for China from 9.0% to 9.5% for 2010.  The World Bank stated that consumption by both businesses and households would grow strongly in 2010, even though government stimulus measures were being pared back.  A key component of such growth has been infrastructure development consisting of local roads, super highways, railways, and new commercial building construction, all of which drive demand for our concrete products.





In 2008, China produced roughly one half of the total world cement output, and exports a small percentage of its production.  As of 2008, China has ranked first place in the world for 23 successive years in production.





According to China Research and Intelligence, in 2009, Chinese cement production was 1.63 billion MT, a 17.91% increase from 2008.  Revenues from sales of cement in 2009 were RMB 500.7 billion (US $73 billion).  According to the Ministry of Industry and Information Technology, the average ex-factory price of cement increased by RMB 2 from October 2009 to RMB 278 per MT in November 2009. The cement price in the eastern region was RMB 250 per MT in November 2009, up RMB 3 per MT from October 2009.  The cement prices closed the year at RMB 316 in Shandong Province on December 25, 2009 and RMB 485 in Hainan Province.





The concrete and cement industry is generally fragmented and characterized by large numbers of smaller providers and only a few larger and more developed companies with the average annual production of approximately 250,000 MT.  The ten largest Chinese cement producers accounted for 21.1% of total production in China in 2008.





An important trend in the Chinese cement marketplace is the government program to consolidate the industry into fewer, modern, cleaner producers.  To clean up the industry, the Chinese government is closing many smaller, less environmentally-friendly plants.  We believe that approximately 300 smaller plants, mostly under 200,000 MT of annual capacity, will be closed in Shandong province in 2010.  According to the Chinese Government’s Plan of Cement Industry during the 11th Five-Year Plan Period, the government forecasts that this program will reduce the number of cement plants from 5,500 to around 3,000 by the end of 2010, causing a reduction of approximately 250 million MT of annual production.  We believe that such government actions will create additional demand for our high-quality cement.






5







The average production of China’s cement producers was approximately 250,000 MT in 2008.  The largest cement company in China is Anhui Conch Cement Company Limited (HKEX, 0914). Anhui Conch Cement had revenues of RMB 54.5 billion in 2009 with total pre-tax profit of RMB 5.8 billion. In 2008, Anhui Conch Cement produced 81 million MT, followed by China National Building Materials (CNBM) with 66 million MT and Shanshui Cement as the third largest producer at 27 million MT.  We consider China Runji Cement (CRJI – OTCBB) with 1 million MT annual capacity in Anhui province, west of Shanghai, and China Advanced Construction Materials Group, Inc. (CADC – NasdaqGM),  in Beijing, to be competitors similar in size to our company.





Under the Chinese Government's 4-trillion-RMB (approximately $586 billion) economic stimulus plan announced in November 2008, 300 billion RMB will go to transportation and logistics sectors, which the government believes will attract nearly 700 billion RMB in investment from other sources.  We believe that such huge investment should continue to drive substantial demand for cement.





Products





Similar to Eagle Materials Inc. (NYSE:EXP) or Texas Industries Inc. (NYSE:TXI) in the United States, we produce portland cement, a basic ingredient of concrete, mortar, stucco and most grout. It is a fine powder produced by grinding portland cement clinker and calcium, which controls the set time, and minor portions of silicon, iron, aluminum and sulfur.  We make portland cement clinker by heating, in a kiln, a mixture of raw materials mostly comprised of limestone mixed with clay.





We believe that we are considered a large and environmentally-friendly producer of cement and will benefit from  the government’s plan to shut down smaller producers and move to “dry” processes that create far less environmentally damaging waste products.





We currently sell all of the cement we produce.  For the twelve months ended December 31, 2008, we produced 1,595,328 MT of cement and sold 1,607,954 MT.  For the twelve months ended December 31, 2009, we produced 1,598,836 MT of cement and sold 1,591,216 MT.





Raw Materials





We purchase various raw materials for use in our manufacturing processes. The principal components and raw materials include limestone, coal, coal ash, gangue, slag, and plaster. The most important raw material in portland cement is limestone rock. Typically, we enter into purchase agreements with local suppliers. The annual purchase plans are determined at the beginning of the calendar year but are subject to revision every three months based on our order history. A purchase order is made according to monthly production plans which we receive from customers. This arrangement protects us from building up inventory when the orders from customers change.





All components and raw materials are available from numerous sources. In recent years, we have not experienced any significant shortages of manufactured components or raw materials, and we normally do not carry inventories of these items in excess of what is reasonably required to meet our production and shipping schedules.





Our ten largest suppliers provided 74.73% of all components and raw materials that we purchased for the year ended December 31, 2009. The table sets forth information regarding our ten largest suppliers.





List of Major Suppliers





Name of Suppliers
Material
Percentage of Total

Purchases in 2009Dongfang Dongan Limestone Supplement Company
Limestone
7.3%Dongfang Hongfa Coal Sale Co., Ltd
Coal
18.9%Zhaoyuan Fuel Company
Coal
14.3%Danzhao Yalahe Commodity Company
Coal
15.7%Hebei Jiqing Coal Company
Coal
10.7%Ou Jiyong
Limestone
0.63%Cangshan Dahan Plaster Supplement Company
Plaster
4.0%Zhanyuan Cogeneration Plant
Coal Ash
1.9%Danzhou Nanfeng Welfare Packing Plant
Packing Bags
0.9%Wangshunde Clay Plant
Yellow Clay
0.4%74.73%








6







Apart from raw materials, electricity and coal are the major costs associated with the production of cement.  In 2008 and 2009, they accounted for 63.57 % and 62.42% of our Cost of Revenue, around RMB 148 and RMB 141 per MT respectively.    However, in 2009, we saw an increase in the cost of coal.  We purchase coal from Vietnam and Hebei.  Hebei is approximately 636 km west of our plant in Zhaoyuan.  The cost of coal per MT of cement produced was almost has only increased by 1% from 2008 to 2009.  We estimate that for every RMB 100/MT rise in the cost of coal, the cost of cement will increase by RMB 16.8 per MT.





We purchase electricity from the Shandong and Hainan electricity grid.  The cost of electricity (kWh) per MT of cement produced has increased by only 0.4% from 2008 to 2009.  We estimate that every RMB 0.02/kWh increase in the electricity price will increase the cost of cement by RMB 1.65/MT.





In 2009, even with very slight increases in the cost of electricity and coal, we were able to reduce our Cost of Revenue  year-over-year by 4.7% from RMB 148 to RMB 141 per MT.  This was accomplished by increasing the amount of recycled industrial by-products in our cement from 35% in 2008 to 40% in 2009.  Making portland cement from limestone rock is an energy intensive process.  Fly ash and slag cement are industrial by-products that can substitute for portland cement in certain blended amounts.  Fly ash is a by-product of coal burning electric power plants. Slag cement is made from the slag left from blast-furnaces that make iron and steel. If not used in concrete, these materials would use valuable landfill space. By blending more fly ash and slag cement into our finished product, we reduce the amount of new portland cement we need to make and therefore the amount of energy needed to make our product.





Operations





Zhaoyuan Shuangji controls four cement plant facilities, Zhaoyuan Cement Plant and Longkou Cement Plant in Shandong Province and Dongfang Cement Plant and Danzhou Cement Plant in Hainan Province. All of our plants produce portland cement, the most common type of cement worldwide. Zhaoyuan Cement Plant, the first “smokeless” cement plant in Hainan province, has an annual capacity of approximately 500,000 MT.  Zhaoyuan Cement Plant is currently being upgraded and expanded and is not producing.  We acquired 51% of the equity in Longkou Cement Plant in April 2009.  In July 2009, we made new modifications to increase capacity at Longkou to 500,000 MT.  Dongfang Cement Plant was established in 1994 and has a total annual capacity of approximately 500,000 MT.  Danzhou Cement Plant was established in 1992 and has an annual capacity of approximately 500,000 MT.  As of December 31, 2009, the combined maximum cement output by these facilities is approximately 1,500,000 MT per year.  Refer to “Item 2. Description of Properties” below for a detailed description of these plants.





Zhaoyuan Shuangji markets the cement principally to companies in the building material industry in its geographic market of Shandong Province and Hainan Province. However, in 2008, we sold 10,000 MT to Russia and in 2009, we also sold 20,000 MT to New Zealand. Currently we have agreements in place to deliver cement to other international markets including England and Russia.





During fiscal 2009 and 2008, we incurred no expenditures on research and development. In addition, during fiscal 2009 and 2008, we incurred no expenditures in complying with regulations involving the discharge of materials into the environment.





Geography





Shandong province where Zhaoyuan and Longkou factories are located is on the coast of the East China Sea between Beijing to the north and Shanghai to the south.  Shandong province with an area of 157,000 square kilometers is nearly the size of Bangladesh or Uruguay.  With a population of roughly 90 million, it is the second largest province in China.  Shandong is one of the richest provinces in China and at RMB 3.11 trillion; its GDP was 2nd of all provinces in China for 2008.  Shandong is rich in natural resources including coal and oil and home to major corporations such as appliance maker Haier and brewer Tsingtao.  The Shandong economy also benefits from investment from nearby Korea and Japan.








7





Hainan province where Dongfang and Danzhou factories are located is an island located in the South China Sea in southern China west of Hong Kong and east of Hanoi, Vietnam.  At 34,000 square kilometers, Hainan is approximately the size of Taiwan or Belgium.  We are optimistic that cement demand will be strong in Hainan.  It is the southernmost province and is known as the “Hawaii” of China with palm trees, beautiful beaches, golf courses and internationally known five-star hotel chains like the Ritz Carlton, Shangri-La and Mandarin Oriental.  Hainan is rapidly growing and has plans to become duty and visa-free to more easily attract international tourists and shoppers.  Currently, a 22 km bridge is under construction to the mainland to reduce travel time to minutes instead of the longer ferry ride.





Strategic Growth Plan





Because we have been able to sell as much cement as we produce, increasing capacity is our primary objective.  As such, for 2010, we are focused on two major near-term objectives, to bring Zhoayuan Cement Plant back into production, doubling its former production and to double production at the Longkou Cement Plant.





Our mid-term strategic plan is to focus on domestic and international market expansion and increase profitability. To achieve these goals we intend to focus on developing brand recognition, improving quality control, streamlining production through improved operating efficiencies, and effecting strategic acquisitions.





Specifically, we plan to grow through organic upgrades to our existing lines of business and through strategic operating licenses and acquisitions.  We are in the midst of such organic growth with high-return projects that include upgrades at Zhaoyuan and Longkou.  We are looking to acquire companies that can be easily integrated into our operations, such as the newly acquired Longkou cement plant.  We are also seeking operating licenses or joint ventures with companies that need expert management.





We anticipate that additional funding will be required in the form of equity financing from the sale of our common stock to achieve all or part of these goals. We cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock to accomplish our goals. We do not have any arrangements in place for any future equity financing. In addition to the foregoing, in the future, we may broker cement transactions pursuant to which we will receive a broker’s fee for acting as an intermediary.





Plant Expansion





As of March 26, 2009, we are seeking financing to expand capacity in 2010 from 1.5 million MT to 2.5 million MT in 2010 by completing a new modern cement plant in Zhaoyuan City.  Zhaoyuan City is in Shandong province on the coast, south of Beijing and north of Shanghai.  The Zhaoyuan Cement Plant was established in 1971 in Shandong province and was upgraded in 1994 to a yearly capacity of 500,000 MT.  It was shut down by the Zhaoyuan City government in winter 2008 to make way for a residential real estate development.  Pending financing, the new site will start producing in 2010 with an annual capacity of 1,000,000 MT.





Further enhancements at our Longkou Plant could increase capacity from 500,000 MT to 1,000,000 MT.





Customers





Our ten largest customers represent 48.4% of our total sales for the year ended December 31, 2009. The following table sets forth information regarding our ten largest customers.








8








List of Major Customers




Percentage of TotalName of Customer


Revenue in 2009Danzhou Mingcheng Cement Management Company


13.3%Hainan Haiji Building Company


8.6%Hainan Dongfan Shunda Machinery Company


6.0%Danzhou Yongcheng Company


4.8%Hainan Guangba Engineering Co., Ltd


2.0%Danzhou Nada Hongfa Bridge Building Company


1.6%Zhaoyuan Jindu Concrete Company


7.3%Qingdao Building Material Supplement and Sale Company


1.6%Zhaoyuan Building Company


1.9%Zhaoyuan Municipal Engineering Company


1.3%Total


48.4%





Employees





We currently have approximately 620 full-time employees. Approximately 565 of these employees are in production, quality control and transportation.  The remaining 35 employees are in corporate finance, purchasing, marketing and sales. Each full-time employees of our operating entity, Zhaoyuan Shuangji, has a labor agreement with us that states that Zhaoyuan Shuangji will pay employees for salary, pension, and other benefits according to PRC law and regulations.





Sales and Marketing





We sell our cement products through a direct sales force of approximately 24 full-time employees who market directly to our customers. Our customers are either engaged in the building construction industry or in foreign trade. We do not have any agreements with any third-party distributors or wholesalers.  Most of our sales are made pursuant to longer term supply agreements with our customers, the duration of which is about 1 year, but the prices do fluctuate with the spot market price of cement and that of our raw materials.However, from time to time, we make individual sales outside of a supply agreement, if adequate capacity exists at the time.


Our senior management maintains direct personal relationships with our top customers such as Danzhou Mingcheng Cement Management Company.  Our outside sales people identify new customers through telephone and in-person visits and negotiate contracts with new customers.  Our inside sales staff provide pricing and receive individual orders via telephone, mail and facsimile.





We differentiate ourselves from our competitors through customer service and quality.  Our sales staff is well educated in our product and we are easy for our customers to do business with.  We maintain customers by providing high-quality products that are delivered in a timely manner.





Specifically, we target customers involved in highway construction, water supply construction, subway system construction, nuclear power plant construction, tunnel construction, commercial building construction, theme parks and port facilities.





Distribution





The majority of our customers are located in Longkou, Penglai, and Qixia in Shandong Province; all easily accessible by rail lines and truck. Our customers on Hainan Island are accessible by truck.   Our international customers have their cement transported by ship at the port facility located at Longkou, 30 km from Zhaoyuan City. Normally, our customers pay for freight charges.






9







Intellectual Property





We indirectly own through Zhaoyuan Shuangji the trademark brand “Shuangji” which translated into English means “double lucky”. We rely on a combination of trademark and copyright laws in China to protect our brand name. We have no patents, other trademarks, licenses, franchises, concessions or royalty agreements.





Our web site www.shuangjicement.com is copyrighted under PRC law and is a registered domain name owned indirectly by us.





Governmental Regulations on our Operations in China





All of our PRC subsidiary companies operate in facilities that are located in China. Accordingly, our PRC subsidiaries’ operations have to conform to the governmental regulations and rules of China.





We are subject to the PRC’s National Environmental Protection Law, which was enacted on December 26, 1989, as well as a number of other national and local laws and regulations regulating air, water, and noise pollution and setting pollutant discharge standards. Violation of such laws and regulations could result in warnings, fines, orders to cease operations, and even criminal penalties, depending on the circumstances of such violation. We believe that all manufacturing operations comply with applicable environmental laws, including those laws relating to air, water, and noise pollution.





We are also subject to various laws and regulations administered by various local governments relating to the operation of our production facilities. We believe that we are in compliance with all governmental laws and regulations related to our products and facilities.





Doing Business in China





Chinese Legal System





The practical effect of the Chinese legal system on our business operations in China can be viewed from two separate but intertwined considerations. First, as a matter of substantive law, the Foreign Invested Enterprise Laws provide significant protection from government interference. In addition, these laws guarantee the full enjoyment of the benefits of corporate organization and contracts to Foreign Invested Enterprise participants, such as Wholly Foreign Owned Enterprises and Sino-Foreign Joint Ventures. These laws, however, do impose standards concerning corporate formation and governance, which are not qualitatively different from the general corporation laws of the several provinces. Similarly, the Chinese accounting laws mandate accounting practices, which are not consistent with US Generally Accepted Accounting Principles (GAAP). The Chinese accounting laws require that an annual “statutory audit” be performed in accordance with Chinese accounting standards and that the books of account of Foreign Invested Enterprises be maintained in accordance with Chinese accounting laws. Article 14 of the People’s Republic of China Wholly Foreign-Owned Enterprise Law requires a Wholly Foreign-Owned Enterprise to submit certain periodic fiscal reports and statements to designated financial and tax authorities, otherwise there is risk that its business license will be revoked.  Notwithstanding these legal requirements, the financial statements included elsewhere in this filing have been prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) and audited in accordance with the standards of the United States Public Company Accounting Oversight Board (PCAOB).





Second, while the enforcement of substantive rights may appear less clear than those in the United States, the Foreign Invested Enterprises and Wholly Foreign-Owned Enterprises are Chinese registered companies which enjoy the same status as other Chinese registered companies in business dispute resolution. Because the terms of the Company’s various Articles of Association provide that all business disputes pertaining to Foreign Invested Enterprises will be resolved by the Arbitration Institute of the Stockholm Chamber of Commerce in Stockholm, Sweden applying Chinese substantive law, the Chinese minority partner in the Company’s joint venture companies will not assume any advantageous position regarding such disputes. Any award rendered by this arbitration tribunal is, by the express terms of the various Articles of Association, enforceable in accordance with the “United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958).”  Therefore, as a practical matter, although no assurances can be given, the Chinese legal infrastructure, while different from its United States counterpart, should not present any significant impediment to the operation of Foreign Invested Enterprises.






10







Economic Reform Issues





Although the Chinese Government owns the majority of productive assets in China, in the past several years the Government has implemented economic reform measures that emphasize decentralization and encourage private economic activity. Because these economic reform measures may be inconsistent or ineffectual, there is no assurance that:





·
We will be able to capitalize on economic reforms;


·
The Chinese Government will continue its pursuit of economic reform policies;


·
The economic policies, even if pursued, will be successful;


·
Economic policies will not be significantly altered from time to time; and


·
Business operations in China will not become subject to the risk of nationalization.





Negative impact on economic reform policies or nationalization could result in a total investment loss of our common stock.





Since 1979, the Chinese Government has reformed its economic systems. Because many reforms are unprecedented or experimental, they are expected to be refined and readjusted. Other political, economic and social factors, such as political changes, changes in the rates of economic growth, unemployment or inflation, or in the disparities in per capita wealth between regions within China, could lead to further readjustment of the reform measures. This refining and readjustment process may negatively affect our operations.





Over the last few years, China’s economy has registered a high growth rate. Recently, there have been indications that the rate of inflation has increased. In response, the Chinese Government recently has taken measures to curb the excessively expansive economy. These measures included implementation of a unitary and well-managed floating exchange rate system based on market supply and demand for the exchange rates of RMB, restrictions on the availability of domestic credit, reduction of the purchasing capability of certain of its citizens, and centralization of the approval process for purchases of certain limited foreign products. These austerity measures alone may not succeed in slowing down the economy’s excessive expansion or control inflation, and may result in severe dislocations in the Chinese economy. The Chinese Government may adopt additional measures to further combat inflation, including the establishment of freezes or restraints on certain projects or markets.





Presently, reforms to China’s economic system have not adversely affected our operations and are not expected to adversely affect our operations in the foreseeable future; however, there can be no assurance that reforms to China’s economic system will continue or that we will not be adversely affected by changes in China’s political, economic, and social conditions and by changes in policies of the Chinese Government, such as changes in laws and regulations, measures which may be introduced to control inflation, changes in the rate or method of taxation, imposition of additional restrictions on currency conversion and remittance abroad, reduction in tariff protection and other import restrictions.





Earnings and Distributions of the FIE’s





Wholly Foreign-Owned Enterprise laws provide for and guarantee the distribution of profits to foreign investors in Chinese Foreign Invested Enterprises. Article 19 of the People’s Republic of China Wholly Foreign Owned Enterprise Law provides that a foreign investor may remit abroad profits that are earned by a Foreign Invested Enterprise, as well as other funds remaining after the enterprise is liquidated.





Because our Chinese businesses are controlled foreign corporations, for U.S. federal income tax purposes, we may be required to include in our gross income for U.S. tax purposes:





·
Those companies’ “Subpart F” income, which includes certain passive income and income from certain transactions with related persons, whether or not this income is distributed to it; and


·
Increases in those companies’ earnings invested in certain U.S. property.





