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, 2010




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: Common Stock, no par
value.





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





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




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was Required to submit and post such files).  ̈
Yes   ̈
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
      reportingcompany
                  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, 2009, 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 $4.50 as reported on the Over-the-Counter Bulletin Board) was
approximately $18,803,124. 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
August 27, 2010, there were outstanding 12,930,620 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
                
                4Item
      1A.
                
                Risk
      Factors
                
                23Item
      2.
                
                Description
      of Property
                
                36Item
      3.
                
                Legal
      Proceedings
                
                37PART
      IIItem
      5.
                
                Market
      for Common Equity and Related Stockholder Matters
                
                37Item
      7.
                
                Management's
      Discussion and Analysis of Financial Condition and Results of
      Operation
                
                38Item
      8.
                
                Financial
      Statements and Supplementary Data
                
                43Item
      9.
                
                Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                
                44Item
      9A(T).
                
                Controls
      and Procedures
                
                44Item
      9B.
                
                Other
      Information
                
                46PART
      IIIItem
      10.
                
                Directors
      and Executive Officers
                
                46Item
      11.
                
                Executive
      Compensation
                
                50Item
      12.
                
                Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                
                54Item
      13.
                
                Certain
      Relationships and Related Transactions, and Director
      Independence
                
                59Item
      14.
                
                Principal
      Accountant Fees and Services
                
                61PART
      IVItem
      15.
                
                Exhibits
                
                61Signatures
                
                
                
                64Financial
      Statements


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,
2010, US $1.00 = 6.8288 yuan.


3


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.





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.


4


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:








5


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.





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.


6


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.





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 C20 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 eight ready-mix concrete batching plants. In
addition, it owns 5 concrete transport pumps, 46 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 3.6
million cubic meters of concrete. In fiscal years 2010 and 2009, the Company’s
revenues amounted to $73.3 million and $66.8 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.


7


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 two sets of ready-mix HZS120 series concrete mixing
towers and 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. One facility is located in Beijing’s Nanhaizi area, on the west side of
the Yizhuang Economic Development Zone in southern Beijing. Another facility is
located in Shidu, on the outskirts of Beijing. We also had two facilities, both
of which are mobile stations, in the Tangshan Development Zone, about two
hundred kilometers east of Beijing. We combined these two facilities into one to
better utilize our resources. Our newest facility is located in Xi’an, central
China. The Company also completed the construction of a stationary concrete
factory in Tangshan in May 2009. However, this factory has not commenced
operation and it has not passed the first review by the Tangshan Commission of
Construction due to a particular feature of the subsoil that the foundation of
the facility is built upon. The Company has recently entered into an agreement
for the sale of the Tangshan plant to a third party for RMB25,974,631
(approximately $3,819,799). The purchase price shall be paid in installments
over four years starting from September 1, 2010. If there is a delay in
payments for more than 10 days, we will be entitled to liquidated damages equal
to 4% of the purchase price. If the delay lasts for more than 10 days, we will
have the right to terminate the agreement and will be entitled to liquidated
damages equal to 20% of the purchase price.





The
following summarizes the details of the two factories and two mobile stations as
of May 31, 2010:





Location
                            
                            Batching Plants
                              Model
                            
                            Number
                              of Sets
                              of
                              Mixing
                              Towers
                            
                            Production
                              capacity (m3)
                            
                            Estimated
                              Production Capacity
                              (based on
                              estimated
                              utilization
                              rate)
                            
                            StatusBeijing (Yizhuang)
                            
                            2
      HZS 120
                              1
      Betomix 3.0A-R/DW(Stationary)
                            
                            3
                            
                            3,679,200
                            
                            1,287,720
                            
                            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


8


The
Company is planning to build two additional stationary concrete factories with
two batching plants of 3.5 million cubic meters production capacity and one
mobile station with one batching plant of 2 million cubic meters production
capacity during the fiscal year ended May 31, 2011. We are currently considering
acquiring potential target companies as well.





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 and 1.63 billion tons
in 2009. 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.


9


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 will amount to approximately 44% of
global demand in 2010 and will be greater than current combined consumption of
India and the U.S. by 2010, according to the Freedonia Group. 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.





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.


10


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.











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.


11


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.


12







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.


13


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.


14


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.





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.


15


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 Ltd. 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.  In addition, Xiamen XGMA
Machinery Co., Ltd., the major supplier of our forklifts, intends to form a
similar strategic cooperation relationship with us.





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 14% of
the Company’s total sales for the fiscal year ended May 31, 2010. We had sales
to two major customers, China Railway Construction Group and Guangzhou Tianli
Construction Group, which represented 25% and 12% of the Company’s total sales
for the fiscal year ended May 31, 2009.





Two
customers, 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.  China Railway Construction Corp. comprised 33% of the
Company’s accounts receivable balance at May 31, 2009.





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 2010 and
2009.





Project Names
                  
                  Start/Duration
                    (Year)
                  
                  Concrete SuppliedBeijing
      Zhongxin Semiconductor Company (Completed)
                  
                  2002
                  
                  Supplied
      total 140,000 cubic meters400,000
      square meters construction space


16





Beijing
      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
      2009





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 3% in the ready-mix concrete market
in Beijing.


17


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.





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.


18


(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.





(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 three to five batching plants during the fiscal year
2011 in order to meet the requirements of existing contracts and anticipated
demand. We plan to add more stationary and mobile stations in 2011 as part of
our long-term expansion plans due to very attractive margins and high return on
investment.


19


(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 $55,723 and $43,200 for the years
ended May 31, 2010 and 2009, 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.





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 17 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 its 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 its business development.


20


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.


21


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
August 27, 2010, we had 308 employees. The following table sets forth the number
of our full-time employees by department as of August 27, 2010:





Department
                        
                        Number of
                          EmployeesAccounting
                        
                        
                        20Supply,
      Purchase & Inventory
                        
                        
                        44Technical
      & Engineering Staff
                        
                        
                        35Production
      Staff
                        
                        
                        165Administrative
      Staff
                        
                        
                        44Total
                        
                        
                        308





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.


22


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.




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.


23


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 50% 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.




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 60% of our sales revenues will be derived from our ten
largest customers in 2011 and any reduction in revenues from any of these
customers would reduce our revenues and net income.





In fiscal
year 2010, we derived 72.8% of our revenue from our ten largest
customers.  In fiscal year 2009, we derived 48% from our ten largest
customers.


24


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.


25


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.


26


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.




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 45.7% of our common stock. He has given the
voting power of approximately 87.3% of his shares to Mr. Rong Yang, CEO and
Chairman of the Company, and approximately 12.7% to Mr. Xiao, a former
director. As a result, Mr. Yang and Mr. Xiao 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.


27


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.





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.


28


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.





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.


29


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 20.7% and as low as -2.2%.  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.


30


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.


31


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.





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 over the course of
approximately two years 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.


32


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.




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.


33


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
principals.




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.  We have applied to
have our common stock listed on the NASDAQ Global Market, but we cannot ensure
that our common stock will be accepted for listing on such
exchange.


34


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.





If we do
not meet the performance targets specified in our financing documents, we could
be required to issue shares of common stock to certain of our investors, which
would result in dilution to your ownership interest in the Company.





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 will be 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 $18,000,000 (which shall be
increased to $19,800,000 in the event that we do not consummate a public
offering on or before the date on which we file our annual report on Form 10-K
for the fiscal year ended May 31, 2011), we will be 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”) (for example, if our after tax net income
for fiscal 2011 were $16,200,000, which is a variation of 10% of the respective
Targeted Net Income, we would be required to issue an aggregate of 256,410
shares of common stock to the 2009 Investors). 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. Any issuance of equity securities to
satisfy our obligations pursuant to the 2009 Subscription Agreement as described
above will result in dilution to our existing shareholders and could adversely
affect the market price of our common stock.


35


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
August 27, 2010, there were issued and outstanding (i) 12,930,620 shares of our
common stock, (ii) warrants to purchase 1,504,160 shares of our common stock,
(iii) options to purchase 740,000 shares of our common stock of which options to
purchase 300,000 shares will become exercisable in December 2010 and the balance
will become exercisable in February and March 2011. 4,141,449 shares of our
common stock are currently eligible for resale under Rule 144. In addition to
these shares, we currently have obligation to register 1,282,091 shares of our
common stock. 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 Yizhuang factory from Beijing Guang Da
Yuan Logistic Company.  In our Beijing stationary factory, we
currently lease two parcels of land for this factory. One lot is approximately
22,538 square meters. The term of the lease is 10 years and will expire in 2018.
The rent is approximately $49,000 per annum. We also built on site our own
buildings and offices of approximately 600 square meters. The other lot is
approximately 14,673 square meters. The term of the lease is 1 year and can be
renewed. The rent is $32,353 per annum. We use this lot to store our raw
materials. These two lots are located next to each other.





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 Zhangzhou Highway. We are in the process of setting
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 two more years.





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
year.


36


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





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.




Fiscal
      Year 2010
                            
                            High
                            
                            
                            LowFourth
      quarter
                            
                            $
                            5.39
                            
                            
                            $
                            2.50Third
      quarter
                            
                            $
                            7.50
                            
                            
                            $
                            4.50Second
      quarter
                            
                            $
                            4.50
                            
                            
                            $
                            4.00





At August
27, 2010, there were 12,930,620shares of our Common
Stock outstanding. Our shares of Common Stock are held by approximately 308
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.





