U.S. SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-K











(Mark One)


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





For the Fiscal Year Ended May 31, 2011





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





For the transition period from ________________ to __________________





Commission File Number 333-146758





CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


(Exact name of registrant as specified in its charter)





Colorado

16-1718190(State or other jurisdiction of

(IRS Employerincorporation or organization)

Identification No.)





Shidai Caifu Tiandi Suite 1906-1909


1 Hangfeng Road Fengtai District


Beijing, China 100070


(Address of principal executive offices)





Issuer’s telephone number, including area code: 86-10-5809-0217





Securities registered pursuant to Section 12(b) of the Act: None.





Securities registered pursuant to Section 12(g) of the Act: None.





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





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  ̈ No þ





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




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





Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K þ





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. (as defined in Rule 12b-2 of the Exchange Act). Check one:




Large accelerated filer
 ̈

Non-accelerated filer
 ̈Accelerated Filer
 ̈

Smaller reporting

company
þ





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





As of November 30, 2010, the last day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the shares of the Registrant’s common stock held by non-affiliates (based upon the closing stock price of $2.40 as reported on the Over-the-Counter Bulletin Board) was approximately $14,378,424. Shares of the Registrant’s common stock held by each executive officer and director and by each person who owns 10 percent or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates of the Registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.





As of September 21, 2011, there were outstanding 13,180,620 shares of the registrant’s common stock, no par value.





Documents incorporated by reference: None.





China Infrastructure Construction Corporation





Form 10-K





Table of Contents





PagePART IItem 1.

Description of Business

3Item 1A.

Risk Factors

18Item 2.

Description of Property

27Item 3.

Legal Proceedings

28PART IIItem 5.

Market for Common Equity and Related Stockholder Matters

28Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

29Item 8.

Financial Statements and Supplementary Data

33Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

34Item 9A

Controls and Procedures

34Item 9B.

Other Information

35PART IIIItem 10.

Directors and Executive Officers

36Item 11.

Executive Compensation

38Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

41Item 13.

Certain Relationships and Related Transactions, and Director Independence

45Item 14.

Principal Accountant Fees and Services

46PART IVItem 15.

Exhibits

47Signatures



50Financial Statements

F-1


2


PREDICTIVE STATEMENTS AND ASSOCIATED RISK





Certain statements in this Report, and the documents incorporated by reference herein, constitute predictive statements. Such predictive statements involve known and unknown risks, uncertainties and other factors which may cause deviations in actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied. Such factors include, but are not limited to: market and customer acceptance and demand for our products; our ability to market our products; the impact of competitive products and pricing; the ability to develop and launch new products on a timely basis; the regulatory environment, including government regulation in the PRC; our ability to obtain the requisite regulatory approvals to commercialize our products; fluctuations in operating results, including spending for research and development and sales and marketing activities; and other risks detailed from time-to-time in our filings with the U.S. Securities and Exchange Commission (the “SEC”).





The words "believe, expect, anticipate, intend and plan" and similar expressions identify predictive statements. These statements are subject to risks and uncertainties that cannot be known or quantified and, consequently, actual results may differ materially from those expressed or implied by such predictive statements. Readers are cautioned not to place undue reliance on these predictive statements, which speak only as of the date they are made.





Unless otherwise noted, all currency figures in this filing are in U.S. dollars. References to "yuan" or "RMB" are to the Chinese yuan (also known as the renminbi). According to the currency exchange website www.xe.com, as of May 31, 2011, US $1.00 = 6.4939 yuan.





PART I





ITEM 1.BUSINESS





Overview





China Infrastructure Construction Corporation (the “Company”) was organized in Colorado on February 28, 2003. The Company, through its subsidiaries in Hong Kong and the People’s Republic of China (“PRC” or “China”), engages in production of ready-mixed concrete for developers and the construction industry in the PRC. The Company primarily operates through its indirect majority-owned subsidiary, Beijing Chengzhi Qianmao Concrete Co., Ltd. (“Beijing Concrete”), a company organized under the laws of the PRC.





Corporate History





The Company was organized in Colorado on February 28, 2003 as a limited liability company under the name “Fidelity Aircraft Partners LLC,” and on December 16, 2004 converted itself into Fidelity Aviation Corporation by filing a Statement of Conversion and Articles of Incorporation with the Colorado Secretary of State. At that time we were engaged in the business of salvaging rotable parts and systems from airframes and selling them to the aviation industry. In 2008, we began to pursue an acquisition strategy, whereby we sought to acquire an undervalued business with a history of operating revenues in markets that provide room for growth.





On October 8, 2008, the Company consummated a share exchange transaction pursuant to that certain Share Exchange Agreement, as a result of which Northern Construction Holdings, Ltd., a Hong Kong limited company (“NCH”) became our wholly-owned subsidiary. Beijing Fortune Capital Management, Ltd., a PRC limited liability company (“BFCM”), a 95% owned subsidiary of NCH, became our indirect majority-owned subsidiary. The remaining 5% equity interest in BFCM is held by Beijing Xingyuqing Tech Co., Ltd., controlled by Mr. Bingchuan Xiao, a former director of the Company. BFCM owned 99.5% of the equity interest in Beijing Chengzhi Qianmao Concrete Co., Ltd. (“Beijing Concrete”), which enabled us to acquire the business and substantially all of the assets of Beijing Concrete. The remaining 0.5% in Beijing Concrete is owned by Mr. Rong Yang, one of the original founders of Beijing Concrete and our current chief executive officer and director. For accounting purposes, the share exchange transaction was treated as a reverse acquisition with NCH as the acquirer and the Company as the acquired party. Following the share exchange, we evaluated the future market for our aircraft parts business and resolved not to pursue this line of business any further.


3





On January 15, 2010, Beijing Concrete increased its registered capital from RMB 15 million (approximately $2.2 million) to RMB 30 million (approximately $4.4 million) and BFCM increased its investment in Beijing Concrete accordingly. Its share capital increased from RMB 10 million (approximately $1.47 million) to RMB 15 million (approximately $2.2 million). As a result, BFCM owns 99.67% of Beijing Concrete from January 15, 2010.





On February 1, 2010, Beijing Concrete formed a subsidiary, Shaanxi Hongruida Concrete Ltd. (“Hongruida”) and contributed RMB 10 million (approximately $1.47 million) to its capital. Beijing Concrete is the sole shareholder of Hongruida. Hongruida was organized to implement the 10-year strategic cooperative agreement with one of the Company’s major clients, China Railway Construction Group Co., Ltd (“CRCG”). Under the Agreement, the Company and CRCG will jointly manage the concrete mixing stations to be operated by Hongruida. CRCG will provide the cement for manufacturing the concrete mix in such concrete mixing stations, and will be able to purchase the concrete mix at discounted prices. Also, in accordance with the Agreement, each party will lease certain equipment to the concrete mixing stations.  The Company and CRCG will share 75% and 25% of the annual profits of such concrete mixing stations in Xi’an. Hongruida commenced its operations at the end of March 2010.





Effective August 24, 2009, the Company changed its name from Fidelity Aviation Corporation to China Infrastructure Construction Corporation.





Our current corporate structure is set forth in the following diagram:











Recent Developments





On September 28, 2009, the Company effectuated a 1-for-10 reverse stock split of the Company’s common stock, with no par value (the “Reverse Stock Split”). Upon the Reverse Stock Split, ten (10) shares of the outstanding common stock were automatically converted into one (1) share of common stock. The Reverse Stock Split, however, did not alter the number of shares the Company is authorized to issue, but only reduced the number of shares of its common stock issued and outstanding. Any fractional share issued as a result of the reverse split was rounded up.


4





On October 14, 2009, to provide incentives to the Company’s management and to adjust the Company’s capital structure, the Company issued to Rui Shen, the majority shareholder of the Company, an aggregate of 7,031,344 shares of common stock (after taking into account the 1-for-10 reverse stock split which took effect on September 28, 2009).




On October 16, 2009, the Company entered into and consummated the sale of securities pursuant to a Subscription Agreement with a number of investors, providing for the sale to the investors of an aggregate of approximately 2,564,103 shares of common stock for an aggregate purchase price of approximately $10,000,000 (or $3.90 per Share). In connection with the private placement, the Company issued to the placement agent warrants to purchase 153,846 shares of Common Stock exercisable for a period of five years at an exercise price of $3.90 per share. Additionally, the Company issued to a financial advisor in the PRC 288,963 shares of common stock. Under the Subscription Agreement, the Company agreed to deliver additional shares of common stock to the investors on a pro rata basis for no additional consideration in the event that the Company’s after tax net income for each of the fiscal years ending May 31, 2010 and 2011 is less than $14,000,000 and $18,000,000, respectively, subject to certain adjustments (such as exclusion of non-cash charges and expenses required to be recognized by the Company under the United States generally accepted accounting principles), which number of shares would be calculated using the percentage of variation between the actual net income and the target net income.





On March 5, 2010, the Company and the investors in the October 2009 private placement (the “2009 Investors”) entered into an Amendment to the Subscription Agreement dated October 16, 2009. The Amendment modified certain covenants to which the Company had previously agreed pursuant to the Subscription Agreement, including exemption of the private placement described below from certain restrictions on subsequent offerings.





Under the Amendment, the Company agreed to file a registration statement covering the securities issued in the October 2009 private placement (the “Registrable Shares”), if at anytime after December 31, 2010 not all of the Registrable Shares may be sold without registration pursuant to Rule 144 under the 1933 Act. Such registration statement shall be filed within 45 days after receipt of a written demand from the 2009 Investors representing not less than 50% of the then outstanding Registrable Shares. The 2009 Investors also have piggy-back registration rights exercisable after December 31, 2010 with respect to the Registrable Shares that may not be sold without registration pursuant to Rule 144.





In consideration of the Amendment, the Company agreed to issue to the 2009 Investors warrants to purchase in the aggregate approximately 1,281,083 shares of Common Stock at an exercise price of $6.00 per share. The Company also agreed for the after tax net income target for fiscal year 2011 to be increased to $19.8 million from $18.0 million if the Company does not complete a public offering on or before the date on which it releases its 2011 net income data in a Form 10-K filed with the SEC. Under the Amendment, the Company agreed to deliver additional shares of common stock to the 2010 Investors who invest in the private placement described below ("2010 Private Placement") on a pro rata basis for no additional consideration in the event that the Company’s after tax net income for each of the fiscal years ending May 31, 2010 and 2011 is less than $14,000,000 and $18,000,000 (or $19,800,000 as applicable) respectively subject to certain adjustments (such as exclusion of non-cash charges and expenses required to be recognized by the Company under the United States generally accepted accounting principles), which number of shares should be equal to the percentage of variation between the actual net income and the target net income (the “Adjustment Percentage”). The number of such additional shares shall equal the Adjustment Percentage, times the number of shares of Common Stock acquired by the 2009 Investor in the 2010 Private Placement, minus the Adjustment Percentage times the number of shares acquired by such investor in the October 2009 private placement which have been sold by the investor as of the date on which the Company releases its respective net income data in a Form 10-K filed with the SEC.





On March 11, 2010, the Company consummated a private placement pursuant to a Subscription Agreement dated March 5, 2010 with a number of investors, providing for the sale to the investors of an aggregate of approximately 1,282,091 shares of common stock for an aggregate purchase price of approximately $5,000,000 (or $3.90 per Share). In connection with the private placement, the Company issued to the placement agent a warrant to purchase 46,154 shares of common stock exercisable for a period of five years at an exercise price of $3.90 per share and paid a transaction fee of $240,000. Additionally, the Company issued to a finder a warrant to purchase 23,077 shares of common stock exercisable for a period of five years at an exercise price of $3.90 per share and paid a transaction fee of $120,000.


5





Our Business





Through our indirect subsidiary Beijing Concrete, which has been engaged in the concrete business since January 2002, we are operating as a producer of advanced ready-mix concrete materials headquartered in Beijing, China. The Company specializes in the production of ready-mix concrete and other types of concrete for developers in the construction industry.  The Company currently is certified by the Chinese Ministry of Construction to produce certain types of concrete (model C10 to model C60) for residential and commercial developers as well as for industrial companies. The Company currently is applying for certification to produce all types of concrete.





The Company currently owns two stationary factories and two mobile concrete mix stations, which in total have 6 ready-mix concrete batching plants, and two new batching plants are under construction. In addition, it owns 5 concrete transport pumps, 53 truck transit mixers and 3 bulk cement transport vehicles.  All pump vehicles and trucks are installed with GPS tracking systems, which ensure the quality control and safe delivery of the concrete mix.





The Company currently has an annual output capacity of approximately 2.76 million cubic meters of concrete. In fiscal years 2011 and 2010, the Company’s revenues amounted to $83.4 million and $73.9 million, respectively.  All of the Company’s products have been certified by the ISO9001-2000 Certification Quality System and by the Chinese Ministry of Construction Beijing Branch Certification Center with respect to Integrated Certification System which includes Quality Management System, Environmental Management System and Occupational Health and Safety Management System.





Over the past six years, we have successfully expanded our operations from a single ready-mix concrete factory in Beijing to additional production in the cities of Tangshan and Xi’an. Currently, the Company has four main concrete factories. Of these, one factory has one set of Betomix 3.0A-R/DW series mixing towers, one factory has one set of HZS120 series mixing towers, one factory has two sets of HZS120 series mixing towers, and one factory has two sets of HZS180 series mixing towers. Our facilities are located in Beijing’s Daxing District, Shidu, on the outskirts of Beijing, in the Tangshan Development Zone, about two hundred kilometers east of Beijing, and in Xi’an, central China.





The following summarizes the details of the two factories and two mobile stations as of May 31, 2011:





Location

Batching Plants

Model

Number

of Sets

of

Mixing

Towers


Production

capacity (m3)


Estimated

Production Capacity

(based on

estimated

utilization

rate)

StatusBeijing (Daxing)

1 Betomix 3.0A-R/DW (Stationary)


1



1,576,800



551,880

Operating since 2002Beijing (Shidu)

HZS 120 (Mobile)


1



1,051,200



367,920

Operating since February 2010Tangshan Caifeidian

HZS 120 (Mobile)


2



2,102,400



735,840

Operating since November 2009Xi’an

HZS 180 (Stationary)


2



3,153,600



1,103,760

Operating since March 2010


6





The Company is building two additional stationary concrete factories with two batching plants of 3.5 million cubic meters production capacity at Beijing factory, which are going to start to operate in September 2011.





Since March 2010 our Caifeidian facility has been providing manufacturing service to our customers. In this business model the customer provides to us raw materials to be used for production of concrete for the customer. Large contractors working on big projects have more bargaining power to negotiate lower prices for raw materials. The Company benefits from this as well because it does not need to advance cash to buy raw materials. Starting from 2011, the Caifeidian facility provides only manufacturing service to its customers. In October 2010, the Shidu facility also switched to providing only manufacturing service to its customers.





The Company is committed to conducting its operations with an emphasis on the efficient production, management and innovation of our concrete products. In particular, we produce “Green Concrete” by extensively using recycled industrial waste and minimizing the energy consumption and the dust and air pollution. We believe that we are able to meet the stringent environmental and technical needs of a rapidly growing market in China. The types of projects for which we provide concrete include large express railways, bridges, tunnels, skyscrapers, and dams. Many competitors are not able to participate in such projects due to technical requirements and the limitations of funding and information.





Our Industry





We believe that as its economy has opened and become more developed and vibrant since the 1990s, China plays a more and more important role in the concrete industry as both a producer and user of concrete and concrete products.  China is the world’s largest producer of cement and its output of cement reached up to 1.38 billion tons in 2008, 1.63 billion tons in 2009 and 1.87 billion tons in 2010.  Cement production has grown about 10 percent per year over the past two decades and is now growing even faster to keep up with massive urbanization. Today, China produces roughly half of the total cement in the world, whereas the next three largest producers, India, Japan, and the United States altogether produce less than 20 percent. (Source: Chengdu Xinbotelan Technology Inc.; see www.snsqw.com )





Cement consumption in China is forecast to rise by 6% annually through 2012, reaching 1.8 billion tons, according to a new study, "Cement in China", issued by the Freedonia Group. The study also mentioned that construction contractors will remain the largest market for cement in China, accounting for approximately 36% of all cement consumption in 2012. According to the same study, the ready-mix concrete market will see the strongest growth, rising 9.8% per annum through 2012 to 383 million tons. Some of the forecasted growth is projected to result from government regulations banning on-site concrete and mortar mixing as described in more detail under the heading “Business”-“Products and Services” of this report. Demand for cement used in concrete products is expected to grow 5.4% annually through 2012 to 513 million tons, driven by the growing popularity of precast concrete with many construction contractors. The government’s continued efforts to modernize the country’s infrastructure is exemplified by such massive projects as the South-North Water Diversion - designed to redirect water to the northern plains from Central and South China. This project, scheduled for completion in 2050, will result in annual cement consumption of over one million metric tons alone.





China accounts for half of all new building activity in the world and rapid expansion is expected to continue. According to the Report of China Cities Competence, (http://www.ce.cn/cysc/cysczh/200803/31/t20080331_15010675.shtml) up to 1 billion people in China are expected to move into Chinese urban areas by 2030.





Residential and non-residential buildings in China are increasingly requiring much more concrete due to, among other reasons, the short supply of wood. China is currently the largest consumption market of cement worldwide at over $200 billion annually. China’s cement consumption amounted to approximately 54% of global demand in 2010 and was greater than current combined consumption of India, United States, Turkey, Iran, Brazil, Japan, Spain, Vietnam, Russia, Egypt, South Korea, Saudi Arabia, Indonesia, Italy, Mexico, German, Thailand and Pakistan according to the USGS Mineral Program Cement Report. At the present rate, it is presumed that China will continue to be an important player in the global construction materials marketplace for at least the next two decades.


7





China’s concrete market is considered highly competitive, with over 10,000 providers, of which we estimate that approximately 3,000 are ready mix concrete producers. Global Information Inc. reports that ready-mix concrete companies will benefit from an extremely favorable outlook in China, where large-scale construction projects will require significant amounts of ready-mix concrete. In the Beijing concrete market, for example, we estimate that no competitor has greater than a 10% market share according to the Beijing Concrete Association.





According to a recent article in the Economic Observer Newspaper China, the Chinese government has reviewed its investment priorities under the 4-trillion-yuan (USD $586 billion) stimulus package introduced in 2008, with more emphasis given to social welfare projects, rural development, and technology advancement.





China's top economic planner, the National Development and Reform Commission (NDRC), unveiled a breakdown (see chart below) of the revised stimulus package spending during a news conference on March 6, 2009.











Public infrastructure development constitutes the biggest portion – USD $222.7 billion, or nearly 38% of the total Stimulus Package. The projects to be undertaken by the Chinese government include railway, road, irrigation, and airport construction, for which we can provide concrete.





Other than the Chinese Central Government’s USD $586 billion stimulus funds, provincial governments are anticipated to invest another USD $1.5 trillion over the next five years. More than half of the total investment is for infrastructure development.





As part of the Eleventh Fifth Year Plan, the PRC Government had earmarked $730 billion prior to the stimulus plan for the expansion of the rapid railway system.  Some of the details include:





·
The national rail network is set to grow by 41,000 km (50%) by 2020.


·
RMB 5 trillion (USD $730 billion) government spending plan.


·
Expected to consume 120 million tons of cement.


8





As a result of the Chinese Government Stimulus Package, the demand for cement and concrete in China is expected to significantly increase in the next several years.





Products and Services





We specialize in “ready-mix concrete”, a concrete mixture made at our production facilities. Ready-mix concrete is mixed on demand and is shipped to worksites by concrete mixer trucks. Currently 20% of the total concrete produced in China is ready-mixed concrete, and 80% is mixed on the construction sites.  In developed countries, 80% of the total concrete produced is ready mix concrete. This sector in the concrete market is growing at a fast rate, largely due to the Chinese government’s implementation of Decree #341 in 2004, which bans on-site concrete production in over 200 cities across China, with the goal of reducing environmental damages from on-site cement mixing and improving the quality of cement used in construction. The use of ready-mix concrete minimizes worksite noise, dirt and congestion. Additionally, most additives used in ready-mix concrete are environmentally safe. We use at least 34% recyclable components in our green concrete products.





Green Concrete is the concrete that utilizes industrial waste, or other recycled materials as part of its raw materials, such as the ash reclaimed from the power-plant, the grounded waste steel slag powder, and the waste ore from steel mills.  Green Concrete has better performance and properties than regular concrete in terms of endurance and strength, among other things.





Since the Green Concrete uses large amounts of industrial waste, the Company’s products are cost effective and environmentally friendly.





Features of “Green Concrete” include:





·
Reduced cement consumption


·
Reduced costs of concrete


·
Reduced costs of construction


·
Reduced energy consumption


·
Improved attributes (i.e. strength, endurance, and bonding)





We have a product portfolio that serves the diverse needs of our expanding customer base and its unique construction and infrastructure projects. While we mainly specialize in ready-mix concrete formulations from controlled low-strength material to high-strength concrete, specifically formulated to cater into the respective requirement of each project, we provide both industry standard and highly innovative products, including: Green Concrete, Self-densifying Concrete, Lightweight Aggregate Pumpable Concrete, Heavy Concrete, Macro-void Pervious Concrete, C60 Mass Concrete, Color Concrete, etc.





Manufacturing Process





Introduction





Concrete is a mixture of paste and aggregates (sand & rock). The paste is usually composed of cement and water, coating the surface of the fine sand and coarse aggregates such as rocks and binding them together into a rock-like mass known as concrete.





Aggregates comprise approximately 61 percent of the total volume of concrete. The type and size of the aggregate mixture depends on the thickness and purpose of the final concrete product. A continuous gradation of particle sizes is desirable for efficient use of the paste. In addition, aggregates should be clean and free from any matter that might affect the quality of the concrete.


9











The key to achieving a strong, durable concrete rests on the careful proportioning and mixing of the ingredients. Concrete mixture that does not have enough paste to fill all the voids between the aggregates will be difficult to place and will produce rough, honeycombed surfaces and porous concrete. A mixture with an excess of cement paste will be easy to place and will produce a smooth surface; however, the resulting concrete will be more likely to crack and be uneconomical.





A properly proportioned concrete mixture will possess the desired workability for the fresh concrete and the required durability and strength for the hardened concrete. Typically, a mixture is by volume approximately 16 percent cement, 61 percent aggregates and 18 percent water. Entrained air bubbles in many concrete mixtures may also take up another 3 percent.





The character of concrete is determined by the quality of the paste. The strength of the paste, in turn, depends on the ratio of water to cement. The water-cement ratio is the weight of the mixing water divided by the weight of the cement. High-quality concrete is produced by lowering the water-cement ratio as much as possible without sacrificing the workability of fresh concrete. Generally, using less water produces a higher quality concrete provided the concrete is properly placed, consolidated and cured.