Based on the current and expected income, assets, and operations of Chinese businesses, we believe that it will not have significant U.S. federal income tax consequences under the controlled foreign corporation rules.








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ITEM 1A. - RISK FACTORS





In addition to the other information included in this Form 10-K, the following risk factors should be considered in evaluating the Company’s business and future prospects. The risk factors described below are not necessarily exhaustive and you are encouraged to perform your own investigation with respect to the Company and its business. You should also read the other information included in this Form 10-K, including the financial statements and related notes.





Our business operations are conducted entirely in the PRC. Because China’s economy and its laws, regulations and policies are different from those typically found in the west and are continually changing, we face certain risks, including but not limited to those summarized below.





Risks Relating to Our Structure





Our corporate structure makes it difficult for us to evaluate our long term business prospects.





We presently operate the business of Zhaoyuan Shuangji pursuant to contractual agreements discussed elsewhere herein, which provide that we have operating control and receive the profit and loss from its operations.  Our agreements with Zhaoyuan Shuangji have a term of ten years with an option to renew. In the event that the agreements are not extended upon their expiration for any reason, or if there is a change in government policy that prohibits or restricts such agreements, our ability to continue our business would be impaired in a material adverse manner.





Failure to comply with PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may materially adversely affect us.





In October 2005, the PRC State Administration of Foreign Exchange, or SAFE, issued the Notice on Relevant Issues in the Foreign Exchange Control over Financing and Return Investment Through Special Purpose Companies by Residents Inside China, generally referred to as Circular 75, which required PRC residents to register with the local SAFE branch before establishing or acquiring control over an offshore special purpose company, or SPV, for the purpose of engaging in an equity financing outside of China on the strength of domestic PRC assets originally held by those residents. Internal implementing guidelines issued by SAFE, which became public in June 2007 (known as Notice 106), expanded the reach of Circular 75 by (i) purporting to cover the establishment or acquisition of control by PRC residents of offshore entities which merely acquire “control” over domestic companies or assets, even in the absence of legal ownership; (ii) adding requirements relating to the source of the PRC resident’s funds used to establish or acquire the offshore entity; (iii) covering the use of existing offshore entities for offshore financings; (iv) purporting to cover situations in which an offshore special purpose vehicle establishes a new subsidiary in China or acquires an unrelated company or unrelated assets in China; and (v) making the domestic affiliate of the special purpose vehicle responsible for the accuracy of certain documents which must be filed in connection with any such registration, notably, the business plan which describes the overseas financing and the use of proceeds. Amendments to registrations made under Circular 75 are required in connection with any increase or decrease of capital, transfer of shares, mergers and acquisitions, equity investment or creation of any security interest in any assets located in China to guarantee offshore obligations, and Notice 106 makes the offshore special purpose vehicle jointly responsible for these filings. In the case of an special purpose vehicle which was established, and which acquired a related domestic company or assets, before the implementation date of Circular 75, a retroactive SAFE registration was required to have been completed before March 31, 2006; this date was subsequently extended indefinitely by Notice 106, which also required that the registrant establish that all foreign exchange transactions undertaken by the special purpose vehicle and its affiliates were in compliance with applicable laws and regulations. Failure to comply with the requirements of Circular 75, as applied by SAFE in accordance with Notice 106, may result in fines and other penalties under PRC laws for evasion of applicable foreign exchange restrictions. Any such failure could also result in the special purpose vehicle’s affiliates being impeded or prevented from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation to the special purpose vehicle, or from engaging in other transfers of funds into or out of China.






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The owners of the Zhaoyuan Shuangji submitted their application to SAFE and their application has been approved permitting these Chinese citizens to establish an offshore company, China Shuangji Cement Holding Ltd. (“Holdings”), as a special purpose vehicle for any foreign ownership and capital raising activities by Zhaoyuan Shuangji. However, we cannot be sure that the structure of our organization has fully complied with all applicable registrations or approvals required by Circular 75. Moreover, because of uncertainty over how Circular 75 will be interpreted and implemented, and how or whether SAFE will apply to us, we cannot predict how it will affect our business operations or future strategies. A failure by our PRC resident beneficial holders or future PRC resident stockholders to comply with Circular 75, if SAFE requires it, could subject these PRC resident beneficial holders to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our subsidiaries’ ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.





The agreements, through which we indirectly participate in the operations of Zhaoyuan Shuangji may not be enforceable or in compliance with Chinese laws. Since our contractual rights under these agreements is our sole source of revenue, our results of operation would be materially adversely effected if the agreements were found to be illegal, could not be enforced, or were cancelled.





Through the agreements and an offshore holding structure, we are contractually entitled to manage and control the operations of Zhaoyuan Shuangji and receive the economic benefits of and incur the risks from Zhaoyuan Shuangji’s operations. Neither the Company, Chine Holdings, nor JZIC have any equity ownership in Zhaoyuan Shuangji. If the Chinese government determines that the agreements with Zhaoyuan Shuangji are not in compliance with applicable regulations, our business interests in China could be adversely affected. Our contractual rights under the Agreements are our sole source of revenue. Pursuant to the agreements, JZIC has agreed to advise, consult, manage and operate Zhaoyuan Shuangji’s business and to may provide certain financial accommodations to Zhaoyuan Shuangji in exchange for Zhaoyuan Shuangji’s payment of certain fees to JZIC. Further, each of the individual equity owners of Zhaoyuan Shuangji has contractually authorized JZIC to vote at any meeting or action of the owners of Zhaoyuan Shuangji and to act as the representative for such owners in all matters respecting Zhaoyuan Shuangji. The Chinese government may determine that the Agreements are not in compliance with Chinese licensing, registration or other regulatory requirements, with existing policies or with requirements or policies that may be adopted in the future. If the agreements are determined not to be in compliance, the Chinese government could revoke our business and operating licenses, require us to discontinue or restrict our operations, restrict our right to collect revenues, require us to restructure our operations, impose additional conditions or requirements with which we may not be able to comply, impose restrictions on our business operations or on our customers, or take other regulatory or enforcement actions against us that could be harmful to our business.





We may also encounter difficulties in obtaining performance under, or enforcement of, the Agreements. We must rely on the Agreements to indirectly control Zhaoyuan Shuangji’s business and participate in its operations. These contractual arrangements may not be effective in providing control over Zhaoyuan Shuangji. For example, Zhaoyuan Shuangji could breach the agreements or fail to take actions required for our business or fail to maintain and operate its business in compliance with its contractual obligations to do so or the agreements could be declared illegal or unenforceable under applicable law. If Zhaoyuan Shuangji fails to perform under the agreements with us, we may have to rely on legal remedies under Chinese law, which may not be effective, or we may lack the legal resources to pursue such rights. Furthermore, Wenji Song and the other individual equity owners of Zhaoyuan Shuangji effectively own and control the Company and its subsidiaries. Mr. Song and these other equity holders of Zhaoyuan Shuangji may have conflicts of interest and may not act in the best interest of the other equity holders of the Company, who do not have a direct equity interest in Zhaoyuan Shuangji.





If the agreements were terminated, our business in China could be adversely affected. The Agreements are comprised of the Strategic Consulting Service Agreement, the Operating Agreement, and Authorization Agreements, and Exclusive Option Agreement. All of the Agreements have a term of 10 years from the date they were entered into on August 11, 2008. Although we are the beneficial owners in the entire registered capital of JZIC, Wenji Song and two other Zhaoyuan Shuangji shareholders manage JZIC. In the event that Wenji Song and two other Zhaoyuan Shuangji shareholders acted in their capacity as management of JZIC to terminate the Agreements, we may have to rely on legal remedies which would arise under their fiduciary obligations to us and to JZIC. For example, JZIC is subject to the Company Law of the PRC, including Article 59 thereof which requires that directors, supervisors and managers shall faithfully execute their official duties and protect their company’s interests. However, laws in the PRC related to such concepts as management’s fiduciary duty are not well developed and may not protect us in the event we are required to rely upon them.






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Risks Relating to Our Business





We may experience risks resulting from our plans for expansion.





We may expand our operations by acquiring other companies or entering into joint ventures in the future. Entering into an acquisition or joint venture entails many risks, any of which could harm our business, including: (a) diversion of management’s attention from other business concerns; (b) failure to integrate the acquired company with our existing businesses; (c) additional operating expenses not offset by additional revenue; and (d) dilution of our stock as a result of issuing equity securities.





If we are unable to implement our expansion strategy, we may be less successful in the future. A key component of our growth strategy is to acquire additional cement factories and, if our acquisition of cement factories proves successful, our acquisition strategy may expand to include future acquisitions of cement businesses. While there are many such companies, we may not always be able to identify and acquire companies meeting our acquisition criteria on terms acceptable to us. Additionally, financing to complete significant acquisitions may not always be available on satisfactory terms. Further, our acquisition strategy presents a number of special risks to us that we would not otherwise contend with absent such strategy, including possible adverse effects on our earnings after each acquisition, diversion of management’s attention from our core business due to the special attention that a particular acquisition may require, failure to retain key acquired personnel and risks associated with unanticipated events or liabilities arising after each acquisition, some or all of which could have a material adverse effect on our business, financial condition and results of operations.





We are subject to environmental and safety regulations, which may increase our compliance costs and may adversely affect our results of operation.





We, indirectly through our agreements participate in the operation of Zhaoyuan Shuangji, which is subject to the requirements of environmental and occupational safety and health laws and regulations in China. The Company cannot provide assurance that Zhaoyuan Shuangji has been or will be at all times in full compliance with all of these requirements, or that it will not incur material costs or liabilities in connection with these requirement. Additionally, these regulations may change in a manner that could have a material adverse effect on Zhaoyuan Shuangji’s business, results of operations and financial condition, all of which would have a material adverse effect on the Company. The capital requirements and other expenditures that may be necessary to comply with environmental requirements could increase and become a material expense of doing business.





We rely on a major customers and the loss of these customers could adversely affect our revenues.





The Company’s top ten customers represent 48.4 percent of the Company’s total revenues for the year ended December 31, 2009. It is difficult to keep these contracts as a result of severity price competition and customer’s diversification of its supply base to keep these contracts. The Company’s business would be materially and adversely affected if it loses these major customers.





Our future operating results may be affected by fluctuations in raw material prices. We may not be able to pass on increases to customers.





Our profits may be negatively affected by fluctuations in the price of raw materials. We could be subject to short-term price volatility and may be forced to purchase raw materials at higher prices and may be unable to pass the cost increase to our customers. This may adversely affect gross margins and profitability. Our sales agreements with customers generally contain provisions that permit the parties to adjust the contract price of the cement upward or downward at specified times. For example, we may adjust these contract prices because of increases or decreases in the price of raw material from our mining suppliers, general inflation or deflation, or changes in the cost of producing cement caused by such things as changes in taxes, fees, royalties or the laws regulating the mining, production, sale or use of cement. However, if we fail to agree on a price with our customer under these provisions, many agreements permit the customer to terminate the contract or refuse to buy all of the quantities previously contracted. Market prices for raw materials generally increased in most regions in China in 2008 and 2009 and are expected to continue due to increased demand. Top quality source rock is critical to maintaining the operating efficiencies of Zhaoyuan Shuangji and delivering cement to customers which meets their specifications. Since top quality raw source rock is more limited in supply, its price tends to be more volatile. A general rise in cement prices also may adversely affect the price of, and demand for, cement and products made with cement such as concrete. This may in turn lead to a fall in demand for Zhaoyuan Shuangji’s products, which would have a material adverse effect on the Company.








14





The demand for our product is cyclical and is affected by industrial economic conditions. Downturns in the economy may reduce demand for our product and our revenues could decline.





The domestic and international cement markets are cyclical and exhibit fluctuation in supply and demand from year to year and are subject to numerous factors beyond our control, including, but not limited to, the economic conditions in China, the global economic conditions and fluctuations in industries with high demand for cement, such as the road building and construction industries. A significant decline in demand or excess supply for cement may have a material adverse effect on the business and operations of Zhaoyuan Shuangji which would have a material adverse effect on the Company.





If any of Zhaoyuan Shuangji Cement’s sales agreements terminate or expire, our revenues and operating profits could suffer.





A substantial portion of our revenue relates to sales made under cement sales agreements, which are important to the stability and profitability of our operations. It is common business practice in China that cement purchase and sale agreements are signed for one year terms, with annual renewals. This practice makes it difficult for us to forecast long-term purchase and sale quantities and can negatively affect our ability to manage inventory. These agreements may expire or be terminated. Cement sales agreements also typically contain force majeure provisions allowing temporary suspension of performance by us or the customer during the duration of specified events beyond the control of the affected party. Moreover, even if sales agreements are in force, buyers are generally not obligated to take the quantities specified in the contracts.





Increases in transportation costs could have a material adverse effect on our revenue.





Cement producers and processors depend upon rail, barge, trucking, overland conveyor and other systems to deliver cement to markets. While Zhaoyuan Shuangji’s customers typically arrange and pay for transportation of cement from our facilities to the point of use, any disruption of these transportation services because of weather-related problems, strikes, lock-outs or other events could temporarily impair Zhaoyuan Shuangji’s ability to supply cement to its customers and thus could adversely affect its results of operations, which would have a material adverse effect on the Company. If transportation for Zhaoyuan Shuangji’s cement becomes unavailable or uneconomic for its customers, Zhaoyuan Shuangji’s ability to sell cement could suffer, which would have a material adverse effect on the Company. Transportation costs can represent a significant portion of the total cost of cement. Since Zhaoyuan Shuangji’s customers typically pay that cost, it is a critical factor in a distant customer’s purchasing decision. If transportation costs from Zhaoyuan Shuangji’s facilities to the customer’s are not competitive, the customer may elect to purchase from another company.





We may not be able to meet quality specifications required by our customers and as a result could incur economic penalties or cancelled agreements which would reduce our sales and profitability.





Most of Zhaoyuan Shuangji’s cement sales agreements contain provisions requiring it to deliver cement meeting quality thresholds for certain geotechnical and geochemical technical characteristics. If Zhaoyuan Shuangji is not able to meet these specifications, because, for example, it is not able to source cement of the proper quality, it may incur economic penalties, including price adjustments, the rejection of deliveries or termination of the contracts, all of which could have a material adverse effect on the Company.





Our business is highly competitive and increased competition could reduce our sales, earnings and profitability.





The cement production business is highly competitive in China and Zhaoyuan Shuangji faces substantial competition in connection with the marketing and sale of its products. Some of its competitors are well established, have greater financial, marketing, personnel and other resources, have been in business for longer periods of time than Zhaoyuan Shuangji, and have products that have gained wide customer acceptance in the marketplace. The greater financial resources of these competitors will permit them to implement extensive marketing and promotional programs. We could fail to expand Zhaoyuan Shuangji’s market share, and could fail to maintain Zhaoyuan Shuangji’s current share.






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We depend on our senior management team and the loss of any member could adversely affect our operations.





We are highly dependent on the services of Wenji Song and the loss of his services would have a material adverse effect on the operations of Zhaoyuan Shuangji and a material adverse effect on us. Mr. Song has been primarily responsible for the development of Zhaoyuan Shuangji and the development and marketing of its products. None of our executive officers or those of our subsidiaries, including Wenji Song, currently have any formal employment agreements. None of our companies have applied for key-man life insurance on the lives of these executives.





We do not have any registered patents or other intellectual property and we may not be able to maintain the confidentiality of our processes.





We do not have any patents covering Zhaoyuan Shuangji’s cement manufacturing processes nor Zhaoyuan Shuangji relies on the confidentiality of it manufacturing processes in producing a competitive product. There can be no guarantee that such confidentiality will be maintained or that such processes remain competitive in the marketplace.





We do not carry insurance coverage, any material loss to our properties or assets will have a material adverse effect on our financial condition and operations.





We (including our subsidiaries and operating companies) are not insured in amounts that adequately cover the risks of our business operations. As a result, any material loss or damage to our direct or indirect, properties or other assets, or personal injuries arising from our direct or indirect business operations would have a material adverse affect on our financial condition and operations. Neither we, our subsidiaries nor our operating company, carries officer and director liability insurance. This may cause us to experience difficulties in convincing qualified persons to fill such positions.





Terrorist attacks or military conflict could result in disruption of our business.





Terrorist attacks and threats, escalation of military activity in response to such attacks or acts of war may negatively affect our business, financial condition and results of operations. Our business is affected by general economic conditions, fluctuations in consumer confidence and spending, and market liquidity, which can decline as a result of numerous factors outside of our control, such as terrorist attacks and acts of war. Future terrorist attacks, rumors or threats of war, actual conflicts involving China or its allies, or military or trade disruptions affecting Zhaoyuan Shuangji’s customers may materially adversely affect our operations. As a result, there could be delays or losses in transportation and deliveries of processed cement to Zhaoyuan Shuangji’s customers, decreased sales of cement and extensions of time for payment of accounts receivable from customers. Strategic targets such as energy-related assets may be at greater risk of terrorist attacks than other targets. In addition, disruption or significant increases in energy prices could result in government-imposed price controls. Any, or a combination, of these occurrences could have





a material adverse effect on Zhaoyuan Shuangji’s business, financial condition and results of operations, which would have a material adverse effect on the Company.








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Risks Relating to Doing Business in China





If the PRC enacts regulations which forbid or restrict foreign investment, our ability to grow may be severely impaired.





We intend to expand our business through acquisitions or joint ventures. We also may expand by seeking to develop equipment for other industries or by making acquisitions of companies in related industries. Many of the rules and regulations that we would face are not explicitly communicated, and we may be subject to rules that would affect our ability to grow, either internally or through acquisition of other Chinese or foreign companies. There are also substantial uncertainties regarding the proper interpretation of current laws and regulations of the PRC. New laws or regulations that forbid foreign investment could severely impair our businesses and prospects. Additionally, if the relevant authorities find us in violation of PRC laws or regulations, they would have broad discretion in dealing with such a violation, including, without limitation:





·  levying fines;


·  revoking our business and other licenses and;


·  requiring that we restructure our ownership or operations





Any deterioration of political relations between the United States and the PRC could impair our operations.





The relationship between the United States and the PRC is subject to sudden fluctuation and periodic tension. Changes in political conditions in the PRC and changes in the state of Sino-U.S. relations are difficult to predict and could adversely affect our operations or cause potential acquisition candidates or their goods and services to become less attractive. Such a change could lead to a decline in our profitability. Any weakening of relations between the United States and the PRC could have a material adverse effect on our operations, particularly in our efforts to raise capital to expand our other business activities.





Our operations and assets in the PRC are subject to significant political and economic uncertainties.





Government policies are subject to rapid change and the government of the PRC may adopt policies which have the effect of hindering private economic activity and greater economic decentralization. There is no assurance that the government of the PRC will not significantly alter its policies from time to time without notice in a manner with reduces or eliminates any benefits from its present policies of economic reform. The government of the PRC also exercises significant control over China’s economic growth through the allocation of resources, controlling payment of foreign currency and providing preferential treatment to particular industries or companies. Uncertainties may arise with changing of governmental policies and measures. In addition, changes in laws and regulations, or their interpretation, or the imposition of confiscatory taxation, restrictions on currency conversion, imports and sources of supply, devaluations of currency, the nationalization or other expropriation of private enterprises, as well as adverse changes in the political, economic or social conditions in the PRC, could have a material adverse effect on our business, results of operations and financial condition.





Price controls may affect both our revenues and net income.





The laws of the PRC provide for the government to fix and adjust prices. Although we are not presently subject to price controls in connection with the sale of our products, it is possible that price controls may be imposed in the future. To the extent that we are subject to price control, our revenue, gross profit, gross margin and net income will be affected since the revenue we derive from our sales will be limited and, unless there is also price control on the products that we purchase from our suppliers, we may face no limitation on our costs. Further, if price controls affect both our revenue and our costs, our ability to be profitable and the extent of our profitability will be effectively subject to determination by the applicable regulatory authorities in the PRC.





Our operations may not develop in the same way or at the same rate as might be expected if the PRC economy were similar to the market-oriented economies of OECD member countries.