We are
applying to list our Common Stock on the NASDAQ Global Market and NYSE AMEX, but
we can not give you any assurance when or if our Common Stock will be approved
for listing.


37


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.





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.


38


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 Nanhaizi area, on the west side of the Yizhuang economic development zone in
Beijing, 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.





Results
of Operations





Fiscal
Year Ended May 31, 2010 Compared to Fiscal Year Ended May 31, 2009





Net
Revenue





Net
revenue for the fiscal year ended May 31, 2010 was $73,998,463 as compared to
$66,778,296 for the same period last year, an increase of 10.81%. The increase
in net revenue is mainly attributable to our geographic expansion. We had set up
new factories in Xi’an and Shidu. The sales volume of concrete products
increased approximately 28.61% for the fiscal year ended May 31, 2010 as
compared to the same period last year. The increase in net revenue is also
attributable to technical services we provided to a Tianjin concrete producer
from late March 2010. These services generated approximately $1.26 million
in net revenue. Since March 2010, we have also leased stone and sand equipment
from a supplier. Starting from April 2010, all sand and stone produced by this
equipment were exclusively supplied to us. This contributed approximately $0.90
million to our net revenue. We also have less sales commission accrued to offset
sales revenue for the year ended May 31, 2010 than 2009.





Cost of Goods
Sold





Cost of
goods sold for the fiscal year ended May 31, 2010 was $55,960,792 as compared to
$53,776,934 for the same period last year, an increase of 4.06%. The increase in
cost of goods is attributable to the increase of sales due to the geographic
development of our business.


39


Gross
Profit





Gross
profit for the fiscal year ended May 31, 2010 was $18,037,671, an increase of
approximately 38.74%, as compared to $13,001,362 for the fiscal year ended May
31, 2009. The increase in gross profit is attributable to the increase of sales
due to geographic development of our business, our business expansion into
technical service, and vertical integration with one sand and stone
vendor.





Gross Profit
Margin





Gross
profit margin for the fiscal year ended May 31, 2010 was 24.38%, compared to
19.47% for the same period last year. The increase of the gross profit margin is
mainly because technical service provided a higher margin, the integration with
one sand and stone company lowered the cost of goods sold, and less sales
commission were accrued as an offset to sales revenue.





Selling, General and
Administrative Expenses





Selling,
general and administrative expenses for the fiscal year ended May 31, 2010 were
$31,323,026 as compared to $1,931,333 for the same period last year, an increase
of $29,391,693, or approximately 1,521.83%. The increase of the selling, general
and administrative expenses was primarily due to increased professional expenses
as a public company. A one-time non-cash compensation expense of $27,422,242 and
a non-cash stock option expense of $199,003 were included in the selling,
general, and administrative expenses for the year ended May 31,
2010.





Operating Income
(Loss)





Our
operating loss for the fiscal year ended May 31, 2010 was $13,285,355, a
decrease of $24,355,384, or approximately 220.01%, as compared to $11,070,029 in
operating income for the fiscal year ended May 31, 2009. The decrease was mainly
due to the $27,422,242 one-time non-cash compensation expense and $199,003
non-cash stock option 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, 2010, 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%.





However,
Beijing Concrete, our PRC subsidiary, is considered by the respective tax
authorities a resource multipurpose utilization enterprise, which qualifies it
for an exemption from income tax until December 31, 2010.


40


Net Income (loss)
Attributable To China Infrastructure Construction
Corporation





Net loss
was $13,434,410 for the fiscal year ended May 31, 2010, compared to net income
of $10,461,209 in the last fiscal year, a decrease of $23,895,619, or
approximately 228.42%. The decrease was primarily due to the $27,422,242
one-time non-cash compensation expense and a $199,003 non-cash stock option
expense included in the selling, general, and administrative expenses for the
year ended May 31, 2010.





Liquidity
and Capital Resources





As of May
31, 2010, we had cash and cash equivalents of $1,102,879. We have historically
funded our working capital needs from operations, advance payments from
customers, bank borrowings, and capital from shareholders. 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 312010
                                        
                                        
                                        2009Net
      cash provided by (used in) operating activities
                                        
                                        $
                                        (10,208,535
                                        )
                                        
                                        $
                                        2,277,902Net
      cash used in investing activities
                                        
                                        
                                        (4,015,685
                                        )
                                        
                                        
                                        (2,375,085
                                        )Net
      cash provided by financing activities
                                        
                                        
                                        14,408,077
                                        
                                        
                                        
                                        123,861Effect
      of exchange rate change on cash and cash equivalents
                                        
                                        
                                        (2,819
                                        )
                                        
                                        
                                        58,185Net
      increase in cash and cash equivalents
                                        
                                        
                                        181,038
                                        
                                        
                                        
                                        84,863Cash
      and cash equivalents, beginning balance
                                        
                                        
                                        921,841
                                        
                                        
                                        
                                        836,978Cash
      and cash equivalents, ending balance
                                        
                                        $
                                        1,102,879
                                        
                                        
                                        $
                                        921,841





Operating
Activities





Net cash
used in operating activities was $10,208,535 for the fiscal year ended May 31,
2010, a decrease of $12,486,437, or 548.16%, as compared to net cash of
$2,277,902 provided by operating activities for the fiscal year ended May 31,
2009. The decrease of net cash used in operating activities was due to the
increase of trade accounts receivable. The trade accounts receivable increased
because of the growing sales. 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, 2010, trade accounts
receivable with aging over twelve months old amounted to $339,034, or only 0.63%
of total trade accounts receivable. We collected approximately $5,200,000
accounts receivable from June 1, 2010 to Aug. 30, 2010.


41


Investing
Activities





Net cash
used in investing activities was $4,015,685 for the fiscal year ended May 31,
2010, an increase of $1,640,600, or 69.08%, compared to $2,375,085 for the
fiscal year ended May 31, 2009. Acquisitions of plant, properties and equipment
were the main contributors to the increase of net cash used in investing
activities.





Financing
Activities





Net cash
provided by financing activities was $14,408,077 for the fiscal year ended May
31, 2010, an increase of $14,284,216, or 11,532.46%, compared to $123,861 for
the fiscal year ended May 31, 2009. The increase was primarily due to the sale
of stock by the Company to investors resulting in net proceeds of $13,234,406
and receipt of a bank loan of $1,319,760.





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 which 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.





Revenue
recognition





The
Company receives revenue from sales of concrete products and from provision of
concrete pumping service and consulting 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.


42


The
Company recognizes its revenues net of value-added taxes (“VAT”).  The
Company is subject to VAT which is levied at the rate of 6% on the invoiced
value of sales. However, 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 and has been
reviewed every year by the local tax bureau.





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, 2010 and 2009,
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,
2010 and 2009 and the consolidated audited balance sheets as at May 31, 2010 and
2009, 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.


43





For Year Ended
                              May 31,2010
                            
                            
                            2009Gross
      revenues
                            
                            $
                            73,998,463
                            
                            
                            $
                            66,778,296Net
      operating income (loss)
                            
                            
                            (13,285,355
                            )
                            
                            
                            11,070,029Net
      income (loss)
                            
                            
                            (13,434,410
                            )
                            
                            
                            10,461,209Total
      assets
                            
                            
                            71,714,081
                            
                            
                            
                            34,840,724Total
      liabilities
                            
                            $
                            21,585,039
                            
                            
                            $
                            12,745,803





The
Company's consolidated audited financial statements for the fiscal years ended
May 31, 2010 and 2009, 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




We
changed our independent registered public accounting firm effective October 10,
2008 from Ronald R. Chadwick, P.C. (“Chadwick”) to Child, Van Wagoner &
Bradshaw, PLLC. Information regarding the change in the independent registered
public accounting firm was disclosed in our Current Report on Form 8-K
filed with the SEC on October 10, 2008.  There were no disagreements
with Chadwick or any reportable events requiring disclosure under
Item 304(b) of Regulation S-K.




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.


44


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.





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, 2009. 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, 2010, 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, 2010, 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.


45


Remediation
Initiative




During
the fiscal year ended May 31, 2010, the Company took the following actions to
remediate the material weakness: (i) hired English speaking U.S. GAAP
knowledgeable Chief Financial Officer, (ii) established an audit committee,
(iii) continued to implement its written control and accountability policies for
administrative personnel, and (iv) hired additional English speaking personnel
in the administrative division. Additionally, during the fiscal year ended
May 31, 2010, 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.





Auditor
Attestation





This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the SEC that
permit us to provide only management’s report in this annual
report.





Changes
in Internal Controls over Financial Reporting





As
described above, during the fiscal year ended May 31, 2010, we implemented
certain remediation measures that have materially affected, or are reasonably
likely to materially affect, the Company’s internal control over financial
reporting.





ITEM
9B. OTHER INFORMATION





None.





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.


46





Name
              
              Age
              
              PositionRong
      Yang
              
              49
              
              Chairman
      of Board of Directors, President and CEOYiru
      Shi
              
              37
              
              Chief
      Financial OfficerShuqian
      Wang
              
              43
              
              DirectorFrancis
      Nyon Seng Leong
              
              66
              
              DirectorZhenhai
      Niu
              
              48
              
              DirectorPat
      Lee Spector
              
              66
              
              Director





Rong
Yang (CEO, President and Chairman)





Mr. Yang,
age 49, 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.