Besides portland cement, the most widely used type of cement around the world, concrete may contain other cementitious materials including (i) fly ash, a waste byproduct from coal burning electric power plants; (ii) ground slag, a byproduct of iron and steel manufacturing; and (iii) silica fume, a waste byproduct from the manufacture of silicon or ferro-silicon metal. The concrete industry uses these materials, which would normally have to be disposed in land-fill sites, to the advantage of concrete. The materials participate in the hydration reaction and significantly improve the strength, permeability and durability of concrete.





Admixtures are generally products used in relatively small quantities to improve the properties of fresh and hardened concrete. They are used to modify the rate of setting and strength development of concrete, especially during hot and cold weather. The most common is an air-entraining agent that develops millions of tiny air bubbles in concrete, which imparts durability to concrete in freezing and thawing exposure. Water reducing admixtures enable concrete to be placed at the required consistency while minimizing the water used in the mixture, thereby increasing strength and improving durability. A variety of fibers are incorporated in concrete to control cracking or improve abrasion and impact resistance. Most common admixtures we use include pumping agent, superplasticizer, and expansive admixtures.


10





Hydration





After the aggregates, water, and the cement are combined, the mixture remains in a fluid condition for about four to six hours during which we use the agitator trucks to transport, place and finish the concrete in its final location. We have around 94 truck drivers to operate and deliver the concrete to customers mainly in the Beijing area, Tangshan, Hebei Province, and Xi’an area. We intend to hire more drivers to accommodate our growing business.





Quality Control Laboratories





The proportioning of a concrete mix design should result in an economical and practical combination of materials to produce concrete with the properties desired for its intended use, such as workability, strength, durability and appearance. We have laboratories on the site of each plant, performing quality control tests throughout our manufacturing process to ensure that our products are accustomed to the needs of the customers. During various stages of the ready-mix concrete manufacturing, the labs inspect the raw materials, such as the sand, rocks and water, and determine the proportion of the ingredients of the concrete in accordance with the specifications received from the customers, before the mixing of aggregates and paste. Right after the mixing process, the labs will also perform tests on the fluid concrete with respect to its minimum cement content, air content, slump, maximum size of aggregate, strength, etc. The Company, over the years, has developed some expertise in selecting the proportions based on previously developed guidelines and experience. We have established methods for selecting the proportions for concrete for each batch and producing environmental friendly concrete with best performance:





·
We utilize fly ash, waste ore, slag or other cementitious materials, which enhance concrete properties, to supplement our cement. We aim to have the least amount of water that can result in a mixture that can be easily placed, consolidated and finished.





·
Our labs also make sure the concrete aggregates are required to meet appropriate specifications and in general should be clean, strong and durable.





·
We apply some air-entraining and water reducing admixtures into the ready-mix concrete to adjust the rate of setting and strength development of our concrete.





The Company tests the absolute volume of the concrete to determine the safety factor, through which the Company reduces the costs of cement while still meeting the criteria of the product specifications. In addition, the Company applies advanced statistical and orthogonal (two perpendicular right angles) design techniques in test and data processing, which is a system design property that facilitates the feasibility and compactness of complex designs. These processes allow the Company to produce a more cost efficient “Green Concrete” while maintaining the product’s quality.





Sales and Marketing





Our marketing efforts are geared towards advancing the Company as the supplier of choice for helping to build China’s most modern and challenging projects. We are constantly seeking ways to raise our profile and leverage additional publicity. To this end, we plan to expand the Company’s presence at leading construction industry events and in periodicals to build on its successful reputation. The primary goal when expanding into new markets is to reinforce the sales effort by promoting positive testimonials and success stories from the Company’s strong base of high profile clients.





The marketing strategy of the Company relies primarily on direct sales and we usually develop our market through the following three means: (i) by our sales department, which consists of 5-6 employees in each station, conducts the market promotion and development and also collects the feedback from the customers on the Company’s products; (ii) by the salesmen, currently around 10 people, with whom we contract to expand our client base; and (iii) by references from our current customers and our raw material suppliers. Due to positive prior experience with the government projects and extensive work with the PRC government on such projects in the past, we believe that we will continue to receive access to such projects in the future.


11





Raw Materials and Suppliers





We rely on third-party suppliers of the raw materials to manufacture our products. The main components of our products include cement, fly ash, slag, admixture, sand and gravel. Our primary suppliers of each are:





Raw Material

SuppliersCement

Tianjin Zhenxing Cement Factory, Hebei Wushan Cement Factory, Hebei Luan Xian Maopai Cement FactoryFly ash

Beijing Xingda Fly Ash Co., Baolu Tongda Co., Zhongxin Shenyuan Fly Ash Co.Slag

Beijing Shenshou Slag Co., Tangshan Slag Co., Beijing Liuhuan Construction Trade  Center Co.Sand

Zhuozhou Hongyuan Sand & Gravel Factory, Zhuozhou Shuishang Leyuan Sand & Gravel FactoryGravel

Changqing Sand & Gravel Factory, Zhuozhou Shuishang Leyuan Sand & Gravel Factory





We believe we are not dependent on any of these suppliers and will be able to replace them, if necessary, without material difficulties. In particular, we do not expect to experience a shortage of cement, the main material for manufacturing our product, since it is usually readily available and we have long-term contracts with three large cement manufacturers to ensure the constant supply.





Our major supplier of truck transit mixers and concrete transport pumps is Sanyi Zhonggong Ltd. (“Sanyi Zhonggong”), which is the largest concrete production equipment manufacturer in the world. We have purchased over US$5.2 million of equipment from Sanyi Zhonggong. Pursuant to a Strategic Agreement with Sanyi Zhonggong dated December 3, 2009, we agreed to use Sanyi Zhonggong as our preferred equipment supplier, and Sanyi Zhonggong in turn will provide discounts on the purchase prices of the equipment, 24/7 customer service, as well as training services to our employees. For potential construction projects undertaken by Sanyi Zhonggong in China, we will be recommended as their preferred ready-mix concrete provider.





Principal Customers





Our clients are mostly property developers and industrial companies, as well as PRC state-owned companies. Some of them are publicly listed, such as Beijing Capital Steel Group, Tangshan Jiahua Chemical Corporation and Guangzhou Fuli Real Estate Group, a public company listed on the Hong Kong Stock Exchange.  Fuli Group’s annual sales are over 1.5 billion US dollars.  The PRC state-owned companies, which are our customers, include China Railway Construction Group (“CRCG”), China Construction Group (“China Construction”), Beijing Construction Corporation and Beijing Chemical and Coking.





We had one major customer, China Railway Construction Group, which represented 18% and 14% of the Company’s total sales for the fiscal years ended May 31, 2011 and 2010, respectively.





Two customers, China State Construction Engineering Corporation and Guangzhou Tianli Construction Group accounted for 10% and 8% of the Company’s accounts receivable balance at May 31, 2011.  China Railway Construction Group, and Guangzhou Tianli Construction Group, accounted for 26% and 10% of the Company’s accounts receivable balance at May 31, 2010.





The following table summarizes some of the high-end residential and commercial real estate development projects, which are currently under construction or we completed as noted including those completed in fiscal years 2011, 2010 and 2009.


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Project Names

Start/Duration

(Year)

Concrete SuppliedBeijing Zhongxin Semiconductor Company (Completed)

2002

Supplied total 140,000 cubic meters400,000 square meters construction spaceBeijing Rainbow City Project (Completed)

2003

Supplied 100,000 cubic meters560,000 square meters construction spaceBeijing 5th Generation semiconductor Company (Completed)

2004

Supplied 70,000 cubic meters120,000 square meter construction spaceBeijing World Trade CBD project (Completed)

2005

Supplied 90,000 cubic meters180,000 square meter construction spaceBeijing Wanjing International Mansion (Completed)

2005-2006

Supplied 180,000 cubic meters240,000 square meters construction spaceTangshan Jiahua Project (project still in progress)

2007- 2010

434,000 cubic meters in total from September 2007 to November 2009Douge Zhuang (project still in progress)

2007-2010

314,000 cubic meters in total from June 2007 to November 2009Futai Xiangbo Yuan (project still in progress)

2007-2010

244,000 cubic meters in total from June 2007 to November 2009Beijing Fuli Real Estate Company

1.1  million square meters of construction space (project still in progress)

2009

755,000 cubic meters in total from June 2006 to February 2009Binhai Express Road (in Tangshang)

2011

412,000 cubic meters in total from Nov. 2009 to May 2011Fuli City (Beijing)

2011

347,000 cubic meters





Competition





Competitive Environment





Our principal market, Beijing, is considered highly competitive. It has enjoyed stronger economic growth and a higher demand for construction than other regions of China. There are approximately 130 concrete mixture stations in the Beijing area. According to our estimates, no single supplier has greater than a 10% market share, which results in this industry being highly segmented. We currently have an estimated market share of 2% in the ready-mix concrete market in Beijing.





In the Beijing market, we compete with national, regional and local construction companies.  Some of our competitors have greater financial and other resources than us. Our main competitors include Beijing Heng Kun Concrete Center, Beijing Jian Gong Group Concrete Center, and Beijing Gaoqing Concrete Company. In 2009, the Beijing government issued a series of policies to encourage concrete manufacturers to upgrade their transportation vehicles to those models that are environmentally friendly. Vehicles that cannot meet the environmentally friendly criteria will be restricted in going into the 5th ring of Beijing.  Therefore, concrete manufacturers that cannot afford replacing their truck transit mixers with the environmentally friendly models will be banned from delivering the concrete mix and eventually be eliminated from the concrete industry.


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We compete primarily on the basis of quality, technological innovation, customer service, and pricing of our products. We win projects which are awarded through a competitive bidding process based on our competitive pricing. Projects are usually awarded to the lowest bidder, if other conditions are the same, although other factors such as shorter delivery schedules are also taken into consideration.





Our Competitive Advantages





Comparing us with other companies in the concrete industry in Beijing and in the Tianjin area, we believe that the Company has the following competitive advantages:





(1)        Environmentally friendly products.





We produce all types of concrete products including specialty concrete for varied industry uses. Capitalizing on our research and development, we extensively use recycled materials such as fly ash (from coal fired power plants) and mining waste in our production with the share of these materials of approximately 34% of other raw materials used by us. In doing so, we not only help reduce environmental wastes but we also increase our product quality. Because we successfully apply this technology to our products, we have obtained tax exemptions and other incentives from government organizations. In accordance with a policy by China’s State Development and Reform Commission (the “SDRC”), if the percentage of the industrial wastes components in a company’s concrete mixture exceeds 30%, such company may enjoy the exemptions from income tax and franchise tax in China.





(2)        Strict and effective quality management system.





We have developed an effective quality management system that covers all aspects of our operations, including planning, budgeting, purchasing and production. In every step, not only do we have fully trained, experienced and skilled employees that are working in concert to ensure our product’s quality and timely delivery, we also implemented the computer-controlled Concrete Enter Price Management System (CEM 2008 System) to coordinate and oversee the manufacturing, bookkeeping and shipping process.  From signing contracts to finishing a project, we have a quality follow up supervising team to make sure that our concrete matches our clients’ engineering designs exactly. All pump vehicles and truck transit mixers are installed with GPS tracking systems, which ensure the quality control and safe delivery of the concrete mix.





Our quality supervisory staff on each construction site is responsible for finished product quality. For every previous project completed, we have earned a 100% pass rate. We believe that this effective management puts us at the top of the industry standard and has allowed the Company to achieve 5% more in profit for every cubic meter of concrete we produce and deliver.





(3)        We also have lower production costs by smart outsourcing and quality engineering.





More than 80% of concrete costs come from raw materials, such as cement, sands, fly ash, and gravel. The costs of materials have a direct impact on our production costs. We compare several suppliers’ quotes before we make final purchases. This ensures that we have the lowest prices for all of our raw materials.





In addition, the percentage of each of the raw materials needed to produce concrete is also a big factor that affects our production costs. Our research laboratory led by top professional engineers conducts extensive experiments to ensure that we have excellent mixing formulas while achieving the required quality. We believe the scientific formula of each type of concrete reduces our costs to levels 3% to 5% lower than our competitors.





We believe our tremendous track record in the industry, effective management, solid clientele base, lower production costs and higher than the industry average profit margin puts us at the top in the industry.


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(4) Maintenance of key relationships





We have successfully built long-term cooperative relationships with China’s top construction companies through our services. Our reputation and good record will help us gain new business from existing customers and new customers.





For instance, on December 3, 2009, the Company entered into a Strategic Agreement with Sanyi Zhonggong Ltd. (“Sanyi Zhonggong”), our major equipment supplier, whereby the Company agreed to choose Sanyi Zhonggong Ltd. as its preferred equipment supplier, and Sanyi Zhonggong in return will provide discounts on the purchase prices of the equipment as well as training services to the Company’s employees. For potential construction projects undertaken by Sanyi Zhonggong in China, we will be recommended by Sanyi Zhonggong as their preferred ready-mix concrete provider.





Growth Strategy





(1) Focus on The Infrastructure Industries and Develop New Relationships.Our sales people will focus on developing relationships with the government, general contractors, architects, engineers, and other potential sources of new business in our target markets. We will actively monitor and analyze China’s infrastructure construction plan to ensure that we direct our resources at the center of the developing area and have the opportunities to bid on the potential business at the earliest time.





(2)Capacity Expansion via Building New Plants. We will add two new stationary batching plants with larger capacity in Beijing during the fiscal year 2012 in order to meet the requirements of existing contracts and anticipated demand. We plan to add more mobile stations in 2012 as part of our long-term expansion plans for highway and high-speed railway projects.





(3) Cooperation with other concrete companies.We will consider cooperating with other concrete companies in certain area or for certain projects. The cooperation will include but not be limited to lease, co-construct a new plant and profit sharing, or an M&A transaction. We believe that by cooperating with local concrete companies, we will save capital and time compared with building a new plant by ourselves. And it will also help us to develop our relationship with local customers and suppliers.





Research and Development





Companies engaged in production of construction materials are under extreme pressure to respond quickly to industry demands with new designs and product innovations that support rapidly changing technical demand and regulatory requirements. We devote a substantial amount of attention to the research and development of advanced construction materials that meet the demands of project specific needs while striving to lead the industry in value, materials and processes. We have sophisticated in-house R&D and testing facilities, a highly technical onsite team, the access to highly specialized market research, the cooperation with a leading research institution, an experienced management and advisory board, and close relationships with leading concrete materials experts. A total of 20 employees are currently working for our R&D department. Our research and development expenses amounted to approximately $14,332 and $55,723 for the years ended May 31, 2011 and 2010, respectively.





Our research laboratory led by a team of 20 engineers and technicians conducts extensive experiments to ensure that we have excellent mixing formulas while achieving the required quality. This includes production of innovative concrete admixtures to supply the company. Admixtures are chemical raw materials used for production of concrete. Admixture is also one of the key materials that affect the quality of concrete. Through technology innovation, our admixture products help the Company produce environmentally friendly and energy-saving concrete.





We intend to conduct research in developing new raw materials. Adoption of new techniques and materials will help us reduce our cost of production and will help improve our product quality.


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We have dedicated ourselves to testing and research of ready-mix concrete.  We have been developing and researching the raw material mixture ratios, which are crucial to the quality of our products, by our advanced testing facilities and the 18 years of testing experience of our technical and engineering staff.





On December 31, 2009, the Company entered into a three-year agreement with the Institute of Building Materials, a subsidiary of the China Academy of Building Research ("CABR") (the “Agreement”). Under the Agreement, the Institute of Building Materials will provide its technical research, development and support exclusively to us for an annual payment of RMB 350,000 (or US$51,000). The Institute of Building Materials will also provide training courses to our employees. We are allowed to list the Institute of Building Materials as our technological partner in our marketing materials, and the Institute of Building Materials has agreed to use its relationships and brand influence in the construction industry to assist us in our business development.





Intellectual Property





We do not have any patents or other registered intellectual property. Currently, we are in the process of applying to register two of our trademarks. To protect our unregistered intellectual property, we enter into confidentiality agreements with our officers and employees in our R&D Department. A confidentiality agreement will cover three years after such officer or employee leaves the Company, and any breach of the agreement will subject such person to liquidated damages of RMB 10,000 and any other losses incurred by the breach.





Environmental Matters





We are required to comply with environmental protection laws and regulations promulgated by the Ministry of Construction and the State Environmental Protection Administration in China. Some specific environmental regulations apply to sealed transportation of dust materials and final products, non-open storage of sand and gravel, as well as reduction of noise and dust pollution on production site and encouraged use of waste materials. In 2009, the Beijing government issued a series of policies to encourage concrete manufacturers to upgrade their transportation vehicles to those models that are environmentally friendly. Vehicles that cannot meet the environment friendly criteria will be restricted in going into the 5th ring of Beijing.





In addition, the governmental regulatory authorities conduct periodic inspections on us. We have met all the requirements in the past inspections. The Company has set up and documented its environment management system according to GB/T24001-2004 Guidance. The Company has also invested: 1) $29,411 for powder silo dust equipment, which reduces the release of dust when delivering the concrete mix; 2) $14,705 for sand and gravel separators, which recycle and reuse the discharged concrete; 3) $14,705 for 3 sedimentation tanks to recycle the water in the manufacturing process; and 4) $294,117 for a warehouse to store sand and gravel to reduce the air pollution.  Because of our dedication to be environmentally friendly, we are one of the companies in the industry that have been awarded the honor of “Green Concrete Producer” by the PRC government.





Seasonality





Our manufacturing operations are primarily located in northeastern China, which is cold during the winter months. During such time, we are able to manufacture our advanced ready-mix concrete material; however, many construction projects operate on an abbreviated work schedule, if at all.





Regulations





Our products and services are subject to regulation by governmental agencies in the PRC, Beijing City and Hebei Province. Business and company registrations, along with the products, are certified on a regular basis and must be in compliance with the laws and regulations of the PRC and provincial and local governments and industry agencies, which are controlled and monitored through the issuance of licenses. All of the Company’s products have passed the ISO9001-2000 Certification Quality System and Integrated Certification System including Quality Management System Certification, Environmental Management System Certification and Occupational Health and Safety Management System Certification issued by the Beijing Zhong Jian Xie Certification Centre.


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We have been in compliance with all registrations and requirements for the issuance and maintenance of all licenses and certificates required by the applicable governing authorities, including the Ministry of Construction and the Beijing Administration of Industry & Commerce. The Ministry of Construction awards Level II and Level III qualifications to concrete producers in the PRC construction industry, based on criteria such as production capacity, technical qualification, registered capital and capital equipment, as well as performance on past projects. Level II companies are licensed to produce concrete of all strength levels as well as special concrete, and Level III producers are licensed to produce concrete with strength level C60 and below. We are a Level III concrete producer.





Our Employees




As of September 21, 2011, we had 389 employees. The following table sets forth the number of our full-time employees by department as of September 21, 2011:





Department

Number of

EmployeesAccounting


20Supply, Purchase & Inventory


44Technical & Engineering Staff


35Production Staff


246Administrative Staff


44Total


389





As required by applicable PRC law, we have entered into employment contracts with most of our officers, managers and employees. We are working towards entering into employment contracts with those employees who do not currently have employment contracts with us. We believe that we maintain a satisfactory working relationship with our employees, and we have not experienced any significant labor disputes or any difficulty in recruiting staff for our operations.





Our employees in China participate in a state pension plan organized by PRC municipal and provincial governments. We are currently required to contribute to the plan at the rate of 20% of the average monthly salary.





In addition, we are required by PRC law to cover employees in China with various types of social insurance, and we believe that we are in material compliance with the relevant PRC laws.





Insurance





We maintain worker's employee insurance for our employees. We provide social welfare insurance for our employees. We also provide life insurance for our officers. Other than the above mentioned, we do not maintain any other business, liability or key employee insurance.





Company Information





Our principal executive offices are located at Room 1906, Shidai Caifu Tiandi Building, 1 Hangfeng Road, Fengtai District, Beijing, China 100070, and our telephone number is 011-86-10-5809-0110.





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ITEM 1A. RISK FACTORS





An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this report, before making an investment decision. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.





RISKS RELATED TO OUR BUSINESS





Our revenue will decrease if the construction and building material industries experience a downturn, or if the concrete industry in China does not realize an increase in demand at the pace we expect.





Our cement and cement products serve as key components in construction and building projects for a wide range of industries and private and public sector projects.  Therefore, we are subject to the general changes in economic conditions affecting many segments of the economy.  Demand for concrete is typically affected by a number of economic factors, including, but not limited to, interest rates, market and government confidence, political priorities, level of construction of commercial, government and residential projects, and the level of construction financing available. Also, our revenue is dependent upon the cost and availability of raw materials, the cost of labor, increased taxes, and other costs of doing business.  If there is a decline in construction activity in China or a rise in the costs of doing business in China, demand for our concrete products may decline and our revenue will decrease.





Competition in the concrete industry could adversely affect our results of operations.





We operate in local and regional markets in China, and many factors affect the competitive environments we face in any particular market. These factors include the number of competitors in the market, the pricing policies and financial strength of those competitors, the total production capacity serving the market, the barriers to enter the market and the proximity of natural resources, as well as general economic conditions and demand for construction materials within the market. Although we believe our products and quality of service are superior, there is no assurance that existing or new competitors may not receive contracts for which we compete by reason of events and factors beyond our control.





Our growth strategy is capital intensive; without additional capital on favorable terms we may not accomplish our strategic plan.





Our expansion plans are premised upon our raising sufficient capital to timely build or acquire two to three new production plants in the next two to three years to accommodate the increased concrete production needs.  Although we believe that, given our current level of revenue and net income, our management team, and our track record of performance, we may be able to raise sufficient capital to carry out our strategic plan, there can be no assurance that we will do so. Our inability to raise sufficient capital or inability to raise capital on acceptable terms to fund these new production plants would negatively impact our projected revenues and our projected growth.





Long-term collection of accounts receivable and potential bad debts may impose a threat to our operations and expansion.





Common among most of the businesses in the concrete industry, we have a large amount of accounts receivable, which accounts for over 70% of the total assets. A substantial majority of our outstanding trade receivables are not secured by any collaterals or credit insurance. While we have procedures to monitor and limit exposure to credit risk on our trade and non-trade receivables, there is no assurance that such procedures will effectively limit our risks of bad debts and avoid losses, which could have a material adverse effect on our financial condition, operating results and business expansion.


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We depend heavily on key personnel, and turnover of key employees and senior management could harm our business.





Our future business and results of operations depend in significant part upon the continued contributions of our key technical and senior management personnel, including Rong Yang, our Chairman and Chief Executive Officer.  They also depend in significant part upon our ability to attract and retain additional qualified management, technical, marketing and sales and support personnel for our operations.  If we lose a key employee, or if we are not able to attract and retain skilled employees as needed, our business could suffer.  Significant turnover in our senior management could significantly deplete our institutional knowledge held by our existing senior management team.  We depend on the skills and abilities of these key employees in managing the manufacturing, technical, marketing and sales aspects of our business, any part of which could be harmed by turnover in the future.





We expect approximately 65% of our sales revenues will be derived from our ten largest customers in 2012 and any reduction in revenues from any of these customers would reduce our revenues and net income.





In fiscal year 2011, we derived 68.69% of our revenue from our ten largest customers.  In fiscal year 2010, we derived 72.8% from our ten largest customers.