The economy of the PRC has historically been a nationalistic, “planned economy,” meaning it functions and produces according to governmental plans and pre-set targets or quotas. In certain aspects, the PRC’s economy has been making a transition to a more market-oriented economy, although the government imposes price controls on certain products and in certain industries. However, we cannot predict the future direction of these economic reforms or the effects these measures may have. The economy of the PRC also differs from the economies of most countries belonging to the Organization for Economic Cooperation and Development (the “OECD”), an international group of member countries sharing a commitment to democratic government and market economy. For instance:








17





·
the level of state-owned enterprises in the PRC, as well as the level of governmental control over the allocation of resources is greater than in most of the countries belonging to the OECD;


·
the level of capital reinvestment is lower in the PRC than in other countries that are members of the OECD;


·
the government of the PRC has a greater involvement in general in the economy and the economic structure of industries within the PRC than other countries belonging to the OECD;


·
the government of the PRC imposes price controls on certain products and our products may become subject to additional price controls; and


·
the PRC has various impediments in place that make it difficult for foreign firms to obtain local currency, as opposed to other countries belonging to the OECD where exchange of currencies is generally free from restriction.





As a result of these differences, our business may not develop in the same way or at the same rate as might be expected if the economy of the PRC were similar to those of the OECD member countries.





All our officers and directors reside outside of the United States, it may be difficult for you to enforce your rights against them or enforce United States court judgments against them in the PRC.





All our directors and executive officers reside in the PRC and substantially all of our assets are located in the PRC. It may therefore be difficult for United States investors to enforce their legal rights, to effect service of process upon our directors or officers or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties of our directors and officers under federal securities laws. Further, it is unclear if extradition treaties now in effect between the United States and the PRC would permit effective enforcement of criminal penalties of the federal securities laws.





We may have limited legal recourse under Chinese law if disputes arise under contracts with third parties.





Almost all of our agreements or arrangements with our employees and third parties, including our supplier and customers, are governed by the laws of the PRC. The legal system in the PRC is a civil law system based on written statutes. Unlike common law systems, such as we have in the United States, decided legal cases have little precedential value in this system. The government of the PRC has enacted some laws and regulations dealing with matters such as corporate organization and governance, foreign investment, commerce, taxation and trade. However, their experience in implementing, interpreting and enforcing these laws and regulations is limited, and our ability to enforce commercial claims or to resolve commercial disputes is unpredictable. The resolution of these matters may be subject to the exercise of considerable discretion by agencies of the PRC, and forces unrelated to the legal merits of a particular matter or dispute may influence their determination. Any rights we may have to specific performance or to seek an injunction under Chinese law are severely limited, and without a means of recourse by virtue of the Chinese legal system, we may be unable to prevent these situations from occurring. The occurrence of any such events could have a material adverse effect on our business, financial condition and results of operations.





Because we may not be able to obtain business insurance in the PRC, we may not be protected from risks that are customarily covered by insurance in the United States.





As mentioned above, we do not carry business insurance. Business insurance is not readily available in the PRC. To the extent that we suffer a loss of a type which would normally be covered by insurance in the United States, such as product liability and general liability insurance, we would incur significant expenses in both defending any action and in paying any claims that result from a settlement or judgment.





Failure to comply with the United States Foreign Corrupt Practices Act could subject us to penalties and other adverse consequences.





We are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including some that may compete with us, are not subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in the PRC. We can make no assurance, however, that our employees or other agents will not engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences in the United States that may have a material adverse effect on our business, financial condition and results of operations.






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If the United States imposes trade sanctions on the PRC due to its currency, export or other policies, our ability to succeed in the international markets may be diminished.





The PRC currently “pegs” its currency to a basket of currencies, including United States dollar. This means that each unit of Chinese currency has a set ratio for which it may be exchanged for United States currency, as opposed to having a floating value like other countries’ currencies. This policy is currently under review by policy makers in the United States. Trade groups in the United States have blamed the cheap value of the Chinese currency for causing job losses in American factories, giving exporters an unfair advantage and making its imports expensive. There is increasing pressure for the PRC to change its currency policies to provide for its currency to float freely on international markets. As a result, Congress may consider enacting legislation which could result in the imposition of quotas and tariffs. If the PRC changes its existing currency policies or if the United States or other countries enact laws to penalize the PRC for its existing currency policies, our business may be adversely affected, even though we do not sell outside of the PRC. Further, we cannot predict what action the PRC may take in the event that the United States imposes tariffs, quotas or other sanctions on Chinese products. Even though we do not sell products into the United States market, it is possible that such action by the PRC may nonetheless affect both our business, since we are a United States corporation and the market for our stock, although we cannot predict the nature or extent thereof. Any government action which has the effect of inhibiting foreign investment could hurt our ability to raise funds that we need for our operations. The devaluation of the currency of the PRC against the United States dollar would have adverse effects on our financial performance and asset values when measured in terms of the United Stated dollar.





Exchange controls that exist in the PRC may limit our ability to utilize our cash flow effectively.





We are subject to the PRC’s rules and regulations affecting currency conversion. Any restrictions on currency exchanges may limit our ability to use our cash flow for the distribution of dividends to our stockholders or to fund operations we may have outside of the PRC. Conversion of RMB for capital account items, including direct investment and loans, is subject to governmental approval in the PRC, and companies are required to open and maintain separate foreign exchange accounts for capital account items. We cannot be certain that the regulatory authorities of the PRC will not impose more stringent restrictions on the convertibility of the RMB, known as RMB, especially with respect to foreign exchange transactions.





Fluctuations in the exchange rate could have a material adverse effect upon our business.





We conduct our business in the RMB. To the extent our future revenue are denominated in currencies other the United States dollars, we would be subject to increased risks relating to foreign currency exchange rate fluctuations which could have a material adverse affect on our financial condition and operating results since our operating results are reported in United States dollars and significant changes in the exchange rate could materially impact our reported earnings. The change in value of the RMB against the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economic conditions. On July 21, 2005, the Chinese government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy has resulted in appreciation of RMB against U.S. dollar. While the international reaction to the RMB revaluation has generally been positive, there remains significant international pressure on the Chinese government to adopt an even more flexible currency policy, which could result in a further and more significant appreciation of the RMB against the U.S. dollar. As a portion of our costs and expenses is denominated in RMB, the revaluation in July 2005 and potential future revaluation has and could further increase our costs. In addition, as we rely entirely on dividends paid to us by our operating subsidiaries, any significant revaluation of the RMB may have a material adverse effect on our revenues and financial condition, and the value of, and any of our dividends payable on our ordinary shares in foreign currency terms. For example, to the extent that we need to convert U.S. dollars we receive from this offering into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we receive from the conversion. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us.






19





A downturn in the economy of the PRC may slow our growth and profitability.





The growth of the Chinese economy has been uneven across geographic regions and economic sectors. There can be no assurance that growth of the Chinese economy will be steady or that any downturn will not have a negative effect on our business especially if it results in either a decreased use of products such as ours or in pressure on us to lower our prices. The Chinese economy has been transitioning from a planned economy to a more market-oriented economy. Although in recent years the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of the productive assets in China is still owned by the Chinese government. The continued control of these assets and other aspects of the national economy by the Chinese government could have a material adverse affect our business. The Chinese government also exercises significant control over Chinese economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Efforts by the Chinese government to slow the pace of growth of the Chinese economy could result in decreased capital expenditure by users of cement, which in turn could reduce demand for our products.





Any adverse change in the economic conditions or government policies in China could have a material adverse effect on the overall economic growth and the level of renewable energy investments and expenditures in China, which in turn could lead to a reduction in demand for our products and consequently have a material adverse effect on our businesses.





If certain tax exemptions within the PRC regarding withholding taxes are removed, we may be required to deduct corporate withholding taxes from any dividends we may pay in the future.





Under the PRC’s current tax laws, regulations and rulings, companies are exempt from paying withholding taxes with respect dividends paid to stockholders outside of the PRC. However, if the foregoing exemption is removed, we may be required to deduct certain amounts from any dividends we pay to our stockholders.





We may be treated as a resident enterprise for Chinese tax purposes under the new enterprise income tax effective on January 1, 2008, which may subject us to Chinese income tax for any dividends we receive from our subsidiaries.





Under the new enterprise income tax law, enterprises organized under the laws of jurisdictions outside China with their de facto management bodies located within China may be considered Chinese resident enterprises and therefore subject to Chinese enterprise income tax at the rate of 25% on their worldwide income. The new tax law, however, does not define the term de facto management bodies. If the Chinese tax authorities determine that we are a Chinese resident enterprise after the effective date of the new tax law, we will be subject to the Chinese income tax at the rate of 25% on our worldwide income, which will include any dividend income we receive from our Chinese subsidiaries. If we are required under the new tax law to pay income tax for any dividends we receive from our Chinese subsidiaries, our results of operations and the amount of dividends paid upstream to us would be materially and adversely affected.





If the PRC tax authorities dispute our method of paying value added taxes, we may be subject to penalties under the tax laws of the PRC.





Under the commercial practice of the PRC, we paid value added taxes (“VAT”) and business tax based on tax invoices issued. We generally issue our tax invoice subsequent to the date on which revenue is recognized, and there may be a considerable delay between the date on which the revenue is recognized and the date on which the tax invoice is issued. In the event that the PRC tax authorities dispute the date of which revenue is recognized for tax purposes, the PRC tax office has the right to assess a penalty which can range from zero to five times of tax which is determined to have been improperly deferred. Although we believe that we are paying VAT and business taxes in accordance with the common practice in PRC, we cannot assure you that the PRC tax authorities would not reach a different conclusion and determine that common practice is not in accordance with the tax laws of the PRC. If a penalty is ultimately assessed against us, the penalty could represent a material amount.






20





PRC foreign exchange control may limit our ability to utilize our cash effectively and affect our ability to receive dividends and other payments from our PRC subsidiaries.





Our PRC subsidiaries, which are foreign investment entities (“FIEs”), are subject to the PRC rules and regulations on currency conversion. In the PRC, the State Administration of Foreign Exchange (“SAFE”) regulates the conversion of the RMB into foreign currencies. Currently, foreign investment enterprises (including wholly foreign-owned enterprises) are required to apply to the SAFE for “Foreign Exchange Registration Certificates for FIEs”. With such registration certification (which have to be renewed annually), FIEs are allowed to open foreign currency accounts including the “current account” and “capital account”. Currently, transactions within the scope of the “current account” (for example, remittance of foreign currencies for payment of dividends) can be effected without requiring the approval of the SAFE. However, conversion of currency in the “capital account” (for example, for capital items such as direct investments, loans and securities) still requires the approval of the SAFE. JZIC has obtained the “Foreign Exchange Registration Certificates for FIEs”, which is subject to annual review. There is no assurance that the PRC regulatory authorities will not impose restrictions on the convertibility of the RMB for FIEs. As such, any future restrictions on currency exchanges may limit our ability to utilize funds generated in the PRC to fund any potential business activities outside the PRC or to distribute dividends to our shareholders.





We face risks related to health epidemics and other outbreaks.





Our business could be adversely affected by the effects of avian flu, SARS or another epidemic or outbreak. China reported a number of cases of SARS in April 2004. In 2005, there were reports on the occurrences of avian flu in various parts of China, including a few confirmed human cases. Any prolonged recurrence of avian flu, SARS or other adverse public health developments in China may have a material adverse effect on our business operations. These could include our ability to travel or ship our products outside of China, as well as temporary closure of our manufacturing facilities. Such closures or travel or shipment restrictions would severely disrupt our business operations and adversely affect our results of operations. We have not adopted any written preventive measures or contingency plans to combat any future outbreak of avian flu, SARS or any other epidemic.





Risks Related to Our Stock





The OTC Bulletin Board is a quotation system, not an issuer listing service, market or exchange. Therefore, buying and selling stock on the OTC Bulletin Board is not as efficient as buying and selling stock through an exchange. As a result, it may be difficult for you to sell your common stock or you may not be able to sell your common stock for an optimum trading price.





The OTC Bulletin Board is a regulated quotation service that displays real-time quotes, last sale prices and volume limitations in over-the-counter securities.





Because trades and quotations on the OTC Bulletin Board involve a manual process, the market information for such securities cannot be guaranteed. In addition, quote information, or even firm quotes, may not be available. The manual execution process may delay order processing and intervening price fluctuations may result in the failure of a limit order to execute or the execution of a market order at a significantly different price. Execution of trades, execution reporting and the delivery of legal trade confirmations may be delayed significantly. Consequently, one may not be able to sell shares of our common stock at the optimum trading prices.





When fewer shares of a security are being traded on the OTC Bulletin Board, volatility of prices may increase and price movement may outpace the ability to deliver accurate quote information. Lower trading volumes in a security may result in a lower likelihood of an individual’s orders being executed, and current prices may differ significantly from the price one was quoted by the OTC Bulletin Board at the time of the order entry.






21





Orders for OTC Bulletin Board securities may be canceled or edited like orders for other securities. All requests to change or cancel an order must be submitted to, received and processed by the OTC Bulletin Board. Due to the manual order processing involved in handling OTC Bulletin Board trades, order processing and reporting may be delayed, and an individual may not be able to cancel or edit his order. Consequently, one may not able to sell shares of common stock at the optimum trading prices.





The dealer’s spread (the difference between the bid and ask prices) may be large and may result in substantial losses to the seller of securities on the OTC Bulletin Board if the common stock or other security must be sold immediately. Further, purchasers of securities may incur an immediate “paper” loss due to the price spread. Moreover, dealers trading on the OTC Bulletin Board may not have a bid price for securities bought and sold through the OTC Bulletin Board. Due to the foregoing, demand for securities that are traded through the OTC Bulletin Board may be decreased or eliminated.





We are subject to the penny stock rules and these rules may adversely affect trading in our common stock.





Our common stock is a “low-priced” security under rules promulgated under the Securities Exchange Act of 1934. In accordance with these rules, broker-dealers participating in transactions in low-priced securities must first deliver a risk disclosure document which describes the risks associated with such stocks, the broker-dealer’s duties in selling the stock, the customer’s rights and remedies and certain market and other information. Furthermore, the broker-dealer must make a suitability determination approving the customer for low-priced stock transactions based on the customer’s financial situation, investment experience and objectives. Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific written consent from the customer, and provide monthly account statements to the customer. The effect of these restrictions probably decreases the willingness of broker-dealers to make a market in our common stock, decreases liquidity of our common stock and increases transaction costs for sales and purchases of our common stock as compared to other securities.





Our stock price may be volatile, which may result in losses to our stockholders.





The stock markets have experienced significant price and trading volume fluctuations, and the market prices of companies quoted on the Over-The-Counter Bulletin Board, the stock market in which shares of our common stock will be quoted, generally have been very volatile and have experienced sharp share price and trading volume changes. The trading price of our common stock is likely to be volatile and could fluctuate widely in response to many of the following factors, some of which are beyond our control:





·  variations in our operating results;


·  announcements of technological innovations, new services or product lines by us or our competitors;


·  changes in expectations of our future financial performance, including financial estimates by securities analysts and investors;


·  changes in operating and stock price performance of other companies in our industry;


·  additions or departures of key personnel; and


·  future sales of our common stock.





Domestic and international stock markets often experience significant price and volume fluctuations. These fluctuations, as well as general economic and political conditions unrelated to our performance, may adversely affect the price of our common stock. In particular, following initial public offerings, the market prices for stocks of companies often reach levels that bear no established relationship to the operating performance of these companies. These market prices are generally not sustainable and could vary widely. In the past, following periods of volatility in the market price of a public company’s securities, securities class action litigation has often been initiated.








22





We will incur increased costs and compliance risks as a result of becoming a public company.





As a public company, we will incur significant legal, accounting and other expenses that Zhaoyuan Shuangji did not incur as private companies prior to our agreements. We will incur costs associated with our public company reporting requirements. We also anticipate that we will incur costs associated with recently adopted corporate governance requirements, including certain requirements under the Sarbanes-Oxley Act of 2002, as well as new rules implemented by the SEC and the National Association of Securities Dealers (“NASD”). We expect these rules and regulations, in particular Section 404 of the Sarbanes-Oxley Act of 2002, to significantly increase our legal and financial compliance costs and to make some activities more time-consuming and costly. Like many smaller public companies, we face a significant impact from required compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Section 404 requires management of public companies to evaluate the effectiveness of internal control over financial reporting and the independent auditors to attest to the effectiveness of such internal controls and the evaluation performed by management. The SEC has adopted rules implementing Section 404 for public companies as well as disclosure requirements. The Public Company Accounting Oversight Board, or PCAOB, has adopted documentation and attestation standards that the independent auditors must follow in conducting its attestation under Section 404. We are currently preparing for compliance with Section 404; however, there can be no assurance that we will effectively meet all of the requirements of Section 404 as currently known to us in the currently mandated timeframe. Any failure to implement effectively new or improved internal controls, or to resolve difficulties encountered in their implementation, could harm our operating results, cause us to fail to meet reporting obligations or result in management being required to give a qualified assessment of our internal controls over financial reporting or our independent auditors providing an adverse opinion regarding management’s assessment. Any such result could cause investors to lose confidence in our reported financial information, which could have a material adverse effect on our stock price.





We also expect these new 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 are currently evaluating and monitoring developments with respect to these new rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.





If we fail to maintain the adequacy of our internal controls, our ability to provide accurate financial statements and comply with the requirements of the Sarbanes-Oxley Act of 2002 could be impaired, which could cause our stock price to decrease substantially.





Prior to the agreements, Zhaoyuan Shuangji operated as a private company without public reporting obligations. Zhaoyuan Shuangji has committed limited personnel and resources to the development of the external reporting and compliance obligations that would be required of a public company. Recently, we have taken measures to address and improve our financial reporting and compliance capabilities and we are in the process of instituting changes to satisfy our obligations in connection with joining a public company, when and as such requirements become applicable to us. Prior to taking these measures, we did not believe we had the resources and capabilities to do so. We plan to obtain additional financial and accounting resources to support and enhance our ability to meet the requirements of being a public company. We will need to continue to improve our financial and managerial controls, reporting systems and procedures, and documentation thereof. If our financial and managerial controls, reporting systems or procedures fail, we may not be able to provide accurate financial statements on a timely basis or comply with the Sarbanes-Oxley Act of 2002 as it applies to us. Any failure of our internal controls or our ability to provide accurate financial statements could cause the trading price of our common stock to decrease substantially.





Our principal stockholders have the ability to exert significant control in matters requiring stockholder vote and could delay, deter or prevent a change in control of our company.





Wenji Song, our President and Chairman of our Board of Directors, owns 51.3% of China Shuangji Cement Holding Ltd. (“Holdings”), a British Virgin Islands corporation. Holdings owns approximately 76% of the Company’s common stock and will be able to control the election of directors and other matters presented for a vote of stockholders. In addition, Delaware corporate law provides that certain actions may be taken by written consent action of the stockholders holding a majority of the outstanding shares. In the event that the requisite approval of stockholders is obtained, dissenting or non-participating stockholders generally would be bound by such vote. Through their concentration of voting power, Wenji Song and Holdings could delay, deter or prevent a change in control of our company or other business combinations that might otherwise be beneficial to our other stockholders. In deciding how to vote on such matters, Wenji Song and Holdings may be influenced by interests that conflict with other shareholders, including without limitation their direct equity ownership and control of Zhaoyuan Shuangji, the entity that we are contractually dependent upon for all of our revenues. You should not buy our common stock unless you are willing to entrust all aspects of operational control to our current Chinese based management team.






23





Stockholders, who are also officers and directors, have significant control over us and have conflicts of interest with us.





Wenji Song and Holdings may have, or may develop in the future, conflicts of interest with us. They are the equity owners of Zhaoyuan Shuangji and it may be in their personal economic interest to cause Zhaoyuan Shuangji to disregard its contractual obligations under the Agreements. As the equity owners of Zhaoyuan Shuangji, they might personally profit if Zhaoyuan Shuangji’s benefits of operation are not directed to us as required under the agreements. Because these individuals are residents of and reside in China, it may be very difficult for our minority shareholders to enforce any legal rights they may otherwise have under the laws of the State of Delaware or the federal laws of the United States related to our management team and their fiduciary duties.