Yiru
Shi (CFO)





Ms. Yiru
Shi, age 37, has been our Chief Financial Officer since December 2009. Prior to
that, Ms. Shi served as the Chief Financial Officer of Shengtai Pharmaceutical,
Inc., a U.S. public company from 2008. From 2005 to 2008, Ms. Shi was the audit
manager for Kabani & Co., Inc., a PCAOB registered auditor headquartered in
California. From 2002 to 2004, Ms. Shi was a controller at Aroa Marketing. Prior
to that, Ms. Shi worked as Channel Program Manager at Sun Microsystems and as a
financial analyst at Hewlett Packard China. Ms. Shi is a Certified Public
Accountant since 2007. She graduated with an MBA degree from the University of
California, Irvine in 2003. She received her Bachelor degrees in Computer
Science and International Trade and Business from the Beijing Polytechnic
University in 1997.





Shuqian
Wang (Director)





Ms. Wang,
age 43, 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.


47


Francis
Nyon Seng Leong (Director)





Mr.
Leong, age 66, 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 48, 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 66, 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.


48


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.





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.


49


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,
                                                
                                                2010
                                                
                                                
                                                128,992
                                                
                                                
                                                
                                                559,457
                                                
                                                
                                                
                                                688,449Chairman,
      President and
                                                
                                                2009
                                                
                                                
                                                122,900
                                                
                                                
                                                
                                                —
                                                
                                                
                                                
                                                122,900Chief
      Executive Officer(2)Yiru
      Shi,
                                                
                                                2010
                                                
                                                
                                                50,000
                                                
                                                
                                                
                                                419,593
                                                
                                                
                                                
                                                459,593Chief
      Financial Officer(3)
                                                
                                                2009
                                                
                                                
                                                —
                                                
                                                
                                                
                                                —
                                                
                                                
                                                
                                                —





(1)
            The
      amounts in these columns represent the compensation cost of stock options
      granted in 2010, 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)
            Rong
      Yang was also the Chief Financial Officer of the Company until December
      17, 2009 when he resigned from this position and Yiru Shi was appointed as
      the Chief Financial Officer of the
Company.





(3)
            Yiru
      Shi was appointed as the Chief Financial Officer of the Company on
      December 17, 2009.


50


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 of 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.





Yiru Shi





On
December 17, 2009, the Company entered into an employment agreement with Ms.
Yiru Shi as its Chief Financial Officer (the “CFO Employment Agreement”). Such
Employment Agreement provides that Ms. Shi 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 Ms. Shi’s performance and approve her appointment
as the Company’s Chief Financial Officer. The term of the Employment Agreement
is two years, including the Probation Period, with a renewal option upon a
15-day written notice in advance (the “Term”). Ms. Shi 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 300,000 shares of the Common Stock of the Company, exercisable
      at $3.90 per share, to vest in two equal installments respectively on
      December 17, 2010 and December 17, 2011. If Ms. Shi’s employment is
      terminated prior to the vesting date, any unvested options will be
      terminated. If her 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.


51


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:


52




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)
                                      
                                      
                                      —
                                      
                                      
                                      
                                      400,000
                                      (1)
                                      
                                      $
                                      3.90
                                      
                                      
                                      
                                      
                                      (1)Yiru
      Shi
                                      
                                      
                                      300,000
                                      (2)
                                      
                                      
                                      300,000
                                      (2)
                                      
                                      
                                      —
                                      
                                      
                                      $
                                      3.90
                                      
                                      
                                      
                                      
                                      (2)




(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 in two equal installments on December 17, 2010 and December
      17, 2011,  respectively. Each installment expires 3 years after
      its 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,
2010:




Name of Director
                                  
                                  Fees
                                    Earned or
                                    Paid in
                                    Cash
                                    ($)
                                  
                                  
                                  Option
                                    Awards
                                    ($)(1)
                                  
                                  
                                  Total
                                    ($)Francis
      Leong (2)
                                  
                                  
                                  5,637
                                  
                                  
                                  
                                  21,339
                                  
                                  
                                  
                                  26,976Zhenhai
      Niu (2)
                                  
                                  
                                  4,827
                                  
                                  
                                  
                                  21,339
                                  
                                  
                                  
                                  26,166Pat
      Spector (2)
                                  
                                  
                                  6,175
                                  
                                  
                                  
                                  21,339
                                  
                                  
                                  
                                  27,514Shuqian
      Wang (2)
                                  
                                  
                                  5,637
                                  
                                  
                                  
                                  11,589
                                  
                                  
                                  
                                  17,226


53





(1)
            The
      amounts in these columns represent the compensation cost of stock options
      granted in 2010, except that these amounts do not include any estimate of
      forfeitures. The 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.





(2)
            As
      of May 31, 2010, Messrs. Leong, Niu, Spector and Ms. Wang each held
      options to purchase 10,000 shares of our common stock at an exercise price
      of $3.90 per share.




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 expire 365 calendar days after the
  termination.





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 August 27, 2010 by:





·
            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


54


·
            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 12,930,620 shares of Common Stock outstanding as of August 27,
2010.





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 August 27, 2010 or issuable upon
conversion of convertible securities which are currently convertible or
convertible within 60 days of August 27, 2010 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.





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
                        
                        50.7%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%


55





Pat
      Lee Spector
                      145
      McSkimming Road
                      Aspen,
      Colorado 81611(6)
                    
                    Director
                    
                    Common Stock
                    
                    10,000
                    
                    Less
      than 1/10 of 1%Zhenhai
      Niu
                      Tuanjiehu
      RoadBuilding 28,
                      Room
      1-201, Chaoyang District,
                      Beijing
      100026(6)
                    
                    Director
                    
                    Common Stock
                    
                    10,000
                    
                    Less
      than 1/10 of 1%Yiru
      Shu
                      Shidai
      Caifu Tiandi Building
                      Suite
      1906-09 1 Hangfeng
                      Road
      Fengtai District
                      Beijing,
      China 100070 (4)
                    
                    Chief
      Financial Officer
                    
                    Common Stock
                    
                    300,000
                    
                    2.3%All
      officers and
                      directors
      as a
                      group
      (6 persons
                      named
      above)
                    
                    
                    
                    Common Stock
                    
                    7,094,091
                    
                    51.9%5%
      Securities HoldersRui
      Shen
                      3814
      Ballentree Way
                      Duluth,
      GA 30097(3)
                    
                    
                    
                    Common Stock
                    
                    5,673,362
                    
                    43.9%Whitebox
      Combined Partners
                      3033
      Excelsior Blvd.,
                      Suite
      300
                      Minneapolis,
      MN 55416 (10)
                    
                    
                    
                    Common Stock
                    
                    751,282
                    
                    5.8%


56




Bingchuan
      Xiao
                      Room
      8, Unit 4,
                      Building
      46,
                      No.22
      Fuxing Road,
                      Haidian
                      District,
      Beijing100842 (5)
                    
                    
                    
                    Common
      Stock
                    
                    756,071
                    (5)
                    5.8%Guiping
      Liao
                      Shidai
      Caifu Tiandi
                      Building
                      Suite
      1906-09 1 Hangfeng
                      Road
      Fengtai District
                      Beijing,
      China 100070 (9)
                    
                    
                    
                    Common
      Stock
                    
                    6,753,991
                    
                    50.7%





(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 12,930,620 shares of our
      common stock outstanding.


(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 over the course of approximately two years 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 300,000 shares of the Common Stock of the Company,
      exercisable at $3.90 per share, to vest in two equal installments
      respectively on December 17, 2010 and December 17, 2011. If Ms. Shi’s
      employment is terminated prior to the vesting date, any unvested options
      will be terminated. If her 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 559,978 held by Mr. Shen over the course of
      approximately two years in installments 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, to vest on February 12,
    2011.


(7)
            Includes
      options to purchase 400,000 shares of the Common Stock of the Company,
      exercisable at $3.90 per share, to vest on February 12, 2011. 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, to vest on March 22,
  2011.


(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 on February 12, 2011. Includes options held by Mr. Yang to
      purchase 5,113,384 shares of common stock from Mr.
  Shen.


57


(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
                                  
                                  
                                  440,000
                                  
                                  
                                  $
                                  3.90
                                  
                                  
                                  
                                  710,000Total
                                  
                                  
                                  440,000
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  710,000





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.


58


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, 2010 and 2009, 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 $47,125 and $564,419 as of May
31, 2010 and 2009, 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, 2010
                    
                    
                    May 31, 2009Rong
      Yang (Chairman)
                    
                    $
                    47,125
                    
                    
                    $
                    372,489Shunjun
      Liao(Chairman’s brother-in-law)
                    
                    
                    -
                    
                    
                    
                    98,723RongHua
      Chang Shen Transportation (20% owned by a common
    shareholder)
                    
                    
                    -
                    
                    
                    
                    93,207Total
                    
                    $
                    47,125
                    
                    
                    $
                    564,419





Total
outstanding amount of related party receivables was $1,286,945 and $674,289 as
of May 31, 2010 and 2009, 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, 2010
                        
                        
                        May 31, 2009Lao
      Zhan (common shareholder)
                        
                        $
                        -
                        
                        
                        $
                        465,332Yang
      Ming (Chairman Yang Rong’s brother)
                        
                        
                        147,817
                        
                        
                        
                        187,490Guiping
      Liao (CEO’s wife)
                        
                        
                        1,127,291
                        (1)
                        
                        
                        -XiYang
      (CEO’s son)
                        
                        
                        12,467
                        
                        
                        
                        -Heng
      Jian (20% owned  by a common shareholder )
                        
                        
                        -
                        
                        
                        
                        20,736Beijing
      Yihua Daxin Investment (holding company)
                        
                        
                        -
                        
                        
                        
                        731$
                        1,286,945
                        
                        
                        $
                        674,289





(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.


