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Item 2. Management’s Discussion and Analysis

2010-01-14 compared with 2009-10-20 · 216 added, 134 removed, 86 unchanged (80% of the section changed)

MANAGEMENT’S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS.

29 unchanged sentences

Qianmao Concrete Corporation Ltd.

(“Beijing Concrete”), Beijing Fortune Capital

Management, Ltd.

(“BFCM”), and (iii) Northern Construction Holdings, Ltd.

Infrastructure Construction Corporation (the “Company”) 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.

August 24, 2009, the Company changed its name from Fidelity Aviation Corporation

to China Infrastructure Construction Corporation.

of New Line of Business

October 8, 2008, the Company 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 the Company purchased from the shareholder of NCH all issued and

outstanding shares of NCH’s common stock in consideration of the issuance of

12,000,000 pre-split shares of common stock of the Company (the “Share

Exchange resulted in (i) a change in control of the Company with the shareholder

of NCH owning approximately 78% of issued and outstanding shares of common stock

of the Company, (ii) NCH becoming a wholly-owned subsidiary of the Company, and

(iii) appointment of certain nominees of the shareholder of NCH as directors and

officers of the Company and resignation of John Schoenauer as director, Chief

Executive Officer, Chief Financial Officer, Secretary and Treasurer of the

through its subsidiary Beijing Chengzhi Qianmao Concrete Corporation Ltd.

(“Beijing Concrete”) engages in production of ready-mixed concrete and other

special high-performance concrete for developers and the construction industry.

It has two prime production facilities.

One facility is located in the Nanhaizi

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

other is located at the Tangshan harbor, about two hundred kilometers from

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

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 will be rounded up.

Immediately before the Reverse Split there

were 15,295,500 shares of Common Stock issued and outstanding.

after giving effect to the Reverse Split, there were 1,529,550 shares of Common

Stock issued and outstanding.

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, a

majority shareholder of the Company, an aggregate of 7,031,344 shares of Common

Immediately prior to this issuance, Mr.

Shen was the holder of 800,000

shares (after taking into account the 1-for-10 reverse stock split).

after the issuance of Shares, Mr.

Shen held a total of 7,831,344 shares of

Common Stock, which represented 91.5% of the Company’s Common Stock outstanding

prior to the Private Placement.

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 2,564,103 shares of Common Stock for an aggregate

purchase price of approximately $10,000,000 (or $3.90 per Share).

(“Beijing Concrete”), (iii) Beijing Fortune

Capital Management, Ltd.

(“BFCM”), and (iv) Northern Construction Holdings, Ltd.

Infrastructure Construction Corporation (the “Company”, “China Infrastructure”,

“CHNC”, “We”, “Our”) was organized in Colorado on February 28, 2003.

through its subsidiaries in Hong Kong and thePeople’s Republic of China (“PRC”

or “China”), engages in production of ready-mixed concrete and other special

high-performance concrete for developers and the construction industry in the

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.

It has two prime production

One facility is located in the Nanhaizi area, on the west side of

the Yizhuang economic development zone in Beijing.

The other is located at the

Tangshan harbor, about two hundred kilometers from Beijing.

December 8, 2009, the Company entered into a Strategic Alliance

Agreement for a term of 10 years with Commercial Concrete Mixer Division of

China Railway Construction Group Co., Ltd.

(“CRCG”), a major customer of the

Company (the “Agreement”).

Agreement, the Company will be obligated to build and set up concrete mixing

stations in Xi’an, China and to provide the raw material purchase, internal

accounting, technical and administrative staff of such stations.

The Company and

CRCG will jointly run and operate the concrete mixing stations.

provide the cement for manufacturing the concrete mix in such concrete mixing

stations, and CRCG can purchase the concrete mix at a discounted price.

accordance with the Agreement, each party will lease certain equipment to the

concrete mixing stations.

There are currently no definitive terms for

addition, the Company and CRCG will share 75% and 25% of the annual profits of

such concrete mixing stations in Xi’an, respectively.

The details of such profit

sharing arrangement shall be further agreed upon.

According to the Agreement,

the management team from CRCG to work at the concrete mixing stations shall

be compensated by CRCG.

of Operations

months ended August 31, 2009 Compared to Three months ended August 31,

the three months ended August 31, 2009 were $12,255,728 as compared to

$11,454,976 for the same period last year, an increase of 7.0%.

The increase in

sales is attributable to the increase of volume by 3.9% and increase of unit

Months Ended November 30, 2009 Compared to Three Months Ended November 30,

revenue for the three months ended November 30, 2009 was $19,155,132 as compared

to $15,565,149 for the same period last year, an increase of $3,589,983, or

approximately 23.06%.

The increase in net revenue is attributable to the

increased demand for concrete due to the government’s stimulus plan in the

infrastructure and real estate industries, and is mainly due to the increase of

the sales volume of concrete products.

The sales volume of concrete products

increased approximately 23% for the three months ended November 30, 2009 as

compared to the same period last year.