We do not intend to pay dividends in the foreseeable future.





We do not intend to pay any dividends in the foreseeable future. We do not plan on making any cash distributions in the manner of a dividend or otherwise.





We have the right to issue additional common stock, a new class of common stock, and preferred stock without the consent of shareholders. This would have the effect of diluting your ownership in the company and could decrease the value of your stock.





We recently have received director and shareholder approval to 1) to create a new class of securities entitled “Class A Common Stock” and authorize for issuance 100,000,000 shares of Class A Common Stock; and 2) to increase the ordinary common stock authorization to 200,000,000 shares of common stock. Consequently, we are authorized to issue 1) 100,000,000 shares of Class A Common Stock, 2) 200,000,000 shares of ordinary common stock, and 3) 100,000,000 shares of preferred stock.





As of April 7, 2010, we have 28,157,246 shares of common stock outstanding. Accordingly, there are additional authorized but unissued shares of our common stock, including the newly created Class A Common Stock, that may be later issued by our management for any purpose without the consent or vote of the stockholders that would dilute a stockholder’s percentage ownership of the company.





In addition, our articles of incorporation authorize the issuance of shares of preferred stock, the rights, preferences, designations and limitations of which may be set by the board of directors. Currently we have 21,106,250 shares out of 30,000,000 shares of Series 2008 Preferred Stock issued, of which 0 shares are outstanding.  While no other preferred stock is currently outstanding or subject to be issued, the articles of incorporation have authorized issuance of up to 100,000,000 shares of preferred stock at the discretion of the board of directors. Such preferred stock may be issued upon filing of amended Certificate of Incorporation and the payment of required fees; no further shareholder action is required. If issued, the rights, preferences, designations and limitations of such preferred stock would be set by the board of directors and could operate to the disadvantage of the outstanding common stock. Such terms could include, among others, preferences as to voting rights, dividends, and distributions on liquidation.









24





ITEM 2. - DESCRIPTION OF PROPERTIES





There is no private land ownership in PRC. Land in the PRC is owned by the government and cannot be sold to any individual or entity. Instead, the government grants or allocates landholders a “land use right,” which is sometimes referred to informally as land ownership. Land use rights are granted for specific purposes and for limited periods. Each 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. Generally speaking, there are four primary ways of obtaining land use rights in the PRC:





• Grant of the right to use land;


• Assignment of the right to use land;


• Lease of the right to use land; and


• Allocated land use rights.





As discussed in greater detail below, we have land use rights from the local PRC governments for each of our three plant locations and for our headquarters and adjoining buildings.





Please refer to the conversion table below for purposes of this Item 2.





1 hectare
equals
2.47 acres10,000 sq meters1 mu
equals
0.0667 hectares0.165 acres666.6667 sq meters1 sq meter
equals
0.764 sq foot





Our headquarters are located at 221 Linglong Road, Zhaoyuan City, Shandong, China. As of the date of this report, it consists of 10.676 mu under a land lease with the government. In addition to our headquarters, in 2007, we completed construction of two commercial buildings at this site. Our headquarters consists of 4,175 square meters of office space and two other buildings consist of 1,400 square meters of commercial space. These premises are leased to unaffiliated third parties. This site also was the site of our Zhaoyuan Cement Plant.  However, in September 2008, the City of Zhaoyuan requested that we relocate our existing plant to a new location in Zhaoyuan under a new land use arrangement with the City (discussed in greater detail below). The original land lease from the government was 217 mu, which as mentioned above has been reduced to 10.676 mu. We also maintain offices and manufacturing facilities in Dangzhou and in Dongfang (see discussions below). We own the buildings that comprise all of our cement plants, our office space, as well as the two mentioned commercial buildings. General information concerning our cement plants follows.





Our old Zhaoyuan cement plant, which was previously located at same location as our headquarters, was built in 1971. The yearly output capacity was approximately 500,000 metric tons. This plant possessed advanced and complete testing methods which we are transferring to our new facility. In 1994, the plant was equipped with environmental protection equipment. As mentioned above, at the end of fiscal 2008, at the behest of the City of Zhaoyuan, we shut down this plant, and thereafter began moving its location to a new site provided by the City.  Although we have surrendered a large part of the land at the old Zhaoyuan cement plant, we continue to maintain the administration buildings located there as our headquarters along with two commercial buildings. Our new plant is currently under construction which we expect to complete in July 2009. Our new land lease with the government consists of 140 mu.





Dongfang cement plant is located at Huangning Area, Bashuo Town, Dongfang City, Hainan Province, and was founded in 1994. The plant’s yearly output capacity is approximately 500,000 metric tons. It was the first “smokeless factory” in Hainan province and was recognized by the state environmental protection administration.





Danzhou cement plant is located at Nada Hengling Area, Danzhou City, Hainan Province, where it produces approximately 500,000 metric tons of cement per year. This Plant is well-equipped with technological and complete testing machines. All systems are controlled by computers that have incorporated the advanced quality management system based on ISO 9002.





Longkou cement plant is located at Zuyou Guan Area, Longkou City, Shandong Province, where it produces approximately 500,000 metric tons of cement per year.





All of our facilities produce portland cement exclusively in grades of 32.5 and 42.5.











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The size (in square meters (m2)) of the total area (under government lease) and building area for each cement plant and corresponding office, along the estimated annual cement production capacity for each of our four locations are set forth below.





Plant

Total Area

(m2)


Building Area

Plant/Office(m2)


Capacity

(metric tons)

SiteZhaoyuan(1)


144,674



41,245/4,175




Zhaoyuan CityDongfang


133,340



39,825/700



500,000

Dongfang CityDanzhou


133,340



43,257/800



500,000

Danzhou CityLongkou


111,400



38,950/1,000



500,000

Zhaoyuan CityTotal:


522,754



163,277



1,500,000





(1) Represents our former plant in Zhaoyuan. We continue to maintain the office space. Corresponding information concerning our new plant is as follows; the Total Area is 93,380 square meters, the Building Area for the Plant is 80,040 square meters and for the Office is 13,340 square meters, and the Capacity is 1,000,000 metric tons.





The Zhaoyuan and Dongfang cement plants were acquired on April 11, 2002.  As mentioned herein, in late 2008, we shut down operations at the Zhaoyuan facility, and thereafter began construction of a new facility located in Zhaoyuan under a new land lease arrangement with the City.  In addition, the City agreed to pay Zhaoyuan Shuangji the sum of $13,860,115 (95,000,000 RMB) as consideration for the relocation of its plant. Of the total amount, $5,106,358 (35,000,000 RMB) and $3,342,185 (23,000,000 RMB) was paid during 2008 and 2009.




On August 16, 2002, we acquired the Danzhou cement plant. At November 28, 2008, as a result of bank borrowings, Zhaoyuan Shuangji was indebted to the bank in the amount of $18,422,205.  The bank accepted $5,027,110 in full settlement of this loan.   Therefore, debt forgiven, $13,395,095 has been included in income.





On April 15, 2009, Zhaoyuan Shuangji concluded a joint venture agreement with Longkou Bahai Cement Co. Ltd (“Bahai”) under which Zhaoyuan Shuangji became a 51% owner of a new company named Longkou Shuangji Cement Co. Ltd. (“Longkou”).   The joint venture was made by the contribution of $1,170,070 in cash by Zhaoyuan Shuangji and a contribution by Baihai of the net assets formerly owned by Baihai, altogether with a contribution in cash of $290,000. As of December 31, 2009,  Zhaoyuan Shuangji has only contributed $570,000 and is committed to contributing additional $600,070 as needed.  Longkou has an annual capacity to produce 500,000 tons of cement and operates in Shandong Province.




The assets of each of the four facilities were recorded at fair market values, which were based on appraisals made at that time.





Zhaoyuan Shuangji has land lease arrangements with local governments at four locations, the sites of its four manufacturing facilities and the site of its headquarters (and former manufacturing facility) and two commercial buildings. These leases expire in; 2052, in the case of Zhaoyuan (headquarters and commercial building), 2058 in the case of its new Zhaoyuan cement facility, 2065 in the case of Dongfang, and 2063, in the case of Danzhou. They permit the use of 217 mu at Zhaoyuan (headquarters and commercial building), 140 mu at the new Zhaoyuan cement facility, 200 mu at Danzhou and 200 mu at Dongfang. Payments to acquire these leases totaled $169,502 as of December 31, 2009. This cost is being amortized over the respective lives of the leases.






26





The actual cement tonnage produced and sales for each of fiscal 2007, 2008 and 2009 for all four plants was:





Year

Total Cement

Produced (metric tons)


Total Cement

Sold (metric tons)2007


1,555,203



1,538,5872008


1,595,328



1,607,9542009


1,598,836



1,591,216





We are not involved in investments in (i) real estate or interests in real estate, (ii) real estate mortgages, and (iii) securities of or interests in persons primarily engaged in real estate activities.








ITEM 3 - LEGAL PROCEEDINGS





The Company is not a party to any pending or to the best of our knowledge, any threatened legal proceedings. To the best of our knowledge, none of our directors, officers or affiliates , or owner of record of more than five percent (5%) of our securities, or any associate of any such director, officer or security holder is a party to any litigation that is adverse to our interests or that would have a material interest adverse to us.








ITEM 4. – (Removed and Reserved.)








27








PART II





ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.





Market Information





Our common stock traded on the OTCBB under the symbol “CSGJ” since April 22, 2009. From October 25, 2007 to April 21, 2009, our common stock traded on the OTCBB under the symbol “CNSJ”. Prior to October 25, 2007, our common stock traded on the OTCBB under the symbol “TRNC”. Trading in the common stock in the OTCBB market has been limited and sporadic and the quotations set forth below are not necessarily indicative of actual market conditions. Further, all prices reflect inter-dealer prices without retail mark-up, mark-down, or commission and may not necessarily reflect actual transactions:





Period
High Price
Low PriceYear ended December 31, 20081st Quarter
$7.46
$0.482nd Quarter
$0.65
$0.323rd Quarter
$0.60
$0.354th Quarter
$0.43
$0.15Year ended December 31, 20091st Quarter
$0.28
$0.132nd Quarter
$3.10
$0.113rd Quarter
$2.00
$1.104th Quarter
$1.94
$0.55





Stockholders





As of April 7, 2010, there were 28,157,246 shares of our common stock outstanding and we had approximately 142 stockholders of record.








Dividends





We have never declared or paid any cash dividends on its common stock and it does not anticipate paying any cash dividends in the foreseeable future, except that,  Zhaoyuan Shuangji paid dividends to its shareholders in the amounts of $1,852,234 and  $1,466,698  in 2008, and 2009, respectively.





Other than dividends payable in the future by Zhaoyuan Shuangji to its shareholders, we currently intend to retain future earnings, if any, to finance operations and the expansion of its business. Any future determination to pay cash dividends will be at the discretion of our Board of Directors and will be based upon our financial condition, operating results, capital requirements, plans for expansion, restrictions imposed by any financing arrangements and any other factors that our Board of Directors deems relevant.





Securities Authorized for Issuance under Equity Compensation Plans





On February 3, 2010, we adopted China Shuangji Cement Ltd. 2010 Incentive Stock Option Plan (the “Plan”), under which we are authorized to issue 100,000 shares of common stock of the Company. As of April 7, 2010, we have issued 60,400 shares of our common stock under the Plan.







28





Recent Sales of Unregistered Securities; Use of Proceeds From Registered Securities





On April 1, 2009, the Board of Directors of the Company authorized and approved the issuance to an aggregate 550,000 shares (Small Cap Invest Ltd. received 200,000 shares, FSC Consulting Inc. received 100,000 shares, and Ridgefield Management received 250,000 shares) of its restricted Series 2008 Preferred Stock at $0.16 per share in exchange for consulting services rendered and to be rendered to the Registrant.





On April 1, 2009, the Board of Directors of the Company authorized and approved the issuance to an aggregate 306,250 shares of its restricted Series 2008 Preferred Stock at $0.16 per share to Holdings for a partial repayment of its shareholder loan to the Registrant.





The issuances of the Series 2008 Preferred Stock to the shareholders on April 1, 2009 were made in reliance upon the exemptions from the registration requirements set forth in Regulation S promulgated under the Securities Act of 1933, as amended.





On June 14, 2009, the Board of Directors of the Company authorized and approved the conversion of 20,250,000 preferred shares that were originally issued on August 9, 2008 into 20,250,000 common shares.





On October 1, 2009, the Board of Directors of the Company authorized and approved the issuance of 60,000 shares restricted common stock at $1.33 per share to Hampton Growth LLC in exchange for investment relation services to be rendered to the Company.  On January 1, 2010, the Company issued and delivered these shares. The Company relied on Section 4 (2) of the Securities Act of 1933, as amended with respect to the shareholder.





On October 1, 2009, the Board of Directors of the Company authorized and approved the conversion of 856,250 preferred shares that were originally issued on April 1, 2009 to 856,250 common shares.








Purchases of Equity Securities by the Issuer and Affiliated Purchasers





There were no repurchases made by us, on our behalf, or any “affiliated purchaser,” of our common stock during the last quarter covered by this Report.








ITEM 6. – SELECTED FINANCIAL DATA





Not applicable.








ITEM 7. - MANAGEMENT DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND RESULTS OF OPERATIONS





The following discussion contains forward-looking statements that involve risks and uncertainties.  Forward-looking statements include, but are not limited to, statements regarding future events, our plans and expectations and financial projections.  Our actual results could differ materially from those discussed herein.  Factors that could cause or contribute to such differences include, but are not limited to, those discussed elsewhere in this Form 10-K.  See “Item 1A-RISK FACTORS.”  Unless otherwise specified, all dollar amounts are in U.S. dollars.





EXECUTIVE SUMMARY





We are a supplier of high-grade portland cement to the industrial sector in the Shandong and Hainan provinces of the People’s Republic of China (PRC). Our processed cement products are primarily purchased by the cement industry for the purpose of making the cement required for the construction of buildings, roads, and other infrastructure projects. Our products have been sold nationally (in the PRC) and internationally in 10 countries. We own and operate four cement plants in the PRC, with a total capacity of approximately 1.5 million MT.






29





We wholly-own Chine Holdings Ltd., a company incorporated in the British Virgin Islands; which owns Jili Zhaoyuan Investment Consulting Co., Ltd. (“JZIC”), a Wholly Foreign-Owned Enterprise (WFOE) established under the laws of the PRC. Through contractual agreements in place between our affiliates and other commonly controlled entities, we control the operating cement company Zhaoyuan Shuangji Co. Ltd, a PRC company. However, our control is subject to certain risks and uncertainties. See “Item 1A Risk Factors”below.





Except for our contractual rights related to the operations of Zhaoyuan Shuangji, we have no other operations or assets. As a result, all the information presented in this discussion is based on the operations of Zhaoyuan Shuangji.





Results of Operations





Year Ended December 31, 2009 Compared to Year Ended December 31, 2008





Sales.  Revenue for the fiscal year ended December 31, 2009 decreased $2,429,213, or


4.31%, to $53,983,300 from $56,412,513 for the comparable period in 2008.  During the 2009 period, our cement sales decreased from 1,607,954 metric tons to 1,591,216 metric tons, representing a 1.05% decrease from the prior year. During the fourth quarter of 2008, at the request of the City of Zhaoyuan, we ceased operations of our Zhaoyuan plant and began the relocation of the old facility and construction of new facility within the city, in which we expect to start production in 2010. The decrease in revenue was primarily due to the closing of this facility, the overall decrease in demand for our cement products due to industry-wide economic contractions in 2009 coupled with the unfavorable effect of changes in foreign exchange conversion rates.





Cost of Sales. The cost of sales for the fiscal year ended December 31, 2009 decreased $2,079,553, or 4.27%, to $46,666,390 from $48,745,943 for the comparable period in 2008. The decrease was primarily due to the decrease in net revenue as a result of the Zhaoyuan plant closing and industry-wide economic contractions. Cost of sales as a percentage of total net revenue increased by 0.04% from 86.41% in 2008 to 86.45% for the 2009 fiscal period. The difference represents an increase of 0.04% which is primarily due to the slightly higher costs for raw materials which were not offset by higher product prices.





Gross Margin. Gross profit for the fiscal year ended December 31, 2009 decreased $349,660 or 4.56%, to $7,316,910 from $7,666,570 for the comparable period in 2008. The decrease is primarily due to the decrease in net revenues for the reasons discussed above.





Income from Operations.  Income from operations was $6,042,158 for the fiscal year ended December 31, 2009 compared with $6,373,520 for the fiscal year ended December 31, 2008, representing a 5.20%decrease. The decrease in operating income for the 2009 period is primarily due to the decrease in gross profit discussed above.





Selling Expenses and General and Administrative Expenses.Selling expenses and general and administrative expenses for the fiscal year ended December 31, 2009 decreased $18,298, or 1.42%, to $1,274,752 from $1,293,050 for the comparable period in 2008. This decrease is primarily due to less administrative salaries and benefits along with lower utilities, auto expense, and repairs.





Other Income (Expense). During the 2008 period, we recorded $18,422,205 in income from debt forgiveness and income from involuntary conversion. We had outstanding loans with a bank that was a former owner of the Danzhou cement plant that we acquired in 2002. During 2008, the bank accepted $5,027,110 and forgave $13,395,095 in outstanding loans. We did not have a similar transaction during 2009. During 2008, the City of Zhaoyuan requested we relocate our existing plant to a new site within the City. As partial consideration for the relocation, the City of Zhaoyuan agreed to pay us the sum of $13,860,115 (RMB 95,000,000) of which $5,027,110 (RMB 35,000,000) was paid during 2008.  During the fiscal 2009 period, we had other income of $13,037 compared with $449 for the 2008 period.  Interest expense, which represents interest on outstanding loans, for the fiscal year ended December 31, 2009 was $125,756 compared to $589,102 for the fiscal year ended December 31, 2008. The decrease of $463,346, or 78.65% is primarily due to repayments we have made resulting in a lower principal amount.





Operating Income Before Income Tax And Minority Interest. Operating income before income taxes was $5,929,439 for the fiscal year ended December 31, 2009, compared to operating income before income taxes of $24,487,455 for the fiscal year ended December 31, 2008. The decrease of $18,558,016 was primarily due to the one time debt forgiveness and income from involuntary conversion occurring in 2008 and not in 2009.








30





Income Tax Expense.  Income taxes decreased $4,589,625, or 74.73%, to $1,551,942 for the fiscal year ended December 31, 2009, compared to $6,141,567 for the fiscal year ended December 31, 2008. The decrease is primarily due to a one time debt forgiveness and income from involuntary conversion occurring in 2008 and not in 2009.





Net Income Attributable to Stockholders. Net income was $4,119,005 for the fiscal year ended December 31, 2009, compared to $18,345,888 for the fiscal year ended December 31, 2008, an decrease of $14,226,883 primarily due to the one time debt forgiveness and income from involuntary conversion occurring in 2008 and not in 2009.





Liquidity and Capital Resources





As of December 31, 2009, we had current assets of $19,243,013, compared with $ 25,066,606 as of December 31, 2008. The decrease is due to the fact that no event similar to the one-time disposal of the Zhaoyuan cement plant in 2008 occurred in 2009.





We have historically financed our operations from bank loans and cash flow from operations.





Net cash provided by operating activities was $ 8,120,280  for the fiscal year ended December 31, 2009, compared to $ 8,612,710 for the fiscal year ended December 31, 2008, a decrease of $ 492,430.





Net cash used in investing activities of $5,936,078 for the fiscal year ended December 31, 2009 was primarily related to the construction of the new Zhaoyuan plant and purchases of fixed assets.   Net cash used in investing activities of $476,074 for the fiscal year ended December 31, 2008 was related to purchase of fixed assets and payments for Construction in Progress.





Net cash used in financing activities of $2,197,598 for the fiscal year ended December 31, 2009 was related to the repayment of bank loans of $730,900 and a dividend payment of $1,466,698. Net cash used in financing activities of $8,154,120 for the fiscal year ended December 31, 2008 was related to the repayment of bank loans of $6,301,886 and a dividend payment of $1,852,234.








Short term loans





At December 31, 2009, the Company had a loan payable of $149,284 to Zhaoyuan City State Assets Management Co., Ltd, with an annual interest rate of 5.3%, and due on September 31, 2010.  The loan is secured by the land use right of the Company.