59


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.





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.


60


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, 2010 and
2009:




2010
                      
                      
                      2009Audit
      Fees
                      
                      $
                      102,612
                      
                      
                      $
                      80,000Audit
      Related Fees
                      
                      
                      18,500
                      
                      
                      
                      12,000Tax
      Fees
                      
                      
                      9,500
                      
                      
                      
                      -All
      Other Fees
                      
                      
                      1,836
                      
                      
                      
                      -




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




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)


61





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)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)


62





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)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 Yiru Shi 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.





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




63


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:
      August 30, 2010
              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
                
                August
      30, 2010Rong
      YangChief
      Executive Officer and Director(Principal
      Executive officer)/s/ Yiru Shi
                
                August
      30, 2010Yiru
      ShiChief
      Financial Officer(Principal
      Financial Officer and
                  Principal
      Accounting Officer)/s/ Shuqian Wang
                
                August
      30, 2010Shuqian
      Wang, Director/s/ Francis Nyon Seng Leong
                
                August
      30, 2010Francis
      Nyon Seng Leong, Director/s/ Pat Lee Spector
                
                August
      30, 2010Pat
      Lee Spector, Director/s/ Zhenhai Niu
                
                August
      30, 2010Zhenhai
      Niu, Director




64




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, 2010
      and 2009, and the related consolidated statements of operations and
      comprehensive income, cash flows, and changes in stockholders’ equity for
      the years ended May 31, 2010 and 2009. 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, 2010 and 2009, and
      the results of its operations and its cash flows for the years ended May
      31, 2010 and 2009, in conformity with accounting principles generally
      accepted in the United States of America.
              
              
              
              Child,
      Van Wagoner & Bradshaw, PLLC
              Salt
      Lake City, Utah
              August
      30, 2010









CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 CONSOLIDATED
FINANCIAL STATEMENTS
 
 May
31, 2010 and 2009
 
  Index
      to Consolidated Financial Statements
                  
                  PageConsolidated
      Balance Sheets
                  
                  
                  F-1Consolidated
      Statements of Operations and Comprehensive Income
                  
                  
                  F-2Consolidated
      Statements of Cash Flows
                  
                  
                  F-3Consolidated
      Statement of Changes in Stockholders’ Equity
                  
                  
                  F-4Notes
      to Consolidated Financial Statements
                  
                  
                  F-5




CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 CONSOLIDATED
BALANCE SHEETS
 AS OF MAY
31, 2010 AND 2009
 
 May
      31,2010
                          
                          
                          2009AssetsCurrent
      assetsCash
      and cash equivalents
                          
                          $
                          1,102,879
                          
                          
                          $
                          921,841Restricted
      cash
                          
                          
                          146,089
                          
                          
                          
                          -Trade
      accounts receivable, net
                          
                          
                          53,411,689
                          
                          
                          
                          26,438,106Other
      receivables
                          
                          
                          950,671
                          
                          
                          
                          -Inventories
                          
                          
                          575,452
                          
                          
                          
                          885,834Total
      current assets
                          
                          
                          56,186,780
                          
                          
                          
                          28,245,781Property,
      plant and equipment, net
                          
                          
                          7,995,701
                          
                          
                          
                          5,649,835Prepayments
                          
                          
                          1,289,007
                          
                          
                          
                          -Other
      receivables - long term
                          
                          
                          4,955,648
                          
                          
                          
                          270,819Related
      party receivables
                          
                          
                          1,286,945
                          
                          
                          
                          674,289Total
      other assets
                          
                          
                          7,531,600
                          
                          
                          
                          945,108Total
      assets
                          
                          $
                          71,714,081
                          
                          
                          $
                          34,840,724Liabilities
      and equityCurrent
      liabilitiesTrade
      accounts payable
                          
                          $
                          13,376,119
                          
                          
                          $
                          10,173,765Related
      party payable
                          
                          
                          47,125
                          
                          
                          
                          564,419Other
      payables
                          
                          
                          2,217,307
                          
                          
                          
                          1,730,290Current
      portion of capital lease obligations
                          
                          
                          1,949,183
                          
                          
                          
                          -Accrued
      expenses
                          
                          
                          491,885
                          
                          
                          
                          277,329Bank
      loan payable
                          
                          
                          1,317,600
                          
                          
                          
                          -Total
      current liabilities
                          
                          
                          19,399,219
                          
                          
                          
                          12,745,803Long-term
      liabilitiesLong-term
      portion of capital lease obligations
                          
                          
                          2,185,820
                          
                          
                          
                          -Total
      long-term liabilities
                          
                          
                          2,185,820
                          
                          
                          
                          -Total
      liabilities
                          
                          
                          21,585,039
                          
                          
                          
                          12,745,803Stockholders'
      equityPreferred
      stock, no par value; 10,000,000 shares authorized; no shares issued and
      outstanding
                          
                          
                          -
                          
                          
                          
                          -Common
      stock: no par value; 100,000,000 shares authorized; 12,815,620 and
      1,529,550 shares issued and outstanding as of May 31, 2010 and May 31,
      2009
                          
                          
                          42,252,295
                          
                          
                          
                          1,396,644Retained
      earnings
                          
                          
                          4,321,221
                          
                          
                          
                          17,755,631Accumulated
      other comprehensive income
                          
                          
                          1,509,314
                          
                          
                          
                          1,731,951Total
      China Infrastructure Construction Corporation stockholders'
      equity
                          
                          
                          48,082,830
                          
                          
                          
                          20,884,226Noncontrolling
      interests
                          
                          
                          2,046,212
                          
                          
                          
                          1,210,695Total
      liabilities and equity
                          
                          $
                          71,714,081
                          
                          
                          $
                          34,840,724
 
 The
accompanying notes are an integral part of this statement.
  F-1
 
 CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
 FOR THE
FISCAL YEARS ENDED MAY 31, 2010 AND 2009
 
 YEARS ENDED MAY 31,2010
                                    
                                    
                                    2009Sales
      Revenue, Net
                                    
                                    $
                                    73,998,463
                                    
                                    
                                    $
                                    66,778,296Cost
      of goods sold
                                    
                                    
                                    55,960,792
                                    
                                    
                                    
                                    53,776,934Gross
      profit
                                    
                                    
                                    18,037,671
                                    
                                    
                                    
                                    13,001,362General
      and administrative expenses
                                    
                                    
                                    31,323,026
                                    
                                    
                                    
                                    1,931,333Net
      operating income (loss)
                                    
                                    
                                    (13,285,355
                                    )
                                    
                                    
                                    11,070,029Other
      income (expense):Interest
      income
                                    
                                    
                                    4,424
                                    
                                    
                                    
                                    -Interest
      expense
                                    
                                    
                                    (163,646
                                    )
                                    
                                    
                                    (2,097
                                    )Other
      income
                                    
                                    
                                    857,170
                                    
                                    
                                    
                                    -Total
      other income (expense)
                                    
                                    
                                    697,948
                                    
                                    
                                    
                                    (2,097
                                    )Net
      income (loss) before income taxes
                                    
                                    
                                    (12,587,407
                                    )
                                    
                                    
                                    11,067,932Income
      taxes
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Net
      income (loss)
                                    
                                    
                                    (12,587,407
                                    )
                                    
                                    
                                    11,067,932Less:
      Net income attributable to noncontrolling interests
                                    
                                    
                                    847,003
                                    
                                    
                                    
                                    606,723Net
      income (loss) attributable to China Infrastructure Construction
      Corporation
                                    
                                    $
                                    (13,434,410
                                    )
                                    
                                    $
                                    10,461,209Earnings
      (loss) per share - basic and dilutive
                                    
                                    $
                                    (1.66
                                    )
                                    
                                    $
                                    7.40Basic
      and dilutive weighted average shares outstanding
                                    
                                    
                                    8,106,833
                                    
                                    
                                    
                                    1,413,047Comprehensive
      incomeNet
      income (loss)
                                    
                                    
                                    (12,587,407
                                    )
                                    
                                    
                                    11,067,932Foreign
      currency translation adjustment
                                    
                                    
                                    (234,123
                                    )
                                    
                                    
                                    448,057Comprehensive
      income (loss)
                                    
                                    $
                                    (12,821,530
                                    )
                                    
                                    $
                                    11,515,989Comprehensive
      income attributable to non-controlling interests
                                    
                                    $
                                    835,517
                                    
                                    
                                    $
                                    629,126Comprehensive
      income (loss) attributable to China Infrastructure Construction
      Corporation
                                    
                                    $
                                    (13,657,047
                                    )
                                    
                                    $
                                    10,886,863
 
 The
accompanying notes are an integral part of this statement.
  F-2
 
 CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 FOR THE
FISCAL YEARS ENDED MAY 31, 2010 AND 2009
 
 May
      31,2010
                    
                    
                    2009Cash
      flows from operating activities:Net
      income (loss)
                    
                    $
                    (12,587,407
                    )
                    
                    $
                    11,067,932Adjustments
      to reconcile net income (loss) to net cash provided by (used in)
      operations:Gain
      from property, plant and equipment disposal
                    