Leased properties and production lines may be terminated due to unexpected reasons.





We presently have a ten-year lease, signed in 2006, for our Beijing production base and have built our offices and manufacturing facilities on this site. We lease land for our Xi’an production facility. While we believe this lease is secure for us, under our laws, the lease could be terminated for unexpected reasons.





Our intellectual property rights in our proprietary admixture products may be hard to protect, and litigation to protect our intellectual property rights may be costly.





One of our strategies focuses on the development, use and sale of specialty admixture concrete products.  We currently use such products in our own operations. These proprietary admixture products are protected by trade secrets only, and are not patented. Accordingly, we cannot ensure that a competitor may not be able to duplicate and commercialize our proprietary products. Litigation may be necessary to enforce our intellectual property rights and given the relative unpredictability of China’s legal system and potential difficulties enforcing a court judgment in China, there is no guarantee litigation would result in an outcome favorable to us. Further, any such litigation could be costly and divert management away from our core business. Our financial results could be negatively affected if we cannot protect or timely develop our admixture products.





Our continuing rapid expansion could significantly strain our resources, management and operational infrastructure which could impair our ability to meet increased demand for our products and hurt our business results.





To accommodate our anticipated growth and to build additional production plants, we will need to expend capital resources and dedicate personnel to implement and upgrade our accounting, operational and internal management systems and enhance our record keeping and contract tracking system.  If we cannot successfully implement these measures efficiently and cost-effectively, we will be unable to satisfy the demand for our products, which will impair our revenue growth and hurt our overall financial performance.





We may lose business to competitors who underbid us, and we may be otherwise unable to compete favorably in our highly competitive industry.





Our competitive position in a given market depends largely on the location and operating costs of our plants and prevailing prices in that market.  Generally, our products are price-sensitive. Our prices are subject to changes in response to relatively minor fluctuations in supply and demand, general economic conditions and market conditions, all of which are beyond our control. Because of the fixed-cost nature of our business, our overall profitability is sensitive to minor variations in sales volumes and small shifts in the balance between supply and demand. Price is the primary competitive factor among suppliers for small or simple jobs, principally in residential construction. However, timeliness of delivery and consistency of quality and service, as well as price, are the principal competitive factors among suppliers for large or complex jobs. Concrete manufacturers like us generally obtain customer contracts through local sales and marketing efforts directed at general contractors, developers and homebuilders. As a result, we depend on local relationships.  We generally do not have any long-term sales contracts with our customers.


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Our competitors range from small, owner-operated private companies to subsidiaries or operating units of large, vertically integrated manufacturers of cement and aggregates. Our vertically integrated competitors generally have greater manufacturing, financial and marketing resources than we have, providing them with a competitive advantage. Competitors having lower operating costs than we do or having the financial resources to enable them to accept lower margins than we do will have a competitive advantage over us for projects that are particularly price-sensitive. Competitors having greater financial resources or less financial leverage than us may have a competitive advantage because of their greater financial flexibility to invest in new mixer trucks, build plants in new areas or pay for acquisitions.





Our contracts may require us to perform extra or change order work, which can result in disputes and adversely affect our working capital, profits and cash flows.





Our contracts may require us to perform extra or change order work as directed by the customer even if the customer has not agreed in advance on the scope or price of the work to be performed. This process can result in disputes over whether the work performed is beyond the scope of the work included in the original project plans and specifications or, if the customer agrees that the work performed qualifies as extra work, the price the customer is willing to pay for the extra work. Even when the customer agrees to pay for the extra work, we may be required to fund the costs of such work for a lengthy period of time until the change order is approved and funded by the customer.





We may incur material costs and losses as a result of claims if our products do not meet regulatory requirements or contractual specifications.





Our operations involve providing products that must meet building code or other regulatory requirements and contractual specifications for durability, stress-level capacity, weight-bearing capacity and other characteristics. If we fail or are unable to provide products meeting these requirements and specifications, material claims may arise against us and our reputation could be damaged. We expect that in the future there may be claims of this kind asserted against us. If a significant product-related claim or claims are resolved against us in the future, that resolution may have a material adverse effect on our financial condition, results of operations and cash flows.





Our net sales attributable to public infrastructure projects could be negatively impacted by a decrease or delay in governmental spending.





Our business depends in part on the level of governmental spending on infrastructure projects in our markets. Reduced levels of governmental funding for public works projects or delays in that funding could adversely affect our business, financial condition, results of operations and cash flows. The timing of bid activity may be negatively affected by the economy, municipal budgets and availability of financing.





Severe weather can reduce construction activity and lead to a decrease in demand for the Company’s products in areas affected by adverse weather conditions.





The Company’s operations and the demand for a number of the Company’s products are affected by weather conditions in the markets where the Company operates. Sustained adverse weather conditions such as rain, extreme cold or snow could disrupt or curtail outdoor construction activity which in turn could reduce demand and the quality of our products and have a material adverse effect on our operations, financial performance or prospects.


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Certain of our existing stockholders have substantial influence over our company, and their interests may not be aligned with the interests of our other stockholders.





Mr. Rui Shen is the owner of approximately 40.2% of our common stock. He has given the voting power of approximately 96.5% of his shares to Mr. Rong Yang, CEO and Chairman of the Company. As a result, Mr. Yang may have significant influence over our business, including decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. This concentration of ownership may also have the effect of discouraging, delaying or preventing a future change of control, which could deprive our stockholders of an opportunity to receive a premium for their shares as part of a sale of our company and might reduce the price of our shares.





Environmental claims or failure to comply with any present or future environmental regulations may require us to spend additional funds and may harm our results of operations.





Our business is subject to environmental, health and safety laws and regulations that affect our operations, facilities and products in each of the jurisdictions in which we operate. We believe that we are in compliance with all material environmental, health and safety laws and regulations related to our products, operations and business activities. Although we have not suffered material environmental claims in the past, the failure to comply with any present or future regulations could result in the assessment of damages or imposition of fines against us, suspension of production, cessation of our operations or even criminal sanctions.   The enacting of new regulations could also require us to acquire costly equipment or to incur other significant expenses.





We have limited insurance coverage and do not carry any business interruption insurance, third-party liability insurance for our manufacturing facilities or insurance that covers the risk of loss of our products in use.





We presently only carry insurance for the protection of our workers. We do not carry business interruption insurance, third-party liability insurance, or insurance for any other aspect of our business. If we should suffer from natural or other unexpected disaster, business or government litigation, or any uncovered risks of operation, our financial condition may be significantly impaired.





We may be exposed to potential risks relating to our internal controls over financial reporting and our ability to have those controls attested to by our independent auditors.





As directed by Section 404 of the Sarbanes-Oxley Act of 2002 or SOX 404, the SEC adopted rules requiring public companies to include a report of management on the company’s internal controls over financial reporting in their annual reports, including Form 10-K.  In addition, the independent registered public accounting firm auditing a company’s financial statements must also attest to and report on the operating effectiveness of the company’s internal controls if the company's public float is over $75 million. These requirements do not currently apply to us with respect to the filing of an auditor’s report. We can provide no assurance that we will comply with all of the requirements imposed thereby. There can be no assurance that we will receive a positive attestation from our independent auditors, if and when the respective regulations become applicable to us.  In the event we identify significant deficiencies or material weaknesses in our internal controls that we cannot remediate in a timely manner or we are unable to receive a positive attestation from our independent auditors with respect to our internal controls, investors and others may lose confidence in the reliability of our financial statements.





Our holding company structure may limit the payment of dividends.





We have no direct business operations, other than our ownership of our subsidiaries.  While we have no current intention of paying dividends, should we decide in the future to do so, as a holding company, our ability to pay dividends and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries and other holdings and investments.  In addition, our operating subsidiaries, from time to time, may be subject to restrictions on their ability to make distributions to us, including as a result of restrictive covenants in loan agreements, restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions as discussed below.  If future dividends are paid in RMB, fluctuations in the exchange rate for the conversion of RMB into U.S. dollars may reduce the amount received by U.S. stockholders upon conversion of the dividend payment into U.S. dollars.


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Chinese regulations currently permit the payment of dividends only out of accumulated profits as determined in accordance with Chinese accounting standards and regulations.  Our subsidiaries in China are also required to set aside a portion of their after tax profits according to Chinese accounting standards and regulations to fund certain reserve funds.  Currently, our subsidiaries in China are the only sources of revenues or investment holdings for the payment of dividends.  If they do not accumulate sufficient profits under Chinese accounting standards and regulations to first fund certain reserve funds as required by Chinese accounting standards, we will be unable to pay any dividends.





RISKS RELATED TO DOING BUSINESS IN CHINA





Risks Related to Doing Business in the PRC





The Company faces the risk that changes in the policies of the PRC government could have a significant impact upon the business that the Company may be able to conduct in the PRC and the profitability of such business.





The PRC economy is in a transition from a planned economy to a market oriented economy subject to five-year and annual plans adopted by the government that set national economic development goals. Policies of the PRC government can have significant effects on the economic conditions of the PRC. The PRC government has confirmed that economic development will follow the model of a market economy. Under this direction, the Company believes that the PRC will continue to strengthen its economic and trading relationships with foreign countries and business development in the PRC will follow market forces. While the Company believes that this trend will continue, there can be no assurance that this will be the case.  A change in policies by the PRC government could adversely affect the Company’s interests by, among other factors: changes in laws, regulations or the interpretation thereof, confiscatory taxation, restrictions on currency conversion, imports or sources of supplies, or the expropriation or nationalization of private enterprises. Although the PRC government has been pursuing economic reform policies for more than two decades, there is no assurance that the government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social or political disruption, or other circumstances affecting the PRC political, economic and social life.





The PRC laws and regulations governing the Company’s current business operations are sometimes vague and uncertain. Any changes in such PRC laws and regulations may have a material and adverse effect on the Company’s business.





There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including but not limited to the laws and regulations governing the Company’s business, or the enforcement and performance of the Company’s arrangements with customers in the event of the imposition of statutory liens, death, bankruptcy and criminal proceedings. The Company and any future subsidiaries are considered foreign persons or foreign funded enterprises under PRC laws, and as a result, the Company is required to comply with PRC laws and regulations. These laws and regulations are sometimes vague and may be subject to future changes, and their official interpretation and enforcement may involve substantial uncertainty.





The effectiveness of newly enacted laws, regulations or amendments may be delayed, resulting in detrimental reliance by foreign investors. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. The Company cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on the Company’s businesses.


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A slowdown or other adverse developments in the PRC economy may materially and adversely affect the Company’s customers, demand for the Company’s products and the Company’s business.





All of the Company’s operations are conducted in the PRC and all of its revenue is generated from sales in the PRC. Although the PRC economy has grown significantly in recent years, the Company cannot assure investors that such growth will continue. A slowdown in overall economic growth, an economic downturn or recession or other adverse economic developments in the PRC could materially reduce the demand for our products and materially and adversely affect the Company’s business.





Inflation in the PRC could negatively affect our profitability and growth.





In recent years, the Chinese economy has experienced periods of rapid expansion and highly fluctuating rates of inflation.  During the past ten years, the rate of inflation in China has been as high as 5.9% and as low as 0.8%.  These factors have led to the adoption by the Chinese government, from time to time, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation.  High inflation may in the future cause the Chinese government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China, reduce demand, materially increase our costs, and thereby harm the market for our products and our Company.





Governmental control of currency conversion may affect the value of an investment in the Company and may limit our ability to receive and use our revenues effectively.





The Company receives all of its revenues in Renminbi, which is currently not a freely convertible currency. The PRC government imposes controls on the convertibility of Renminbi into foreign currencies and, in certain cases, the remittance of currency out of the PRC. Any future restrictions on currency exchanges may limit our ability to use revenue generated in Renminbi to fund any future business activities outside China or to make dividend or other payments in U.S. dollars.  Although the Chinese government introduced regulations in 1996 to allow greater convertibility of the Renminbi for current account transactions, significant restrictions still remain, including primarily the restriction that foreign-invested enterprises may only buy, sell or remit foreign currencies after providing valid commercial documents, at those banks in China authorized to conduct foreign exchange business. In addition, conversion of Renminbi for capital account items, including direct investment and loans, is subject to governmental approval in China, and companies are required to open and maintain separate foreign exchange accounts for capital account items. We cannot be certain that the Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of the Renminbi.





The fluctuation of the Renminbi may materially and adversely affect investments in the Company and the value of our securities.





The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions. As the Company relies principally on revenues earned in the PRC, any significant revaluation of the Renminbi may materially and adversely affect the Company’s cash flows, revenues and financial condition, and the price of our common stock may be harmed. For example, to the extent that the Company needs to convert U.S. dollars it receives from an offering of its securities into Renminbi for the Company’s operations, appreciation of the Renminbi against the U.S. dollar could have a material adverse effect on the Company’s business, financial condition and results of operations. Conversely, if the Company decides to convert its Renminbi into U.S. dollars for the purpose of making payments for dividends on its common stock or for other business purposes and the U.S. dollar appreciates against the Renminbi, the U.S. dollar equivalent of the Renminbi that the Company converts would be reduced. In addition, the depreciation of significant U.S. dollar denominated assets could result in a charge to the Company’s income statement and a reduction in the value of these assets.


23





Recent PRC State Administration of Foreign Exchange (“SAFE”) Regulations regarding offshore financing activities by PRC residents have undergone a number of changes that may increase the administrative burden the Company faces. The failure by the Company’s stockholders who are PRC residents to make any required applications and filings pursuant to such regulations may prevent the Company from being able to distribute profits and could expose the Company and its PRC resident stockholders to liability under PRC law.





In the event that the proper procedures are not followed under the SAFE Circular 75, the Company could lose the ability to remit monies outside of the PRC and would therefore be unable to pay dividends or make other distributions. The Company’s overseas and cross border investment activities could be restricted, and its ownership structure affected. The Company’s PRC resident stockholders could be subject to fines, other sanctions and even criminal liabilities under the PRC Foreign Exchange Administrative Regulations promulgated January 29, 1996, as amended.  All of this could adversely affect our business and our prospects.





We may be exposed to liabilities under the Foreign Corrupt Practices Act, and any determination that we violated the Foreign Corrupt Practices Act could hurt our business.





Although we are currently not subject to these regulations, we anticipate to become subject to the Foreign Corrupt Practices Act, or FCPA, and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute for the purpose of obtaining or retaining business. Our activities in China create the risk of unauthorized payments or offers of payments by one of the employees, consultants, sales agents or distributors of our Company, even though these parties are not always subject to our control. It is our policy to implement safeguards to discourage these practices by our employees. However, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants, sales agents or distributors of our Company may engage in conduct for which we might be held responsible. Violations of the FCPA may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition.





Because the Company’s principal assets are located outside of the United States and the Company’s officers and some of the directors reside outside of the United States, it may be difficult for investors to enforce their rights in the U.S. based on U.S. federal securities laws against the Company and the Company’s officers and directors or to enforce U.S. court judgments against the Company or them in the PRC.





Beijng Concrete is located in the PRC and substantially all of its assets are located outside of the United States; it may therefore be difficult or impossible for investors in the United States to enforce their legal rights based on the civil liability provisions of the U.S. federal securities laws against the Company in the courts of either the U.S. or the PRC and, even if civil judgments are obtained in U.S. courts, to enforce such judgments in PRC courts. Further, it is unclear if extradition treaties now in effect between the United States and the PRC would permit effective enforcement against the Company or its officers and directors of criminal penalties, under the U.S. federal securities laws or otherwise.





The Company may have difficulty establishing adequate management, legal and financial controls in the PRC.





The PRC historically has not adopted a western style of management and financial reporting concepts and practices, as well as in modern banking, computer and other control systems. The Company may have difficulty in hiring and retaining a sufficient number of qualified employees to work in the PRC. As a result of these factors, the Company may experience difficulty in establishing management, legal and financial controls, collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet western standards.





PRC regulations also involve complex procedures for acquisitions conducted by foreign investors that could make it more difficult for us to grow through acquisitions.





Pursuant to the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, effective as of September 8, 2006 and revised as of June 22, 2009, additional procedures and requirements were established that are expected to make merger and acquisition activities in China by foreign investors more time-consuming and complex, including requirements in some instances that the Ministry of Commerce of the PRC (“MOFCOM”) be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, or that the approval from MOFCOM be obtained in circumstances where overseas companies established or controlled by PRC enterprises or residents acquire affiliated domestic companies and special anti-monopoly submissions for parties meeting certain reporting thresholds. We may grow our business in part by acquiring other companies engaged in the production of ready-mixed concrete for developers and the construction industry in the PRC. Complying with the requirements of the new regulations to complete such transactions could be time-consuming, and any required approval processes, including approval from MOFCOM, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.


24





In addition, our Chief Executive Officer, President and Chairman Mr. Yang, under certain call option agreements between Mr. Yang and Mr. Shen, has an option to purchase 5,113,384 shares of common stock held by Mr. Shen in installments upon achievement of certain performance milestones by the Company. While it is the case that our PRC counsel believes that this arrangement is lawful under PRC laws and regulations, there are, however, substantial uncertainties regarding the interpretation and application of the current or future PRC laws and regulations, including regulations governing the validity and legality of such call options. Accordingly, we cannot assure you that PRC government authorities will not ultimately take a view contrary to the opinion of our PRC legal counsel.





Our PRC stockholders are required to register with SAFE; their failure to do so could cause us to lose our ability to remit profits out of the PRC as dividends.





SAFE has promulgated several regulations, including Circular No. 75 (“Circular 75”), which became effective in November 2005, requiring PRC residents, including both PRC legal person residents and PRC natural person residents, to register with the competent local SAFE branch before establishing or controlling any company outside of the PRC for the purpose of equity financing with assets or equities of PRC companies, referred to in the Circular 75 as an “offshore special purpose company.” PRC residents that have established or controlled an offshore special purpose company, which has finished a round-trip investment before the implementation of Circular 75, are required to register their ownership interests or control in such “special purpose vehicles” with the local offices of SAFE. Under Circular 75, the term “PRC legal person residents” as used in Circular 75 refers to those entities with legal person status or other economic organizations established within the territory of the PRC. The term “PRC natural person residents” as used in Circular 75 includes all PRC citizens and all other natural persons, including foreigners, who habitually reside in the PRC for economic benefit. The term “special purpose vehicle” refers to an offshore entity established or controlled, directly or indirectly, by PRC residents or PRC entities for the purpose of seeking offshore equity financing using assets or interests owned by such PRC residents or PRC entities in onshore companies, and the term “round-trip investment” refers to the direct investment in PRC by PRC residents through “special purpose vehicles,” including without limitation, establishing foreign invested enterprises and using such foreign invested enterprises to purchase or control (by way of contractual arrangements) onshore assets. The term “control” includes the possession of the operating rights and decision making rights in the “special purpose vehicles” through trust, voting trust, holding shares on behalf of others, or other methods.





In addition, any PRC resident that is the shareholder of an offshore special purpose company is required to amend his/her/its SAFE registration with the local SAFE branch upon (i) injection of equity interests or assets of an onshore enterprise to the offshore entity, or (ii) subsequent overseas equity financing by such offshore entity. PRC residents are also required to complete amended registrations or filing with the local SAFE branch within 30 days of any material change in the shareholding or capital of the offshore entity not involving a round-trip investment, such as changes in share capital, share transfers and long-term equity or debt investments or, already organized or gained control of offshore entities that have made onshore investments in the PRC before Circular 75 was promulgated must register with their shareholdings in the offshore entities with the local SAFE branch on or before March 31, 2006.


25


Under Circular 75, PRC residents are further required to repatriate into the PRC all of their dividends, profits or capital gains obtained from their shareholdings in the offshore entity within 180 days of their receipt of such dividends, profits or capital gains. The registration and filing procedures under the Circular 75 are prerequisites for other approval and registration procedures necessary for capital inflow from the offshore entity, such as inbound investments or shareholders loans, or capital outflow to the offshore entity, such as the payment of profits or dividends, liquidating distributions, equity sale proceeds, or the return of funds upon a capital reduction.





To further clarify the implementation of Circular 75, SAFE issued Circular No. 106 (“Circular 106”) on May 9, 2007, which is guidance that SAFE issued to its local branches with respect to the operational process for SAFE registration that standardized more specific and stringent supervision on the registration relating to the Circular 75. Under Circular 106, PRC subsidiaries of an offshore special purpose company are required to coordinate and supervise the filing of SAFE registrations by the offshore holding company’s shareholders who are PRC residents in a timely manner. If these shareholders and/or beneficial owners fail to comply, the PRC subsidiaries are required to report such failure to the local SAFE authorities and, if the PRC subsidiaries do report the failure, the PRC subsidiaries may be exempted from any potential liability to them related to the stockholders’ failure to comply. The failure of these shareholders and/or beneficial owners to timely amend their SAFE registrations pursuant to the Circular 75 and Circular 106 or the failure of future shareholders and/or beneficial owners of our company who are PRC residents to comply with the registration procedures set forth in the Circular 75 and Circular 106 may subject such shareholders, beneficial owners and/or our PRC subsidiaries to fines and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiaries, limit our PRC subsidiaries ability to distribute dividends to our company or otherwise adversely affect our business.





These regulations apply to our stockholders who are PRC residents. In the event that our PRC-resident stockholders do not follow the procedures required by SAFE, we could (i) be exposed to fines and legal sanctions, (ii) lose the ability to contribute additional capital into our PRC subsidiaries or distribute dividends to our company, (iii) face liability for evasion of foreign-exchange regulations, and/or (iv) lose the ability to consolidate the financial statements of our PRC subsidiaries under applicable accounting principles.





Mr. Yang, our Chief Executive Officer, President and Chairman, may be required to register with the competent SAFE branch prior to exercise of his call option. However, it is not clear whether Mr. Yang’s call option will be deemed as a way of control of the Company. There are substantial uncertainties regarding the interpretation and application of the Circular 75 on the call option.





RISKS RELATED TO THE MARKET FOR OUR STOCK





Our common stock is quoted on the OTC Bulletin Board which may have an unfavorable impact on our stock price and liquidity.





Our common stock is quoted on the Over-the-Counter Bulletin Board (the “OTCBB”).  The OTCBB is a significantly more limited market than the New York Stock Exchange or NASDAQ.  The quotation of our shares on the OTCBB may result in a less liquid market available for existing and potential stockholders to trade shares of our common stock, could depress the trading price of our common stock, could cause high volatility and price fluctuations, and could have a long-term adverse impact on our ability to raise capital in the future.





There is currently limited trading market for our common stock and we cannot ensure that one will ever develop or be sustained.





There is currently limited trading market on the OTCBB for our common stock, and there is no assurance that one will develop or be sustained.


26





The elimination of monetary liability against the Company’s directors, officers and employees under the Colorado law and the Company’s By-Laws, and the existence of indemnification rights to the Company’s directors, officers and employees may result in substantial expenditures by the Company and may discourage lawsuits against the Company’s directors, officers and employees.