At December 31, 2009, the Company had a loan payable of $242,444 to China Industrial & Commercial Bank, with an annual interest rate of 3.7%, and due on December 31, 2010.  The loan is secured by the land use right of the Company.





At December 31, 2009, the Company had a loan payable of $36,813 to China Industrial & Commercial Bank, with an annual interest rate of 5.3%, and due on May 31, 2010. The loan is secured by the land use right of the Company.





At December 31, 2009, the Company had a loan payable of $475,048 to China Construction Bank, with an annual interest rate of 8.9%, and due on December 17, 2010. The loan is secured by the land use right of the Company.




At December 31, 2009, the Company had a loan payable of $323,964 to Agricultural Bank, with an annual interest rate of 8.9%, and due on December 17, 2010. The loan is secured by the land use right of the Company.






31






We believe that our liquidity will be adequate to satisfy our obligations for the foreseeable future.  Future requirements for our business needs, including the funding of capital expenditures and debt service for outstanding financings are expected to be financed by a combination of internally generated funds, the proceeds from the sale of our securities, borrowings and other external financing sources. However, we may not be able to generate sufficient operating cash flow and external financing sources may not be available in amounts or on terms sufficient to meet our liquidity needs. Our opinion concerning ourliquidity is based on current information. If this informationproves to be inaccurate, or if circumstances change, we may not be able to meet our liquidity needs.





Contractual Obligations and Off-Balance Sheet Arrangements





Contractual Obligations





The following table sets forth our contractual obligations to make future payments as of December 31, 2009.





Payments dueTotal


< 1 year





1-3 years





3-5 years


> 5 years(in $ thousands)Bank Loans


1,227,553



1,227,553



–



–



–



–



–Total obligations:


1,227,553



1,227,553



–



–



–



–



–








Other than as stated herein, we did not have any long-term debt obligations, operating lease obligations, purchase obligations or other long-term liabilities as of December 31, 2009.





Off-Balance Sheet Commitments and Arrangements





We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as shareholder’s equity, or that are not reflected in our consolidated financial statements. 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. Moreover, we do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.





Critical Accounting Policies and Estimates





The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the amount of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those estimates.





Accounts receivable





The Company's policy is to maintain reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customerconcentrations,customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves.





Inventories





Inventory is valued at the lower of cost (determined on a weighted average basis) or net realizable value. Management compares the cost of inventory with the net realizable value and an allowance is made for writing down the inventory to its net realizable value, if lower than the cost.





Property, plant and equipment





Property, plant and equipment are recorded at cost. Gains or losses on disposals are reflected as gain or loss in the year of disposal. The cost of improvements that extend the life of property, plant, and equipment are capitalized. These capitalized costs may include structural improvements, equipment, and fixtures. All ordinary repair and maintenance costs are expensed as incurred.





Depreciation is computed using the straight line method, with lives of forty years for buildings, twelve years for production equipment, ten years for vehicles, and five years for office furniture and equipment.





Business combinations





The Company accounts for its business combinations using the purchase method of accounting in accordance with FASB Statement No. 141 (ASC topic 805), “Business Combinations” (“SFAS 141”).  This method requires that the acquisition cost to be allocated to the assets and liabilities of the Company acquired based on their fair values. The Company makes estimates and judgments in determining the fair value of the acquired assets and liabilities, based on valuations using management’s estimates and assumptions including its experience with similar assets and liabilities in similar industries. If different judgments or assumptions were used, the amounts assigned to the individual acquired assets or liabilities could be materially different.





Goodwill and purchased intangible assets




Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in a business combination. Goodwill is reviewed for impairment at least annual in accordance with FASB Statement No. 142 (ASC topic 350), “Goodwill and Other Intangible Assets”. The goodwill impairment test is a two-step test. Under the first step, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the enterprise must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in accordance with ASC topic 805, “Business Combinations”. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed.





Revenue recognition





The Company's revenue recognition policies are in compliance with Staff Accounting Bulletin (SAB) 104 (ASC topic 605). Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as advances from customers.





The Company's revenue consists of invoiced value of goods, net of a value-added tax (VAT). No product return or sales discount allowance is made as products delivered and accepted by customers are normally not returnable and sales discounts are normally not granted after products are delivered.








32





Income taxes





The Company utilizes SFAS No. 109 (ASC topic 740), “Accounting for Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.





On January 1, 2007, the Company adopted FASB Interpretation No. 48 (ASC topic 740), Accounting for Uncertainties in Income Taxes, an interpretation of Statement of Financial Accounting Standards No. 109. ASC topic 740 clarifies the accounting for uncertain tax positions. The interpretation requires that an entity recognizes in the consolidated financial statements the impact of a tax position, if that position is more likely than not of being sustained upon examination, based on the technical merits of the position. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The adoption of FIN 48 on January 1, 2007 did not have any effect on the Company’s consolidated financial statements. Prior to the adoption of ASC topic 740, the Company recognized the effect of income tax positions only if such positions were probable of being sustained.





Beginning January 1, 2008, the new Enterprise Income Tax (“EIT”) law replaced the existing laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises (“FIEs”). The new standard EIT rate of 25% replaced the 33% rate currently applicable to both DES and FIEs.





ITEM 7A. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Not applicable.





ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA










33









CHINA SHUANGJI CEMENT LTD.





INDEX TO CONSOLIDATED FINANCIAL STATEMENTS





PagesReport of Independent Registered Public Accounting Firm




F-1Consolidated Balance Sheets




F-2Consolidated Statements of Income and Comprehensive Income




F-3Consolidated statements of cash flows




F-4Consolidated Statements of Changes in Equity




F-5Notes to Consolidated Financial Statements




F-7














34














Report ofIndependent Registered Public Accounting Firm





To the Board of Directors and Stockholders of




China Shuangji Cement, Ltd.









We have audited the accompanying consolidated balance sheets of China Shuangji Cement, Ltd.,   ("the Company") as of December 31, 2009 and 2008 and the related statements of income and comprehensive income, changes in equity, and cash flows for each of the years in the two-year period ended December 31, 2009. The Company's management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.




We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 audit 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.




In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the two years then ended, in conformity with accounting principles generally accepted in the United States of America.









/s/Bernstein & Pinchuk LLP




April 14, 2010




New York, New York








F-1




CHINA SHUANGJI CEMENT LTD.
  CONSOLIDATED BALANCE SHEETS




As of December 312009


2008(US$)


(US$) RestatedASSETSCurrent AssetsCash and cash equivalents

$
47,513


$
60,954Accounts receivable, net


3,382,114



2,255,582Other receivable, net


1,186,481



973,182Inventories


9,215,333



13,023,131Subsidy receivables


5,411,572



8,753,757Total Current Assets


19,243,013



25,066,606Plant, property and equipment, Net


16,261,527



16,080,045Construction In Progress


2,958,570



197,596Land use right, Net


169,502



173,060Goodwill


205,378



-$
38,837,990


$
41,517,307LIABILITIES AND EQUITYCurrent LiabilitiesAccounts payable

$
735,381


$
1,316,277Short-term bank loans


1,227,553



1,953,988Accrued payroll


229,687



222,042Other payable


293,264



701,779Taxes payable


5,025,270



4,956,485Accrual expenses






260,313Accrued liability


1,064,019



5,835,838Amount due to related party


-



49,220Total Current Liabilities


8,575,174



15,295,942Long-term liabilitiesDeferred Revenue


877,552



875,376Long term payable


2,047,622



2,042,543EQUITYStockholders' EquityPreferred Stock, $.0001 par value, 100,000,000 shares authorized, Zero and 20,250,000 shares issued and outstanding as of December 31, 2009 and 2008


-



2,025Common stock, $.0001 par value,   100,000,000 shares authorized, 27,839,346 and 6,733,096 shares issued and outstanding as of December 31, 2009 and 2008


2,784



673Additional paid-in capital


17,617,355



17,480,441Appropriated retained earnings


9,418,306



9,365,780Unappropriated retained earnings


(1,168,960
)


(3,768,741
)Accumulated other comprehensive income


279,291



223,268Total Stockholders' Equity


26,148,776



23,303,446Noncontrolling interest


1,188,866



-Total Equity


27,337,642



23,303,446$
38,837,990


$
41,517,307





See notes to consolidated financial statements






F-2




CHINA SHUANGJI CEMENT LTD.
 CONSOLIDATED STATEMENTS OF INCOME AND
 COMPREHENSIVE INCOME







Year ended December 31,2009


2008(US$)


(US$) RestatedSales

$
53,983,300


$
56,412,513Cost of Sales


46,666,390



48,745,943Gross Margin


7,316,910



7,666,570Operating ExpensesSelling expenses


283,340



251,434General and administrative expenses


991,412



1,041,6161,274,752



1,293,050Income From Operations


6,042,158



6,373,520Other Income ( Expense)Income from debt forgiveness


-



13,395,095Income for involuntary conversion


-



5,027,110Subsidy Income


-



294,912Interest expense


(125,756
)


(589,102
)Other income


13,037



449Other expense


-



(14,529
)(112,719
)


18,113,935Operating Income Before Income Tax Expense And Noncontrolling Interest


5,929,439



24,487,455Income Tax Expense


1,551,942



6,141,567Net Income


4,377,497



18,345,888Less: Net income attributable to Noncontrolling Interest


(258,492
)


-Net Income attributable to stockholders


4,119,005



18,345,888Foreign Currency Translation Gain


56,023



674,828Foreign Currency Translation Gain attributable to Noncontrolling Interest


3,513



-Comprehensive Income

$
4,178,541


$
19,020,716Earning per shareBasic

$
0.23


$
2.72Diluted

$
0.15


$
1.25Weighted average  number of  shares outstandingBasic


18,042,462



6,733,096Diluted


27,570,265



14,722,137Statement of Consolidated Comprehensive IncomeNet Income


4,377,497



18,345,888Foreign Currency Translation Gain


59,536



674,828Comprehensive Income


4,437,033



19,020,716Less: Comprehensive income attributable to noncontrolling interest


(261,987
)


-Comprehensive income attributable to stockholders

$
3,916,554


$
19,020,716








See notes to consolidated financial statements










F-3




CHINA SHUANGJI CEMENT LTD.
 CONSOLIDATED STATEMENTS OF CASH FLOWS




Year ended December, 312009


2008(US$)


(US$) RestatedCASH FLOWS FROM OPERATING ACTIVITIESNet Income

$
4,377,497


$
18,345,888Adjustments to reconcile net income  to net cash provided

by operating activities:Income on debt forgiveness


-



(13,395,095
)Income from involuntary conversion






(5,027,110
)Stock issuance for consulting services


88,000



-Depreciation


867,831



1,383,274Amortization


3,986



3,917Change in operating assets and liabilitiesAccounts receivable


(1,037,982
)


590,881Other receivable


(186,856
)


881,461Advances to suppliers


-



30,436Inventories


2,627,181



662,312Prepaid expenses


-



62,800Subsidy receivables


3,362,141



-Accounts payable


(655,026
)


101,036Accrued payroll


(27,200
)


108,088Other payable


(1,048,052
)


47,374Tax payable


9,578



4,744,496Accrual expenses


(260,818
)


72,952Net cash provided by operating activities


8,120,280



8,612,710CASH FLOWS FROM INVESTING ACTIVITIESAdditions to property & equipment


(3,186,725
)


(340,023
)Cash acquired in acquisitions


9,645



-Payments for construction in progress


(2,758,998
)


(136,051
)Net cash used in investing activities


(5,936,078
)


(476,074
)CASH FLOWS FROM FINANCING ACTIVITIESDividend paid


(1,466,698
)


(1,852,234
)Loan payments


(730,900
)


(6,301,886
)Net cash used in financing activities


(2,197,598
)


(8,154,120
)NET DECREASE IN CASH AND CASH EQUIVALENTS


(13,396
)


(17,484
)EFFECT OF EXCHANGE RATE FLUCTUATION ON CASH AND CASH EQUIVALENTS


(45
)


28,684CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR


60,954



49,754CASH AND CASH EQUIVALENTS, END OF YEAR

$
47,513


$
60,954SUPPLEMENTAL DISCLOSURES:Non-cash transaction:Subsidy receivables and Accrued liabilities

$
-


$
8,617,904Stock issuance for settlement of debt

$
49,000


$
16,000Cash paid during the year for:Income tax payments

$
615,712


$
530,437Interest payments

$
125,040


$
588,617








See notes to consolidated financial statements








F-4


CHINA SHUANGJI CEMENT LTD.
 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY




Stockholders’ EquityPreferred Stock


Common Stock


Additional








Accumulated Other


Non-Number


Number


Paid In


Appropriated


Unappropriated


Comprehensive


controlling


TotalOf Shares


Amount


Of Shares


Amount


Capital


Retained Earnings


Retained Earnings


Income (loss)


Interest


Equity(US$)





(US$)


(US$)


(US$)


(US$)


(US$)


(US$)


(US$)BALANCE,  DECEMBER 31, 2007


-



-



6,733,096



673



17,462,216



9,365,780



(20,262,395
)


(451,560
)


-



6,114,714Issuance of stock for cash


4,250,000



425



-



-



3,825



-



-



-



-



4,250Issuance of stock for settlement of debt


16,000,000



1,600



-



-



14,400



-



-



-



-



16,000Net income for the year ended December 31, 2008


-



-



-



-



-



-



18,345,888



-



-



18,345,888Transfer to statutory reserve


-



-



-



-



-



-



-



-



-



-Dividend paid during the year


-



-



-



-



-



-



(1,852,234
)


-



-



(1,852,234
)Accumulative other comprehensive income


-



-



-



-



-



-



-



674,828



-



674,828BALANCE, DECEMBER 31, 2008


20,250,000



2,025



6,733,096



673



17,480,441



9,365,780



(3,768,741
)


223,268



-



23,303,446Conversion of Preferred Stock


(20,250,000
)


(2,025
)


20,250,000



2,025



-



-



-



-



-



-Issuance of stock for consulting service


-



-



550,000



55



87,945



-



-



-



-



88,000





See notes to consolidated financial statements










F-5






CHINA SHUANGJI CEMENT LTD.
 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)







Stockholders’ EquityPreferred Stock


Common Stock


Additional








Accumulated Other


Non-Number


Number

Paid In


Appropriated


Unappropriated


Comprehensive


controlling


TotalOf Shares


Amount


Of Shares


Amount


Capital


Retained Earnings


Retained Earnings


Income (loss)


Interest


Equity(US$)





(US$)


(US$)


(US$)


(US$)


(US$)


(US$)


(US$)Issuance of stock for settlement of debt


-



-



306,250



31



48,969



-



-



-



-



49,000Net income for the year ended December 31, 2009


-



-



-



-







-



4,119,005



-



258,492



4,377,497Transfer to statutory reserve


-



-



-



-



-



52,526



(52,526
)


-



-



-Acquisition of noncontrolling interest


































926,861



926,861Dividend paid during the year


-



-



-



-



-







(1,466,698
)


-



-



(1,466,698
)Accumulative other comprehensive loss


-



-



-



-



-



-



-



56,023



3,513



59,536BALANCE, DECEMBER 31, 2009


-



-



27,839,346



2,784



17,617,355



9,418,306



(1,168,960
)


279,291



1,188,866



27,337,642





See notes to consolidated financial statements








F-6






CHINA SHUANGJI CEMENT LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS







1.  ORGANIZATION AND DESCRIPTION OF BUSINESS





China Shuangji Cement Ltd. (The Company) was incorporated September 15, 1980 in the state of California under the name Trans-Science Corporation. From September 1980 until September 2004 it provided consulting services on the use of high technology products and processes to the construction industry, specializing in earthquake retrofit activities. During the period 2005 through October 3, 2007 the Company was involved in a search for a merger partner.








On October 3, 2007 a British Virgin Islands company named China Shuangji Cement Holdings, Ltd. (“Holdings”) purchased 16,000,000 shares of the Company’s common stock, which represented 74% of the total shares of Company stock outstanding. Holdings is owned by a group of shareholders who also own all of the equity interests of Zhaoyuan Shuangji Co. Ltd. (“Zhaoyuan Shuangji”), a cement manufacturer incorporated in the People’s Republic of China (PRC).





Wenji Song, our Chairman and President, beneficially owns 51.3% of Holdings. In addition, Hongcheng Liu, our Chief Financial Officer, owns 0.34%, Bo Wu, our Secretary and Director, owns 1.2%, Jun Song, our Director, owns 1.7%, Linxin Cui, Director, owns 2.5%, and Shouheng Yuan, our Director and Vice President of Sales, owns 0.9%, respectively of Holdings.





Each of Wenji Song, Jun Song, and Bo Wu  is an officer and/or director of Holdings, and each such party is deemed a beneficial owner of the shares of Holdings. Each such party disclaims such beneficial ownership.





On October 31, 2007, the Company consummated a migratory merger whereby the Company re-domiciled to Delaware via a merger with and into a newly formed entity, China Shuangji Cement Ltd., a Delaware corporation.  Coincident with the merger, the Company effected a one-for-two forward split, whereby each share of the outstanding common stock of the Company was exchanged for two shares of the surviving company and the par value of the common stock became $0.0001 per share.





As part of a plan to effect control of Zhaoyuan Shuangji, on December 1, 2007, the Company acquired 100% of the outstanding capital stock of Chine Holdings, Ltd. (“Chine Holdings”), a British Virgin Islands corporation incorporated on June 28, 2007, from Wenji Song for an aggregate purchase price of $16,000.  At the closing of the acquisition of Chine Holdings, the Company did not pay a cash consideration of $16,000 but accounted for the purchase price in the form of a $16,000 loan.





Chine Holdings owns 100% of Jili Zhaoyuan Investment Consulting Co. Ltd. (“JZIC”), a Wholly Foreign-Owned Entity formed under the laws of the PRC on March 9, 2007.  On September 13, 2007, Chine Holdings acquired 100% of the outstanding equity of JZIC from Holdings.  As such, as of December 1, 2007, Chine Holdings is a direct wholly-owned subsidiary of the Company, and JZIC is an indirect wholly-owned subsidiary of the Company.





On August 9, 2008, an aggregate of 20,250,000 shares of Series 2008 preferred stock of the Company were issued to Wenji Song, the Company’s president and majority shareholder.  Of the 20,250,000 shares, 4,250,000 shares were issued to 16 investors for an aggregate purchase price of $4,250 and 16,000,000 shares of Series 2008 preferred stock were issued as consideration for the cancellation of the $16,000 loan due to Wenji Song that had been used to purchase Chine Holdings.





On August 11, 2008, JZIC entered into a number of contractual agreements with Zhaoyuan Shuangji, pursuant to which the Company, by way of JZIC, effectively acquired control over Zhaoyuan Shuangji.  The agreements with Zhaoyuan Shuangji include one through which JZIC has the right to manage and operate Zhaoyuan Shuangji and collect quarterly management fees; one granting JZIC voting rights in Zhaoyuan Shuangji; and one granting JZIC an option to acquire all of the equity interests in Zhaoyuan Shuangji. The agreements also give JZIC operating control of Zhaoyuan Shuangji and the right to its profits. The Company regards the totality of these transactions as constituting an acquisition of Zhaoyuan Shuangji, and requiring consolidation of the Company, Chine Holdings, JZIC, and Zhaoyuan Shuangji under the provisions of Financial Interpretation 46R (FIN-46R).






F-7







CHINA SHUANGJI CEMENT LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Because  the Company and Zhaoyuan Shuangji are under common control since October 3, 2007,  we combined Zhaoyuan Shuangji’s financial at historical cost with the Company.  The accompanying consolidated financial statements include the effect of the acquisition on the financial position of the Company and the results of its operations. The consolidated statements of income for the years ended December 31, 2009 and 2008 are based on the historical statements of operations of Zhaoyuan Shuangji, and the Company and its subsidiaries, for those periods and assume the acquisition took place on January 1, 2008.





Zhaoyuan Shuangji was incorporated in the PRC on March 29, 2002 for the purpose of acquiring and operating cement manufacturing subsidiaries in China. Three such subsidiaries have been acquired, one in Zhaoyuan (a city in Shandong province) and two in the Province of Hainan (one in a city named Danzhou and one in a city named Dongfang).