                    
                    (496,816
                    )
                    
                    
                    -Bad
      debt expenses
                    
                    
                    85,170
                    
                    
                    
                    18,900Depreciation
                    
                    
                    1,174,021
                    
                    
                    
                    695,464Shares
      issued for compensation
                    
                    
                    27,422,242
                    
                    
                    
                    -Stock
      option expenses
                    
                    
                    199,003
                    
                    
                    
                    -Changes
      in operating liabilities and assets:Trade
      accounts receivable
                    
                    
                    (27,095,999
                    )
                    
                    
                    (16,117,557
                    )Prepayments
                    
                    
                    (1,291,119
                    )
                    
                    
                    247,541Inventories
                    
                    
                    311,124
                    
                    
                    
                    448,959Other
      receivables
                    
                    
                    (1,835,744
                    )
                    
                    
                    219,695Trade
      accounts payable
                    
                    
                    3,204,875
                    
                    
                    
                    4,539,958Other
      payables
                    
                    
                    511,779
                    
                    
                    
                    1,152,541Accrued
      expenses
                    
                    
                    190,336
                    
                    
                    
                    4,469Net
      cash provided by (used in) operating activities
                    
                    
                    (10,208,535
                    )
                    
                    
                    2,277,902Cash
      flows from investing activities:Property,
      plant, and equipment additions
                    
                    
                    (2,692,568
                    )
                    
                    
                    (46,544
                    )Deposits
      - construction in progress
                    
                    
                    -
                    
                    
                    
                    (1,826,851
                    )Payments
      to related party receivable
                    
                    
                    (1,898,489
                    )
                    
                    
                    (501,690
                    )Proceeds
      from related party receivable
                    
                    
                    575,372
                    
                    
                    
                    -Net
      cash used in investing activities
                    
                    
                    (4,015,685
                    )
                    
                    
                    (2,375,085
                    )Cash
      flows from financing activities:Shares
      issued for cash
                    
                    
                    13,234,406
                    
                    
                    
                    -Restricted
      cash
                    
                    
                    (146,089
                    )
                    
                    
                    -Bank
      loan payable
                    
                    
                    1,319,760
                    
                    
                    
                    -Proceeds
      from related party payable
                    
                    
                    -
                    
                    
                    
                    123,861Cash
      acquired in recapitalization
                    
                    
                    -
                    
                    
                    
                    -Net
      cash provided by financing activities
                    
                    
                    14,408,077
                    
                    
                    
                    123,861Effect
      of rate changes on cash
                    
                    
                    (2,819
                    )
                    
                    
                    58,185Increase
      (decrease) in cash and cash equivalents
                    
                    
                    181,038
                    
                    
                    
                    84,863Cash
      and cash equivalents, beginning of period
                    
                    
                    921,841
                    
                    
                    
                    836,978Cash
      and cash equivalents, end of period
                    
                    $
                    1,102,879
                    
                    
                    $
                    921,841-Supplemental
      disclosures of cash flow information:Interest
      paid in cash
                    
                    $
                    119,619
                    
                    
                    $
                    -Income
      taxes paid in cash
                    
                    $
                    -
                    
                    
                    $
                    -Non-cash
      investing activities:Acquisition
      of property, plant and equipment through other payable
                    
                    $
                    4,141,781
                    
                    
                    $
                    -Disposal
      of property, plant and equipment through other receivable
                    
                    $
                    3,808,920
                    
                    
                    $
                    -Related
      party receivable offset by payable to related party
payable
                    
                    $
                    674,289
                    
                    
                    $
                    -
 
 See
accompanying notes to unaudited consolidated financial
statements
  F-3
 
 CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY
 FOR THE
YEARS ENDED MAY 31, 2010 AND 2009
 
 Accumulated OtherCommon Stock
                      
                      
                      Retained Earnings
                      
                      
                      Comprehensive
                      
                      
                      Noncontrolling
                      
                      
                      TotalShares
                      
                      
                      Amount
                      
                      
                      (Accumulated Deficit)
                      
                      
                      Income
                      
                      
                      Interests
                      
                      
                      EquityBalance:
      May 31, 2008
                      
                      
                      1,200,000
                      
                      
                      $
                      1,368,021
                      
                      
                      $
                      7,294,422
                      
                      
                      $
                      1,306,297
                      
                      
                      $
                      581,569
                      
                      
                      $
                      10,550,309Shares
      effectively issued to former shareholder as part of the recapitalization
      on 10/8/2008
                      
                      
                      329,550
                      
                      
                      
                      28,623
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      28,623Foreign
      currency translation adjustment
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      425,654
                      
                      
                      
                      22,403
                      
                      
                      
                      448,057Net
      income (loss)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      10,461,209
                      
                      
                      
                      -
                      
                      
                      
                      606,723
                      
                      
                      
                      11,067,932Balance:
      May 31, 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 expenses
                      
                      
                      -
                      
                      
                      
                      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-4
  CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
  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.
  F-5
  CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 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.
 
 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.
 
 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.
  F-6
  CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 3.
                Summary of Significant
      Accounting Policies
 
 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.
 
 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.
 
 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.
 
 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-7
  CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 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.
 
 Restricted
Cash
 
 In
accordance with the Escrow Agreement and the Subscription Agreement (note 12)
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. The escrow account also keeps
$38,089 of attorney fees as a covenant for future services. As of May 31, 2010
and 2009, the amount not disbursed was $146,089 and $0, respectively, and these
are included in restricted cash in the consolidated balance sheets. Deposits
held in the escrow account are not insured by any government entity or
agency.
 
 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. Allowance for
doubtful debts amounted to $397,042 and $311,928 as of May 31, 2010 and 2009,
respectively.
  F-8
  CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 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.
Inventories consist of the following:
 
 May 31, 2010
                    
                    
                    May 31, 2009Raw materials
                    
                    $
                    575,452
                    
                    
                    $
                    885,834
 
 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
  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, 2010, the Company
expects these assets to be fully recoverable. No impairment of assets was
recorded in the periods reported.
 
 Accumulated Other
Comprehensive Income
 
 Accumulated
other comprehensive income represents foreign currency translation
adjustments.
  F-9
  CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 Revenue
Recognition
 
 The
Company receives revenue from sales of concrete products and from provision of
concrete pumping service and consulting 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 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.
 
 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 is subject to VAT which is levied at the rate of 6% on the invoiced
value of sales. However, 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 and has been
reviewed every year by the local tax bureau.
 
 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.
  F-10
  CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 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.
 
 Advertising
Costs
 
 The
Company expenses advertising costs as incurred.  Advertising expenses
charged to operations were $0 for the years ended May 31, 2010 and 2009,
respectively. Advertising costs, if any, are included in selling, general and
administrative expense on the income statement.
 
 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.
 
 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. As of May 31, 2010 and 2009, the
Company did not have any deferred tax assets or liabilities, and as such, no
valuation allowances were recorded at May 31, 2010 and 2009.
  F-11
  CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 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.
  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.
 
 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. Currently, the Company
is charged at 0% income tax expense for the fiscal years ended May 31, 2010 and
2009.  The exemption of income tax to the Company will last until
December 31, 2010 and from year 2011, the Company will be 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, 2010 and 2009 are as
follows:
  F-12
  CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 May 31, 2010
                              
                              
                              May 31, 2009Current
      tax expense
                              
                              $
                              -
                              
                              
                              $
                              -Deferred
      tax expense
                              
                              $
                              -
                              
                              
                              $
                              -
 
 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.
 
 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 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. The three levels are defined as follows:
  o
                Level
      1: inputs to the valuation methodology are quoted prices (unadjusted) for
      identical assets or liabilities in active
  markets.
 
 o
                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.
 
 o
                Level
      3: inputs to the valuation methodology are unobservable and significant to
      the fair value.
  F-13
 CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 The
Company did not identify any assets or liabilities that are required to be
presented on the balance sheet at fair value in accordance with ASC 820
(formerly SFAS 157).
 
 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.
 
 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.
  F-14
  CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 The
following is a reconciliation of the basic and diluted earnings per
share:
 
 2010
                              
                              
                              2009Net
      income (loss) for earnings per share
                              
                              $
                              (13,434,410
                              )
                              
                              $
                              10,461,209Weighted
      average shares used in basic computation
                              
                              
                              8,106,833
                              
                              
                              
                              1,413,047Diluted
      effect of warrants and options
                              
                              
                              -
                              
                              
                              
                              -Weighted
      average shares used in diluted computation
                              
                              
                              8,106,833
                              
                              
                              
                              1,413,047Earnings
      (loss) per share, basic
                              
                              $
                              (1.66
                              )
                              
                              $
                              7.40Earnings
      (loss) per share, diluted
                              
                              $
                              (1.66
                              )
                              
                              $
                              7.40
  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.
 
 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.
  F-15
  CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 Since
management does not disaggregate Company data, the Company has determined that
only one segment exists.
 