Under Colorado law, a corporation may indemnify its directors, officers, employees and agents under certain circumstances, including indemnification of such persons against liability under the Securities Act of 1933, as amended. In addition, a corporation may purchase or maintain insurance on behalf of its directors, officers, employees or agents for any liability incurred by him in such capacity, whether or not the corporation has the authority to indemnify such person.





The effect of these provisions may be to eliminate the rights of the Company and its stockholders (through stockholder’s derivative suits on behalf of the Company) to recover monetary damages against a director, officer, employee or agent for breach of fiduciary duty. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be provided for directors, officers, employees, agents or persons controlling an issuer pursuant to the foregoing provisions, the opinion of the SEC is that such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is therefore unenforceable.





Shares eligible for future sale may adversely affect the market price of our common stock, as the future sale of a substantial amount of outstanding stock in the public marketplace could reduce the price of our common stock.





As of September 21, 2011, there were issued and outstanding (i) 13,180,620 shares of our common stock, (ii) warrants to purchase 1,504,160 shares of our common stock, (iii) options to purchase 590,000 shares of our common stock of which options to purchase 240,000 shares have vested and options to purchase 150,000 shares will become exercisable in October 2011. 5,332,239 shares of our common stock are currently eligible for resale under Rule 144. In addition to these shares, we have registered 1,282,091 shares of our common stock for resale in 2010. Future sales of substantial amounts of our common stock in the trading market could adversely affect market price of our common stock.





ITEM 2.DESCRIPTION OF PROPERTY





Currently, we do not own any land, as the PRC does not permit private land ownership. The Company is leasing land for its Beijing Daxing factory from Beijing Xinhaiwangyue Company. The lot is approximately 19,980 square meters. The term of the lease is 22 years and 10 months which expires on January 23, 2034. The rent is approximately $2,524,452 for the whole term of the lease, of which we have paid $1,452,743. The balance of the lease is due on October 1, 2011.





At our Beijing Shidu station, we are using approximately 5,000 square meters of land provided by our customer, Jiangxi Jinggang Roads & Bridges (Group) Co., Ltd., which is constructing Zhangzhuo Highway. We set up the batching plants on such land to supply the concrete mix to the highway construction projects, and do not pay rent for such land.  We anticipate operating at this site for one more year.





In our recently combined Tangshan Caofeidian mobile station, we are using approximately 8,000 square meters of land provided by our customer, China Construction Second Engineering Bureau, Ltd., which is constructing a highway in the Tangshan area. Because we set up the batching plants on such land to supply the concrete mix to the on-going projects, we do not pay rent for such land.  We anticipate operating at this site for one more month.





For the Xi’an factory, we leased the land lot of 106,667 square meters from the local government for a term of 15 years. The lease will expire in 2024. The annual rent for the land lot is RMB 441,741 (or approximately US$65,000).





We believe that all our properties have been adequately maintained, are generally in good condition and are suitable and adequate for our business


27




ITEM 3.LEGAL PROCEEDINGS





From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.  However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.  We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.





PART II





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





Market for Our Common Stock





There is a limited market for our common stock. Our common stock is listed on the OTC Bulletin Board under the symbol “CHNC.” The following table sets forth the high and low inter-dealer prices, without mark-up, mark-down or commission, involving our Common Stock during each calendar quarter, and may not represent actual transactions. There were no reported quotations for our common stock during the fiscal year 2009, and the first quarter of the fiscal year 2010.





High


LowFiscal Year 2011Fourth quarter

$
1.75


$
0.61Third quarter

$
2.60


$
1.72Second quarter

$
3.39


$
2.40First quarter

$
3.99


$
2.50Fiscal Year 2010Fourth quarter

$
5.39


$
2.50Third quarter

$
7.50


$
4.50Second quarter

$
4.50


$
4.00





At September 21, 2011, there were 13,180,620shares of our Common Stock outstanding. Our shares of Common Stock are held by approximately 296 stockholders of record. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of Common Stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies.





Dividends





We have not paid dividends on our common stock. Furthermore, because we are a holding company, we rely entirely on dividend payments from Beijing Concrete, who may, from time to time, be subject to certain additional restrictions on its ability to make distributions to us. PRC accounting standards and regulations currently permit payment of dividends only out of accumulated profits, a portion of which must be set aside to fund certain reserve funds. Our inability to receive all of the revenues from Beijing Concrete’s operations may in turn provide an additional obstacle to our ability to pay dividends on our common stock in the future. Additionally, because the PRC government imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency out of the PRC, shortages in the availability of foreign currency may occur, which could restrict our ability to remit sufficient foreign currency to pay dividends.





We currently intend to retain any future earnings to finance the development and growth of our business and do not anticipate paying cash dividends on our Common Stock in the foreseeable future, but will review this policy as circumstances dictate. If in the future we are able to pay dividends and determine it is in our best interest to do so, such dividends will be paid at the discretion of the Board of Directors after taking into account various factors, including our financial condition, operating results, capital requirements, restrictions contained in any future financing instruments and other factors the Board deems relevant.


28





ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION





SPECIAL NOTE OF CAUTION REGARDING FORWARD-LOOKING STATEMENTS





CERTAIN STATEMENTS IN THIS REPORT, INCLUDING STATEMENTS IN THE FOLLOWING DISCUSSION, ARE WHAT ARE KNOWN AS "FORWARD-LOOKING STATEMENTS", WHICH ARE BASICALLY STATEMENTS ABOUT THE FUTURE. FOR THAT REASON, THESE STATEMENTS INVOLVE RISK AND UNCERTAINTY SINCE NO ONE CAN ACCURATELY PREDICT THE FUTURE. WORDS SUCH AS "PLANS", "INTENDS", "WILL", "HOPES", "SEEKS", "ANTICIPATES", "EXPECTS "AND THE LIKE OFTEN IDENTIFY SUCH FORWARD-LOOKING STATEMENTS, BUT ARE NOT THE ONLY INDICATION THAT A STATEMENT IS A FORWARD-LOOKING STATEMENT. SUCH FORWARD-LOOKING STATEMENTS INCLUDE STATEMENTS CONCERNING OUR PLANS AND OBJECTIVES WITH RESPECT TO THE PRESENT AND FUTURE OPERATIONS OF THE COMPANY, AND STATEMENTS WHICH EXPRESS OR IMPLY THAT SUCH PRESENT AND FUTURE OPERATIONS WILL OR MAY PRODUCE REVENUES, INCOME OR PROFITS. NUMEROUS FACTORS AND FUTURE EVENTS COULD CAUSE THE COMPANY TO CHANGE SUCH PLANS AND OBJECTIVES OR FAIL TO SUCCESSFULLY IMPLEMENT SUCH PLANS OR ACHIEVE SUCH OBJECTIVES, OR CAUSE SUCH PRESENT AND FUTURE OPERATIONS TO FAIL TO PRODUCE REVENUES, INCOME OR PROFITS. THEREFORE, THE READER IS ADVISED THAT THE FOLLOWING DISCUSSION SHOULD BE CONSIDERED IN LIGHT OF THE DISCUSSION OF RISKS AND OTHER FACTORS CONTAINED IN THIS REPORT ON FORM 10-K AND IN THE COMPANY'S OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. NO STATEMENTS CONTAINED IN THE FOLLOWING DISCUSSION SHOULD BE CONSTRUED AS A GUARANTEE OR ASSURANCE OF FUTURE PERFORMANCE OR FUTURE RESULTS.





Unless the context otherwise requires, The "Company", "we," "us," and "our," refer to (i) China Infrastructure Construction Corporation; (ii) Beijing Chengzhi Qianmao Concrete Co., Ltd. (“Beijing Concrete”), (iii) Beijing Fortune Capital Management, Ltd. (“BFCM”), (iv) Shaanxi Hongruida Concrete Ltd. (“Hongruida”) and (v) Northern Construction Holdings, Ltd. (“NCH”).





Overview





China Infrastructure Construction Corporation (the “Company”, “China Infrastructure”, “CHNC”, “We”, “Our”) was organized in Colorado on February 28, 2003. The Company through its subsidiaries in Hong Kong and the People’s Republic of China (“PRC” or “China”), engages in production of ready-mixed concrete for developers and the construction industry in the PRC. The Company primarily operates through its indirect majority-owned subsidiary, Beijing Chengzhi Qianmao Concrete Co., Ltd. (“Beijing Concrete”), a company organized under the laws of the PRC.





Beijing Concrete currently has four production facilities. One facility is located in the Beijing’s Daxing District, one is in Shidu, a suburban area of Beijing, one is in Xi’an West New High-tech Zone, and another one is located at the Tangshan harbor, about two hundred kilometers from Beijing. The plant located in Xi’an was put into operation at the end of March 2010.





Since March 2010 our Caifeidian facility has been providing manufacturing service to our customers. In this business model the customer provides to us raw materials to be used for production of concrete for the customer. Large contractors working on big projects have more bargaining power to negotiate lower prices for raw materials. The Company benefits from this as well because it does not need to advance cash to buy raw materials. Starting from 2011, the Caifeidian facility provides only manufacturing service to its customers. In October 2010, the Shidu facility also switched to providing only manufacturing service to its customers.


29





Results of Operations





Fiscal Year Ended May 31, 2011 Compared to Fiscal Year Ended May 31, 2010





Net Revenue





Net revenue for the fiscal year ended May 31, 2011 was $83,460,654 as compared to $73,998,463 for the same period last year, an increase of 12.79%. The increase in net revenue is mainly attributable to the increase of the manufacturing service business, which generated approximately $11,067,656 in net revenue, offset by the decrease of revenue from concrete sales of $196,176 from $72,589,174 to $72,392,998. The decrease was mainly due to our product mix shift from pure concrete sales to both concrete sales and manufacturing service.





Cost of Goods Sold





Cost of goods sold for the fiscal year ended May 31, 2011 was $56,382,187 as compared to $55,960,792 for the same period last year, an increase of 0.75%. The increase in cost of goods is attributable to the increase of the manufacturing service business offset by the decrease of concrete sales due to product mix change.





Gross Profit





Gross profit for the fiscal year ended May 31, 2011 was $27,078,467, an increase of approximately 50.12%, as compared to $18,037,671 for the fiscal year ended May 31, 2010. The increase in gross profit is attributable to the increase of manufacturing service because of our product mix shift to increase manufacturing services business.





Gross Profit Margin





Gross profit margin for the fiscal year ended May 31, 2011 was 32.44% compared to 24.38% for the same period last year. The increase of the gross profit margin is mainly due to a higher margin provided by the manufacturing service business.





Selling, General and Administrative Expenses





Selling, general and administrative expenses for the fiscal year ended May 31, 2011 were $12,770,339 as compared to $31,323,026 for the same period last year, a decrease of $18,552,687, or approximately 59.23%. The decrease of the selling, general and administrative expenses was primarily due to the inclusion of a one-time non-cash compensation expense of $27,422,242 in the selling, general, and administrative expenses for the year ended May 31, 2010 offset by the provision of the bad debt of $7,949,067 included in the selling, general and administrative expenses for the year ended May 31, 2011.





Operating Income (Loss)





Our operating income for the fiscal year ended May 31, 2011 was $14,308,128 an increase of $27,593,483, as compared to $13,285,355 in operating loss for the fiscal year ended May 31, 2010. The increase was mainly due to the increase of gross profit and due to the $27,422,242 one-time non-cash compensation expense included in the selling, general, and administrative expenses for the year ended May 31, 2010.





Income Taxes





During the fiscal year ended May 31, 2011 our business operations were solely conducted by our subsidiaries incorporated in the PRC and we are governed by the PRC Enterprise Income Tax Laws.  PRC enterprise income tax is calculated based on taxable income determined under PRC GAAP. In accordance with the Income Tax Laws, a PRC domestic company is subject to enterprise income tax at the rate of 25%.


30





Our Income taxes during the fiscal year ended May 31, 2011 was $3,038,533. This compares to no taxes due during the fiscal year ended May 31, 2010 because Beijing Concrete, our PRC subsidiary, was considered by the respective tax authorities a resource multipurpose utilization enterprise, which qualified it for an exemption from income tax until December 31, 2010.





Net Income (loss) Attributable To China Infrastructure Construction Corporation





Net income was $10,456,885 for the fiscal year ended May 31, 2011 as compared to a net loss of $13,434,410 during fiscal year 2010, an increase of $23,891,295. The increase was primarily due to the increase in gross profit and also due to the $27,422,242 one-time non-cash compensation expense included in the selling, general, and administrative expenses for the year ended May 31, 2010 offset by the provision of the bad debt of $7,949,067 included in the selling, general and administrative expenses for the year ended May 31, 2011.





Liquidity and Capital Resources





As of May 31, 2011, we had cash and cash equivalents of $136,702. We have historically funded our working capital needs from operations, advance payments from customers, bank borrowings, and capital from shareholders. Due to the competitive environment, our raw materials suppliers are willing to accept our accounts receivable and credit the Company for the payments to the accounts payable. We usually enter into assignment agreements with our suppliers, whereby the suppliers shall be entitled to the amounts due and owed by our customer and the Company shall assist the suppliers on collection. Under these assignment agreements, the Company has the obligation of notifying the customers about the assignment, and in any event that the suppliers are not able to collect such accounts receivable due to a fault other than the suppliers’, the Company shall still have the obligation to pay off the suppliers. In the concrete industry, the raw material suppliers, with their locality and good relationships with local construction companies who often become our customers, are in a better position to collect the receivable from our customers. All assigned accounts receivable to our suppliers were collected as of May 31, 2011. In fiscal year ended May 31, 2011, we paid approximately $27,126,979 or 59.84% of the raw materials with our accounts receivable. Our working capital requirements are influenced by the level of our operations, the numerical and dollar volume of our project contracts, the progress of our contract execution, and the timing of accounts receivable collections.





The following table sets forth a summary of our cash flows for the periods indicated:





Fiscal Year Ended May 31,2011


2010Net cash provided by (used in) operating activities

$
348,502


$
(10,208,535
)Net cash provided by (used in) investing activities


400,549



(4,015,685
)Net cash provided by (used in) financing activities


(1,738,009
)


14,408,077Effect of rate changes on cash


22,781



(2,819
)(Decrease) Increase in cash and cash equivalents


(966,177
)


181,038Cash and cash equivalents, beginning of period


1,102,879



921,841Cash and cash equivalents, end of period


136,702



1,102,879





Operating Activities





Net cash provided by operating activities during the fiscal year ended May 31, 2011 was $348,502, an increase of $10,557,037 as compared to net cash of $10,208,535 used in operating activities during the fiscal year ended May 31, 2010. The increase of net cash provided by operating activities was due to the increase of net income and also due to the increase of bad debt expenses and decrease of trade accounts receivable offset by the increase of prepayment and tax payable. We typically had long-term annual and multi-year contracts with our major customers. We entered into varying payment terms with our customers ranging from payment before delivery, payment on delivery or up to 1 year after the project completion. As of May 31, 2011, trade accounts receivable with expected payment terms over twelve months amounted to $33,129,309 or 52.43% of total trade accounts receivable. We collected approximately $68,018,824 accounts receivable in fiscal year ended May 31, 2011.


31





Investing Activities





Net cash provided by investing activities was $400,549 for the fiscal year ended May 31, 2011, an increase of $4,416,234 as compared to net cash of $4,015,685 used in investing activities during the fiscal year ended May 31, 2010. The increase of proceeds from related party receivable and less property, plant and equipment addition were the main contributors to the increase of net cash provided by investing activities offset by the increase of payments of related party receivable.




Financing Activities





Net cash used in financing activities was $1,738,009, a decrease of $16,146,086, compared to $14,408,077 provided by financing activities for the fiscal year ended May 31, 2010.  The decrease was primarily due to repayment of a bank loan and capital lease obligations and also due to the sale of stock by the Company to investors resulting in net proceeds of $13,234,406 in fiscal year ended May 31, 2010.





On October 16, 2009, we consummated a private placement of a total of approximately 2,564,108 shares of our common stock (“2009 Private Placement”) to a number of investors (“2009 Investors”) pursuant to a subscription agreement dated October 16, 2009, which was amended on March 5, 2010. Under the subscription agreement, as amended (“2009 Subscription Agreement”), we are required to issue shares of common stock to the 2009 Investors if certain performance thresholds are not met.  If our after tax net income (“Targeted Net Income”) for the fiscal year ended May 31, 2011 is less than $19,800,000, we are required to issue to the 2009 Investors additional shares of common stock representing a fraction of shares issued in the 2009 Private Placement calculated using the percentage of variation of our actual after tax net income to the Targeted Net Income for such period (the “Adjustment Percentage”).





On March 11, 2010, we consummated a private placement of a total of approximately 1,282,091 shares of our common stock (“2010 Private Placement”) to a number of investors. Under the 2009 Subscription Agreement, we will be required to issue additional shares of common stock to the 2009 Investors who invested in the 2010 Private Placement, if the Targeted Net Income thresholds are not met.  The number of such additional shares shall equal the Adjustment Percentage times the number of shares of Common Stock acquired by the 2009 Investor in the 2010 Private Placement, minus the Adjustment Percentage times the number of shares acquired by such investor in the 2009 Private Placement that have been sold by such investor as of the date on which the Company releases its respective net income data in a Form 10-K filed with the SEC.





We have not met the Target Net Income threshold for the fiscal year ended May 31, 2011 and are required to issue additional shares of common stock to the 2009 Investors as described above.





Critical Accounting Policies and Estimates





Management's discussion and analysis of its financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Our financial statements reflect the selection and application of accounting policies that require management to make significant estimates and judgments. See note 3 to our consolidated financial statements, "Summary of Significant Accounting Policies." Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe that the following reflect the more critical accounting policies that currently affect our financial condition and results of operations.


32





Revenue recognition





The Company receives revenue from sales of concrete products and from provision of manufacturing service. The Company's revenue recognition policies are in compliance with ASC 605 (previously Staff Accounting Bulletin 104). Sales revenue is recognized at the date of shipment to customers or services have been rendered 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. Our sales are non-returnable. Therefore, we do not estimate deductions or allowance for sales returns. Sales are presented net of any discounts, reward, or incentive given to customers.  Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.





Our products delivered to customers would be checked on site by customers and, once the products are accepted by customers, they will sign the acceptance notice. There is no warranty issue after the delivery.





Reward or incentive given to our customers is an adjustment of the selling prices of our products therefore the consideration is characterized as a reduction of revenue when recognized in our income statement.





The Company recognizes its revenues net of value-added taxes (“VAT”).  The Company enjoys a free VAT policy according to the national policy, which encourages the development of the cement industry if the manufacturer satisfies the environmental protection requirements. The Company has enjoyed the free VAT policy from January 1, 2006 to December 31, 2010. Starting from January 1, 2011, the Company is subject to VAT which is levied at the rate of 6% on the invoiced value of sales.





Use of estimates





The preparation of 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 amounts reported in the combined financial statements and accompanying notes. Management believes that the estimates utilized in preparing its financial statements are reasonable and prudent. Actual results could differ from these estimates.





Inventories





Inventories are stated at the lower of cost, determined on a weighted average basis, and net realizable value. Net realizable value is the estimated selling price, in the ordinary course of business, less estimated costs to complete and dispose.





Off-Balance Sheet Arrangements





The Company does not have any off-balance sheet arrangements.





ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





The following table presents selected financial data for the Company on a consolidated basis for the fiscal years ended May 31, 2011 and 2010, respectively.





We derived the selected financial data set forth below from the Company's consolidated audited statements of operations for the fiscal years ended May 31, 2011 and 2010 and the consolidated audited balance sheets as at May 31, 2011 and 2010, each of which is included in this report. You should read the following summary financial data in conjunction with the consolidated financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this report. Our historical results are not necessarily indicative of the results to be expected in any future period.


33





For Year EndedMay 31,2011


2010Sales revenues

$
83,460,654


$
73,998,463Net operating income (loss)


14,308,128



(13,285,355
)Net income (loss)


11,167,853



(13,434,410
)Total assets


93,043,494



71,714,081Total liabilities

$
27,974,256


$
21,585,039





The Company's consolidated audited financial statements for the fiscal years ended May 31, 2011 and 2010, together with the report of the independent certified public accounting firm thereon and the notes thereto, are presented beginning at page F-1.





ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE





None.





ITEM 9A(T). CONTROLS AND PROCEDURES





Disclosure Controls and Procedures





The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.  The Company maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC's rules and forms and that information required to be disclosed is accumulated and communicated to principal executive and principal financial officers to allow timely decisions regarding disclosure.





As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures.  Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report.





Management’s Annual Report on Internal Control over Financial Reporting





Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act.  Our internal control over financial reporting is designed to provide reasonable assurance regarding the (i) effectiveness and efficiency of operations, (ii) reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and (iii) compliance with applicable laws and regulations.


34


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 and procedures may deteriorate.





Management assessed the effectiveness of our internal control over financial reporting as of May 31, 2011. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. Based on our assessment, we determined that, as of May 31, 2011, our internal control over financial reporting was ineffective based on those criteria.





During our assessment of the effectiveness of internal control over financial reporting as of May 31, 2011, management identified the following significant deficiencies:





-
Accounting and Finance Personnel’s Lack of US GAAP expertise. Our current accounting staff is relatively new and inexperienced, and needs substantial training to meet the higher demands of being a US public company. The accounting skills and understanding necessary to fulfill the requirements of US GAAP based reporting, including the skills of subsidiary financial statements consolidations, are inadequate and were inadequately supervised.





-
Lack of Internal Audit Function – We lack qualified resources to perform the internal audit functions properly. In addition, the scope and effectiveness of the internal audit function are yet to be developed.





The Company’s management determined that the number and nature of these significant deficiencies, when aggregated, amounted to a material weakness.





Remediation Initiative





During the fiscal year ended May 31, 2010, the Company continued to implement its written control and accountability policies for administrative personnel. Additionally, during the fiscal year ended May 31, 2011, the Company’s staff in the accounting department gained more expertise in internal audit functions. We plan to continue to take measures to remediate the material weakness as soon as practicable including providing U.S. GAAP training to our staff in the accounting department.





A material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company's financial reporting.





This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm because as a smaller reporting company we are not subject to Section 404(b) of the Sarbanes-Oxley Act of 2002.





Changes in Internal Controls over Financial Reporting





No change in our system of internal control over financial reporting occurred during the fourth quarter of the fiscal year ended May 31, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.





ITEM 9B. OTHER INFORMATION





None.


35





PART III





ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.





The following are the officers and directors of the Company as of the date of this report. Some of our officers and directors are residents of the PRC. As a result, it may be difficult for investors to effect service of process within the United States upon them or to enforce judgments obtained in the United States courts against them in the PRC.