In September 2008, the City of Zhaoyuan withdrew the rights of Zhaoyuan Shuangji to the land on which its Zhaoyuan plant was located and asked Zhaoyuan Shuangji to relocate the plant within the City of Zhaoyuan (See Note 4). During the fourth quarter of 2008, Zhaoyuan ceased operations at this plant and began construction of a new plant at a site selected by the City of Zhaoyuan. The new plant is expected to have significantly more capacity than the old plant.





On April 15, 2009, Zhaoyuan Shuangji concluded a joint venture agreement with Longkou Bahai Cement Co. Ltd (“Bahai”) under which Zhaoyuan Shuangji became a 51% owner of a new company named Longkou Shuangji Cement Co. Ltd. (“Longkou”).   The joint venture was made by the contribution of $1,170,070 in cash by Zhaoyuan Shangji and a contribution by Baihai of the net assets formerly owned by Baihai, altogether with a contribution in cash of $290,000. So far the Zhaoyuan Shuangji only contributed $570,000 and is committed to contributing additional $600,070 as needed.  The new company has an annual capacity to produce 500,000 tons of cement, and will also operate in Shandong Province.





The assets of Longkou have been recorded on the books of the new company at fair market value.  The accounts of Longkou have been consolidated in these financial statements; all intercompany transactions have been eliminated.





The Company’s current structure is set forth in the diagram below:












F-8




CHINA SHUANGJI CEMENT LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





2.  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES











a)
Principles of consolidation





The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries- Chine Holdings, Ltd., Jili Zhaoyuan Investment Consulting Co. Ltd. and Zhaoyuan Shuangji Co. Ltd.  All significant inter-company accounts and transactions have been eliminated in consolidation.





b)
Use of estimates





The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the amount of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those estimates.





c)
Foreign currency translation and transactions


The reporting currency of the Company is the United States Dollar (“U.S. dollar”). The functional currency of China Shuangji Cement Ltd., Chine Holdings, Ltd. and Jili Zhaoyuan Investment Consulting Co. Ltd. is the U.S. dollar. The functional currency of Zhaoyuan Shuangji Co. Ltd. is the Chinese Yuan or Renminbi (“RMB”).


For financial reporting purposes, the financial statements of the Company’s PRC operating entities, which are prepared using the RMB, are translated into the Company’s reporting currency, the U.S. dollar. Assets and liabilities are translated using the exchange rate at each balance sheet date.  Revenue and expenses are translated using average rates prevailing during each reporting period, and stockholders’ equity is translated at historical exchange rates. Adjustments resulting from the translation are recorded as a separate component of accumulated other comprehensive income in stockholders’ equity.


Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transactions.  The resulting exchange differences are included in the determination of net income of the consolidated financial statements for the respective periods.


The exchange rates used to translate amounts in RMB into U.S. dollar for the purposes of preparing the consolidated financial statements are as follows:





2009


2008Balance sheet items, except for equity accounts


6.8372



6.8542Items in the statements of income and comprehensive

income, and statements of cash flows


6.8409



6.9623





No representation is made that the RMB amounts could have been, or could be converted into U.S. dollar at the above rates.








F-9




CHINA SHUANGJI CEMENT LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





d)
Cash and cash equivalents





For statement of cash flows purposes, the Company considers all cash on hand and in banks, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents. Cash overdraft as of balance sheet date will be reflected as liabilities in the balance sheet. As of December 31, 2009 and 2008, cash and cash equivalents amounted to $47,513 and $60,954 respectively.





e)
Accounts receivable





The Company's policy is to maintain reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. As of December 31, 2009 and 2008, the Company had accounts receivable of $3,382,114 and $2,255,582, net of allowance for doubtful accounts of $2,384,796 and $2,378,881 respectively.





f)
Inventories





Inventory is valued at the lower of cost (determined on a weighted average basis) or net realizable value. Management compares the cost of inventory with the net realizable value and an allowance is made for writing down the inventory to its net realizable value, if lower than the cost.





g)
Property, plant and equipment





Property, plant and equipment are recorded at cost. Gains or losses on disposals are reflected as gain or loss in the year of disposal. The cost of improvements that extend the life of property, plant, and equipment are capitalized. These capitalized costs may include structural improvements, equipment, and fixtures. All ordinary repair and maintenance costs are expensed as incurred.





Depreciation is computed using the straight line method, with lives of forty years for buildings, twelve years for production equipment, ten years for vehicles, and five years for office furniture and equipment.





h)
Impairment





The Company applies the provisions of Statement of Financial Accounting Standard No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (ASC 360) issued by the Financial Accounting Standards Board ("FASB").  ASC 360 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.





The Company tests long-lived assets, including property, plant and equipment and intangible assets subject to periodic amortization, for recoverability at least annually or more frequently upon the occurrence of an event or when circumstances indicate that the net carrying amount is greater than its fair value. Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the future estimated cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally measured by discounting expected future cash flows as the rate the Company utilizes to evaluate potential investments. The Company estimates fair value based on the information available in making whatever estimates, judgments and projections are considered necessary. There was no impairment of long-lived assets for the fiscal year ended December 31, 2009 and 2008, respectively.




i)
Business combinations





The Company accounts for its business combinations using the purchase method of accounting in accordance with FASB Statement No. 141 (ASC topic 805), “Business Combinations”.  This method requires that the acquisition cost to be allocated to the assets and liabilities of the Company acquired based on their fair values. The Company makes estimates and judgments in determining the fair value of the acquired assets and liabilities, based on valuations using management’s estimates and assumptions including its experience with similar assets and liabilities in similar industries. If different judgments or assumptions were used, the amounts assigned to the individual acquired assets or liabilities could be materially different.




j)
Goodwill and purchased intangible assets





Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in a business combination. Goodwill is reviewed for impairment at least annual in accordance with FASB Statement No. 142 (ASC topic 350), “Goodwill and Other Intangible Assets”. The goodwill impairment test is a two-step test. Under the first step, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the enterprise must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in accordance with ASC topic 805, “Business Combinations”. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed.






k)
Revenue recognition





The Company's revenue recognition policies are in compliance with Staff Accounting Bulletin (SAB) 104(ASC topic 605). Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as advances from customers.





The Company's revenue consists of invoiced value of goods, net of a value-added tax (VAT). No product return or sales discount allowance is made as products delivered and accepted by customers are normally not returnable and sales discounts are normally not granted after products are delivered.





l)
Advertising costs





The Company expenses the cost of advertising as incurred or, as appropriate, the first time the advertising takes place. There was no advertising cost incurred for the fiscal years ended December 31, 2009 or 2008.






F-10


CHINA SHUANGJI CEMENT LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS








m)
Income taxes





The Company utilizes SFAS No. 109 (ASC topic 740), “Accounting for Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.


On January 1, 2007, the Company adopted FASB Interpretation No. 48 (ASC topic 740), Accounting for Uncertainties in Income Taxes, an interpretation of Statement of Financial Accounting Standards No. 109. ASC topic 740 clarifies the accounting for uncertain tax positions. The interpretation requires that an entity recognizes in the consolidated financial statements the impact of a tax position, if that position is more likely than not of being sustained upon examination, based on the technical merits of the position. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The adoption of ASC topic 740 on January 1, 2007 did not have any effect on the Company’s consolidated financial statements. Prior to the adoption of FIN 48, the Company recognized the effect of income tax positions only if such positions were probable of being sustained.


Beginning January 1, 2008, the new Enterprise Income Tax (“EIT”) law replaced the existing laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises (“FIEs”). The new standard EIT rate of 25% replaced the 33% rate currently applicable to both DES and FIEs.




F-11




CHINA SHUANGJI CEMENT LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


n)
Fair values of financial instruments





Statement of Financial Accounting Standard No. 107 (ASC topic 820), "Disclosures about Fair Value of Financial Instruments", requires that the Company disclose estimated fair values of financial instruments.


The Company's financial instruments primarily consist of cash and cash equivalents, accounts receivable, other receivables, advances to suppliers, accounts payable, other payable, tax payable, and related party advances and borrowings.





As of the balance sheet dates, the estimated fair values of the financial instruments were not materially different from their carrying values as presented on the balance sheet. This is attributed to the short maturities of the instruments and that interest rates on the borrowings approximate those that would have been available for loans of similar remaining maturity and risk profile at respective balance sheet dates.





o)
Statement of cash flows





In accordance with Statement of Financial Accounting Standards No. 95(ASC topic 825), "Statement of Cash Flows," cash flows from the Company's operations is calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily agree with changes in the corresponding balances on the balance sheet.





p)
Earnings Per Share





Statement of Financial Accounting Standards No. 128 (ASC 420), “Earnings per share” requires the presentation of basic earnings per share and diluted earnings per share. Basic and diluted earnings per share computations are presented by the Company conform to the standard and are based on the weighted average number of shares of Common Stock outstanding during the year.





Basic earnings per share is computed by dividing net income or loss by the weighted average number of shares outstanding for the year. “Diluted” earnings per share is computed by dividing net income or loss by the total of the weighted average number of shares outstanding, and the dilutive effect of convertible shares and outstanding stock options and warrants (applying the treasury stock method).





q)
Recent accounting pronouncements





In June 2009, the FASB issued ASC 105 (previously SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles ("GAAP") - a replacement of FASB Statement No. 162), which will become the source of authoritative accounting principles generally accepted in the United States recognized by the FASB to be applied to nongovernmental entities. The Codification is effective in the third quarter of 2009, and accordingly, the Quarterly Report on Form 10-Q for the quarter ending September 30, 2009 and all subsequent public filings will reference the Codification as the sole source of authoritative literature. The Company does not believe that this will have a material effect on its consolidated financial statements.





In June 2009, the FASB issued amended standards for determining whether to consolidate a variable interest entity. These amended standards eliminate a mandatory quantitative approach to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity in favor of a qualitatively focused analysis, and require an ongoing reassessment of whether an entity is the primary beneficiary. These amended standards are effective for us beginning in the first quarter of fiscal year 2010 and we are currently evaluating the impact that adoption will have on our consolidated financial statements.





In June 2009, the FASB issued ASC 855 (previously SFAS No. 165, Subsequent Events), which establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before the financial statements are issued or available to be issued. It is effective for interim and annual periods ending after June 15, 2009. There was no material impact upon the adoption of this standard on the Company’s consolidated financial statements.








F-12






CHINA SHUANGJI CEMENT LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


In August 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-05, which amends ASC Topic 820, Measuring Liabilities at Fair Value, which provides additional guidance on the measurement of liabilities at fair value. These amended standards clarify that in circumstances in which a quoted price in an active market for the identical liability is not available, we are required to use the quoted price of the identical liability when traded as an asset, quoted prices for similar liabilities, or quoted prices for similar liabilities when traded as assets. If these quoted prices are not available, we are required to use another valuation technique, such as an income approach or a market approach. These amended standards are effective for us beginning in the fourth quarter of fiscal year 2009 and are not expected to have a significant impact on our consolidated financial statements.





In January 2010, the FASB issued Accounting Standards Update No. 2010-06 (ASU 2010-06), Fair Value Measurements and Disclosures which amends ASC Topic 820, adding new requirements for disclosures for Levels 1 and 2, separate disclosures of purchases, sales, issuances, and settlements relating to Level 3 measurements and clarification of existing fair value disclosures.  ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the requirement to provide Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2010; early adoption is permitted.  The Company is currently evaluating the impact of adopting ASU 2009-14 on its financial statements.





3.  INVENTORIES





Inventories consist of the following as of December 31, 2009 and 2008:





As of December 31,2009


2008Raw materials

$
7,341,966


$
9,422,209Work in progress


962,999



1,951,526Finished goods


910,368



1,649,396Totals

$
9,215,333


$
13,023,131





4.  PROPERTY, PLANT AND EQUIPMENT, AND CONSTRUCTION IN PROGRESS





Property, plant and equipment consist of the following as of December 31, 2009 and 2008:





As of December 31,2009


2008Building and improvements

$
15,716,586


$
22,628,737Vehicles


364,928



364,023Machinery and equipment


33,706,663



27,897,647Total


49,788,177



50,890,407Less: accumulated depreciation


(33,526,650)



(34,810,362)Total property, plant and equipment

$
16,261,527


$
16,080,045





Depreciation expenses for the fiscal years ended December 31, 2009 and 2008 were $867,831 and $1,383,274, respectively.






F-13





CHINA SHUANGJI CEMENT LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




Construction in Progress:





As of December 31, 2009 and 2008, construction in progress, representing construction for a new plant, amounted to $2,958,570 and $197,596, respectively.





5.  INTANGIBLE ASSETS





LAND USE RIGHTS





Under the People's Republic of China's governmental regulations, the government owns all land. However, the government grants the user a “land use right” (the Right) to use land. The Company has recognized the amounts paid for the acquisition of rights to use land as an intangible asset and amortizing over a period of fifty years which was approved by the government.





The land use right consists of the following as of December 31, 2009 and 2008:





As of December 31,2009


2008Land use rights

$
199,414


$
198,919Less: accumulated amortization


(29,912)



(25,859)Total

$
169,502


$
173,060








Total amortization expense of intangible assets for the years ended December 31, 2009 and 2008 amounted to $3,986 and $3,917, respectively.





Amortization expenses of intangible assets for the next five years after December 31, 2009 are as follows:





December 31, 2010

$
3,986December 31, 2011


3,986December 31, 2012


3,986December 31, 2013


3,986December 31, 2014


3,986Total

$
19,930





6.  RELATED PARTY TRANSACTIONS





The “Amount due to related party” represents the advances from one of the Company’s shareholder. The amounts were unsecured, non-interest bearing and due on demand. As of December 31, 2009 and 2008, amount due to related parties amounted to $0 and $49,220, respectively.





7. SHORT-TERM BANK LOANS





As of December 31, 2009 and 2008, the loans payable were as follows:





As of December 31,2009


2008Short term bank loans:Zhaoyuan City State Assets Management Co., Ltd., interest at 5.3% annually, due by September 31, 2010

$
149,284


$
148,914China Industrial & Commercial Bank, interest at 3.7% annually, due by December 31, 2010


242,444



241,843China Industrial & Commercial Bank, interest at 5.3% annually, due by May 31, 2010


36,813



36,722China Evergrowing Bank, interest at 7.6% annually, due by December 17, 2009


-



729,480China Construction Bank, interest at 8.9% annually, due by December 17, 2010


475,048



473,870Agricultural Bank, interest at 8.9% annually, due by December 17, 2010


323,964



323,159Total

$
1,227,553


$
1,953,988









F-14





CHINA SHUANGJI CEMENT LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




The interest expense was $125,756 and $589,102 for the fiscal years ended December 31, 2009 and 2008, respectively.





8.  TAXES PAYABLE





Taxes payables consist of the following as of December 31, 2009 and 2008:





As of December 31,2009


2008Value added tax payable

$
135,882



218,985Income tax payable


4,890,755



4,738,865Other levies


(1,367)



(1,365)$
5,025,270



4,956,485





9.  SUBSIDY RECEIVABLES, ACCURED LIABILITY, LONG-TERM PAYABLE, DEFERRED REVENUE, INCOME FROM INVOLUNTARY CONVERNSION





In September 2008 the City of Zhaoyuan ordered Zhaoyuan Shuangji to relocate its plant which is expected to last 2 years. This transaction was termed as involuntary conversion. Details see following.





INVOLUNTARY CONVERSION





In September 2008, the City of Zhaoyuan withdrew the rights of Zhaoyuan Shuangji to the land on which the Zhaoyuan plant was located and asked Zhaoyuan Shuangji to relocate the plant to a new site within the City of Zhaoyuan. During the fourth quarter of 2008, Zhaoyuan Shuangji ceased operations at the plant and began construction of a new plant at a site selected by the City.





As consideration for this involuntary conversion, the City agreed to pay Zhaoyuan Shuangji $13,860,115  in installments over the relocation period. Of the $13,860,115 to be paid by the City, $5,106,358 and $3,342,185 were received by Zhaoyuan Shuangji during 2008 and 2009.   The City of Zhaoyuan has specified usage of subsidy proceeds. The receipt of  $5,106,358 in 2008 was specified to repay the bank loan of Zhanyuan Shuangji. The receipt of $3,342,185 in 2009 was specified to compensate for the relocation loss due to disposal of fixed assets.




F-15






CHINA SHUANGJI CEMENT LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





As of December 31,


Year ended December 31,2009


2008


2008As of Sep 30, 2008

Recorded inSubsidy from local government


13,860,115

Subsidy receivables


5,411,572



8,753,757Specific usage:Loan payment


5,106,358

Subsidy income


-



-



5,027,110Compensation for loss of relocation


5,835,838

Accrued liabilities


1,064,019



5,835,838



-Payment to purchase new land use right


2,042,543

Long-term payable


2,047,622



2,042,543



-Compensation for purchase of new fixed assets


875,376

Deferred revenue


877,522



875,376



-





Income from involuntary conversion: Zhuangyuan Shuangji received $5,106,358 in 2008 from City of Zhaoyuan to repay its bank loan.





Accrued liability: Approximately 64% of the equipment of the old plant will be reconditioned and moved to the new plant. The balance of the equipment of the old plant will be sold or scrapped.   The company accrued $5,835,838 liabilities for the disposal of fixed assets  and loss of inventories during the relocation periods as of December 31, 2008, when $4,771,819 was reversed due to actual loss from disposal of fixed assets and inventories during 2009.





Long-term payable:Zhaoyuan Shuangji is obligated to pay $2,042,543 to purchase the land rights to new plant, which is recorded as long term payable amounted to $2,047,622 and $2,042,543 as of December 31, 2009 and 2008, respectively.  This liability would be settled after receipt of subsidy proceeds from City of Zhaoyuan.





Deferred revenue:The subsidy was recorded as deferred revenue in compensation for future purchase of new fixed asset.





10.   OTHER INCOME (EXPENSES)





Other income (expenses) mainly consists of income from debt forgiveness, and subsidy income from the government.








INCOME FROM DEBT FORGIVENESS





At November 28, 2008, as a result of bank borrowings, Zhaoyuan Shuangji was indebted to the bank in the amount of $18,422,205.  The bank accepted $5,027,110 in full settlement of this loan.   Therefore, debt forgiven, $13,395,095 has been included in income.





SUBSIDY INCOME





The Company is eligible for refund of value added taxes under a materials utilization program of the Shandong Economic and Trades Commission.  This program encourages use in the manufacturing process of materials which might otherwise be discarded.  It is available to the Company only for production at the Zhaoyuan plant.  Benefits of this program amounted to $0 in 2009 and $294,912 in 2008.  In the past, the program has been approved for periods of two years; these periods have consistently been renewed. The program has now been extended to the end of 2009.









F-16






CHINA SHUANGJI CEMENT LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





11.   INCOME TAXES





The Company utilizes SFAS No. 109 (ASC topic 740), "Accounting for Income Taxes," which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.





i). The Company is incorporated in the state of Delware.  Under the current law the company is not subject to state corporate income tax.  The Company become a holding company and does not conduct any substantial operations of its own.  No provision for federal corporate income tax have been made in the financial statements as the Company has no assessable profits for the year ended December 31, 2009 or prior periods.


ii). Chine Holdings was incorporated in the British Virgin Islands (“BVI”).  Under the current law of the BVI, the Company is not subject to tax on income or capital gains.  Additionally, upon payments of dividends by the Company to its shareholders, no BVI withholding tax will be imposed.


iv).  The Company’s PRC operating entities, being incorporated in the PRC, are governed by the income tax law of the PRC and is subject to PRC enterprise income tax (“EIT”).  Effective from January 1, 2008, the EIT rate of PRC was changed from 33% of to 25%, and applies to both domestic and foreign invested enterprises.