 Recent Accounting
Pronouncements
  In June
2009, the FASB issued ASC 105 (previously SFAS No. 168, The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles ("GAAP") - a replacement of FASB Statement No. 162 ), which has
become the source of authoritative accounting principles generally accepted in
the United States recognized by the FASB to be applied to nongovernmental
entities.
  In
June 2009, the FASB issued ASC 860 (previously SFAS No. 166,
“Accounting for Transfers of Financial Assets”), which requires additional
information regarding transfers of financial assets, including securitization
transactions, and where companies have continuing exposure to the risks related
to transferred financial assets. SFAS 166 eliminates the concept of a
“qualifying special-purpose entity,” changes the requirements for derecognizing
financial assets, and requires additional disclosures. SFAS 166 is effective for
fiscal years beginning after November 15, 2009. The Company does not
believe this pronouncement will impact its financial statements.
  In
June 2009, the FASB issued ASC 810 (previously SFAS No. 167) for
determining whether to consolidate a variable interest entity. These amended
standards eliminate a mandatory quantitative approach to determine whether a
variable interest gives the entity a controlling financial interest in a
variable interest entity in favor of a qualitatively focused analysis, and
require an ongoing reassessment of whether an entity is the primary beneficiary.
We are currently evaluating the impact that adoption will have on our
consolidated financial statements.
 
 In August
2009, the FASB issued Accounting Standards Update (“ASU”) 2009-05, which amends
ASC Topic 820, Measuring
Liabilities at Fair Value, which provides additional guidance on the
measurement of liabilities at fair value. These amended standards clarify that
in circumstances in which a quoted price in an active market for the identical
liability is not available, we are required to use the quoted price of the
identical liability when traded as an asset, quoted prices for similar
liabilities, or quoted prices for similar liabilities when traded as assets. If
these quoted prices are not available, we are required to use another valuation
technique, such as an income approach or a market approach. We do not expect it
to have a significant impact on our consolidated financial
statements.
  F-16
  CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 In
October 2009, the FASB issued Accounting Standards Update, 2009-13, Revenue
Recognition (Topic 605): Multiple Deliverable Revenue
Arrangements - A Consensus of the FASB Emerging Issues Task Force.” This
update provides application guidance on whether multiple deliverables exist, how
the deliverables should be separated and how the consideration should be
allocated to one or more units of accounting. This update establishes a selling
price hierarchy for determining the selling price of a deliverable. The selling
price used for each deliverable will be based on vendor-specific objective
evidence, if available, third-party evidence if vendor-specific objective
evidence is not available, or estimated selling price if neither vendor-specific
or third-party evidence is available. The Company will be required to apply this
guidance prospectively for revenue arrangements entered into or materially
modified after January 1, 2011; however, earlier application is permitted.
Management is in the process of evaluating the impact of adopting this ASC
update on the Company’s financial statements.
  In
February 2010, FASB issued ASU No. 2010-9 –"Subsequent events (Topic 855)"
Amendments to Certain Recognition and Disclosure Requirements. This update
addresses certain implementation issues related to an entity’s requirement to
perform and disclose subsequent-events procedures, removes the requirement that
public companies disclose the date of their financial statements in both issued
and revised financial statements. According to the FASB, the revised statements
include those that have been changed to correct an error or conform to a
retrospective application of U.S. GAAP. The amendments were effective upon
issuance of the update, except for the use of the issued date for conduit debt
obligors. That amendment is effective for interim or annual periods ending after
June 15, 2010. The Company does not expect the adoption of this ASU to have a
material impact on the Company’s consolidated financial statements.
  In April
2010, the FASB issued Accounting Standard Update 2010-17, “Revenue
Recognition—Milestone Method (Topic 605): Milestone Method of Revenue
Recognition” or ASU 2010-17. This Update provides guidance on the
recognition of revenue under the milestone method, which allows a vendor to
adopt an accounting policy to recognize all of the arrangement consideration
that is contingent on the achievement of a substantive milestone (milestone
consideration) in the period the milestone is achieved. The pronouncement is
effective on a prospective basis for milestones achieved in fiscal years and
interim periods within those years, beginning on or after June 15, 2010.
The Company does not expect the adoption of ASU 2010-17 to have a significant
impact on its consolidated financial statements.
  F-17
  CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 Reclassifications
 
 Certain
prior period amounts have been reclassified to conform to the current period
presentation.
 
 4.
                Property, Plant and
      Equipment
 
 Plant and
equipment consist of the following:
 
 May 31, 2010
                            
                            
                            May 31, 2009Office
      trailers
                            
                            $
                            902,556
                            
                            
                            $
                            902,319Machinery
      and equipment
                            
                            
                            8,292,669
                            
                            
                            
                            2,922,504Motor
      vehicles
                            
                            
                            1,452,308
                            
                            
                            
                            466,117Furniture
      and office equipment
                            
                            
                            509,611
                            
                            
                            
                            462,300Construction
      in progress
                            
                            
                            421,716
                            
                            
                            
                            3,305,813Total
      property, plant and equipment
                            
                            
                            11,578,860
                            
                            
                            
                            8,059,053Accumulated
      depreciation
                            
                            
                            (3,583,159
                            )
                            
                            
                            (2,409,218
                            )Net
      property, plant and equipment
                            
                            $
                            7,995,701
                            
                            
                            $
                            5,649,835
 
 Depreciation
expense included in general and administrative expenses for the fiscal year
ended May 31, 2010 and 2009 was $163,573 and $208,509, respectively.
Depreciation expense included in cost of sales for the fiscal year ended May 31,
2010 and 2009 was $1,010,448 and $486,955, 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 will be 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 in
other income.
  F-18
  CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 Interest
costs totaling $0 were capitalized into construction in progress for the years
ended May 31, 2010 and 2009.
 
 5.
                Prepayments
 
 Prepayments
consist of the prepaid expenses and the monies deposited with the suppliers for
purchasing vehicles and raw material. The total outstanding amount were
$1,289,007 and $0 as of May 31, 2010 and  2009, respectively. There is
no provision made for the prepayment at May 31, 2010 and 2009.
 
 6.
                Other
      Receivables
 
 Other
receivable in current assets amounted to $950,671 and $0 as of May 31, 2010 and
2009, respectively.
 
 Other
receivables in long term assets amounted to $4,955,648 and $270,819 as of May
31, 2010 and 2009, respectively.
 
 As of May
31, 2010 other receivable includes $3.8 million related to construction in
progress disposal to an unrelated party. The receivable is unsecured, interest
free, and with fixed repayment dates (note 4). 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.
 
 As of May
31, 2009, other receivables in long term assets amounted to $270,819, which
mainly consists of insurance claims and the temporary lending to the staff with
no fixed repayment date, unsecured, and with no interest bearing on
it.
 
 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, 2010 and
2009.
  F-19
  CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 7.
                Other
      Payables
 
 Other
payables in current liabilities consist of the following as of May 31, 2010 and
2009:
  May 31, 2010
                            
                            
                            May 31, 2009Commission
      payable
                            
                            $
                            1,488,213
                            
                            
                            $
                            1,541,579Payable
      to CRCG (note 1)
                            
                            
                            265,838
                            
                            
                            
                            -Staff  and
      other companies deposit
                            
                            
                            463,256
                            
                            
                            
                            188,711Total
      other payables
                            
                            $
                            2,217,307
                            
                            
                            $
                            1,730,290
 
 Commission
expense has been included in cost of goods sold.
 
 8.
                Accrued
      Expenses
 
 Accrued
expenses amounted to $491,885 and $277,329 as of May 31, 2010 and 2009. The
accrued expenses mainly include accrued land lease expenses, accrued electricity
and utility expenses, and accrued interest.
 
 9.
                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 $47,125 and $564,419 as of May
31, 2010 and 2009, respectively. These payables bear no interest and have no
fixed payment terms. Currently, the related party payable consists of the
following:
 
 May 31, 2010
                          
                          
                          May 31, 2009Rong
      Yang (Chairman)
                          
                          $
                          47,125
                          
                          
                          $
                          372,489Shunjun
      Liao(Chairman’s brother-in-law)
                          
                          
                          -
                          
                          
                          
                          98,723RongHua
      Chang Shen Transportation (20% owned by a common
    shareholder)
                          
                          
                          -
                          
                          
                          
                          93,207Total
                          
                          $
                          47,125
                          
                          
                          $
                          564,419
  F-20
  CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 Total
outstanding amount of related party receivables was $1,286,945 and $674,289 as
of May 31, 2010 and 2009, 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, 2010
                            
                            
                            May 31, 2009Lao
      Zhan (common shareholder)
                            
                            $
                            -
                            
                            
                            $
                            465,332Yang
      Ming (Chairman Yang Rong’s brother)
                            
                            
                            147,817
                            
                            
                            
                            187,490Guiping
      Liao (CEO’s wife)
                            
                            
                            1,128,723
                            (1)
                            
                            
                            -XiYang
      (CEO’s son)
                            
                            
                            12,467
                            
                            
                            
                            -Heng
      Jian (20% owned  by a common shareholder )
                            
                            
                            -
                            
                            
                            
                            20,736Beijing
      Yihua Daxin Investment (holding company)
                            
                            
                            -
                            
                            
                            
                            731$
                            1,289,007
                            
                            
                            $
                            674,289
 
 (1)
                The
      purpose of this loan was compliance with the PRC currency regulations. The
      loan was extended by our Hong Kong
subsidiary.
 
 10.
                Debt
 
 Bank Loan
Payable
 
 On
October 16, 2009, the Company borrowed $1,466,000 from Beijng 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. The due dates are as follows:
$146,400 due on July 16, 2010, $292,800 due on August 16, 2010, $439,200 due on
September 16, 2010, and $439,200 due on October 16, 2010. Interest expenses are
due on the 16th of every third month. As of May 31, 2010, the loan payable to
bank amounted to $1,317,600. There is no interest expense capitalized into
construction in progress for the years ended May 31, 2010 and 2009. By August
30, 2010,  total loan bank payable of $146,400 was paid
back.
 