Name

Age

PositionRong Yang

50

Chairman of Board of Directors, President and CEOJohn Bai

45

Chief Financial OfficerShuqian Wang

44

DirectorFrancis Nyon Seng Leong

67

DirectorZhenhai Niu

49

DirectorPat Lee Spector

67

Director





Rong Yang (CEO, President and Chairman)





Mr. Yang, age 50, has been our Chairman and Chief Executive since October 2008. He has been the Chairman and Chief Executive of Beijing Concrete since its inception in 2002. He is also the founder of Beijing Concrete.  Mr. Yang has over 20 years experience in the concrete industry. In the mid 1980’s, he started his career by joining China Railway Construction (“CRC”), one of the largest construction groups in China and Asia.  Before Mr. Yang founded Beijing Concrete, he was the project manager for one of CRC’s subsidiary companies. Mr. Yang graduated from Guizhou College of Finance and Economics with a Bachelor degree in administrative management. We believe that Mr. Yang’s knowledge of all aspects of the Company’s business and his in-depth understanding of its operations, combined with his years of experience in the concrete industry position him well as our Chairman and Chief Executive Officer.





John Bai (CFO)





Mr. John Bai, age 45, has been our Chief Financial Officer since October 2010. Before joining the Company, Mr. Bai worked as an independent financial consultant from November 2009. Mr Bai was Marketing Director of Redwood Capital Inc. from May 2008 to November 2009. Mr. Bai was an Investment Advisor at Maxfin Capital Inc. in Toronto, Ontario, Canada from July 2006 to April 2008.  From June 2003 to June 2006, Mr. Bai worked as an independent financial consultant. Mr. Bai received Master of Science of Finance degree from University of Tulsa, USA in 2003 and a bachelor degree in Aeronautic Engineering from Northwestern Polytechnic University in China in 1989.





Shuqian Wang (Director)





Ms. Wang, age 44, has been our Director since September 2009. She is a partner at East Associates, a law firm in China, since October 2002. Prior to that, she was with another PRC law firm, C&T Partners, from September 1989 to 1996 as an associate, and from 1996 to 2002 as a partner. Ms. Wang graduated from University of Kent at Canterbury with an LL.M. degree in International Trade Law in 1997, and she received her Bachelor degree in law from the School of Law of Nanjing University in 1988. We believe that Ms. Wang’s qualifications and her over 20 year experience in advising Chinese companies on complicated legal issues arising in connection with capital formation and M&A provide a unique perspective for our Board.


36





Francis Nyon Seng Leong (Director)





Mr. Leong, age 67, has been our Director since February 2010. He has been the principal of Sungai River Inc., an international financial consulting company since October 2003. From March to June of 2004, he was Chief Financial Officer and Secretary of Blue Diamond Mining Corporation, an NEX board listed company in the oil and gas industry. Prior to that, Mr. Leong was the Treasurer for the City of Calgary, Canada from October 1999 through August 2003. Currently, Mr. Leong is serving on the boards and the committees of the following public companies: Boyuan Construction Group, a construction company listed on Toronto Stock Exchange, Andatee China Marine Fuel Services Corporation, a NASDAQ traded company in the marine fuel industry and China Industrial Waste Management, Inc., an industrial waste management company listed on the OTC Bulletin Board. Mr. Leong received his Master’s degree in Public Administration from the Marriott School of Management of Brigham Young University in 1975. In 1968, he graduated from National Chengchi University in Taiwan with a Bachelor degree in commerce. We believe that Mr. Leong’s qualifications to serve as our director include his extensive experience in corporate finance and corporate governance acquired by him while serving on the boards and committees of several public companies.





Zhenhai Niu (Director)





Mr. Niu, age 49, has been our Director since February 2010. He is currently the general manager of Beijing Ritan Hotel from February 2008. Prior to that, he was the manager of China Hainan Huandao Taide Hotel from 1995 to 2008. Mr. Niu received his Bachelor’s degree in Management from Beijing University and Capital University of Economics and Business in 1987 and 1985, respectively. We believe that Mr. Niu’s qualifications to serve as our director include his extensive management experience as well as his executive leadership.





Pat Lee Spector (Director)





Mr. Spector, age 67, has been our Director since February 2010. He has been an Executive Advisor of AECOM Technology, Inc., a technical and management service provider that is currently listed on New York Stock Exchange (“NYSE”) since September 2007. From January 1999 through May 2007, he served as a Vice President of Jacobs Engineering Group Inc., a NYSE listed company that is engaged in the business of technical services and support. Mr. Spector received his Master degree in Architecture in 1970 and his Bachelor degree in Physics in 1966 from Washington University.





Audit Committee





The Board of Directors created the audit committee in March 2010. The Audit Committee is to oversee the Company's accounting and financial reporting processes, as well as its financial statement audits. The committee recommends to the Board of Directors the selection of the Company’s outside auditors and reviews their procedures for ensuring their independence with respect to the services performed for the Company.





The Audit Committee is comprised of three directors: Mr. Francis Leong, Ms. Shuqian Wang and Mr. Pat Spector. Mr. Leong is the Chairman of the Audit Committee. In the opinion of the Board of Directors, Ms. Wang, Messrs. Leong and Spector are independent of management and free of any relationship that would interfere with their exercise of independent judgment as members of this committee and they are independent as defined by the rules of the NASDAQ Stock Market. The Board of Directors has adopted a written charter for the Audit Committee.





Audit Committee Financial Expert





The Board of Directors has determined that we have an Audit Committee financial expert, as defined under Item 407(d)(5)(i) of Regulation S-K, serving on our Audit Committee. Mr. Leong is our Audit Committee financial expert, and he is independent as defined by the rules of the NASDAQ Stock Market.


37





Compensation Committee





In March 2010, the Board of Directors established a Compensation Committee, which is responsible for the design, review, recommendation and approval of compensation arrangements for our directors, executive officers and key employees, and for the administration of our equity incentive plans, including the approval of grants under such plans to our employees, consultants and directors. The Compensation Committee also reviews and determines compensation of our executive officers, including our Chief Executive Officer. The board of directors has adopted a written charter for the Compensation Committee. Mr. Francis Leong, Mr. Zhenhai Niu and Mr. Pat Spector, each of whom is an independent director, currently serve on the Compensation Committee. Mr. Spector is the Chairman of the Compensation Committee.





Nominating Committee





In March 2010, the Board of Directors established a Nominating Committee, which assists in the selection of director nominees, approves director nominations to be presented for stockholder approval at our annual general meeting and fills any vacancies on our board of directors, considers any nominations of director candidates validly made by stockholders, and reviews and considers developments in corporate governance practices. The board of directors has adopted a written charter for the Nominating Committee. Ms. Shuqian Wang, Mr. Zhenhai Niu and Mr. Pat Spector, each of whom is an independent director, currently serve on the Nominating Committee. Ms. Wang is the Chairman of the Nominating Committee.





Section 16(a) Beneficial Reporting Compliance





Not applicable.





Code of Ethics





We have adopted a Code of Conduct that applies to all of our employees and officers, and the members of our Board of Directors. A copy of the Code of Ethics was included as Exhibit 14.1 to our current report on Form 8-K filed on March 12, 2010. A printed copy of the Code of Conduct may also be obtained free of charge by writing to us at our headquarters located at Shidai Caifu Tiandi Building Suite 1906-09 1 Hangfeng Road Fengtai District, Beijing, China 100070; attention: Company Secretary.





ITEM 11.EXECUTIVE COMPENSATION





The following table reflects the compensation paid to our principal executive officer and executive officers who have earned more than $100,000 in any of the previous two fiscal years.





Summary Compensation Table





Name and Principal Position

Year

Salary

($)


Option

Awards

($)(1)


Total

($)Rong Yang,

2011


200,004



—



200,004Chairman, President and

2010


128,992



559,457



688,449Chief Executive OfficerJohn Bai

2011


62,500



173,213



235,713Chief Financial Officer(2)

2010


—



—



—Yiru Shi,

2011


57,397



—



57,397Chief Financial Officer(2)

2010


50,000



419,593



459,593


38





(1)
The amounts in these columns represent the compensation cost of stock options granted in 2010 and 2011, except that these amounts do not include any estimate of forfeitures. The aggregate grant date fair value of option awards granted were determined in accordance with Financial Accounting Standard Board Accounting Standards Codification Topic 718 (formerly SFAS123(R) and are recognized as compensation cost over the requisite service period. The amount recognized for these awards was calculated using the Black Scholes option-pricing model, and our 2010 Stock Incentive Plan is described in this report.





(2)
John Bai was appointed as the Chief Financial Officer of the Company on October 25, 2010. Yiru Shi was appointed as the Chief Financial Officer of the Company on December 17, 2009. Ms. Shi resigned as the Chief Financial Officer of the Company on October 25, 2010. Upon her resignation, the stock options previously awarded to Ms. Shi were forfeited.





Narrative Disclosure to Summary Compensation Table





Employment Agreements





Rong Yang





On February 12, 2010, the Company and Mr. Rong Yang entered into an amended and restated employment agreement (the “CEO Employment Agreement”) for his service as the Company’s Chief Executive Officer for a term of five years. The CEO Employment Agreement is automatically renewable for an additional year unless either party notifies the other at least 30 days prior to the end of the term of an intention to terminate. Under the CEO Employment Agreement, Mr. Yang will be compensated with an annual salary of RMB 1,500,000, payable monthly in equal installments in arrears. He will also receive options to purchase 400,000 shares of the Common Stock, exercisable at $3.90 per share.





In the event that Mr. Yang’s service as the Company’s CEO is terminated, whether involuntarily or voluntarily, under certain circumstances, or following the occurrence of a Change of Control, as defined under the Employment Agreement (the “Separation from Service”), Mr. Yang shall receive: (i) a lump sum payment of fifteen times Mr. Yang’s annual salary; (ii) Common Stock equal to 3% of then outstanding Common Stock; and (iii) continuing health insurance benefits for two years after the occurrence of Change of Control. Additionally, all unvested options, restricted stock, performance shares and stock appreciation rights previously granted to Mr. Yang under the Company’s incentive plan will immediately be fully vested upon his Separation from Service.





In the event that the above payments and benefits to Mr. Yang upon his Separation from Service following a Change of Control (the “Separation Parachute Payments”) would (i) constitute a parachute payment within the meaning of Section 280G of the Internal Revenue Code of 1986 (the “Code”) or any similar or successor provision to 280G; and (ii) be subject to the excise tax imposed by Section 4999 of the Code or any similar or successor provision to Section 4999 (the “Excise Tax”), then such Severance Parachute Payments shall be reduced to the largest amount which would result in no portion of the Severance Parachute Payments being subject to the Excise Tax, at the discretion of Mr. Yang.





John Bai





On October 25, 2010, the Company entered into an employment agreement with Mr. John Bai as its Chief Financial Officer (the “CFO Employment Agreement”). Such Employment Agreement provides that Mr. Bai will serve as acting CFO of the Company for a three-month probation period (the “Probation Period”), at the end of which the Board will review his performance and approve his appointment as the Company’s Chief Financial Officer. The term of the Employment Agreement is one year, including the Probation Period, with an automatic renewal for an additonal year unless either party provides a written non-renewal notice within 30 days prior to the end of the term. Mr. Bai will be compensated as follows:





1)
An annual salary of $150,000, or $12,500 monthly payable in U.S. dollars; and





2)
Options to purchase 150,000 shares of the Common Stock of the Company, exercisable at $3.90 per share, to vest on October 26, 2011. If Mr. Bai’s employment is terminated prior to the vesting date, any unvested options will be terminated. If his employment is terminated after the vesting date, any vested but unexercised options shall terminate on the 91st day following the date of the termination of his employment.


39





Compensation Discussion and Analysis





Overview





We intend to provide our named executive officers (as defined in Item 402 of Regulation S-K) with a competitive base salary that is in line with their roles and responsibilities when compared to peer companies of comparable size in similar locations.





It is not uncommon for PRC private companies in northeastern China to have base salaries as the sole form of compensation. The base salary level is established and reviewed based on the level of responsibilities, the experience and tenure of the individual and the current and potential contributions of the individual. The base salary is compared to the list of similar positions within comparable peer companies and consideration is given to the executive’s relative experience in his or her position.  Base salaries are reviewed periodically and at the time of promotion or other changes in responsibilities.





In March 2010, our board of directors established a compensation committee comprised of independent directors. The compensation committee will perform periodically a strategic review of the compensation program for our executive officers to determine whether it provides adequate incentives and motivation to our executive officers and whether it adequately compensates our executive officers relative to comparable officers in other companies with which we compete for executives.  Those companies may or may not be public companies or companies located in the PRC or even, in all cases, companies in a similar business.





2010 Stock Incentive Plan





In February 2010, we adopted the 2010 Stock Incentive Plan (the “2010 Plan”). All officers and key employees, directors of, and consultants to the Company and its subsidiaries and affiliates, who are responsible for or contribute to the management, growth and/or profitability of the business of the Company and/or its subsidiaries and affiliates are eligible for participation in the 2010 Plan.  One Million One Hundred Fifty Thousand (1,150,000) shares of the Company’s common stock have been authorized and reserved for the 2010 Plan, subject to an increase of up to 10% of the Company’s issued and outstanding Common Stock, and any shares that may become available for issuance under awards under the 2010 Plan as a result of expiration or forfeiture. The Company may issue stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance awards and other stock-based awards under the 2010 Plan. The 2010 plan is administered by our Compensation Committee.





Outstanding Equity Awards





The following table reflects the unexercised options, stock that has not vested and equity incentive plan awards for each named executive officer outstanding as of the end of the fiscal year ended May 31, 2010:




Option AwardsName

Number of

Securities

Underlying

Unexercised

Options

(#)


Number of

Securities

Underlying

Unexercised

Unearned

Options

(#)


Equity

Incentive

Plan Awards:

Number of

Securities

Underlying

Unexercised

Unearned

Options

(#)


Option

Exercise

Price

($)


Option

Expiration

DateRong Yang


400,000
(1)


—



200,000-
(1)

$
3.90




(1)John Bai


150,000
(2)


—



150,000
(2)

$
3.90




(2)


40





(1)
These options vest in two equal installments on February 13, 2011 and February 13, 2012, respectively. Each installment expires 5 years after its date of vesting.





(2)
These options vest on October 25, 2011 and expire 3 years after the date of vesting.





Additional Narrative Disclosure





We have no plans that provide for the payment of retirement benefits, or benefits that will be paid primarily following retirement, including, but not limited to, tax qualified defined benefit plans, supplemental executive retirement plans, tax qualified defined contribution plans and non-qualified defined contribution plans.





Director Compensation





The following table reflects the compensation of the current directors (other than the named executive officers) for the Company’s fiscal year ended May 31, 2011:





Name of Director

Fees

Earned or

Paid in

Cash

($)


Total

($)Francis Leong


24,000



24,000Zhenhai Niu


19,000



19,000Pat Spector


24,000



24,000Shuqian Wang


24,000



24,000




On February 12, 2010, Messrs. Francis Nyon Seng Leong, Zhenhai Niu, and Pat Lee Spector were appointed as directors of the Company. Each of Messrs Leong, Niu and Spector entered into an Independent Director Agreement with the Company. On March 22, 2010, Ms. Shuqian Wang entered into an Independent Director Agreement with the Company. A summary of the compensation for the directorship of each of Messrs. Leong, Niu and Spector and Ms. Wang is set forth as follows:





1.
An annual salary of $15,000, or $1,250 payable at the end of each month;





2.
For the service as a chairman of a committee, such director shall receive an additional fee of $5,000 per annum, payable in equal installments at the end of each month. For the service as a member of a committee, such director shall receive an additional fee of $2,000 per annum, payable in equal installments at the end of each month.





3.
Options to purchase 10,000 shares of the Common Stock subject to the 2010 Plan, exercisable at $3.90 per share, to vest one year after the grant date. Such options will expire 36 months from the date of the grant.  If the directorship is terminated, the vested option will forfeit immediately.





4.
Reimbursement of traveling expenses for such director’s attendance of meetings of the Board or any committee of the Company.





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





The following table provides information concerning beneficial ownership of our capital stock as of September 21, 2011 by:


41





·
each stockholder, or group of affiliated stockholders, who owns more than 5% of our outstanding capital stock;





·
each of our named executive officers;





·
each of our directors; and





·
all of our directors and executive officers as a group.





The following table lists the number of shares and percentage of shares beneficially owned based on 13,180,620 shares of Common Stock outstanding as of September 21, 2011.





Beneficial ownership is determined in accordance with the rules of the SEC, and generally includes voting power and/or investment power with respect to the securities held. Shares of Common Stock subject to options and warrants currently exercisable or exercisable within 60 days of September 21, 2011 or issuable upon conversion of convertible securities which are currently convertible or convertible within 60 days of September 21, 2011 are deemed outstanding and beneficially owned by the person holding those options, warrants or convertible securities for purposes of computing the number of shares and percentage of shares beneficially owned by that person, but are not deemed outstanding for purposes of computing the percentage beneficially owned by any other person. Except as indicated in the footnotes to this table, and subject to applicable community property laws, the persons or entities named have sole voting and investment power with respect to all shares of our Common Stock shown as beneficially owned by them.


42





Name & Address of

Beneficial Owner

Office

Title of Class

Amount and

Nature

of Beneficial

Ownership(1)


Percent of

Class(2)Officers and DirectorsRong Yang

Shidai Caifu Tiandi Building

Suite 1906-09 1 Hangfeng

Road Fengtai District

Beijing, China 100070(3) (7)

Chairman, CEO and

President

Common Stock


6,753,991



49.7
%Shuqian Wang

19th Floor, Landmark Tower 2

8 North Dongsanhuan Road

Beijing, China 100004(8)

Director

Common Stock


10,000


Less than 1/10 of 1
%Francis Nyon Seng Leong

262 Millview Bay SW

Calgary, Alberta T2Y 3X9(6)

Director

Common Stock


10,100


Less than 1/10 of 1
%Pat Lee Spector

145 McSkimming Road

Aspen, Colorado 81611(6)

Director

Common Stock


10,000


Less than 1/10 of 1
%Zhenhai Niu

Tuanjiehu Road Building 28,

Room 1-201, Chaoyang District,

Beijing 100026(6)

Director

Common Stock


10,000


Less than 1/10 of 1
%John Bai

Shidai Caifu Tiandi Building

Suite 1906-09 1 Hangfeng

Road Fengtai District

Beijing, China 100070(4)

Chief Financial Officer

Common Stock


150,000



1.1
%All officers and directors as a group (6 persons named above)



Common Stock


6,944,091



51.0
%5% Securities HoldersRui Shen

3814 Ballentree Way

Duluth, GA 30097(3)



Common Stock


5,300,042



40.2
%Whitebox Combined Partners

3033 Excelsior Blvd.,

Suite 300

Minneapolis, MN 55416(10)



Common Stock


726,153



5.5
%Bingchuan Xiao

Room 8, Unit 4, Building 46,

No.22 Fuxing Road, Haidian

District, Beijing 100842(5)



Common Stock


756,071
(5)


5.7
%Guiping Liao

Shidai Caifu Tiandi Building

Suite 1906-09 1 Hangfeng

Road Fengtai District

Beijing, China 100070(9)



Common Stock


6,753,991



49.7
%







(1)
Beneficial Ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.


(2)
As of the date of this report, we had 13,180,620 shares of our common stock outstanding.


43





(3)
Under those certain call option agreements between Mr. Yang and Mr. Shen, Mr. Yang has an option to purchase 5,113,384 shares of common stock from Mr. Shen in installments upon achievement of certain performance milestones by the Company. Under the Call Option Agreement, Mr. Yang can assign the right to purchase the shares to third parties.


(4)
Includes options to purchase 150,000 shares of the Common Stock of the Company, exercisable at $3.90 per share, to vest on October 25, 2011. If Mr. Bai’s employment is terminated prior to the vesting date, any unvested options will be terminated. If his employment is terminated after the vesting date, any vested but unexercised options shall terminate on the 91st day following the date of the termination of her employment.


(5)
Under that certain call option agreement between Mr. Xiao and Mr. Shen, Mr. Xiao has an option to purchase 186,658 shares held by Mr. Shen upon achievement of certain performance milestones by the Company. Under the Call Option Agreement, Mr. Xiao can assign the right to purchase the shares to third parties.


(6)
Includes options to purchase 10,000 shares of the Common Stock of the Company, exercisable at $3.90 per share.


(7)
Includes options to purchase 400,000 shares of the Common Stock of the Company, exercisable at $3.90 per share, to vest in two equal installments on February 13, 2011 and February 13, 2012, respectively. Includes 1,240,607 shares of the Common Stock of the Company held by Guiping Liao, the spouse of Mr. Yang.


(8)
Includes options to purchase 10,000 shares of the Common Stock of the Company, exercisable at $3.90 per share.


(9)
Includes options held by Mr. Yang, the spouse of Ms. Liao, to purchase 400,000 shares of the Common Stock of the Company, exercisable at $3.90 per share, to vest in two equal installments on February 13, 2011 and February 13, 2012, respectively. Includes call option held by Mr. Yang to purchase 5,113,384 shares of common stock from Mr. Shen.


(10)
Includes 64,103 shares issuable upon exercise of warrants.





Securities Authorized for Issuance under Equity Compensation Plan





The following table summarizes the equity compensation plans under which our securities may be issued as of the date of this report.


Plan Category

Number of

securities to

be

issued upon

exercise of

outstanding

options,

warrants

and

rights


Weighted-

average exercise

price of

outstanding

options,

warrants

and rights


Number of

securities

remaining

available for

future

issuance

under equity

compensation

plans

(excluding

securities

reflected in

column (a))Equity compensation plans approved by security holders


—



—



—Equity compensation plan not approved by security holders


590,000


$
3.90



560,000Total


590,000







560,000





Our Board of directors adopted the China Infrastructure Construction Corporation 2010 Stock Incentive Plan (the “2010 Plan”) on February 12, 2010. All our officers and key employees, and directors of, and consultants including those of our subsidiaries and affiliates, who are responsible for or contribute to the management, growth and/or profitability of our business, are eligible for participation in the 2010 Plan.  One Million One Hundred Fifty Thousand (1,150,000) shares of our common stock have been authorized and reserved for the 2010 Plan, subject to an increase of up to 10% of our issued and outstanding common stock, and any shares that may become available for issuance under awards under the 2010 Plan as a result of expiration or forfeiture. We may issue stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance awards and other stock-based awards under the 2010 Plan.


44




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





Transactions with related persons





The following includes a summary of transactions for the last fiscal years ended May 31, 2011 and 2010, in which we were a participant, and in which any related person had a direct or indirect material interest (other than compensation described under “Executive Compensation”).  We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm's-length transactions.





The total outstanding amount of related party payables was $296,325 and $47,125 as of May 31, 2011 and 2010, respectively.  These payables are loans from related parties for business purposes. They bear no interest, are unsecured and have no fixed payment terms. Currently, the related party payable consists of the following:





May 31, 2011


May 31, 2010Rong Yang (Chairman)

$
151,711


$
47,125Xiuqiong Long


144,614



-Total

$
296,325


$
47,125





Total outstanding amount of related party receivables was $0 and $1,286,945 as of May 31, 2011 and 2010, respectively. These receivables require no interest and have no fixed re-payment terms. Currently, the receivables from related parties consist of the following:





May 31, 2011


May 31, 2010Yang Ming (Chairman Yang Rong’s sibling)

$
-


$
147,817Guiping Liao (CEO’s spouse)


-



1,127,291
(1)XiYang (CEO’s son)


-



12,467$
-


$
1,286,945







(1)
The purpose of this loan was compliance with the PRC currency regulations. The loan was extended by our Hong Kong subsidiary.