The provision for income taxes as of December 31, 2009 and 2008 consisted of the following:





As of December 31,2009


2008Current income tax - Provision for China income and local tax

$
1,551,942


$
6,141,567Deferred taxes


-



-Total provision for income taxes

$
1,551,942


$
6,141,567





The following table reconciles the U.S. statutory rates to the Company’s effective tax rate as of December 31, 2009 and 2008:





2009


2008Tax at statutory rate


34
%


34
%Foreign tax rate difference


(9
)%


(9
)%Total


25
%


25
%








12.  Acquisitions and impairment of intangible assets


On April 15, 2009, Zhaoyuan Shuangji concluded a joint venture agreement with Longkou Bahai Cement Co. Ltd (“Bahai”) under which Zhaoyuan Shuangji became a 51% owner of a new company named Longkou Shuangji Cement Co. Ltd. (“Longkou”).   The joint venture was made by the contribution of $1,170,070 in cash by Zhaoyuan Shangji and a contribution by Baihai of the net assets formerly owned by Baihai, altogether with a contribution in cash of $290,000. So far the Zhaoyuan Shuangji only contributed $570,000 and is committed to contributing additional $600,070 as needed.  The new company has an annual capacity to produce 500,000 tons of cement, and will also operate in Shandong Province.






F-17








CHINA SHUANGJI CEMENT LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


The assets of Longkou have been recorded on the books of the new company at fair market value.  The accounts of Longkou have been consolidated in these financial statements; all intercompany transactions have been eliminated.





The following table summarizes total purchase price allocated to the fair value of the Company’s share of the net assets acquired as of the acquisition date:





April 15, 2009Consideration

$
1,170,070Allocation of purchase priceCash


4,921Account Receivable, net


42,015Other Receivable, net


318,029Inventories


73,521Fixed assets


638,493Total assets acquired


1,076,979Current Liabilities


(112,287
)Net assets acquired


964,692Goodwill


205,378Total

$
1,170,070








Unauditd Pro Forma Consolidated Financial Information Disclosure for the year ended December 31, 2009





The following un-audited pro forma consolidated financial information for the twelve months period ended December 31, 2009, as presented below, reflects the results of operations of the Company assuming the Longkou acquisition occurred on January 1, 2009. These pro forma results have been prepared for information purposes only and do not purport to be indicative of what operating results would have been had the acquisition actually taken place on January 1, 2009, and may not be indicative of future operating results.





2009(US$)UnauditedSales

$
56,413,165Cost of Sales


(48,946,392
)Gross Margin


7,466,773Operating ExpensesSelling expenses


301,911General and administrative expenses


1,051,4301,353,341Income From Operations


6,113,432Other Income ( Expense)Interest expense


(126,033
)Other income


13,037(112,996
)Operating Income Before Income Tax Expense And Noncontrolling Interest


6,000,436Income Tax Expense


(1,569,691
)Net Income


4,430,745Less: Net income attributable to Noncontrolling Interest


(284,597
)Net Income attributable to shareholders


4,146,148Earning per shareBasic

$
0.23Diluted

$
0.15






F-18






CHINA SHUANGJI CEMENT LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Noncontrolling interest


On April 15, 2009, Zhaoyuan Shuangji concluded a joint venture agreement with Longkou Bahai Cement Co. Ltd (“Bahai”) under which Zhaoyuan Shuangji became a 51% owner of a new company named Longkou Shuangji Cement Co. Ltd. (“Longkou”).   The following table summarizes the noncontrolling interest of Longkou:




April 15, 2009Share capital

$
2,925,174Statuary reserve


106,090Retained earnings


(1,139,712
)Net equity as of acquisition date


1,891,552Acquisition of 49% of noncontrolling interest

$
926,861Net income transfer to noncontrolling interest


258,492Foreign Currency Translation Gain attributable to Noncontrolling Interest


3,513Noncontrolling interest balance


1,188,866





Impairments of Goodwill


The Company evaluates intangible assets and other long-lived assets for impairment, at a minimum, on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. Recoverability of intangible assets, other long-lived assets and goodwill is measured by comparing their net book value to the related projected undiscounted cash flows from these assets, considering a number of factors including past operating results, budgets, economic projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss. The Company assessed the carrying value of intangible assets in accordance with the requirements of SFAS No.142 (ASC topic 350) "Goodwill and Other Intangible Assets".  There was no impairment of long-lived assets for the fiscal year ended December 31, 2009 and 2008,








13. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS





The Company's operations are all carried out in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, and by the general state of the PRC's economy.





The Company's operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in the North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company's results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.





MAJOR CUSTOMERS AND VENDORS





There were four vendors from which the Company purchased more than 10% of its raw materials for the fiscal year ended December 31, 2009 which each vendor individually accounting for about 19%, 16%, 14%, and 11%. Accounts payable to the venders amounted to $0 as of December 31, 2009.





There were four venders from which the Company purchased more than 10% of its raw material for the fiscal year ended December 31, 2008 with each vendor individually accounting for about 13%, 13%, 13%, and 11%.  Account payable to the venders amounted to $0 as of December 31, 2008.








F-19






CHINA SHUANGJI CEMENT LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


There was one major customer that accounted for over 10% of the total sales for the fiscal years ended December 31, 2009 accounting for 13.3%.  Account receivable to the customer amounted to $0 as of December 31, 2009.





There was no major customer that accounted for over 10% of the total sales for the fiscal years ended December 31, 2008.








14.  STOCKHOLDERS’ EQUITY





COMMON STOCK





The Company had 100,000,000 shares of common stock authorized, with a par value of $.0001 per share.





On April 16, 2009, the Company affected a reverse split of Company common stock under which shareholders will receive one share of common stock for every four shares currently owned. Wherever common shares are presented in these financial statements they have been adjusted to a post-split basis.





On June 14, 2009, the Board of Directors of the Company authorized and approved the conversion of 20,250,000 preferred shares that were originally issued on August 9, 2008 to 20,250,000 common shares.





On October 1, 2009, the Board of Directors of the Company authorized and approved the conversion of 856,250 preferred shares that were originally issued on April 1, 2009 to 856,250 common shares.








PREFERRED STOCK





The Company is authorized to issue up to 100,000,000 shares of preferred stock with a par value of $0.0001.  On July 15, 2008, the Board of Directors (the Board) designated a 2008 series of preferred consisting of 30,000,000 shares.  Each share of the 2008 series preferred stock is convertible into one share of Company common stock.   Such conversion may not occur until six months after issuance and until one of four designated triggering events has occurred.  The 2008 series is not entitled to receive dividends; is not redeemable; and is not entitled to vote on matters voted upon only by common shareholders.





On August 9, 2008, 4,250,000 shares of the 2008 series were issued for $4,250 and 16,000,000 were issued to the Company president and majority shareholder for cancellation of a $16,000 advance that had been made to the Company.





On April 1, 2009, the Board of Directors authorized the issuance of 550,000 shares of Company Series 2008 preferred stock to three entities in return for services. On that same date, the Board also approved the issuance of 306,250 shares of Company Series 2008 preferred stock to our largest shareholder, which is a company controlled by the Company president, in return for cancellation of $49,000 of advances that had been made to the Company.





On June 14, 2009, the Board of Directors of the Company authorized and approved the conversion of 20,250,000 preferred shares that were originally issued on August 9, 2008 to 20,250,000 common shares.





On October 1, 2009, the Board of Directors of the Company authorized and approved the conversion of 856,250 preferred shares that were originally issued on April 1, 2009 to 856,250 common shares.





The Company follows ASC topic 470-50-40-2, the extinguishment transactions between related entities may be in essence capital transactions.  Therefore, no gain has been recognized.








F-20





CHINA SHUANGJI CEMENT LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




DIVIDENDS





We have never declared or paid any cash dividends on its common stock and it does not anticipate paying any cash dividends in the foreseeable future, except that,  Zhaoyuan Shuangji paid dividends to its shareholders in the amounts of $1,466,698 and  $1,852,234 in 2009, and 2008, respectively.





Other than dividends payable in the future by Zhaoyuan Shuangji to its shareholders, we currently intend to retain future earnings, if any, to finance operations and the expansion of its business. Any future determination to pay cash dividends will be at the discretion of our Board of Directors and will be based upon our financial condition, operating results, capital requirements, plans for expansion, restrictions imposed by any financing arrangements and any other factors that our Board of Directors deems relevant.








15.  STATUTORY RESERVE





As stipulated by the Company Law of the People's Republic of China (PRC), net income after taxation can only be distributed as dividends after appropriation has been made for the following:








i)
Allocations to the "Statutory surplus reserve" of at least 10% of income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the Company's registered capital;





ii)
Allocations of 5-10% of income after tax, as determined under PRC accounting rules and regulations, to the Company's "Statutory common welfare fund", which is established for the purpose of providing employee facilities and other collective benefits to the Company's employees; and Statutory common welfare fund is no longer required per the new cooperation law executed in 2006.





iii)
Allocations to the discretionary surplus reserve, if approved in the shareholders' general meeting.





In accordance with the Chinese Company Law, the Company has allocated 10% of its net income to surplus. The amount allocated to the surplus reserve amounted to $52,526 and $0 for the years ended December 31, 2009 and 2008, respectively.





16.  SUBSEQUENT EVENTS





As of April 14, 2010, which is the consolidated financial statements issuance date, Management identified the following subsequent events:





In January and February 2010, the Company issued 317,900 shares of common stock to investment relation firm and attorneys in exchange for consulting and professional services to be rendered to the Company.





In February 2010, the Company has engaged Newbridge Securities Corporation to act as the Company’s exclusive Placement Agent in connection with the proposed private placement of equity, debt or equity-linked securities of the Company.








17.  RESTATEMENTS


The Company’s current auditor re-audited the financial statements as of December 31, 2008 and the Company’s financial statements have been restated to reflect corrections and changes in presentation of the financial statements required reclassification of certain accounts.





Effects on previously issued 2008 financial statements as follows:





Increase in cost of sales

$
1,009,038Decrease of income from involuntary conversion


(3,223,755
)Increase of subsidy income


172,599Decrease of other income


( 997
)Decrease of interest expense


821,868Subtotal


3,125,280Income tax effect of restatement


4,648,309Decrease in 2008 net income


7,773,589








F-21





CHINA SHUANGJI CEMENT LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




The accompanying financial statements for the year ended December 31, 2008 have been restated to reflect the corrections in accordance with Statement of Financial Accounting Standards No. 154, “ Accounting Change and Error Corrections”.  This restatement is primarily due to the corrections of errors in the previously reported financial statements.  The effect on the Company’s previously issued 2008 financial statements in summarized as follows:


Balance Sheet as of December 31, 2008





ASSETS

Previously Reported


Net Change


RestatedCurrent Assets:

2008





2008Cash

$
504,599


$
(443,645
)

$
60,954



aAccounts receivables, less allowance for doubtful accounts


3,736,085



(1,480,503
)


2,255,582



bAdvances to suppliers


2,433



(2,433
)Other receivables


9,028,968



(8,055,786
)


973,182



cSubsidy receivable


-



8,753,757



8,753,757



cInventory


12,968,001



55,130



13,023,131Total current assets


26,240,086



(1,173,480
)


25,066,606Fixed Assets:






-Land use rights


3,125,056



(2,951,996
)


173,060



dMining rights


1,551,408



(1,551,408
)


-



eBuildings


3,880,911



18,747,826



22,628,737Equipment


8,508,827



19,388,820



27,897,647Vehicles


48,584



315,439



364,023Construction in progress


197,596



-



197,596Subtotal of fixed assets, cost


17,312,382Less accumulated depreciation and amortization


(4,557,771
)


(30,252,591
)


(34,810,362
)Net fixed assets


12,754,611



3,325,434



16,080,045



fOther Assets:Deferred interest


-Long term receivable


1,177,166



(1,177,166
)


-



gLoans receivable


1,018,232



(1,018,232
)


-



hTotal other assets


2,195,398



(2,195,398
)


-Total Assets

$
41,190,095



327,212


$
41,517,307LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent Liabilities:Notes payable

$
1,953,988



-



1,953,988Accounts payable


3,578,122



(2,979,616
)


1,316,277



iAdvances from customers


717,771



(717,771
)


-Accrued liabilities


951,821



5,188,798



6,140,619



JOther liabilities


3,032,096



2,803,742



5,835,838



kShareholder loan


49,220



-



49,220Total current liabilities


10,283,018



5,012,924



15,295,942Deferred revenue


-



875,376



875,376Long term payable


-



2,042,543



2,042,543Total Long-term liabilities


-



2,917,919



2,917,919Stockholders’ Equity:Preferred stock – authorized, 100,000,000 shares, $.0001 par value;20,250,000 shares issued and outstanding


2,025



-



2,025Common stock – authorized, 100,000,000 shares, $.0001 par value;






-26,932,166 shares issued and outstanding


2,693



(2,020
)


673Capital in excess of par valueRetained earnings


30,736,148



(34,504,889
)


(3,768,741
)


lAdditional paid-in capital


2,370,801



15,109,640



17,480,441



mEarnings appropriated for statutory reserves


1,205,931



8,159,849



9,365,780



nAccumulated other comprehensive income


(3,410,521
)


3,633,789



223,268



oTotal stockholders’ equity


30,907,077



(7,603,631
)


23,303,446Total Liabilities and Stockholders’ Equity

$
41,190,095



327,212


$
41,517,307









F-22




CHINA SHUANGJI CEMENT LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Statement of Operations and Comprehensive Income for the Year Ended December 31, 2008





Previously Reported


Net Change


Restated2008





2008Sales

$
56,412,513


-


$
56,412,513Cost of Sales


47,736,905



1,009,038



48,745,943



pGross Profit


8,675,608



(1,009,038
)


7,666,570Selling and administrative expenses


1,407,093



(114,043
)


1,293,050Operating Income


7,268,515



(894,995
)


6,373,520Other Income (Expense):Income from involuntary conversion


8,250,865



(3,223,755
)


5,027,110



qIncome from debt forgiveness


13,395,095







13,395,095Subsidy Income


122,313



172,599



294,912Other Income


1,446



(997
)


449Interest Expense


(1,410,970
)


821,868



(589,102
)


rOther Expense


(14,529
)






(14,529
)Income Before Income Taxes


27,612,735



(3,125,280
)


24,487,455Provision for Income Taxes:Current Provision


1,493,258



4,648,309



6,141,567



sNet Income for the Period

$
26,119,477



(7,773,589
)

$
18,345,888





a)
Reclassification of cash to Other receivable


b)
Correction of error of accounts receivable of $2,255,582 was additional increase in provision of bad debt expense and reclassification to OR


c)
Reclassification of other receivable to subsidy receivable


d)
Correction of error of land use right because the company  didn’t obtain the land use right certificate


e)
Correction of error of mining right because the company didn’t obtain the mining right certificate


f)
Correction of error of fixed assets disposal in 2009 instead of 2008


g)
Correction of error of long term receivable was written off as bad debts


h)
Correction of error of loans receivable was written off as bad debts


i)
Correction of error of accounts payable was written off


j)
Correction of error of accrued liability for loss from disposal of fixed assets


k)
Correction of error of loan interest accrued because no requirement of interest recorded in loan contract


l)
Correction of error of recorded bad debt expense and reclassification of statutory reserve


m)
Correction of error of consolidation method under common control


n)
Reclassification of statutory reserve to retained earning


o)
Correction of error to record the changes in foreign exchange translation adjustment


p)
Correction of error of record less depreciation expense to the cost of goods sold


q)
Correction of error of record income from involuntary conversion because the company didn’t obtain the land use right certificate.


r)
Correction of error of accrual interest on the forgiveness debt


s)
Correction of error of recorded income tax expense on the debt forgiveness and involuntary conversion income












F-23






CHINA SHUANGJI CEMENT LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Statement of Cash Flows for the Year Ended December 31, 2008








Previously Reported


Net Change


RestatedCASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)

$
26,119,477


$
(7,773,589
)

$
18,345,888Adjustments to reconcile net income to net cash provided by operating activities:Charges and credits not involving the use of cash:Depreciation and amortization


731,546



651,728



1,383,274Amortization of deferred interest


762,621



(762,621
)


-Income on debt extinguishment


(13,395,095
)


-



(13,395,095
)Income from involuntary conversion


(8,250,865
)


3,223,755



(5,027,110
)Amortization










3,917Changes in assets and liabilities:Decrease (increase) in accounts receivable


1,229,704



(638,823
)


590,881Decrease in other receivables


162,506



718,955



881,461Decrease in advances to suppliers


173,670



(143,234
)


30,436Decrease in subsidy receivable


172,599



(172,599
)


-Decrease (increase) in inventory


660,876



1,436



662,312Prepaid expenses


-



62,800



62,800Increase (decrease) in accounts payable


120,214



(19,178
)


101,036Decrease in advances from customers


(73,966
)


73,966



-Increase (decrease) in other payables


(721,417
)


768,791



47,374Accrued payroll


-



108,088



108,088Increase (decrease) in accrued liabilities


61,286



4,683,210



4,744,496Accrual expenses


-



72,952



72,952Net Cash Provided By Operating Activities


7,753,156



859,554



8,612,710CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds of plant involuntary conversion


5,027,110



(5,027,110
)


-Acquisition of mining rights


(20,913
)


20,913



-Purchases of fixed assets


(340,023
)


-



(340,023
)Additions to business loans


-



-



-Repayments of business loans


371,873



(371,873
)


-Reduction of long term receivable


143,632



(143,632
)


-Expenditures for     construction in progress


(194,529
)


58,478



(136,051
)Net Cash Provided(Consumed) By Investing Activities


4,987,150



(5,463,224
)


(476,074
)CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings under bank loans


1,923,663



(1,923,663
)


-Repayment of bank borrowings


(13,252,659
)


6,950,773



(6,301,886
)Payment of dividends


(1,881,375
)


29,141



(1,852,234
)Shareholder advances


65,220



(65,220
)


-Issuance of preferred stock


4,250



(4,250
)


-Net Cash Consumed By Financing Activities


(13,140,901
)


4,986,781



(8,154,120
)










F-24







ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE





None.








ITEM 9A - EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES





Evaluation of Disclosure Controls and Procedures
 
 The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in the reports filed under the Securities Exchange Act, is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to the Company’s management, including the Company’s chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
 
 During the course of internal evaluation, our accounting staff found a number of misstatements in our previously reported financial statements for the fiscal year ended December 31, 2008 that required correction.  Our management determined that these misstatements arose due to the lack of  a sufficient number  of  personnel  with an  appropriate  level of U.S.  GAAP  knowledge  and experience  appropriate to its financial  reporting  requirements at that time.  The restatement is disclosed below in footnote 17 to Item 8, Financial Statements and Supplementary Data.
 
 Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, such controls and procedures were ineffective.
 
 Management’s Annual Report on Internal Control over Financial Reporting
 
 Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.  Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that: pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
 
 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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.  All internal control systems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
 
 A material weakness in internal controls is a deficiency in internal control, or combination  of  control  deficiencies,  that  adversely  affects  the  Company's ability to initiate,  authorize,  record,  process, or report external financial data reliably in accordance with accounting principles generally accepted in the United States of America such that there is more than a remote likelihood that a material  misstatement of the Company's annual or interim  financial  statements that is more than inconsequential  will not be prevented  or detected.
 
 Management has conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2009. In making its assessment of internal control over financial reporting, management used the criteria in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).   During the course of internal evaluation, our accounting staff found a number of misstatements in our previously reported financial statements for the fiscal year ended December 31, 2008 that required correction.   Our management determined that these misstatements arose due to the lack of  a sufficient number  of  personnel  with an  appropriate  level of U.S.  GAAP  knowledge  and experience  appropriate to its financial  reporting  requirements at that time and that such conditions gave rise to a material weakness in the Company’s internal controls over financial reporting as of December 31, 2008.  Accordingly, management's  assessment is that the Company's  internal controls over financial reporting were ineffective as of December 31, 2009.
 
 In light of this material weakness, we performed additional analyses and procedures in order to conclude that our consolidated financial statements for the year ended December 31, 2009 included in this Annual Report on Form 10-K were fairly stated in accordance with US GAAP. Accordingly, management believes that despite our material weaknesses, our consolidated financial statements for the year ended December 31, 2009 are fairly stated, in all material respects, in accordance with US GAAP.
 
 Management intends to strengthen its accounting and compliance procedures further in 2010.
 
 This annual report does not include an attestation report of our registered public accounting firm regarding our internal control over financial reporting.  Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permits us to provide only management’s report in this annual report.
 