 There was
no bank loan payable as of May 31, 2009.
 
 Interest
 
 Total
interest expense and financial charges for the years ended May 31, 2010 and 2009
on all debt amounted to $163,646 and $2,097, respectively. Total interest income
for the years ended May 31, 2010 and 2009 amounted to $4,424 and $0,
respectively.
  F-21
  CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 Capital
Leases
 
 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 minimum payments for the remaining lease term
of 25 months from June 2010 to June 2012 are as follows:
 
 Total
      lease payment
                          
                          $
                          1,474,007Less
      imputed interest
                          
                          
                          110,186Total
      capital lease obligation as of May 31, 2010
                          
                          
                          1,363,821Less
      current maturity
                          
                          
                          681,337Capital
      lease obligation – long-term portion as of May 31, 2010
                          
                          $
                          682,484
 
 The
future lease commitments for the next three years after May 31, 2010 are as
follows:
 
 2011
                        
                        $
                        764,3002012
                        
                        
                        655,1142013
                        
                        
                        54,593Total
                        
                        $
                        1,474,007
 
 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 one time processing fee of $2,811 was paid
by the Company related to this lease. The minimum payments for the remaining
lease term of 34 months from June 2010 to March 2013 are as
follows:
 
 Total
      lease payment
                          
                          $
                          193,659Less
      imputed interest
                          
                          
                          15,827Total
      capital lease obligation as of May 31, 2010
                          
                          
                          177,832Less
      current maturity
                          
                          
                          59,836Capital
      lease obligation – long-term portion as of May 31, 2010
                          
                          $
                          117,996
  F-22
  CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 The
future lease commitments for the next three years after May 31, 2010 are as
follows:
 
 2011
                        
                        $
                        68,3502012
                        
                        
                        68,3502013
                        
                        
                        56,959Total
                        
                        $
                        193,659
 
 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 minimum payments for the remaining
lease term of 35 months from June 2010 to April 2013 are as
follows:
 
 Total
      lease payment
                          
                          $
                          597,200Less
      imputed interest
                          
                          
                          51,421Total
      capital lease obligation as of May 31, 2010
                          
                          
                          545,779Less
      current maturity
                          
                          
                          185,995Capital
      lease obligation – long-term portion as of May 31, 2010
                          
                          $
                          359,784
 
 The
future lease commitments for the next three years after May 31, 2010 are as
follows:
 
 2011
                      
                      $
                      215,6552012
                      
                      
                      199,0672013
                      
                      
                      182,478Total
                      
                      $
                      597,200
  F-23
 
 CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 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 minimum payments for the remaining
lease term of 34 months from June 2010 to March 2013 are as
follows:
 
 Total
      lease payment
                      
                      $
                      264,184Less
      imputed interest
                      
                      
                      21,065Total
      capital lease obligation as of May 31, 2010
                      
                      
                      243,119Less
      current maturity
                      
                      
                      85,436Capital
      lease obligation – long-term portion as of May 31, 2010
                      
                      $
                      157,683
 
 The
future lease commitments for the next three years after May 31, 2010 are as
follows:
 
 2011
                    
                    $
                    97,3692012
                    
                    
                    90,9902013
                    
                    
                    75,825Total
                    
                    $
                    264,184
 
 In
January 2010, the Company entered into a capital leaseback arrangement with an
unrelated third party for approximately $56,979 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
$59,067. The title of the equipment will be transferred back to the Company upon
the last payment. A one time processing fee of $814 was paid by the Company
related to this lease. The minimum payments for the remaining lease term of 8
months from June 2010 to January 2011 are as follows:
 
 Total
      lease payment
                      
                      $
                      39,378Less
      imputed interest
                      
                      
                      971Total
      capital lease obligation as of May 31, 2010
                      
                      
                      38,407Less
      current maturity
                      
                      
                      38,407Capital
      lease obligation – long-term portion as of May 31, 2010
                      
                      $
                      0
 
 The
future lease commitments for the next three years after May 31, 2010 are as
follows:
 
 2011
                    
                    $
                    39,3782012
                    
                    
                    -2013
                    
                    
                    -Total
                    
                    $
                    39,378
 
 F-24
 
 CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 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 33 months from June 2010 to February 2013 are as follows:
 
 Total
      lease payment
                      
                      $
                      15,584Less
      imputed interest
                      
                      
                      2,004Total
      capital lease obligation as of May 31, 2010
                      
                      
                      13,580Less
      current maturity
                      
                      
                      4,515Capital
      lease obligation – long-term portion as of May 31, 2010
                      
                      $
                      9,065
 
 The
future lease commitments for the next three years after May 31, 2010 are as
follows:
 
 2011
                    
                    $
                    5,6672012
                    
                    
                    5,6672013
                    
                    
                    4,250Total
                    
                    $
                    15,584
 
 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 minimum payments for the remaining lease term
of 34 months from June 2010 to March 2013 are as follows:
 
 Total
      lease payment
                      
                      $
                      215,813Less
      imputed interest
                      
                      
                      17,210Total
      capital lease obligation as of May 31, 2010
                      
                      
                      198,603Less
      current maturity
                      
                      
                      69,793Capital
      lease obligation – long-term portion as of May 31, 2010
                      
                      $
                      128,810
 
 F-25
 
 CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 The
future lease commitments for the next three years after May 31, 2010 are as
follows:
 
 2011
                    
                    $
                    79,5412012
                    
                    
                    74,3302013
                    
                    
                    61,942Total
                    
                    $
                    215,813
 
 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 minimum payments for the remaining lease term of 11 months from
June 2010 to April 2011 are as follows:
 
 Total
      lease payment
                      
                      $
                      27,072Less
      imputed interest
                      
                      
                      885Total
      capital lease obligation as of May 31, 2010
                      
                      
                      26,187Less
      current maturity
                      
                      
                      26,187Capital
      lease obligation – long-term portion as of May 31, 2010
                      
                      $
                      0
 
 The
future lease commitments for the next three years after May 31, 2010 are as
follows:
 
 2011
                    
                    $
                    27,0722012
                    
                    
                    -2013
                    
                    
                    -Total
                    
                    $
                    27,072
 
 In March
2010, the Company entered into a capital leaseback arrangement with an unrelated
third party for approximately $339,642 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 minimum payments for the remaining lease term
of 23 months from June 2010 to April 2012 are as follows:
 
 F-26
 
 CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 Total
      lease payment
                      
                      $
                      380,403Less
      imputed interest
                      
                      
                      40,761Total
      capital lease obligation as of May 31, 2010
                      
                      
                      339,642Less
      current maturity
                      
                      
                      174,615Capital
      lease obligation – long-term portion as of May 31, 2010
                      
                      $
                      165,027
 
 The
future lease commitments for the next three years after May 31, 2010 are as
follows:
 
 2011
                    
                    $
                    206,0532012
                    
                    
                    174,3502013
                    
                    
                    -Total
                    
                    $
                    380,403
 
 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 minimum payments for the remaining lease term
of 23 months from June 2010 to April 2012 are as follows:
 
 Total
      lease payment
                      
                      $
                      1,301,262Less
      imputed interest
                      
                      
                      139,432Total
      capital lease obligation as of May 31, 2010
                      
                      
                      1,161,830Less
      current maturity
                      
                      
                      597,310Capital
      lease obligation – long-term portion as of May 31, 2010
                      
                      $
                      564,520
 
 The
future lease commitments for the next three years after May 31, 2010 are as
follows:
 
 2011
                    
                    $
                    704,8502012
                    
                    
                    596,4122013
                    
                    
                    -Total
                    
                    $
                    1,301,262
 
 F-27
 
 CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 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 minimum payments for the remaining lease term of 11 months from
June 2010 to May 2011 are as follows:
 
 Total
      lease payment
                      
                      $
                      27,087Less
      imputed interest
                      
                      
                      885Total
      capital lease obligation as of May 31, 2010
                      
                      
                      26,202Less
      current maturity
                      
                      
                      26,202Capital
      lease obligation – long-term portion as of May 31, 2010
                      
                      $
                      0
 
 The
future lease commitments for the next three years after May 31, 2010 are as
follows:
 
 2011
                    
                    $
                    27,0872012
                    
                    
                    -2013
                    
                    
                    -Total
                    
                    $
                    27,087
 
 The
summary of all lease commitments is as follows:
 
 Total
      lease payment
                  
                  $
                  4,535,649Less
      imputed interest
                  
                  
                  400,646Total
      capital lease obligation as of 5-31-2010
                  
                  
                  4,135,003Less
      current maturity
                  
                  
                  1,949,183Capital
      lease obligation – long term portion as of 5-31-2010
                  
                  $
                  2,185,820
 
 The
summary of future lease commitments for the next three years after May 31, 2010
is as follows:
 
 2011
                  
                  $
                  2,235,3232012
                  
                  
                  1,864,2772013
                  
                  
                  436,046Total
                  
                  $
                  4,535,649
 
 F-28
 
 CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 11.
              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, 2010
and 2009, the balance of non-controlling interest was $2,046,212 and $1,210,695,
respectively.
 