Except as set forth in our discussion above, none of our directors, director nominees or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.





Policies and Procedures for Review, Approval or Ratification of Transactions with Related Persons





As we increase the size of our board of directors and gain independent directors, we expect to prepare and adopt a written related-person transactions policy that sets forth our policies and procedures regarding the identification, review, consideration and approval or ratification of “related-persons transactions.”  For purposes of our policy only, a “related-person transaction” will be a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which we and any “related person” are participants involving an amount that exceeds $120,000.  Transactions involving compensation for services provided to us as an employee, director, consultant or similar capacity by a related person will not be covered by this policy.  A related person will be any executive officer, director or a holder of more than five percent of our common stock, including any of their immediate family members and any entity owned or controlled by such persons.


45





We anticipate that, where a transaction has been identified as a related-person transaction, the policy will require management to present information regarding the proposed related-person transaction to our audit committee (or, where approval by our audit committee would be inappropriate, to another independent body of our board of directors) for consideration and approval or ratification.  Management’s presentation will be expected to include a description of, among other things, the material facts, the direct and indirect interests of the related persons, the benefits of the transaction to us and whether any alternative transactions are available.





To identify related-person transactions in advance, we are expected to rely on information supplied by our executive officers, directors and certain significant stockholders.  In considering related-person transactions, our board of directors will take into account the relevant available facts and circumstances including, but not limited to:





·
the risks, costs and benefits to us;





·
the impact on a director's independence in the event the related person is a director, immediate family member of a director or an entity with which a director is affiliated;





·
the terms of the transaction;





·
the availability of other sources for comparable services or products; and





·
the terms available to or from, as the case may be, unrelated third parties or to or from our employees generally.





We also expect that the policy will require any interested director to excuse himself or herself from deliberations and approval of the transaction in which the interested director is involved.





Director Independence





Mr. Francis Leong, Ms. Shuqian Wang, Mr. Zhenhai Niu and Mr. Pat Spector are independent directors pursuant to the definition of “independent director” under the Rules of NASDAQ, Marketplace Rule 5605(a)(2).





ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES





The following lists fees billed by Child, Van Wagoner & Bradshaw, PLLC, current auditors for the Company, for the years ended May 31, 2011 and 2010:





2011


2010Audit Fees

$
188,974


$
102,612Audit Related Fees


33,000



18,500Tax Fees


5,250



9,500All Other Fees


1,478



1,836





In the event that we should require substantial non-audit services, the audit committee would pre-approve such services and fees.


46





PART IV





ITEM 15.EXHIBITS





Number

Description2.1

Share Exchange Agreement by and between the Company and Northern Construction Holdings, Ltd. (1)3.1

Articles of Incorporation of the Company (2)3.2

Articles of Amendment (4)3.3

By-laws of the Company (2)4.1

Specimen of Common Stock Certificate (4)10.1

Form of Call Option Agreement dated as of October 8, 2008 by and between Rui Shen and Rong Yang (3)10.2

Form of Employment Agreement dated as of December 19, 2008 by and between Rong Yang and Beijing Concrete (4)10.3

Form of Subscription Agreement dated October 16, 2009, among the Company and the Investors named therein (5)10.4

Form of Investor Relations Escrow Agreement dated October 16, 2009, among the Company, Anslow& Jaclin, LLP and Trillion Growth China General Partner (5)10.5

Form of Lockup Agreement dated October 16, 2009, by and between the Company and certain directors and officers (5)10.6

Form of Lockup Agreement dated October 16, 2009, by and between the Company and certain non-affiliates shareholders (5)10.7

Form of Call Option Agreement dated October 14, 2009, by and between Rui Shen and Rong Yang (5)10.8

Form of Call Option Agreement dated October 14, 2009, by and between Rui Shen and Bingchuan Xiao (5)10.9

Form of Voting Trust Agreement dated October 14, 2009, by and between Rui Shen and Rong Yang (5)10.10

Form of Voting Trust Agreement dated October 14, 2009, by and between Rui Shen and Bingchuan Xiao (5)10.11

Form of Employment Agreement dated December 17, 2009, by and between the Company and Ms. Yiru Shi (6)10.12

Form of Option Agreement dated December 17, 2009, by and between the Company and Ms. Yiru Shi (6)10.13

The China Infrastructure Construction Corporation 2010 Stock Incentive Plan, dated February 12, 2010 (7)10.14

Form of Independent Director Agreement (7)


47





10.15

Amended and Restated Employment Agreement with Rong Yang, dated February 12, 2010 (7)10.16

Non-Qualified Stock Option Agreement with Rong Yang, dated February 12, 2010 (7)10.17

Form of Subscription Agreement dated March 5, 2010, by and among the Company and the parties named therein (8)10.18

Form of Amendment dated March 5, 2010 to Subscription Agreement dated October 16, 2009 by and among the Company and the parties named therein (8)10.19

Form of Warrant issued to the Company’s placement agent and certain finder (8)10.20

Form of Warrant issued to the 2009 Investors (8)10.21

Form of Employment Agreement dated October 25, 2010, by and between the Company and Mr. John Bai (9)10.22

Form of Option Agreement dated October 25, 2010, by and between the Company and Mr. John Bai (9)16.1

Letter of Ronald R. Chadwick, P.C. to the SEC dated October 9, 2008 (1);21.1

List of Subsidiaries31.1

Certifications of Rong Yang pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2

Certifications of John Bai pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002;





Footnotes:





(1)
Incorporated by reference to our Current Report on Form 8-K filed with the SEC on October 10, 2008.





(2)
Incorporated by reference to our Registration Statement on Form SB-2 (Reg. No. 333-146758) filed with the SEC on October 17, 2007.





(3)
Incorporated by reference to our Current Report on Form 8-K/A filed with the SEC on April 29, 2009.





(4)
Incorporated by reference to our Annual Report on Form 10-K filed with the SEC on September 15, 2009.





(5)
Incorporated by reference to our Current Report on Form 8-K filed with the SEC on October 20, 2009.





(6)
Incorporated by reference to our Current Report on Form 8-K filed with the SEC on December 22, 2009.





(7)
Incorporated by reference to our Current Report on Form 8-K filed with the SEC on February 19, 2009.


48





(8)
Incorporated by reference to our Current Report on Form 8-K filed with the SEC on March 12, 2009.





(9)
Incorporated by reference to our Current Report on Form 8-K filed with the SEC on October 29, 2010.





49


SIGNATURES





Pursuant to the requirements of Section 13 or 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 INFRASTRUCTURE

CONSTRUCTION CORPORATIONDate: September 21, 2011
By:
/s/ Rong YangRong YangChief Executive Officer, Director

(principal executive officer)





Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.





Name and Title

Date/s/ Rong Yang

September 21, 2011Rong YangChief Executive Officer and Director(Principal Executive officer)/s/ John Bai

September 21, 2011John BaiChief Financial Officer(Principal Financial Officer and

Principal Accounting Officer)/s/ Shuqian Wang

September 21, 2011Shuqian Wang, Director/s/ Francis Nyon Seng Leong

September 21, 2011Francis Nyon Seng Leong, Director/s/ Pat Lee Spector

September 21, 2011Pat Lee Spector, Director/s/ Zhenhai Niu

September 21, 2011Zhenhai Niu, Director


50





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To The Board of Directors and Stockholders of



China Infrastructure Construction Corporation

Beijing, China



We have audited the accompanying consolidated balance sheets of China Infrastructure Construction Corporation (the Company) as of May 31, 2011 and 2010, and the related consolidated statements of operations and comprehensive income, cash flows, and changes in stockholders’ equity for the years ended May 31, 2011 and 2010. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.



We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting. Accordingly, we express no such opinion. An audit 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 audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of China Infrastructure Construction Corporation as of May 31, 2011 and 2010, and the results of its operations and its cash flows for the years ended May 31, 2011 and 2010, in conformity with accounting principles generally accepted in the United States of America.













Child, Van Wagoner & Bradshaw, PLLC

Salt Lake City, Utah

September 15, 2011









CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


CONSOLIDATED FINANCIAL STATEMENTS





May 31, 2011 and 2010





Index to Consolidated Financial Statements
PageConsolidated Balance Sheets
F-2Consolidated Statements of Operations and Comprehensive Income
F-3Consolidated Statements of Cash Flows
F-4Consolidated Statement of Changes in Stockholders’ Equity
F-5Notes to Consolidated Financial Statements
F-7


F-1


CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


CONSOLIDATED BALANCE SHEETS


AS OF MAY 31, 2011 AND 2010





At May 31,


At May 31,2011


2010ASSETSCurrent assetsCash and cash equivalents

$
136,702


$
1,102,879Restricted cash


10,868



146,089Trade accounts receivable, net


30,058,457



53,411,689Other receivables


983,199



950,671Inventories


348,102



575,452Total current assets


31,537,328



56,186,780Property, plant and equipment, net


8,898,993



7,995,701Prepayments


15,240,990



1,289,007Accounts receivables, net - long term


33,129,309



-Deferred tax assets


2,038,913



-Other receivables - long term


2,197,961



4,955,648Related party receivables


-



1,286,945Total other assets


61,506,166



7,531,600TOTAL ASSETS

$
93,043,494


$
71,714,081LIABILITIES AND EQUITYTrade accounts payable

$
13,114,202


$
13,376,119Related party payable


296,325



47,125Other payables


3,494,914



2,217,307Current portion of capital lease obligations


3,171,246



1,949,183Accrued expenses


980,075



491,885Tax payable


6,401,831



-Bank loan payable


-



1,317,600Total current liabilities


27,458,593



19,399,219Long-term liabilitiesLong-term portion of capital lease obligations


515,662



2,185,820Total long-term liabilities


515,662



2,185,820TOTAL LIABILITIES

$
27,974,255


$
21,585,039EQUITYPreferred stock, no par value, 10,000,000 shares authorized; no shares issued or outstanding

$
-


$
-Common stock, no par value, 100,000,000 shares authorized;  12,930,620 and 12,815,620 shares issued and outstanding as of May 31, 2011 and 2010, respectively


43,279,066



42,252,295Retained earnings


14,778,106



4,321,221Accumulated other comprehensive income


4,107,477



1,509,314Total China Infrastructure Construction Corporation Stockholder’s Equity


62,164,649



48,082,830Non-controlling interests


2,904,590



2,046,212TOTAL EQUITY


65,069,239



50,129,042TOTAL LIABILITIES AND EQUITY

$
93,043,494


$
71,714,081





The accompanying notes are an integral part of this statement.


F-2


CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)


FOR THE FISCAL YEARS ENDED MAY 31, 2011 AND 2010




May 31, 2011


May 31, 2010Sales revenue, netConcrete Sales

$
72,392,998


$
72,589,174Manufacturing Service


11,067,656



1,409,289Total revenue


83,460,654



73,998,463Cost of revenuesConcrete Sales


53,318,951



55,338,709Manufacturing Service


3,063,236



622,083Total cost of revenues


56,382,187



55,960,792Gross profit


27,078,467



18,037,671Operating expenses:General and administrative expenses


12,770,339



31,323,026Operating income (loss)


14,308,128



(13,285,355
)Other income (expense):Interest income


1,604



4,424Interest expense


(365,069
)


(163,646
)Other income


707,478



360,354Gain (Loss) on disposal of property, plant and equipment


(445,755
)


496,816Total other income (expense)


(101,742
)


697,948Earnings (loss) before tax


14,206,386



(12,587,407
)Income tax


3,038,533



-Net income (loss)

$
11,167,853


$
(12,587,407
)Net income (loss) attributable to:-Common stockholders


10,456,885



(13,434,410
)-Non-controlling interest


710,968



847,003$
11,167,853


$
(12,587,407
)Earnings (loss) per share- Basic and Dilutive

$
0.81


$
(1.66
)Weighted average shares outstanding- Basic and Dilutive


12,930,305



8,106,833Comprehensive IncomeNet Income (loss)

$
11,167,853


$
(12,587,407
)Foreign currency translation adjustment


2,745,573



(234,123
)Comprehensive Income (loss)


13,913,426



(12,821,530
)Comprehensive income attributable to non-controlling interests


858,378



835,517Comprehensive income (loss) attributable to China Infrastructure Construction Corporation

$
13,055,048


$
(13,657,047
)





The accompanying notes are an integral part of this statement.


F-3


CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR THE FISCAL YEARS ENDED MAY 31, 2011 AND 2010





May 31,


May 31,2011


2010Cash flows from operating activitiesNet income (loss)

$
11,167,853


$
(12,587,407
)Adjustments to reconcile net income (loss) to net cash provided by (used in) operations:(Gain) loss from property, plant and equipment disposal


445,755



(496,816
)Bad debt expenses


7,949,067



85,170Depreciation


1,639,520



1,174,021Shares issued for compensation


316,250



27,422,242Stock option expenses


710,521



199,003Changes in operating liabilities and assets:Trade accounts receivable


(14,799,859
)


(27,095,999
)Prepayments


(13,537,309
)


(1,291,119
)Inventories


250,438



311,124Other receivables


1,097,154



(1,835,744
)Trade accounts payable


(740,588
)


3,204,875Other payables


1,150,981



511,779Accrued expenses


446,341



190,336Tax payable


4,252,378



-Net cash provided by (used in) operating activities


348,502



(10,208,535
)Cash flows from investing activities:Property, plant, and equipment additions


(923,904
)


(2,692,568
)Property, plant, and equipment disposal


37,508



-Payments to related party receivable


-



(1,898,489
)Proceeds from related party receivable


1,286,945



575,372Net cash provided by (used in) investing activities

$
400,549


$
(4,015,685
)Cash flows from financing activities:Shares issued for cash

$
-


$
13,234,406Restricted cash


135,221



(146,089
)Proceeds from Bank loan payable and capital lease obligations


-



1,319,760Payment to Bank loan payable and capital lease obligations


(1,994,303
)


-Proceeds from related party payable


121,073



-Net cash provided by (used in) financing activities


(1,738,009
)


14,408,077Effect of rate changes on cash


22,781



(2,819
)Net Increase (decrease) of cash and cash equivalents


(966,177
)


181,038Cash and cash equivalents–beginning of year


1,102,879



921,841Cash and cash equivalents–end of year

$
136,702


$
1,102,879Supplementary cash flow information:Interest paid in cash

$
135,356


$
119,619Income taxes paid in cash


-



-Non-cash investing activities:Acquisition of property, plant and equipment through other payable


376,074



4,141,781Disposal of property, plant and equipment through other receivable


180,036



3,808,920Related party receivable offset by payable to related party payable

$
(296,325
)

$
674,289





The accompanying notes are an integral part of this statement.


F-4


CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


FOR THE FISCAL YEARS ENDED MAY 31, 2011 AND 2010





Retained

Earnings


Accumulated

OtherCommon Stock


(Accumulated


Comprehensive


Non-controllingShares


Amount


Deficit)


Income


Interests


EquityBalance: June 1, 2009


1,529,550


$
1,396,644


$
17,755,631


$
1,731,951


$
1,210,695


$
22,094,921Adjustment for 1:10 reverse split


(4
)


-



-



-



-



-Shares issued for cash in October 2009


2,564,108



10,000,021



-



-



-



10,000,021Shares issued for fund raising service  in October 2009


408,531



1,573,366



-



-



-



1,573,366Warrants issued for fund raising service  in October 2009


-



262,836



-



-



-



262,836Cost of issuance


-



(3,230,597
)


-



-



-



(3,230,597
)Shares issued for cash in March 2010


1,282,091



5,000,153



-



-



-



5,000,153Warrants issued to placement agent


-



183,200



-



-



-



183,200Warrants issued to investors


-



1,776,503



-



-



-



1,776,503Cost of issuance


-



(2,331,076
)


-



-



-



(2,331,076
)Shares issued for compensation


7,031,344



27,422,242



-



-



-



27,422,242Stock option


-



199,003



-



-



-



199,003Foreign currency translation adjustment


-



-



-



(222,637
)


(11,486
)


(234,123
)Net income (loss)


-



-



(13,434,410
)


-



847,003



(12,587,407
)Balance: May 31, 2010


12,815,620


$
42,252,295


$
4,321,221


$
1,509,314


$
2,046,212


$
50,129,042





The accompanying notes are an integral part of this statement.


F-5


CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


FOR THE FISCAL YEARS ENDED MAY 31, 2011 AND 2010





Accumulated OtherCommon Stock


Retained Earnings


Comprehensive


Non-controlling


TotalShares


Amount


(Accumulated Deficit)


Income


Interests


EquityBalance: June 1, 2010


12,815,620


$
42,252,295


$
4,321,221


$
1,509,314


$
2,046,212


$
50,129,042Shares issued for compensation


115,000



316,250



-



-



-



316,250Stock option


-



710,521



-



-



-



710,521Foreign currency translation adjustment


-



-



-



2,598,163



147,410



2,745,573Net income (loss)


-



-



10,456,885



-



710,968



11,167,853Balance: May 31, 2011


12,930,620


$
43,279,066


$
14,778,106


$
4,107,477


$
2,904,590


$
65,069,239





The accompanying notes are an integral part of this statement.


F-6


CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE FISCAL YEARS ENDED AND AS OF MAY 31, 2011 AND 2010





1.
Nature of Operations





China Infrastructure Construction Corporation (“China Infrastructure”), formerly Fidelity Aviation Corporation, was organized on February 28, 2003 as Fidelity Aircraft Partners LLC, a Colorado limited liability company (“Fidelity LLC”). On December 16, 2004, Fidelity LLC converted itself into Fidelity Aviation Corporation by filing a Statement of Conversion and Articles of Incorporation with the Colorado Secretary of State. Fidelity was formed to purchase large commercial (transport category) jet airframes, salvage the usable aircraft parts and components from them and sell the parts and components. The Board of Directors evaluated the future market for aircraft parts business and resolved not to pursue this line of business anymore.





On October 8, 2008, China Infrastructure entered into and consummated the transactions contemplated under a Share Exchange Agreement with Northern Construction Holdings, Ltd., a Hong Kong limited company (“NCH”) and its shareholder pursuant to which China Infrastructure issued 1,200,000 (12,000,000 pre-reverse split) shares of China Infrastructure common stock (the “Share Exchange”) in exchange for all issued and outstanding common stock of NCH.





The Share Exchange resulted in (i) a change in control of China Infrastructure with the shareholder of NCH owning approximately 78% of issued and outstanding shares of common stock of China Infrastructure, (ii) NCH becoming a wholly-owned subsidiary of China Infrastructure, and (iii) appointment of certain nominees of the shareholder of NCH as directors and officers of China Infrastructure and resignation of John Schoenauer as director, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer of China Infrastructure.





As a result of the Share Exchange Agreement, Beijing Fortune Capital Management Co., Ltd. (“BFCM”), a 95% owned subsidiary of NCH, became our indirect majority-owned subsidiary.  Also as a result of the Share Exchange Agreement, Beijing Chengzhi Qianmao Concrete Co., Ltd., (“Beijing Concrete”), the operating company, and a 99.5% owned subsidiary of BFCM, also became our indirect majority-owned subsidiary.





For accounting purposes, the share exchange transaction was treated as a capital transaction where the acquiring corporation issued stock for the net monetary assets of the shell corporation, accompanied by a recapitalization. The accounting is similar in form to a reverse acquisition, except that goodwill or other intangibles are not recorded.  All references to NCH common stock have been restated to reflect the equivalent numbers of China Infrastructure common shares.





On January 15, 2010, Beijing Concrete increased its registered capital from RMB 15 million (approximately $2.2 million) to RMB 30 million (approximately $4.4 million) and BFCM increased its investment in Beijing Concrete accordingly. Its share capital increased from RMB 10 million (approximately $1.47 million) to RMB 15 million (approximately $2.2 million). As a result, BFCM owns 99.67% of Beijing Concrete from January 15, 2010.





On February 1, 2010, Beijing Concrete formed a subsidiary, Shaanxi Hongruida Concrete Ltd. (“Hongruida”) and contributed RMB 10 million (approximately $1.47 million) to its capital. Beijing Concrete is the sole shareholder of Hongruida. Hongruida was organized to implement the 10-year strategic cooperative agreement with one of the Company’s major clients, China Railway Construction Group Co., Ltd (“CRCG”). Under the Agreement, the Company and CRCG will jointly manage the concrete mixing stations to be operated by Hongruida. CRCG will provide the cement for manufacturing the concrete mix in such concrete mixing stations, and will be able to purchase the concrete mix at discounted prices. Also, in accordance with the Agreement, each party will lease certain equipment to the concrete mixing stations.  The Company and CRCG will share 75% and 25% of the annual profits of such concrete mixing stations in Xi’an. Hongruida commenced its operations at the end of March 2010.


F-7


CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE FISCAL YEARS ENDED AND AS OF MAY 31, 2011 AND 2010





When we refer in this report to business and financial information for periods prior to the consummation of the reverse acquisition, we are referring to the business and financial information of NCH on a consolidated basis unless the context suggests otherwise.





The Company through its subsidiaries in Hong Kong and the People’s Republic of China (“PRC” or “China”), engages in the production of ready-mixed concrete for developers and the construction industry in the PRC. In addition, we have a technical service agreement with an independently owned concrete mixture station, pursuant to which we are paid by percentages of sales for technical support provided.





2.
Basis of Presentation





The accompanying financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). This basis differs from that used in the statutory accounts of the Company, which were prepared in accordance with the accounting principles and relevant financial regulations applicable to enterprises in the PRC.  All necessary adjustments have been made to present the financial statements in accordance with US GAAP.





3.
Summary of Significant Accounting Policies





a.
Economic and Political Risks





The Company faces a number of risks and challenges as a result of having primary operations and marketing in the PRC. Changing political climates in the PRC could have a significant effect on the Company’s business.





b.
Control by Principal Stockholders





The directors, executive officers and their affiliates or related parties own, beneficially and in the aggregate, the majority of the voting power of the registered capital of the Company. Accordingly, the directors, executive officers and their affiliates, if they voted their shares uniformly, would have the ability to control the approval of most corporate actions, including increasing the authorized capital stock of the Company and the dissolution, merger or sale of the Company’s assets.





c.
Principles of Consolidation





The consolidated financial statements include the financial statements of China Infrastructure, and its wholly-owned and majority-owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation. The Company’s foreign subsidiaries have fiscal year ends of May 31 and the results are consolidated up to that date. Non-controlling interests consist of other stockholders’ ownership interests in majority-owned subsidiaries of the Company.





d.
Estimates





The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.