 Changes in Internal Control over Financial Reporting
 
 The term  "internal  control  over  financial  reporting"  (defined  in SEC Rule 13a-15(f))  refers to the  process  of a company  that is  designed  to  provide reasonable  assurance  regarding the reliability of financial  reporting and the preparation  of financial  statements for external  purposes in accordance  with generally accepted accounting  principles.  The Company's  management,  with the participation of the Chief Executive  Officer and Chief Financial  Officer,  has evaluated any changes in the Company's internal control over financial reporting that  occurred  during the fourth  quarter  of the year  covered by this  annual report,  and they have  concluded  that  there  was no  change to the  Company's internal control over financial  reporting that has materially  affected,  or is reasonably  likely to materially  affect,  the Company's  internal  control over financial reporting.


35





ITEM 9B. - OTHER INFORMATION





None.











36


PART III





ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT





Executive Officers and Directors





The following table and text set forth the names and ages of all directors and executive officers of the Company as of April 7, 2010. The Board of Directors is comprised of only one class. All of the directors will serve until the next annual meeting of stockholders and until their successors are elected and qualified, or until their earlier death, retirement, resignation or removal. Also provided herein are brief descriptions of the business experience of each director and executive officer.





Name

Age

Position(s)
Director/Officer SinceWenji Song

59

Chairman and President
November 13, 2007Michelle Zhu

47

Chief Financial Officer
January 1, 2010Bo Wu

31

Secretary and Director
November 13, 2007Jun Song

32

Director and CEO
November 13, 2007Shouheng Yuan

58

Director
November 13, 2007Linxin Cui
40

Director, Vice President of Sales
November 13, 2007








Biographies of Directors and Executive Officers:





Mr. Wenji Song has served as Chairman of the Board and President of Zhaoyuan Shuangji since 2002. Mr. Song obtained a Certificate of Advanced Economics upon his graduation from Shandong Building Materials Institute. In 1974, he began working with the Zhaoyuan cement plant and in 1978 he was promoted to plant manager. In 1991, he became director of Zhaoyuan Shuangji and has been the major driving force in its success. In 2003, he successfully concluded a management buyout of the operations.  He has been awarded the Shandong province Outstanding Entrepreneur title many times for his leadership in building Zhaoyuan Shuangji.





Mr. Jun Song has served as Chief Executive Officer and Director of Zhaoyuan Shuangji since 2004. He has more than 5 years experience in corporate management, human resource management, finance, logistics, production, supply chain management and marketing. He was awarded a degree in economic management from Qingdao University in 2002.  Prior to his position as CEO, he was an analyst for Zhaoyuan Financial Bureau.  Mr. Song is the son of our Chairman and President, Mr. Wenji Song.





Ms. Michelle Zhu has served as Chief Financial Officer since January 2010.  She is a licensed CPA and was a senior audit manager for PCAOB (“Public Company Accounting Oversight Board”) auditor Kabani and Company.  She graduated from University of Southern California, Irvine with a Masters of Business Administration in 2006.  She is fluent in Mandarin and English.





Mr. Bo Wu has served as Vice President and the Chief Operating Operation of Zhaoyuan Shuangji since 2003. Mr. Wu graduated from Shandong Technological Institute in 1999 and worked at China Life Insurance Co., Ltd. as Vice President until 2003. He has extensive experience in production, quality control and raw material supply chain. Mr. Wu is the son in-law of our Chairman and President, Mr. Wenji Song.





Mr. Linxin Cui has served as Vice-President of Sales of Zhaoyuan Shuangji since 2000. Mr. Cui graduated from the Shandong Building Materials Institute in 1989. In 1991, he was appointed to sales assistant of the Zhaoyuan cement plant and in 1995 he was appointed Vice Director. In 2001, he was promoted to Vice President of the company and since 2002 he has overseen the two cement plants in Hainan Province.





Mr. Shongheng Yuan has served as a director and Chief Engineer of Zhaoyuan Shuangji since 2000. He has worked at the Zhaoyuan cement plant since 1976 and in 1988 he was promoted to Chief Director of the chemical lab. From 1989 to 1991, Mr. Shongheng attended Shandong Building Material Institute and after graduation he was promoted to Chief Engineer of Zhaoyuan cement plant.








37





The Board believes that each of the Company’s directors is highly qualified to serve as a member of the Board. Each of the directors has contributed to the mix of skills, core competencies and qualifications of the Board. When evaluating candidates for election to the Board, the Board seeks candidates with certain qualities that it believes are important, including integrity, an objective perspective, good judgment, leadership skills. Our directors are highly educated and have diverse backgrounds and talents and extensive track records of success in what we believe are highly relevant positions. Some of our directors have served in our operating entity, Zhaoyuan Shuangji, for many years and benefit from an intimate knowledge of our operations and corporate philosophy.





Family Relationships





Mr. Wenji Song and Mr. Jun Song are father and son.  Mr. Wenji Song and Mr. Bo Wu are father in-law and son in-law.  Jun Song and Bo Wu are brothers- in-law. Other than the foregoing, there are no other family relationships among our officer and directors.





Involvement in Legal Proceedings





To our knowledge, during the last ten years, none of our directors and executive officers (including those of our subsidiaries) has:


·
Had a bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time.
  ·
Been convicted in a criminal proceeding or been subject to a pending criminal proceeding, excluding traffic violations and other minor offenses.
  ·
Been subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities.
  ·
Been found by a court of competent jurisdiction (in a civil action), the SEC, or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
  ·
Been the subject to, or a party to, any sanction or order, not subsequently reverse, suspended or vacated, of any self-regulatory organization, any registered entity, or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.


Compliance with Section 16(a) of the Exchange Act





Our common stock is registered pursuant to Section 12 of the Exchange Act. Accordingly, our officers, directors and principal shareholders are subject to the beneficial ownership reporting requirements of Section 16(a) of the Exchange Act and based solely on the reports received by the Company and on written representations from certain reporting persons, we believe that the directors, executive officers and persons who beneficially own more than 10% of the Company’s common stock during the fiscal year ended December 31, 2009 have been in compliance with Section 16(a).





Corporate Governance





In the past fiscal year, there has been no material change to the procedures by which security holders may recommend nominees to the smaller reporting company’s board of directors.





The board held 6 meetings during 2009.  Such meetings include meetings that were held by means of a conference telephone call, but do not include actions taken by unanimous written consent.





Each director attended at least 75% of the total number of meetings of the board on which he served during the year.








38





Our non-management directors did not meet in executive session during 2009.





Audit Committee Financial Expert





Our board of directors currently acts as our audit committee.  Our Board of Directors is still in the process of finding an “audit committee financial expert” as defined in Regulation S-K and directors that are “independent” as that term is used in Section 10A of the Exchange Act.





Audit Committee





We have not yet appointed an audit committee.  At the present time, we believe that the members of Board of Directors are collectively capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting.  We do, however, recognize the importance of good corporate governance and intend to appoint an audit committee comprised entirely of independent directors, including at least one financial expert, in the near future.





Compensation Committee





We do not presently have a compensation committee. Our board of directors currently acts as our compensation committee.





Nominating Committee





We do not presently have a nominating committee. Our board of directors currently acts as our nominating committee.





Code of Ethics





We are currently in the process of updating and approving our Code of Ethics. We anticipate that the Code will be designed to deter wrongdoing and to promote:





·
Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;


·
Full, fair, accurate, timely and understandable disclosure in reports and documents that we file with, or submit to, the SEC, and in other public communications that we made;


·
Compliance with applicable governing laws, rules and regulations;


·
The prompt internal reporting of violations of the Code to the appropriate person or persons; and


·
Accountability for adherence to this Code.





We expect to approve this updated Code in fiscal year 2010. While it is anticipated that this policy is will only cover the actions of our chief executive office as required under Sarbanes-Oxley, we expect that our other officers, directors and employees will also review the Code and abide by its provisions. We believe that our reputation is a valuable asset and must continually be guarded by all associated with us so as to earn the trust, confidence and respect of our suppliers, customers and stockholders.





Board Leadership Structure and Role in Risk Oversight





Mr. Wenji Song is our chairman and Mr. Jun Song is our chief executive officer. Mr. Wenji Song and Mr. Jun Song are father and son. At the advice of other members of the management or the Board, Mr. Wenji Song calls meetings of Board of Directors when necessary. We have no independent directors. We do not have a lead independent director. Our Board does not have any standing committees. We believe that this leadership structure has served the Company well, however we intend to create an independent board with the commensurate committees in the near future.




39





Our Board of Directors has overall responsibility for risk oversight. Our Board of Directors is responsible for approving all related party transactions. We have not adopted written policies and procedures specifically for related person transactions.








ITEM 11 - EXECUTIVE COMPENSATION





Summary Compensation Table





The following Summary Compensation Table sets forth the compensation earned by our top five highly compensated executive officers for fiscal years ended December 31, 2009 and December 31, 2008.








SUMMARY COMPENSATION TABLE






Name and Position

Year


Salary ($)


Bonus


StockAwards ($)


Option Awards($)


Non-Equity Incentive Plan Compensation($)


Nonqualified Deferred CompensationEarnings ($)


All Other



Compensation($)


Total ($)Wenji Song

(Chairman & President)

2008



28,710



-



-



-



-



-



-



28,7102009



20,875



-



-



-



-



-



-



20,875Michelle Zhu


2008



-



-



-



-



-



-



-



-(CFO)


2009



-



-



-



-



-



-



-



-Hongcheng Liu

(Former CFO)


2008



5,024



-



-



-



-



-



-



5,0242009



4,380



-



-



-



-



-



-



4,380Jun Song

(Director & CEO)


2008



9,331



-







-



-



-



-



9,3312009



8,759



-



-



-



-



-



-



8,759
  2008

8,360



-



-



-



-



-



-



8,3602009

8,759



-



-



-



-



-



-



8,759Linxin Cui

(Director, Vice President of Sales)
2008

11,484



-



-



-



-



-



-



11,4842009

11,387



-



-



-



-



-



-



11,387Shoucheng Yuan

(Director)
2008

7,178



-



-



-



-



-



-



7,1782009

7,299



-



-



-



-



-



-



7,299





Except as stated in the table above, no other officer of the company received total compensation in excess of $100,000.






40





Employment Agreements





On January 1, 2010, Michelle Zhu was appointed as our Chief Financial Officer effective as of such date. We entered into a two year employment agreement with Ms. Zhu which may be extended for an additional term upon the written consent of both parties. Under the agreement, she will receive an annual salary of $100,000 for year one and $120,000 for year two of the employment. She also received a stock grant of 60,000 shares of restricted common stock which will vest in 15,000 increments every six months.





Outstanding Equity Awards at Fiscal Year-End





There were no outstanding equity awards as of year ended December 31, 2009.





Compensation of Directors





Through December 31, 2009, our directors have not been entitled to receive compensation from the company for acting in such capacity. However, in the future, we may permit Directors to receive fixed fees and other compensation for their services as Directors.








ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.





The following tables set forth information regarding beneficial ownership of our common stock and our Series 2008 preferred stock as of April 7, 2010 (i) by each person who is known to us to beneficially own more than 5% of our common stock; (ii) by each of our officers and directors; and (iii) by all of our officers and directors as a group. Unless otherwise specified, the address of each of the persons set forth below is in care of 221 Linglong Road, Zhaoyuan City, Shandong, PRC. The percentage ownership is based on 28,157,246 shares of common stock and 0 shares of Series 2008 preferred stock outstanding at April 7, 2010, except that shares of common or preferred stock underlying options or warrants exercisable within 60 days of the date hereof are deemed to be outstanding for purposes of calculating the beneficial ownership of securities of the holder of such options or warrants.








Title of Class
Beneficial Owner
Shares of Capital Stock
Percent of ClassBeneficial Owners Holding 5% or MoreCommon Stock

Preferred Stock(2)
China Shuangji Cement Holding Ltd (1)
21,306,250

0
75.67%

0%Directors and Executive OfficersCommon Stock

Preferred Stock
Wenji Song(1)(3)(4)

Chairman and President
21,306,250

0
75.67%

0%Common Stock

Preferred Stock
Jun Song(1)(3)(4)

Director and CEO
21,306,250

0
75.67%

0%Common Stock

Preferred Stock
Bo Wu(1)(3)(4)

Director and Secretary
21,306,250

0
75.67%

0%Common Stock

Preferred Stock
Michelle Zhu

CFO
0
0Common Stock

Preferred Stock
Linxin Cui(1)

(Director, Vice President of Sales)
0
0Common Stock

Preferred Stock
Shoucheng Yuan(1)

(Director)
0
0Common Stock

Preferred Stock
Directors and Officers as a group(6 persons)
21,306,250

0
75.67%

0%








41





(1)  China Shuangji Cement Holding Ltd. (“Holdings”) is a British Virgin Island company. Wenji Song, our Chairman and President, owns 51.3% of Holdings. In addition, Bo Wu, our Secretary and Director, owns 1.2%, Jun Song, our Director, owns 1.7%, Linxin Cui, Director, owns 2.5%, and Shouheng Yuan, our Director and Vice President of Sales, owns 0.9%, respectively, of Holdings. Wenji Song, the majority shareholder of Holdings, has voting and dispositive control over the shares of common stock owned by Holdings.







(2)  Our Series 2008 preferred stock is entitled to vote on matters presented to the preferred holders, but is not entitled to vote on matters presented to our common stock holders. Each share of our preferred stock is convertible under certain conditions to one share of our common stock.   On June 14 and October 1, 2009, the Company approved the conversion of an aggregate of 20,556,250 shares of Series 2008 preferred stock held by Holdings.







(3)  The shares reflected as being owned by Wenji Song and Jun Song, and Bo Wu represent 21,306,250 shares of the Company owned by Holdings, which equate, via their holdings in Holdings, to (i) 10,930,106 shares of the Company owned by Wenji Song, (ii) 362,206 shares of the Company owned by Jun Song, Wenji Song’s son, and (iii) 255,675  shares of the Company owned by Bo Wu, Wenji Song’s son-in-law.   Wenji Song disclaims beneficial ownership of the shares beneficially owned by his son and son-in-law, Jun Song and Bo Wu.





(4) Each such party is an officer and/or director of Holdings.








Changes of Control





There are currently no arrangements which would result in a change in control of the Company.





ITEM 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE





On August 9, 2008, we issued 16,000,000 shares of the Company’s Series 2008 Preferred Stock, $0.0001 par value, to Holdings, our largest shareholder. The consideration for the preferred stock was the cancellation of $16,000 of an outstanding loan.





On August 11, 2008, JZIC completed a business combination by entering into a series of contractual agreements (the “Agreements”) with Zhaoyuan Shuangji Co. Ltd, a PRC company, which is engaged in the business of manufacturing of cement products in China. Through our Agreements, which consist of the Strategic Consulting Service Agreement, the Operating Agreement, the Exclusive Option Agreement, and Authorization Agreements, each dated August 11, 2008, our wholly owned subsidiary JZIC has the right to advise, consult, manage and operate Zhaoyuan Shuangji for a quarterly fee. Wenji Song, indirectly our controlling shareholder, principal executive officer and chairman of our Board of Directors, may have, or may develop in the future, conflicts of interest with us. Mr. Song is the majority equity owner of Zhaoyuan Shuangji, and it may be in his personal economic interest to cause Zhaoyuan Shuangji to disregard its contractual obligations under the Agreements. As the equity owners of Zhaoyuan Shuangji, he might personally profit if Zhaoyuan Shuangji’s benefits of operation are not directed to us. In addition, Hongcheng Liu, our Chief Financial Officer, Bo Wu, our Secretary and Director, Jun Song, our Director and CEO, Linxin Cui, Director, and Shouheng Yuan, our Director and Vice President of Sales have indirect ownership interests in Zhaoyuan Shuangji and may have, or may develop in the future, conflicts of interest with us. Mr. Wenji Song and Mr. Jun Song are father and son.  Mr. Wenji Song and Mr. Bo Wu are father in-law and son in-law.  Jun Song and Bo Wu are brothers-in-law.  All such individuals are PRC citizens.





On April 1, 2009, the Board of Directors of the Company authorized and approved the issuance to an aggregate 306,250 shares of its restricted Series 2008 Preferred Stock at $0.16 per share to Holding for a partial repayment of its shareholder loan to the Registrant.





Other than as stated herein, we have not entered into any transactions with our officers, directors, persons nominated for these positions, beneficial owners of 5% or more of our common stock, or family members of these persons wherein the amount involved in the transaction or a series of similar transactions exceeded $120,000 and in which any related person had or will have a direct or indirect material interest.





Director Independence





Our Board of Directors is still in the process of finding directors that are “independent” as that term is used in Section 10A of the Exchange Act.






42





ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES.





Audit Fees





The aggregate fees billed to us by our principal accountant for services rendered during the fiscal year ended December 31, 2009 and 2008 is set forth in the table below:














Fee Category

Fiscal year ended Dec. 31, 2009


Fiscal year ended Dec. 31, 2008Audit fees (1)

$
135,000


$
50,000Audit-related fees (2)


-



-Tax fees (3)


-



-All other fees (4)


-



-Total fees

$
135,000


$
50,000





(1)
Audit fees consists of fees incurred for professional services rendered for the audit of consolidated financial statements, for reviews of our interim consolidated financial statements included in our quarterly reports on Form 10-Q and for services that are normally provided in connection with statutory or regulatory filings or engagements.





(2)
Audit-related fees consist of fees billed for professional services that are reasonably related to the performance of the audit or review of our consolidated financial statements, but are not reported under “Audit fees.”





(3)
Tax fees consist of fees billed for professional services relating to tax compliance, tax planning, and tax advice.





(4)
All other fees consist of fees billed for all other services.








Audit Committee’s Pre-Approval Practice





Insomuch as we do not have an audit committee, our board of directors performs the functions of an audit committee. Section 10A(i) of the Exchange Act prohibits our auditors from performing audit services for us as well as any services not considered to be “audit services” unless such services are pre-approved by the board of directors (in lieu of the audit committee) or unless the services meet certain de minimis standards.








43








PART IV








ITEM 15 – EXHIBITS, FINANCIAL STATEMENTS SCHEDULES.





2.1

Agreement and Plan of Merger, dated as of October 29, 2007, by and between Trans-Science Corporation and China Shuangji Cement, Ltd.3.1

Certificate of Merger of Trans-Science Corporation into China Shuangji Cement Ltd dated as of October 29, 2007 (filed as an exhibit to our Form 8K, filed with the Securities and Exchange Commission on November 5, 2007).3.2

Bylaws of Trans-Science Corporation (filed as an exhibit to our Form 10SB, filed with the Securities and Exchange Commission on February 2, 2007).3.3

Certificate of Incorporation of China Shuangji Cement Ltd. dated as of October 29, 2007 (filed as an exhibit to our Form 8K, filed with the Securities and Exchange Commission on November 5, 2007).3.4

Bylaws of China Shuangji Cement Ltd. dated as of October 29, 2007 (filed as an exhibit to our Form 8K, filed with the Securities and Exchange Commission on November 5, 2007).3.5

Certificate of Amendment to Certificate of Incorporation (Incorporated by reference to the exhibit to Form 8-K of China Shuangji Cement Ltd filed on May 12, 2009).10.1

Acquisition Agreement by and between Zhaoyuan Shuangji Co., Ltd. and Longkou Bohai Cement Co. Ltd. dated March 13, 2009 (Incorporated by reference to the exhibit to Form 8-K of China Shuangji Cement Ltd filed on May 17, 2009).31.1

Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2

Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1

Certification of the Principal Executive Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2

Certification of the Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.











44





SIGNATURES





Pursuant to the requirements of Section 13 and 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.






China Shuangji Cement LtdDate: April 15, 2010
By:
/s/ Wenji SongWenji Song(Chairman and President)




Pursuant to 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 and on the dates indicated.


China Shuangji Cement LtdDate: April 15, 2010
By:
/s/ Wenji SongWenji Song

(Chairman and President)By:
/s/ Jun SongJun Song

(Director and Chief Executive Officer)By:
/s/ Bo WuBo Wu

(Director and Secretary)By:
/s/ Linxin CuiLinxin Cui

(Director)By:
/s/ Shoucheng YuanShoucheng Yuan

(Director)





By:
/s/ Michelle ZhuMichelle Zhu

(Chief Financial Officer)