Net revenue from pumping

services accounted for approximately 5% of the total net revenue for the three

months ended November 30, 2009 and 2008.

of Goods Sold

goods sold for the three months ended August 31, 2009 was $9,763,017 as compared

to $9,380,714 for the same period last year, an increase of 4.1%, which was

primarily due to an increase of sales by 7.0%.

profit for the three months ended August 31, 2009 was $2,492,711, an increase of

approximately 20.2%, as compared to $2,074,262 for the three months ended August

The increase in gross profit is attributable to the increase of sales

due to the successful development of our customers’ network.

With improved cost

control activities, our gross margin in the three months ended August 31, 2009

was approximately 20.3% of the total sales, which is higher than the 18.1% in

the same period last year, which is due to the increase of sales unit price by

3% while the unit cost of goods sold remains stable.

expenses for the three months ended August 31, 2009 were $86,028 as

compared to $123,046 for the same period last year, a decrease of $37,018,

goods sold for the three months ended November 30, 2009 was $14,923,975 as

compared to $12,870,609 for the same period last year, an increase of

$2,053,366, or approximately 15.95%.

Selling expenses consisted primarily of expenses

relating to after sales services, promotional measures for customers’

network development, and vehicular usage and maintenance.

The decrease in

selling expenses was primarily due to fewer promotions and less customer

development since we had a sufficient number of repeat customers and existing

and Administrative Expenses

and administrative expenses for the three months ended August 31, 2009 were

$389,140, as compared to $156,578 for the same period last year, an increase of

The increase in cost of goods sold is in

line with the increase of the net revenue.

profit for the three months ended November 30, 2009 was $4,231,157, an increase

of $1,536,617 or approximately 57.03%, as compared to $2,694,540 for the same

period last year.

The increase in gross profit is attributable to the increase

of the net revenue.

Profit Margin

profit margin for the three months ended November 30, 2009 was 22.09%, compared

to 17.31% for the same period last year.

The increase of the gross profit margin

is mainly due to the decrease of the sales commission expenses that are included

in the overhead costs, which are then transferred to the cost of goods sold.

sales commission expenses decreased approximately $340,729 for the three months

ended November 30, 2009 compared to the same period of 2008.

commission expenses decreased mainly because the Company paid a lower percentage

commission for the three months ended November 30, 2009, compared to the same

period last year.

General and Administrative Expenses

general and administrative expenses for the three months ended November 30, 2009

were $28,525,492, as compared to $499,476 for the same period last year, an

increase of $28,026,016, or approximately 5,611.08%.

The increase of the

selling, general and administrative expenses was primarily due to a one time non

cash compensation expenses of $27,422,242.

Income (Loss)

operating loss for the three months ended November 30, 2009 was $24,294,335, a

decrease of $26,489,399 or approximately 1,206.77% as compared to operating

income of $2,195,064 for the three months ended November 30, 2008.

was mainly due to the $27,422,242 one time non cash compensation expense

included in the selling, general, and administrative expenses.

the three months ended November 30, 2009, 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%.

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.

Income (Loss) Attributable To China Infrastructure Construction

was $24,465,988 for the three months ended November 30, 2009, compared to net

income of $2,075,020 for the three months ended November 30, 2008, a decrease of

$26,541,008 or approximately 1,279.07%.

The increase of the general and administrative

expenses was primarily due to increase of the salaries and the increase of the

cost of reception of visitors for fundraising purposes and other miscellaneous

operating income for the three months ended August 31, 2009 was $2,017,543, an

increase of approximately 12.4% as compared to $1,794,638 for the three months

ended August 31, 2008.

The increased income was due to the increased sales

revenue and our budget control on operating expenses.

the three months ended August 31, 2009, our business operations were solely

The decrease was primarily due to the

$27,422,242 one time non cash compensation expenses included in the selling,

general, and administrative expenses.

Months ended November 30, 2009 Compared to Six Months Ended November 30,

revenue for the six months ended November 30, 2009 was $31,410,860 as compared

to $27,020,125 for the same period last year, an increase of $4,390,735, or

approximately 16.25%.

The increase in net revenue is attributable to the

increased demand for concrete due to the government’s stimulus plan in

infrastructure and real estate industries, and is mainly due to the increase of

the sales volume of concrete products.

The sales volume of concrete products

increased approximately 14% for the six months ended November 30, 2009 as

compared to the same period last year.

Net revenue from pumping services

accounted for approximately 5% and 4% of the total net revenue for the six

months ended November 30, 2009 and 2008, respectively.

of Goods Sold

goods sold for the six months ended November 30, 2009 was $24,504,167 as

compared to $22,251,323 for the same period last year, an increase of

$2,252,844, or approximately 10.12%.

The increase in cost of goods sold is in

line with the increase of the net revenue.

profit for the six months ended November 30, 2009 was $6,906,693, an increase of

$2,137,891 or approximately 44.83%, as compared to $4,768,802 for the same

period last year.