F-8


CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE FISCAL YEARS ENDED AND AS OF MAY 31, 2011 AND 2010





e.
Cash and Cash Equivalents





For purposes of the statements of cash flows, cash and cash equivalents includes cash on hand and demand deposits held by banks. Deposits held in financial institutions in the PRC are not insured by any government entity or agency.





f.
Restricted Cash





Restricted cash represents deposits held in the escrow account and are not insured by any government entity or agency.





g.
Trade Accounts Receivable





The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. Trade accounts receivable are recognized and carried at original invoice amount less an allowance for any uncollectible amounts. An allowance for doubtful accounts is established and determined based on management’s regular assessment of known requirements, aging of receivables, payment history, the customer’s current credit worthiness and the economic environment. These factors continuously change, and can have an impact on collections and the Company’s estimation process. These impacts may be material. Management reviews and maintains an allowance for doubtful accounts that reflects the management’s best estimate of potentially uncollectible trade receivables. Certain accounts receivable amounts are charged off against allowances after a designated period of collection efforts. Subsequent cash recoveries are recognized as income in the period when they occur. The ultimate collection of the Company’s accounts receivable may take more than one year, and any portion of accounts receivable expected to be collected in more than one year is reflected as noncurrent, net of allowance for doubtful accounts relating to that portion of the receivables.  The bifurcation between current and noncurrent portions of accounts receivable is based on management’s estimate and historical collection experience.





h.
Inventories





Inventories are stated at the lower of cost, determined on a weighted average basis, and net realizable value. Net realizable value is the estimated selling price, in the ordinary course of business, less estimated costs to complete and dispose.





i.
Property and Equipment





Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the useful lives of the assets. Major renewals are capitalized and depreciated; maintenance and repairs that do not extend the life of the respective assets are charged to expense as incurred. Upon disposal of assets, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in income. Depreciation related to property and equipment is reported in cost of revenues. Property, plant and equipment are depreciated over their estimated useful lives as follows:





Office trailers

10 yearsMachinery and equipment

3-8 yearsFurniture and office equipment

5-8 yearsMotor vehicles

3-5 years


F-9


CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE FISCAL YEARS ENDED AND AS OF MAY 31, 2011 AND 2010





j.
Impairment of Long-Lived and Intangible Assets





Long-lived assets of the Company are reviewed annually to assess whether the carrying value has become impaired according to the guidelines established in FASB Codification (ASC) 360.  The Company considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations. The Company also re-evaluates the periods of depreciation to determine whether subsequent events and circumstances warrant revised estimates of useful lives. As of May 31, 2011, the Company expects these assets to be fully recoverable. No impairment of assets was recorded in the periods reported.





k.
Accumulated Other Comprehensive Income





Accumulated other comprehensive income represents foreign currency translation adjustments.





l.
Revenue Recognition





The Company receives revenue from sales of concrete products and from provision of manufacturing service. The Company's revenue recognition policies are in compliance with ASC 605 (previously Staff Accounting Bulletin 104). Revenue is recognized at the date of shipment to customers or manufacturing services have been rendered 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. Both of our product sales and manufacturing service are non-returnable. Therefore, we do not estimate deductions or allowance for returns. Revenues are presented net of any discounts, reward, or incentive given to customers.  Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.





Our products delivered to customers are checked on site by customers and, once the products are accepted by customers, they will sign the acceptance notice. There is no warranty issue after the delivery.





Similar to sales of concrete products, we delivered products on which we provided manufacturing service to customers or provided manufacturing service on site.  Customers check products upon receipt and will sign the acceptance notice once the products are accepted.  There is no warranty issue after the acceptance.





Reward or incentive given to our customers is an adjustment of the selling prices of our products; therefore, the consideration is characterized as a reduction of revenue when recognized in our income statement.





The Company recognizes its revenues net of value-added taxes (“VAT”).  The Company enjoys a free VAT policy according to the national policy, which encourages the development of the cement industry if the manufacturer satisfies the environmental protection requirements. The Company has enjoyed the free VAT policy from January 1, 2006 to December 31, 2010. Starting from January 1, 2011, the Company is subject to VAT which is levied at the rate of 6% on the invoiced value of sales.


F-10


CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE FISCAL YEARS ENDED AND AS OF MAY 31, 2011 AND 2010





m.
Cost of Goods Sold





Cost of goods sold consists primarily of the costs of the raw materials, freight charges, direct labor, depreciation of plant and machinery, warehousing cost and overhead associated with the manufacturing process and commission expenses.





n.
Shipping Income and Expense





ASC 605-45-20 “Shipping and Handling Costs” establishes standards for the classification of shipping and handling costs. All amounts billed to a customer related to shipping and handling are classified as revenue.





o.
Advertising Costs





The Company expenses advertising costs as incurred. Advertising costs, if any, are included in selling, general and administrative expense on the income statement.





p.
Foreign Currency and Comprehensive Income





The accompanying financial statements are presented in US dollars. The functional currency of the Company is U.S. Dollars and that of Beijing Concrete is the Renminbi (“RMB”) of the PRC. The financial statements are translated into US dollars from RMB at period-end exchange rates for assets and liabilities, and weighted average exchange rates for revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.





On July 21, 2005, the PRC changed its foreign currency exchange policy from a fixed RMB/USD exchange rate into a flexible rate under the control of the PRC’s government. We use the Closing Rate Method in currency translation of the financial statements of the Company.





RMB is not freely convertible into the currency of other nations. All such exchange transactions must take place through authorized institutions. There is no guarantee the RMB amounts could have been, or could be, converted into US dollars at rates used in translation.





q.
Income Taxes





The Company accounts for income taxes in accordance with ASC 740 (formerly SFAS 109, “Accounting for Income Taxes.”) Under the asset and liability method as required by ASC 740 (formerly SFAS 109), deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Under ASC 740, the effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all of, a deferred tax asset will not be realized.





ASC 740 (formerly FIN 48) clarifies the accounting and disclosure for uncertain tax positions and prescribes a recognition threshold and measurement attribute for recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.


F-11


CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE FISCAL YEARS ENDED AND AS OF MAY 31, 2011 AND 2010





Under ASC 740, evaluation of a tax position is a two-step process. The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met.





The Company’s operations are subject to income and transaction taxes in the United States, Hong Kong, and the PRC jurisdictions. Significant estimates and judgments are required in determining the Company’s worldwide provision for income taxes. Some of these estimates are based on interpretations of existing tax laws or regulations, and as a result the ultimate amount of tax liability may be uncertain. However, the Company does not anticipate any events that would lead to changes to these uncertainties.





The Company and its subsidiaries are subject to income taxes on an entity basis on income arising in, or derived from, the tax jurisdiction in which they operate. Effective January 1, 2009, the PRC government implemented a new 25% tax rate across the board for all enterprises regardless of whether domestic or foreign enterprise without any tax holiday which is defined as "two-year exemption followed by three-year half exemption" hitherto enjoyed by tax payers. As a result of the new tax law of a standard 25% tax rate, tax holidays terminated as of December 31, 2008. However, the PRC government has established a set of transition rules to allow enterprises already started tax holidays, before January 1, 2009, to continue enjoying the tax holidays until being fully utilized.  The exemption of income tax to the Company lasted until December 31, 2010 and from year 2011, the Company is subject to an income tax at an effective rate of 25%. The Company is charged at 25% from January 1, 2011 to May 31, 2011 and 0% income tax expense for calendar year 2010.





r.
Restrictions on Transfer of Assets Out of the PRC





Dividend payments by the Company are limited by certain statutory regulations in the PRC. No dividends may be paid by the Company without first receiving prior approval from the Foreign Currency Exchange Management Bureau. However, no such restrictions exist with respect to loans and advances.





s.
Financial Instruments





ASC 825 (formerly SFAS 107, “Disclosures about Fair Value of Financial Instruments”) defines financial instruments and requires disclosure of the fair value of those instruments. ASC 820 (formerly SFAS 157, “Fair Value Measurements”), adopted July 1, 2008, defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:





Level 1: inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.





Level 2: inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.


F-12


CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE FISCAL YEARS ENDED AND AS OF MAY 31, 2011 AND 2010





Level 3: inputs to the valuation methodology are unobservable and significant to the fair value.





The carrying amounts reported in the balance sheets for current receivables and payables, including short-term loans, qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments, their expected realization and, if applicable, the stated rate of interest is equivalent to rates currently available.





t.
Stock-Based Compensation





The Company records stock-based compensation expense pursuant to ASC 718 (formerly SFAS 123R, “Share Based Payment.”) The Company uses the Black-Scholes option pricing model which requires the input of highly complex and subjective variables including the expected life of options granted and the Company’s expected stock price volatility over a period equal to or greater than the expected life of the options. Because changes in the subjective assumptions can materially affect the estimated value of the Company’s employee stock options, it is management’s opinion that the Black-Scholes option pricing model may not provide an accurate measure of the fair value of the Company’s employee stock options. Although the fair value of employee stock options is determined in accordance with ASC 718 using an option pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.





Stock-based compensation expense is recognized based on awards expected to vest, and there were no estimated forfeitures as the Company has a short history of issuing options. ASC 718 (formerly SFAS 123R) requires forfeitures to be estimated at the time of grant and revised in subsequent periods, if necessary, if actual forfeitures differ from those estimates.





u.
Basic and Diluted Earnings Per Share





The Company reports earnings per share in accordance with the provisions of ASC 260 (formerly SFAS No. 128, "Earnings Per Share.") ASC 260 requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.





v.
Statement of Cash Flows





In accordance with FASB ASC 230, 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.


F-13


CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE FISCAL YEARS ENDED AND AS OF MAY 31, 2011 AND 2010





w.
Segment Reporting





ASC 280 “Segment reporting” (formerly SFAS 131) requires use of the management approach model for segment reporting. The management approach model is based on the way a company's management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. Since management does not disaggregate Company data, the Company has determined that only one segment exists.





x.
Recent Accounting Pronouncements





In December 2010, the FASB issued amended guidance related to Business Combinations. The amendments affect any public entity that enters into business combinations that are material on an individual or aggregate basis. The amendments specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The Company will assess the impact of these amendments on its consolidated financial statements if and when an acquisition occurs.





In December 2010, the FASB issued amended guidance related to intangibles—goodwill and other. The amendments modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with the existing guidance and examples, which require that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. The Company does not believe that this guidance will have a material impact on its consolidated financial statements.




In January 2011, the FASB issued an Accounting Standard Update (“ASU”) No, 2011-01, “Receivables Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, to be concurrent with the effective date of the guidance for determining what constitutes a troubled debt restructuring, as presented in proposed Accounting Standards Update, Receivables (Topic 310): Clarifications to Accounting for Troubled Debt Restructurings by Creditors. The amendments in this Update apply to all public-entity creditors that modify financing receivables within the scope of the disclosure requirements about troubled debt restructurings in Update 2010-20.  Under the existing effective date in Update 2010-20, public-entity creditors would have provided disclosures about troubled debt restructurings for periods beginning on or after December 15, 2010. The amendments in this Update temporarily defer that effective date, enabling public-entity creditors to provide those disclosures after the Board clarifies the guidance for determining what constitutes a troubled debt restructuring. The deferral in this Update will result in more consistent disclosures about troubled debt restructurings. This amendment does not defer the effective date of the other disclosure requirements in Update 2010-20.  In the proposed Update for determining what constitutes a troubled debt restructuring, the Board proposed that the clarifications would be effective for interim and annual periods ending after June 15, 2011. For the new disclosures about troubled debt restructurings in Update 2010-20, those clarifications would be applied retrospectively to the beginning of the fiscal year in which the proposal is adopted. The Company does not expect the adoption of ASU 2011-01 to have a significant impact on its consolidated financial statements.


F-14


CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE FISCAL YEARS ENDED AND AS OF MAY 31, 2011 AND 2010





The Company has reviewed the Accounting Standards Updates up through 2011-07.





y.
Reclassifications





Certain prior period amounts have been reclassified to conform to the current period presentation.





4.
Restricted Cash





In accordance with the Escrow Agreement and the Subscription Agreement (note 15) signed by China Infrastructure Construction Corporation, Trillion Growth China General Partner and Anslow & Jaclin, LLP (the “Escrow Agent”) in October 2009, the Company was required to keep with the Escrow Agent $120,000 immediately on the Closing Date of the Subscription Agreement. This fund can only be disbursed when certain criteria are met. As of May 31, 2011 and 2010, the amount not disbursed was $10,868 and $146,089, respectively.





5.
Trade Accounts Receivable





May 31, 2011


May 31, 2010Trade Accounts Receivable

$
32,787,147


$
53,808,731Less: Allowance for Bad Debt


(2,728,690
)


(397,042
)$
30,058,457


$
53,411,689





May 31, 2011


May 31, 2010Long Term Accounts Receivable

$
38,973,730


$
-Less: Allowance for Bad Debt


(5,844,421
)


-$
33,129,309


$
-





6.
Other Receivables





Other receivables in current assets amounted to $983,199 and $950,671 as of May 31, 2011 and 2010, respectively.





Other receivables in long term assets amounted to $2,197,961 and $4,955,648 as of May 31, 2011 and 2010, respectively.





As of May 31, 2011, other receivables includes $2.87 million related to construction in progress disposal to an unrelated party. On February 28, 2010, we sold construction in progress in Tangshan to an unrelated third party at a price of approximately $3.8 million. The amount is due in 4 annual equal installments starting September 1, 2010. The receivable is unsecured, interest free, and with fixed repayment dates. It also includes insurance claims and deposits, that are from unrelated parties, interest free, unsecured, and with no fixed repayment date, and advances to employees for business purposes.





The allowances on the other accounts receivable are recorded when circumstances indicate collection is doubtful for particular accounts receivable.  The Company provides for allowances on a specific account basis. There is no provision made for the other receivables at May 31, 2011 and 2010.


F-15


CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE FISCAL YEARS ENDED AND AS OF MAY 31, 2011 AND 2010





7.
Inventories





Inventories consist of the following:





May 31, 2011


May 31, 2010Raw materials

$
348,102


$
575,452$
348,102


$
575,452





8.      Property, Plant and Equipment





Plant and equipment consist of the following:





May 31, 2011


May 31, 2010Office trailers

$
798,993


$
902,556Machinery and equipment


2,840,269



2,299,638Machinery and equipment, capital lease


6,348,228



5,993,031Motor vehicles


499,808



1,416,250Motor vehicles, capital lease


279,854



36,058Furniture and office equipment


601,619



509,611Construction in progress


1,906,796



421,716Total property, plant and equipment


13,275,567



11,578,860Accumulated depreciation


(2,685,392
)


(3,093,076
)Accumulated depreciation, capital lease


(1,691,182
)


(490,083
)Net property, plant and equipment

$
8,898,993


$
7,995,701





Depreciation expense included in general and administrative expenses for the fiscal year ended May 31, 2011 and 2010 was $310,532 and $163,573, respectively. Depreciation expense included in cost of sales for the fiscal years ended May 31, 2011 and 2010 was $1,328,988 and $1,010,448 respectively.





Construction in progress represents direct costs of construction and design fees incurred for the Company’s new project in Tangshan. All construction costs associated with this project are accumulated and capitalized as construction in progress. The construction in progress is closed out to the appropriate asset classification when the project is substantially complete, occupied, or placed into service. No depreciation is provided until it is completed and ready for its intended use.





On February 28, 2010, we sold construction in progress in Tangshan to an unrelated third party at a price of approximately $3.8 million. The amount is due in 4 annual equal installments starting September 1, 2010. As of May 31, 2010, the book value of the construction in progress sold was approximately $3.3 million. A gain from property, plant and equipment disposal of $496,816 was recorded.  Total other receivable for sales of Tangshan construction in progress was $2,874,586 and $3,802,686.02 for the fiscal years ended May 31, 2011 and 2010, respectively.





After the Tangshan project was sold, construction in progress represents direct costs of construction and design fees incurred for the Company’s new location for production facility in Beijing Daxing. Similar to the Tangshan project, all construction costs associated with this project are accumulated and capitalized as construction in progress.  The construction in progress is closed out to the appropriate asset classification when the project is substantially complete, occupied, or placed into service.  No depreciation is provided until it is completed and ready for its intended use.


F-16


CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE FISCAL YEARS ENDED AND AS OF MAY 31, 2011 AND 2010





Interest costs totaling $0 were capitalized into construction in progress for the years ended May 31, 2011 and 2010.





9.
Prepayments





Prepayments consist of the long term refundable performance bond, prepaid expenses, mainly prepaid rent expense, and the monies deposited with the suppliers for raw material and capital lease lessor for lease payment. The total outstanding amount was $15,240,990 and $1,289,007 as of May 31, 2011 and 2010, respectively. There is no provision made for the prepayment at May 31, 2011 and 2010.





May 31, 2011


May 31, 2010Advance to Suppliers

$
8,561,700


$
317,881Prepaid expenses


2,769,473



429,438Performance bond


3,909,817



541,688$
15,240,990


$
1,289,007





10.
Related Party Transactions





Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.





Total outstanding amount of related party payable was $296,325 and $47,125 as of May 31, 2011 and 2010, respectively. These payables bear no interest and have no fixed payment terms. Currently, the related party payable consists of the following:





May 31, 2011


May 31, 2010Yang Rong (CEO)

$
151,711


$
47,125Xiuqiong Long


144,614



-Total

$
296,325


$
47,125





Total outstanding amount of related party receivables was $0 and $1,286,945 as of May 31, 2011 and 2010, respectively. These receivables require no interest and have no fixed re-payment terms. Currently, the receivables from related party consist of the following:





May 31, 2011


May 31, 2010Yang Ming (CEO Yang Rong’s sibling)

$
-


$
147,817Guiping Liao (CEO’s spouse)(1)


-



1,126,661XiYang (CEO’s son)


-



12,467Total

$
-


$
1,286,945





(1)
The purpose of this loan was compliance with the PRC currency regulations. The loan was extended by our Hong Kong subsidiary.


F-17


CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE FISCAL YEARS ENDED AND AS OF MAY 31, 2011 AND 2010





11.
Other Payables





Other payables in current liabilities consist of the following as of May 31, 2011 and 2010:





May 31, 2011


May 31, 2010Commission payable

$
814,224


$
1,488,213Payable to CRCG (note 1)


311,035



265,838Beijng Xin Hai Wang Yue Commercial Ltd.


1,250,191



-Staff  and other companies deposit


1,119,464



463,256Total other payables

$
3,494,914


$
2,217,307


Commission expense has been included in cost of goods sold.





12.
Accrued Expenses





Accrued expenses amounted to $980,075 and $491,885 as of May 31, 2011 and 2010. The accrued expenses mainly include accrued land lease expenses, accrued electricity and utility expenses, professional fee, and accrued interest.





13.
Debt





Bank Loan Payable





On October 16, 2009, the Company borrowed $1,466,000 from Beijing Bank. The loan is unsecured, and with an annual interest rate of 5.31%. $1,317,600 of the total amount is guaranteed by an unrelated party. There is no interest expense capitalized into construction in progress for the years ended May 31, 2011 and 2010. By August 30, 2010, the loan was paid back in full. The bank loan payable as of May 31, 2011 and 2010 is $0 and $1,317,600, respectively.





Interest





Total interest expense and financial charges for the years ended May 31, 2011 and 2010 on all debt amounted to $365,069 and $163,646, respectively. Total interest income for the years ended May 31, 2011 and 2010 amounted to $1,604 and $4,424, respectively.





Capital Leases





Capital Lease A





In July 2009, the Company entered into a capital leaseback arrangement with an unrelated third party for approximately $1,774,368 with an annual interest rate of 6.76%. The lease has been accounted for as a capital lease with the same third party to lease the equipment for three years, with total payments of approximately $1,965,343. The title of the equipment will be transferred back to the Company upon the last payment. A one-time processing fee of $22,106 was paid by the Company related to this lease. The Company had been delinquent for 6 months payment and had not yet been cured as of May 31, 2011, which may cause termination of the contract. The minimum payments for the remaining lease term of 20 months from November 2010 to June 2012 are as follows:


F-18


CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE FISCAL YEARS ENDED AND AS OF MAY 31, 2011 AND 2010





Total lease payment

$
1,148,016Less imputed interest


(65,196
)Total capital lease obligation as of May 31, 2011


1,082,820Less current maturity


(1,025,749
)Capital lease obligation – long-term portion as of May 31, 2011

$
57,071





The future lease commitments for the next three years after May 31, 2011 are as follows:





2012

$
1,090,6152013


57,401Total

$
1,148,016





Capital Lease B





In November 2009, the Company entered into a capital leaseback arrangement with an unrelated third party for approximately $187,392 with an annual interest rate of 5.94%. The lease has been accounted for as a capital lease with the same third party to lease the equipment for three years, with total payments of approximately $205,050. The title of the equipment will be transferred back to the Company upon the last payment. A onetime processing fee of $2,811 was paid by the Company related to this lease. The Company had been delinquent for 2 months payment and had not yet been cured as of May 31, 2011, which may cause termination of the contract. The minimum payments for the remaining lease term of 25 months from March 2011 to March 2013 are as follows:





Total lease payment

$
149,720Less imputed interest


(9,223
)Total capital lease obligation as of May 31, 2011


140,497Less current maturity


(82,211
)Capital lease obligation – long-term portion as of May 31, 2011

$
58,286





The future lease commitments for the next three years after May 31, 2011 are as follows:





2012

$
89,8322013


59,8882014


-Total

$
149,720





Capital Lease C





In December 2009, the Company entered into a capital leaseback arrangement with an unrelated third party for approximately $545,779 with an annual interest rate of 5.94%. The lease has been accounted for as a capital lease with the same third party to lease the equipment for three years, with total payments of approximately $597,200. The title of the equipment will be transferred back to the Company upon the last payment. A one-time processing fee of $6,822 was paid by the Company related to this lease. The Company had been delinquent for 11 months payment and had not yet been cured as of May 31, 2011, which may cause termination of the contract. The minimum payments for the remaining lease term of 34 months from July 2010 to April 2013 are as follows:





Total lease payment

$
593,032Less imputed interest


(48,456
)Total capital lease obligation as of May 31, 2011


544,576Less current maturity


(358,293
)Capital lease obligation – long-term portion as of May 31, 2011

$
186,283


F-19


CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE FISCAL YEARS ENDED AND AS OF MAY 31, 2011 AND 2010





The future lease commitments for the next three years after May 31, 2011 are as follows:





2012

$
401,1692013


191,8632014


-Total

$
593,032





Capital Lease D





In December 2009, the Company entered into a capital leaseback arrangement with an unrelated third party for approximately $249,466 with an annual interest rate of 5.94%. The lease has been accounted for as a capital lease with the same third party to lease the equipment for three years, with total payments of approximately $272,920. The title of the equipment will be transferred back to the Company upon the last payment. A one-time processing fee of $3,118 was paid by the Company related to this lease. The Company had been delinquent for 7 months payment and had not yet been cured as of May 31, 2011, which may cause termination of the contract.  The minimum payments for the remaining lease term of 30 months from October 2010 to March 2013 are as follows:





Total lease payment

$
239,175Less imputed interest


(17,421
)Total capital lease obligation as of May 31, 2011


221,754Less current maturity


(144,158
)Capital lease obligation – long-term portion as of May 31, 2011

$
77,596





The future lease commitments for the next three years after May 31, 2011 are as follows:





2012

$
159,4502013


79,7252014


-Total

$
239,175





Capital Lease E





In February 2010, the Company entered into a capital leaseback arrangement with an unrelated third party for approximately $14,640 with an annual interest rate of 9.98%. The lease has been accounted for as a capital lease with the same third party to lease the equipment for three years, with total payments of approximately $17,034. The title of the equipment will be transferred back to the Company upon the last payment. The minimum payments for the remaining lease term of 21 months from June 2011 to February 2013 are as follows:





Total lease payment

$
10,427Less imputed interest


(896
)Total capital lease obligation as of May 31, 2011


9,531Less current maturity


(5,242
)Capital lease obligation – long-term portion as of May 31, 2011

$
4,289




F-20


CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE FISCAL YEARS ENDED AND AS OF MAY 31, 2011 AND 2010




The future lease commitments for the next three years after May 31, 2011 are as follows:





2012

$
5,9592013


4,4682014


-Total

$
10,427





Capital Lease F





In March 2010, the Company entered into a capital leaseback arrangement with an unrelated third party for approximately $203,789 with an annual interest rate of 5.94%. The lease has been accounted for as a capital lease with the same third party to lease the equipment for three years, with total payments of approximately $222,991. The title of the equipment will be transferred back to the Company upon the last payment. A one time processing fee of $2,547 was paid by the Company related to this lease. The Company had been delinquent for 7 months payment and had not yet been cured as of May 31, 2011, which may cause termination of the contract.  The minimum payments for the remaining lease term of 30 months from October 2010 to March 2013 are as follows:





Total lease payment

$
180,187Less imputed interest


(12,187
)Total capital lease obligation as of May 31, 2011


168,000Less current maturity


(104,613
)Capital lease obligation – long-term portion as of May 31, 2011

$
63,387





The future lease commitments for the next three years after May 31, 2011 are as follows:





2012

$
115,0592013


65,1282014


-Total

$
180,187





Capital Lease G





In March 2010, the Company entered into a capital leaseback arrangement with an unrelated third party for approximately $28,489 with an annual interest rate of 6.70%. The lease has been accounted for as a capital lease with the same third party to lease the equipment for one year, with total payments of approximately $29,534. The title of the equipment will be transferred back to the Company upon the last payment. A one time processing fee of $407 was paid by the Company related to this lease. The Company had been delinquent for 3 months payment and had not yet been cured as of May 31, 2011, which may cause termination of the contract. The minimum payments for the remaining lease term of 3 months from in the past are as follows:





Total lease payment

$
7,763Less imputed interest


86Total capital lease obligation as of May 31, 2011


7,677Less current maturity


7,677Capital lease obligation – long-term portion as of May 31, 2011

$
-


F-21


CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE FISCAL YEARS ENDED AND AS OF MAY 31, 2011 AND 2010





The future lease commitments for the next three years after May 31, 2011 are as follows:





2012

$
7,7632013


-2014


-Total

$
7,763





Capital Lease H





In March 2010, the Company entered into a capital leaseback arrangement with an unrelated third party for approximately $375,370 with an annual interest rate of 11.13%. The lease has been accounted for as a capital lease with the same third party to lease the equipment for two years, with total payments of approximately $380,403. The title of the equipment will be transferred back to the Company upon the last payment. A one time processing fee of $293 will be paid by the Company related to this lease. The Company had been delinquent for 3 months payment and had not yet been cured as of May 31, 2011, which may cause termination of the contract. The minimum payments for the remaining lease term of 15 months from February 2011 to April 2012 are as follows:





Total lease payment

$
276,274Less imputed interest


19,459Total capital lease obligation as of May 31, 2011


256,815Less current maturity


256,815Capital lease obligation – long-term portion as of May 31, 2011

$
-





The future lease commitments for the next three years after May 31, 2011 are as follows:





2012

$
276,2742013


-2014


-Total

$
276,274





Capital Lease I





In March 2010, the Company entered into a capital leaseback arrangement with an unrelated third party for approximately $1,161,830 with an annual interest rate of 11.13%. The lease has been accounted for as a capital lease with the same third party to lease the equipment for two years, with total payments of approximately $1,301,262. The title of the equipment will be transferred back to the Company upon the last payment. A one-time processing fee of $2,928 will be paid by the Company related to this lease. The Company had been delinquent for 4 months payment and had not yet to be cured as of May 31, 2011, which may cause termination of the contract. The minimum payments for the remaining lease term of 16 months from January 2011 to April 2012 are as follows:





Total lease payment

$
912,128Less imputed interest


68,065Total capital lease obligation as of May 31, 2011


844,063Less current maturity


844,063Capital lease obligation – long-term portion as of May 31, 2011

$
0


F-22


CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE FISCAL YEARS ENDED AND AS OF MAY 31, 2011 AND 2010





The future lease commitments for the next three years after May 31, 2011 are as follows:





2012

$
912,1282013


-2014


-Total

$
912,128





Capital Lease J





In May 2010, the Company entered into a capital leaseback arrangement with an unrelated third party for approximately $28,505 with an annual interest rate of 6.70%. The lease has been accounted for as a capital lease with the same third party to lease the equipment for one year, with total payments of approximately $29,549. The title of the equipment will be transferred back to the Company upon the last payment. A one time processing fee of $407 was paid by the Company related to this lease. The Company had been delinquent for 4 months payment and had not yet been cured as of May 31, 2011, which may cause termination of the contract. The minimum payments for the remaining lease in the past are as follows:





Total lease payment

$
7,767Less imputed interest


86Total capital lease obligation as of May 31, 2011


7,681Less current maturity


7,681Capital lease obligation – long-term portion as of May 31, 2011

$
-





The future lease commitments for the next three years after May 31, 2011 are as follows:





2012

$
7,7672013


-2014


-Total

$
7,767





Capital Lease K





In August 2010, the Company entered into a capital leaseback arrangement with an unrelated third party for approximately $148,391 with an annual interest rate of 7.98%. The lease has been accounted for as a capital lease with the same third party to lease the equipment for one year, with total payments of approximately $167,705. The title of the equipment will be transferred back to the Company upon the last paymentThe Company had been delinquent for 1 months payment and had not yet to be cured as of May 31, 2011, which may cause termination of the contract. The minimum payments for the remaining lease term of 29 months from April 2011 to August 2013 are as follows:





Total lease payment

$
141,362Less imputed interest


13,064Total capital lease obligation as of May 31, 2011


128,298Less current maturity


59,548Capital lease obligation – long-term portion as of May 31, 2011

$
68,750




F-23


CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE FISCAL YEARS ENDED AND AS OF MAY 31, 2011 AND 2010





The future lease commitments for the next three years after May 31, 2011 are as follows:





2012

$
68,9612013


59,1092014


13,292Total

$
141,362





Capital Lease L





In June 2008, the Company entered into a capital leaseback arrangement with an unrelated third party for approximately $557,491 with an annual interest rate of 7.98%. The lease has been accounted for as a capital lease with the same third party to lease the equipment for one year, with total payments of approximately $619,092. The title of the equipment will be transferred back to the Company upon the last payment. The Company had been delinquent for 7 months payment and had not yet been cured as of May 31, 2011, which may cause termination of the contract. The minimum payments for the remaining lease term of 16 months from October 2010 to January 2012 are as follows:





Total lease payment

$
288,558Less imputed interest


13,362Total capital lease obligation as of May 31, 2011


275,196Less current maturity


275,196Capital lease obligation – long-term portion as of May 31, 2011

$
-





The future lease commitments for the next three years after May 31, 2011 are as follows:





2012

$
288,5582013


-2014


-Total

$
288,558





The summary of all lease commitments is as follows:





Total lease payment

$
3,954,409Less imputed interest


267,501Total capital lease obligation as of 5-31-2011


3,686,908Less current maturity


3,171,246Capital lease obligation – long term portion as of 5-31-2011

$
515,662





The summary of future lease commitments for the next three years after May 31, 2011 is as follows:





2012

$
3,423,5352013


517,5822014


13,292Total

$
3,954,409




F-24


CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE FISCAL YEARS ENDED AND AS OF MAY 31, 2011 AND 2010





14.
Non-controlling Interest





Non-controlling interest consists of other stockholders’ ownership interest in majority-owned subsidiaries of the Company, which is about 5.48% of the total ownership before the change of the non-controlling interest and 5.32% of the total ownership after the change of the non-controlling interest (Note 1). As of May 31, 2011 and 2010, the balance of non-controlling interest was $2,904,590 and $2,046,212, respectively.





15.
Shareholder’s Equity





Reverse Stock Split





On September 28, 2009, the Company effectuated a 1-for-10 reverse stock split of the Company’s common stock, with no par value (the “Common Stock”) (the “Reverse Split”). Upon the Reverse Stock Split, ten (10) shares of the outstanding Common Stock were automatically converted into one (1) share of Common Stock. The Reverse Stock Split, however, did not alter the number of shares the Company is authorized to issue, but only reduced the number of shares of its Common Stock issued and outstanding. Any fractional share issued as a result of the reverse split was rounded up. Immediately before the Reverse Split there were 15,295,500 shares of Common Stock issued and outstanding. Immediately after giving effect to the Reverse Split, there were 1,529,550 shares of Common Stock issued and outstanding. All statements are retroactively stated to show the effects of the Reverse Split as if it had occurred at the beginning of the first period presented.





Stock Issuance for Compensation





On June 1, 2010, the Company hired a consulting company. As compensation, the Company paid $45,000 and issued 115,000 shares of restricted common stock, and another 100,000 shares of restricted common stock will be issued upon certain terms. The shares are valued at market price of a total of $316,250 at $2.75 per share. The cash paid was first recorded as prepaid expenses. The shares issued are recorded as deferred consulting fee. Both the prepaid expenses and deferred consulting fee will amortize to expense over the agreement term of the six-month period. As of May 31, 2011, prepaid expenses for this service have a balance of $0 and deferred consulting fee has a balance of $0.


On November 18, 2010, the Company hired an investor relationship company. As compensation, the Company agreed to issue 30,000 shares of restricted common stock. The shares are valued at market price of a total of $77,700 at $2.59 per share. As of May 31, 2011, the shares have not been issued and the payable is included in the liabilities section of the balance sheet.





Options





On December 17, 2009, we granted to the previous CFO options to purchase 300,000 shares of common stock, with an exercise price of $3.90 per share, which was the closest stock issuance price of the date of grant. The options will vest over 2 years and expire 3 years after the vesting date or after a termination date whichever is earlier. All the options were forfeited immediately when the CFO resigned the position on October 25, 2010.





On February 12, 2010, we granted to our CEO options to purchase 400,000 shares of common stock, with an exercise price of $3.90 per share. The options will vest over 2 years and no option can be exercised after 5 years from the vesting date.





The assumptions used in calculating the fair value of the above options granted using the Black-Scholes option- pricing model are as follows:


F-25


CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE FISCAL YEARS ENDED AND AS OF MAY 31, 2011 AND 2010





Risk-free interest rate


0.86
%Expected life of the options

2- 3 yearsExpected volatility


45
%Expected dividend yield


0





On February 12, 2010, we granted three independent directors each, options to purchase 10,000 shares of common stock, with an exercise price of $3.90 per share. The options will vest over 1 year and no option can be exercised after 3 years from the grant date.





On March 22, 2010, we granted one independent director options to purchase 10,000 shares of common stock, with an exercise price of $3.90 per share. The options will vest over 1 year and no option can be exercised after 3 years from the grant date.





The assumptions used in calculating the fair value of options granted using the Black-Scholes option- pricing model are as follows:





Risk-free interest rate


0.35
%Expected life of the options

1-2 yearsExpected volatility


45
%Expected dividend yield


0





On October 25, 2010, we granted to our newly appointed CFO options to purchase 150,000 shares of common stock, with an exercise price of $3.90 per share. The options will vest over 1 year and expire 3 years after the vesting date or after a termination date whichever is earlier.





The assumptions used in calculating the fair value of the above option granted using the Black-Scholes option- pricing model are as follows:





Risk-free interest rate


0.22
%Expected life of the options

3 yearsExpected volatility


81
%Expected dividend yield


0





Following is a summary of the stock option activity:





Options

outstanding


Weighted Average

Exercise Price


Aggregate

Intrinsic ValueOutstanding, May 31, 2010


740,000


$
3.90


$
0.00Granted


150,000Forfeited


300,000ExercisedOutstanding May 31, 2011


590,000


$
3.90


$
0.00





Following is a summary of the status of options outstanding at May 31, 2011:


F-26


CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE FISCAL YEARS ENDED AND AS OF MAY 31, 2011 AND 2010





Outstanding Options


Exercisable OptionsExercise

Price


Number


Average

Remaining

Contractual Life

in Years


Average

Exercise

Price


Number


Average

Exercise

Price$
3.90



590,000



1.88


$
3.90



240,000


$
3.90





Warrants





On October 16, 2009, in connection with the Share Purchase Agreement in October 2009, the Company issued 153,846 warrants to Hunter Wise Financial Group, LLC, the Placement Agent. The warrants carry an exercise price of $3.90 and a 5-year term. The Warrants contain standard adjustment provisions upon stock dividend, stock split, stock combination, recapitalization, and a change of control transaction.





On March 22, 2010, in connection with the Share Purchase Agreement in March 2010, the Company issued 69,231 warrants to various parties as part of placement cost. The warrants carry an exercise price of $3.90 and a 5-year term. The Warrants contain standard adjustment provisions upon stock dividend, stock split, stock combination, recapitalization, and a change of control transaction.





On March 22, 2010, in connection with the Share Purchase Agreement in March 2010, the Company issued 1,281,083 warrants to October 2010 investors. The warrants carry an exercise price of $6.00 and a 3-year term. The Warrants contain standard adjustment provisions upon stock dividend, stock split, stock combination, recapitalization, and a change of control transaction.





Placement Agent Warrants meet the conditions for equity classification pursuant to FASB ASC 815 “Derivatives and Hedging” and EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock.” Therefore, these warrants were classified as equity and accounted for as common stock issuance cost.





Warrants

Outstanding


Warrants

Exercisable


Weighted

Average

Exercise Price


Average Remaining

Contractual Life

in YearsOutstanding, May 31, 2010


1,504,160



1,504,160


$
5.69



3.05Granted


-



-



-



-Forfeited


-



-



-



-Exercised


-



-



-



-Outstanding, May 31, 2011


1,504,160



1,504,160


$
5.69



2.05





16.
Employee Welfare Plan





The Company has established its own employee welfare plan in accordance with Chinese law and regulations. The Company makes contributions to an employee welfare plan.  The total expense for the above plan was $119,958 and $5,970 for the years ended May 31, 2011 and 2010, respectively.   In 2011, all branches of Beijing Concrete were in operation for the full year, whereas in 2010, Shi Du branch was in operation for three months, Jingxin branch Sand Stone Factory was for three months, Tanghai branch was for seven months, and Hongruida was for five months. More employees were employed in 2011 compared with 2010 and therefore employee welfare plan expense has increased substantially.


F-27


CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE FISCAL YEARS ENDED AND AS OF MAY 31, 2011 AND 2010





17.
Income Tax





The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the years ended May 31, 2011 and 2010:





2011


2010U.S. Statutory rates


34.0
%


34.0
%Foreign income not taxable in USA


(34.0
)%


(34.0
)%China income taxes

$
4,608,608


$
3,821,280China income tax exemption


(1,570,075
)


(3,821,280
)Total provision for income taxes

$
3,038,533


$
-





USA





The Company and its subsidiaries are subject to income taxes on an entity basis on income arising in, or derived from, the tax jurisdiction in which they operate. As the Group has only net loss generated in the United States, there was no tax expense or tax liability due to the Internal Revenue Service of the United States as of May 31, 2011 and May 31, 2010.  The Group believes that the realization of the benefits arising from this loss appears to be uncertain due to its limited operating history and continuing losses for United States income tax purses.  Accordingly, the company has provided 100% valuation allowance at the year end for its United States operation.





Hong Kong





As the Group has no income generated in Hong Kong, there was no tax expense or tax liability due to the tax rule of Hong Kong as of May 31, 2011 and May 31, 2010.





People’s Republic of China (PRC)





Under the Income Tax Laws of the PRC, the Company’s subsidiaries are generally subject to an income tax at an effective rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments. The Company is charged at 25% from January 1, 2011 to May 31, 2011 and 0% income tax expense for calendar year 2010.  The exemption of income tax to the Company lasted until December 31, 2010 and from year 2011, the Company is subject to an income tax at an effective rate of 25%. The current income tax expense and deferred tax expense for the fiscal years ended May 31, 2011 and 2010 are as follows:





May 31, 2011


May 31, 2010Current income tax

$
5,025,823


$
-Deferred tax benefits


(1,987,290
)


-Income tax

$
3,038,533


$
-





The Company adopted accounting policies in accordance with U.S. GAAP with regard to provisions, reserves, inventory valuation method, and depreciation that are consistent with requirements under Chinese income tax laws.  The Company had deferred tax assets of $2,038,913 and $0 as of May 31, 2011 and 2010 from its Chinese operations, mainly due to bad debt allowance, respectively.


F-28


CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE FISCAL YEARS ENDED AND AS OF MAY 31, 2011 AND 2010





2011


2010Deferred tax assets, China subsidiary bad debt allowance

$
2,038,913


$
21,293Valuation allowance


-



(21,293
)Total

$
2,038,913


$
-





The estimated tax savings due to the tax exemption for May 31, 2011 and 2010 amounted to approximately $1,570,075 and $3,821,280, respectively. The net effect on earnings per share if the income tax had been applied would decrease the basic and diluted earnings per share for the year ended May 31, 2011 by $0.12 and $0.12, respectively. The net effect on earnings per share if the income tax had been applied would decrease the basic and diluted earnings per share for the year ended May 31, 2010 by $0.47 and 0.47, respectively.





18.
Other Income (Expenses)





Other income was $707,478 for the year ended May 31, 2011. It consists of income from selling recycled paper and vehicle accident compensation. Other expenses were $445,755 for the year ended May 31, 2011. Other expenses are net losses from property, plant and equipment disposal.





Other income was $857,170 for the year ended May 31, 2010. It mainly consists of $496,816 gain on property, plant and equipment disposal. The rest of other income is mainly rental income by renting our equipment to unrelated third parties.  Other expenses were $0 for the year ended May 31, 2010.





19.
Earnings Per Share





The following is a reconciliation of the basic and diluted earnings per share:





2011


2010Net income (loss) for earnings per share

$
10,456,885


$
(13,434,410
)Weighted average shares used in basic computation


12,930,305



8,106,833Diluted effect of warrants and options


-



-Weighted average shares used in diluted computation


12,930,305



8,106,833Earnings (loss) per share, basic

$
0.81


$
(1.66
)Earnings (loss) per share, diluted

$
0.81


$
(1.66
)





Weighted average stock prices for the year ended May 31, 2011 and 2010 are lower than warrants and option exercise prices (disclosed in note 15) so there is no diluted effect.





20.
Concentration of Credit Risks and Uncertainties





Concentration of credit risk exists when changes in economic, industry or geographic factors similarly affect groups of counter parties whose aggregate credit exposure is material in relation to the Company’s total credit exposure.





The Company had sales to one major customer, China Railway Construction Group that represented 18% and 14% of the Company’s total sales for the fiscal years ended May 31, 2011 and 2010, respectively.


F-29


CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE FISCAL YEARS ENDED AND AS OF MAY 31, 2011 AND 2010





Two customers, China State Construction Engineering Corporation and Guangzhou Tianli Construction Group accounted for 10% and 8% of the Company’s accounts receivable balance at May 31, 2011.  China Railway Construction Group, and Guangzhou Tianli Construction Group, accounted for 26% and 10% of the Company’s accounts receivable balance at May 31, 2010.





The top five major vendors account for 44% and 26% of the Company’s total inventory purchases for the fiscal year ended May 31, 2011 and 2010, respectively, with one major vendor representing 14% and 8% of the total purchases for the fiscal years ended May 31, 2011 and 2010, respectively.





One major vendor accounted for 12% and 11% of the Company’s accounts payable at May 31, 2011 and 2010, respectively.





21.
Contingencies





The Company has not, historically, carried any property or casualty insurance. No amounts have been accrued for any liability that could arise from the lack of insurance. Management feels the chances of such an obligation arising are remote.





Deposits in banks in the PRC are not insured by any government entity or agency, and are consequently exposed to risk of loss. Management believes the probability of a bank failure, causing loss to the Company, is remote.





22.
Operating Lease Commitment





As of May 31, 2011, the Company was committed to minimum rentals for the leased land under long-term non-cancellable operating leases as follows:





Fiscal Year Ended May 31,2012

$
1,064,1342013


60,0122014


60,0122015


61,7622016


63,013Thereafter


530,356Total:

$
1,839,289





We currently have a ten-year lease with an annual payment of approximately $48,000, from March 1, 2008 to February 28, 2018, for our Beijing production base. We have built our offices and manufacturing facilities on this site. On April 30, 2011, this lease was ended due to demolition and we moved to a new location and entered into a new lease, which is from April 2011 to January 23, 2034 with a total payment of RMB 16,400,000. This lease requires us to make the total payment in full by October 2011. We also lease land for our Xi’an production facility. The annual payment is approximately $59,000. We also leased two offices in Beijing as our headquarter office. One office lease is from December 15, 2009 to December 14, 2011, with an annual payment of approximately $106,000. The other one is from July 11, 2010 to July 10, 2012, with an annual payment of approximately $48,000. However, this lease was ended on January 10, 2011 as we decided one office is enough.


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CHINA INFRASTRUCTURE CONSTRUCTION CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE FISCAL YEARS ENDED AND AS OF MAY 31, 2011 AND 2010





Operating lease expenses amounted to $265,985 and $124,013 for the years ended May 31, 2011 and May 31, 2010, respectively.





23.
Cooperation with Institute of Building Materials (“IBM”)





On December 31, 2009, the Company reached a three year agreement with the Institute of Building Materials (“IBM”), a subsidiary of the China Academy of Building Research ("CABR"). Under the Agreement, CHNC will work exclusively with the Institute of Building Materials to obtain technical research, development and support. The Institute of Building Materials will also provide training courses to CHNC employees. CHNC will feature the Institute of Building Materials as CHNC’s technological partner in its corporate material. The Institute of Building Materials will use its relationships and brand influence in the construction industry to assist CHNC in business development. The Company agrees to pay IBM approximately $51,000 each year.  As of May 31, 2011, the Company was committed to pay $34,068 for 2011 and $51,000 for calendar year 2012.





24.
Subsequent Events





The Company has evaluated subsequent events from the balance sheet date through the date the report is issued.





On July 25, 2011, the Company filed to register the issuance of up to a total of 1,150,000 shares of common stock of China Infrastructure Construction Corporation, no par value, to certain of our eligible employees, consultants and non-employee directors as restricted stock, performance shares and other stock-based awards or upon the subsequent exercise of any stock options granted under the Plan.





On June 27, 2011, the Company formed a new subsidiary, Laoting County Kejian Concrete Co. Ltd, in Tangshan, Hebei Province. The new subsidiary is a joint venture with 51% by Beijing Concrete and 49% by two other individuals. The total registered capital is 12 million RBM, about USD $2.34 million. The new subsidiary has not commenced any operations yet.


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