 12.
              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
October 14, 2009, to provide incentives to the Company’s management and to
adjust the Company’s capital structure, the Company issued 7,031,344 shares of
its common stock to Rui Shen, as a trustee holding the shares for the Company’s
Chief Executive Officer and Chairman Mr.Yang. The Company has used the closest
share issuance price as the fair market value to calculate the compensation
expense. A total of $27,422,242 in compensation expense was included in selling,
general and administrative expenses.
 
 F-29
 
 CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 Stock Issuance For
Cash
 
 On
October 16, 2009, the Company entered into and consummated the sale of
securities pursuant to a Subscription Agreement with a number of institutional
investors (the “Investors”), providing for the sale to the Investors of an
aggregate of approximately 2,564,108 shares of Common Stock for an aggregate
purchase price of approximately $10,000,000 (or $3.90 per Share).  Net
proceeds of $8,605,626 had been received and recorded as share capital. 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 and paid a transaction fee
equal to 8% of the gross proceeds of the Private Placement. The Company issued
to the placement agent 92,468 shares of Common Stock for the service provided
purely relating to the equity financing.  Additionally, the Company issued
to an advisor in the PRC 288,963 shares of Common Stock and paid a
transaction fee equal to 2.5% of the gross proceeds of the Private Placement for
the service provided purely relating to the equity financing.  The Company
issued to a middleman 27,100 shares of Common Stock for the service provided
purely relating to the equity financing. Thus, the Company paid $1,394,396 in
total and issued 408,531 shares to various parties as fund raising costs. These
costs were classified as equity and accounted for as common stock issuance
cost.
 
 The
Company also entered into several covenants in the Subscription Agreement, the
breach of which can result in penalties, which are capped at 15% of the
aggregate purchase price of the Private Placement.  These covenants
include:
 
  ̈
              Structuring
      the Company’s board of directors to be in compliance with the Nasdaq
      Corporate Governance standards;
  ̈
              Listing
      on a National Securities Exchange within 24 months of the Closing
      Date;
  ̈
              Hiring
      of a new full-time Chief Financial Officer, subject to the approval of
      certain Investors;
  ̈
              Hiring
      of an internal control consultant for Sarbanes-Oxley 404 compliance;
      and
  ̈
              Delivery
      of 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, which number of shares should be equal to the percentage of
      variation between the actual net income and the target net
      income.
 
 F-30
 
 CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 In
connection with the Subscription Agreement, the Company also entered into an
Investor Relations Escrow Agreement with an escrow agent and an investor
representative, wherein the Company agreed to deposit $120,000 of the proceeds
of the Private Placement into an escrow account (the “IR Escrow Funds”) and to
utilize such IR Escrow Funds for a three-year investor relations program (the
“IR Escrow Agreement”). In accordance with the Subscription Agreement, the
Company shall retain an investor relations firm within 30 days after the Closing
Date, subject to the approval of the investor representative. The Company is
obligated to replenish the IR Escrow Funds on the second and third anniversaries
of the Closing Date to bring the balance of such funds to $120,000 as of
then.
 
 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. The Company paid $371,373 fund raising costs in
total to various parties. These costs were classified as equity and accounted
for as common stock issuance cost.
 
 Options
 
 On
December 17, 2009, we granted to our newly appointed 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.
    F-31
 
 CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 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 vesting 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 vesting
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
                  
                  
                  0.86
                  %Expected
      life of the options
                  
                  1-
      2 yearsExpected
      volatility
                  
                  
                  45
                  %Expected
      dividend yield
                  
                  
                  0
 
 Following
is a summary of the stock option activity:
 
 Options
                      outstanding
                    
                    
                    Weighted
                      Average
                      Exercise
                      Price
                    
                    
                    Aggregate
                      Intrinsic
                      ValueOutstanding,
      May 31, 2009
                    
                    
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -Granted
                    
                    
                    740,000
                    
                    
                    $
                    3.90
                    
                    
                    $
                    0.00Forfeited
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Exercised
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Outstanding
      May 31, 2010
                    
                    
                    740,000
                    
                    
                    $
                    3.90
                    
                    
                    $
                    0.00
  Following
is a summary of the status of options outstanding at May 31, 2010:
 
 Outstanding Options
                                        
                                        Exercisable OptionsExercise Price
                                        
                                        Number
                                        
                                        Average
                                          Remaining
                                          Contractual
                                          Life
                                        
                                        Average
                                          Exercise
                                          Price
                                        
                                        Number
                                        
                                        Average
                                          Exercise Price$
                                        3.90
                                        
                                        740,000
                                        
                                        1.59
                                        
                                        $
                                        3.90
                                        
                                        -
                                        
                                        $
                                        3.90
 
 F-32
 
 CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 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 2009 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
                        LifeOutstanding,
      May31,
      2009
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      -
                      
                      
                      
                      -Granted
                      
                      
                      1,504,160
                      
                      
                      
                      1,504,160
                      
                      
                      
                      5.69
                      
                      
                      
                      4.75Forfeited
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Exercised
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Outstanding,
      May 31, 2010
                      
                      
                      1,504,160
                      
                      
                      
                      1,504,160
                      
                      
                      $
                      5.69
                      
                      
                      
                      4.75
 
 F-33
 
 CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 13.
              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 $5,970 and $119,436
for the years ended May 31, 2010 and 2009, respectively.
 
 14.
              Income
    Tax
 
 The
following table reconciles the U.S. statutory rates to the Company’s effective
tax rate for the years ended May 31, 2010 and 2009:
 
 2010
                    
                    
                    2009U.S.
      Statutory rates
                    
                    
                    34.0
                    %
                    
                    
                    34.0
                    %Foreign
      income not recognized in USA
                    
                    
                    (34.0
                    )
                    
                    
                    (34.0
                    )China
      income taxes
                    
                    
                    0
                    
                    
                    
                    0China
      income tax exemption
                    
                    
                    0
                    
                    
                    
                    0Total
      provision for income taxes
                    
                    
                    0
                    %
                    
                    
                    0
                    %
 
 People’s Republic of China
(PRC)
 
 Under the
Income Tax Laws of the PRC, the Company’s subsidiaries are generally subject to
an Enterprise Income Tax (EIT) at a standard rate of 25% on income reported in
the statutory financial statements after appropriate tax adjustments. Currently,
the Company is charged at 0% income tax rate because of a special tax exemption
approved by the PRC tax department. The income tax expenses for the years
ended May 31, 2010 and 2009 are $0. The exemption of income tax to the
Company will last until December 31, 2010 and from year 2011, the Company will
be subject to an income tax at a standard rate of 25%. There were no significant
book and tax basis differences.
 
 The
estimated tax savings due to the tax exemption for the years ended May 31, 2010
and 2009 amounted to approximately $3,821,280 and $2,802,334, 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. 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, 2009 by $0.20 and $0.20,
respectively.
 
 F-34
 
 CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 15.
              Other Income
      (Expenses)
 
 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 (note 4). The rest of
the 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.
 
 Other
income was $0 for the year ended May 31, 2009. Other expenses were $0 for the
year ended May 31, 2009.
 
 16.
              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 14% of the Company’s total sales for the fiscal year ended May 31,
2010. And the Company had sales to two major customers, China Railway
Construction Group, and Guangzhou Tianli Construction Group , that represented
25% and 12% of the Company’s total sales for the fiscal year ended May 31,
2009.
 
 Two
customers, 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. One customer, China Railway Construction Group, accounted for 33%
of the Company’s accounts receivable balance at May 31, 2009.
 
 The top
five major vendors account for 26% of the Company’s total inventory purchases
for the fiscal year ended May 31, 2010 with one major vendor representing 8% of
the total purchase. The top five major vendors account for 50% of the Company’s
total inventory purchases for the fiscal year ended May 31, 2009 with one major
vendor representing 23% of the total purchase.
 
 F-35
 
 CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 One major
vendor accounted for 11% of the Company’s accounts payable at May 31, 2010. No
vendor accounted for more than 10% of the Company’s accounts payable at May 31,
2009.  One major vendor accounted for 8% of the Company’s accounts
payable at May 31, 2009.
 
 The
Company’s exposure to foreign currency exchange rate risk primarily relates to
cash and cash equivalents and short-term investments, denominated in the U.S.
dollar. Any significant revaluation of RMB may materially and adversely affect
the cash flows, revenues, earnings and financial position of the
Company.
 
 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.
 
 Operating
Lease Commitment
 
 As of May
31, 2010, the Company was committed to minimum rentals for the leased land under
long-term non-cancellable operating leases as follows:
 
 Fiscal
      Year Ended May 31,2011
                    
                    $
                    255,5292012
                    
                    
                    260,9392013
                    
                    
                    212,6412014
                    
                    
                    110,9292015
                    
                    
                    106,872Thereafter
                    
                    
                    737,491Total:
                    
                    $
                    1,684,401
 
 We
currently have a ten-year lease with 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. 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 July 11, 2010 to July 10, 2012, with annual payment of
approximately $48,000. One office lease is from December 15, 2009 to December
14, 2011, with annual payment of approximately $106,000.
 
 F-36
 
 CHINA
INFRASTRUCTURE CONSTRUCTION CORPORATION
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 Operating
lease expenses amounted to $124,013 and $48,391 for the years ended May 31, 2010
and 2009, respectively.
 
 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.
  17.
              Subsequent
      Events
 
 On June
1, 2010, the Company hired an unrelated party as its consultant and a total of
100,000 restricted shares were issued.
 
 The
Company has evaluated subsequent events from the balance sheet date through the
date the report is issued.
 
 F-37