The increase in gross profit is attributable to the increase

of net revenue.

Profit Margin

profit margin for the six months ended November 30, 2009 was 21.99%, compared to

17.65% for the same period last year.

The increase of the gross profit margin is

mainly due to the decrease of the sales commission expenses that are included in

the overhead costs, which then are transferred to the cost of goods sold.

sales commission expenses decreased approximately $570,000 for the six months

ended November 30, 2009 compared to the same period of 2008.

commission expenses decreased mainly because the Company paid a lower percentage

commission for the six months ended November 30, 2009, compared to the same

period last year.

General and Administrative Expenses

general and administrative expenses for the six months ended November 30, 2009

were $29,183,485, as compared to $764,588 for the same period last year, an

increase of $28,418,897, or approximately 3,716.89%.

The increase of the

selling, general and administrative expenses was primarily due to a one time non

cash compensation expenses of $27,422,242.

Income (Loss)

operating loss for the six months ended November 30, 2009 was $22,276,792, a

decrease of $26,281,006 or approximately 656.33% as compared to operating income

of $4,004,214 for the six months ended November 30, 2008.

The decrease was

mainly due to the $27,422,242 one time non cash compensation expenses included

in the selling, general, and administrative expenses.

the six months ended November 30, 2009, our business operations were solely

conducted by our subsidiaries incorporated in the PRC and we are governed by the

8 unchanged sentences

income tax until December 31, 2010.

income was $1,906,403 for the three months ended August 31, 2009, compared to

$1,698,867 in the last fiscal year, an increase of $207,536 or approximately

The increase was primarily due to the increased sales and our budget

control on operating expenses during the three months ended August 31,

Income (Loss) Attributable To China Infrastructure Construction

was $22,559,585 for the six months ended November 30, 2009, compared to net

income of $3,773,887 for the six months ended November 30, 2008, a decrease of

$26,333,472 or approximately 697.78%.

The decrease was primarily due to the

$27,422,242 one time non cash compensation expenses included in the selling,

general, and administrative expenses.

and Capital Resources

August 31, 2009, we had cash and cash equivalents of $36,655.

November 30, 2009, we had cash and cash equivalents of $6,503,129.

historically funded our working capital needs from operations, advance payments

4 unchanged sentences

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

Three Months Ended

cash used in operating activities

cash provided by investing activities

cash used in investing activities

cash provided by (used in) financing activities

of exchange rate change on cash and cash equivalents

decrease in cash and cash equivalents

increase (decrease) in cash and cash equivalents

and cash equivalents, beginning balance

and cash equivalents, ending balance

used in operating activities was $878,009 for the three months ended August 31,

2009, whereas an amount of $613,313 in net cash was used by operating activities

for the corresponding period of 2008.

The net cash reflects the revenues and

change of receivables and payables generated by the operations of Beijing

provided by investing activities was $557,158 for the three months ended August

It was primarily used for purchasing fixed assets and provided by

change in related party receivable.

$564,419 of cash used in financing activities during the three months ended

August 31, 2009, as a result of payment of payables to related

used in operating activities was $3,661,951 for the six months ended November

30, 2009, an increase of $3,470,198, or 1,809.72%, as compared to $191,753 for

the six months ended November 30, 2008.

The increase of net cash used in

operating activities was due to the increase of trade accounts receivable.

trade accounts receivable increased because of the growing sales.

had long-term annual and multi-year contracts with our major customers.

entered into varying payment terms with our customers ranging from payment

before delivery, payment on delivery or up to 1 year after the project

As of November 30, 2009, trade accounts receivable with aging over

twelve months old amounted to $554,357, only 1.47% of total trade accounts

used in investing activities was $918,285 for the six months ended November

30, 2009, an increase of $870,705, or 1,829.98%, compared to $47,580 for the six

months ended November 30, 2008.

Acquisitions of plant, properties and equipment

were the main contributor to the increase of net cash used in investing

provided by financing activities was $10,151,014 for the six months ended

November 30, 2009, an increase of $10,287,600, or 7,531.96%, compared to

$136,586 net cash used in financing activities for the six months ended November

The increase was primarily due to the sale of stock by the Company to

investors resulting in net proceeds of $8,605,625 and receipt of a bank loan of

Accounting Policies and Estimates

13 unchanged sentences

results of operations.

Company receives revenue from sales of concrete products.

We recognize revenue

when all four revenue recognition criteria have been met:

persuasive evidence of

an arrangement exists, we have delivered the product, the fee is fixed or

determinable and collection is reasonably assured.

Our product delivered to

customers would be checked on site by customers and once the products are

accepted by customers they will sign the check or notes payable.

warranty issue after the delivery.

recognition .

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.

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

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.

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.

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.

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.

Company has enjoyed the free VAT policy from January 1, 2006 and has been

reviewed every year by the local tax bureau.

preparation of financial statements in conformity with accounting principles

12 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis