UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549







FORM
10-Q/A







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





For
the quarterly period ended September 30, 2008





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





For
the transition period from ______to______.





CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC.


(Exact
name of registrant as specified in Charter)





Delaware
            
            333-141568
            
            20-8468508(State
      or other jurisdiction of
              incorporation
      or organization)
            
            (Commission
      File No.)
            
            (IRS
      Employee Identification No.)





Xianfu
Han


Yingu
Plaza, 9 Beisihuanxi Road, Suite 1708


Haidian
District, Beijing 100080 PRC


(Address
of Principal Executive Offices)







+86
10 82525361


(Issuer
Telephone number)







(Former
Name or Former Address if Changed Since Last Report)




Check
whether the issuer (1) has filed all reports required to be filed by Section 13
or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter
period that the issuer was required to file such reports), and (2)has been
subject to such filing requirements for the past 90 days. Yesx
  Noo




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




Large
Accelerated Filero     Accelerated Filero     Non-Accelerated Filero     Smaller Reporting Companyx





Indicate
by check mark whether the registrant is a shell company as defined in Rule 12b-2
of the Exchange Act.


Yeso  Nox




State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of November 11, 2008: 10,525,000 shares of common stock.












CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC.





FORM
10-Q/A





September
30, 2008





INDEX





PART
      I— FINANCIAL INFORMATIONItem
      1.
            Financial
      Statements
            2Item
      2.
            Management’s
      Discussion and Analysis of Financial Condition
            3Item
      3.
            Quantitative
      and Qualitative Disclosures About Market Risk
            10Item 4T.
            Control
      and Procedures
            11PART
      II— OTHER INFORMATIONItem
      1
            Legal
      Proceedings
            12Item 1A
            Risk
      Factors
            12Item
      2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            12Item
      3.
            Defaults
      Upon Senior Securities
            12Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            12Item
      5.
            Other
      Information
            12Item
      6.
            Exhibits
      and Reports on Form 8-K
            12SIGNATURE
            13




1




Item
1. Financial Information





CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC.





FINANCIAL
STATEMENTS





AS
OF SEPTEMBER 30, 2008





CONTENTS





CONSOLIDATED
      BALANCE SHEETS AS OF SEPTEMBER 30, 2008 (UNAUDITED) AND AS OF JUNE 30,
      2008 (AUDITED).
            1CONSOLIDATED
      STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND
      2007 (UNAUDITED).
            2CONSOLIDATED
      STATEMENT OF STOCKHOLDERS’ EQUITY FOR THE THREE MONTHS ENDED SEPTEMBER 30,
      2008 (UNAUDITED).
            3CONSOLIDATED
      STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND
      2007 (UNAUDITED).
            4NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).
            5-32




2




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





CONSOLIDATED
BALANCE SHEETS


AS OF
SEPTEMBER 30 AND JUNE 30, 2008





September 30, 2008
            
            
            June 30, 2008(Unaudited)RESTATED
            
            
            RESTATEDASSETSCURRENT
      ASSETS:Cash
            
            $
            5,083,962
            
            
            $
            1,910,495Restricted
      cash
            
            
            888,802
            
            
            
            913,092Marketable
      securities
            
            
            48,604
            
            
            
            61,767Accounts
      receivable, net of allowance for doubtful accounts of
      $254,037  and $224,924 as of September 30, 2008 and June 30,
      2008, respectively
            
            
            9,337,189
            
            
            
            9,365,486Inventories
            
            
            671,604
            
            
            
            237,836Other
      receivables
            
            
            206,535
            
            
            
            505,968Prepayment
            
            
            3,981,480
            
            
            
            3,240,394Total
      current assets
            
            
            20,218,176
            
            
            
            16,235,038PLANT
      AND EQUIPMENT, net
            
            
            16,262,344
            
            
            
            16,730,220OTHER
      ASSETS:Account
      receivable (non-current), net of allowance for doubtful accounts of
      $471,783 and $411,061 as of September 30, 2008 and June 30, 2008,
      respectively
            
            
            4,692,723
            
            
            
            4,753,006Total
      other assets
            
            
            4,692,723
            
            
            
            4,753,006Total
      assets
            
            $
            41,173,243
            
            
            $
            37,718,264LIABILITIES AND
      SHAREHOLDERS' EQUITYCURRENT
      LIABILITIES:Accounts
      payable
            
            $
            4,075,106
            
            
            $
            6,293,553Customer
      deposits
            
            
            138,617
            
            
            
            165,434Short
      term loans
            
            
            7,811,689
            
            
            
            4,271,222Other
      payables
            
            
            214,163
            
            
            
            254,259Other
      payables - shareholder
            
            
            794,152
            
            
            
            880,302Accrued
      liabilities
            
            
            337,267
            
            
            
            145,207Taxes
      payable
            
            
            1,655,565
            
            
            
            1,073,237Interest
      payable
            
            
            158,795
            
            
            
            -Total
      current liabilities
            
            
            15,185,354
            
            
            
            13,083,214COMMITMENTS
      AND CONTINGENCIES
            
            
            -
            
            
            
            -REDEEMABLE
      PREFERRED STOCK ($0.001 par value, 875,000 shares issued) net of discount
      of $1,018,306 and $1,168,548 at September 30 and June 30, 2008,
      respectively
            
            
            5,981,694
            
            
            
            5,831,452SHAREHOLDERS'
      EQUITY:Preferred
      stock $0.001 par value, 1,000,000 shares authorized, 875,000 redeemable
      preferred shares issued and outstanding in 2008, classified above outside
      shareholders' equity
            
            
            -
            
            
            
            -Common
      Stock, $0.001 par value, 74,000,000 shares authorized, 10,525,000 shares
      issued and outstanding, respectively
            
            
            10,525
            
            
            
            10,525Paid-in-capital
            
            
            12,697,323
            
            
            
            12,722,260Contribution
      receivable
            
            
            (1,210,000
            )
            
            
            (1,210,000
            )Retained
      earnings
            
            
            4,243,385
            
            
            
            3,257,276Statutory
      reserves
            
            
            1,616,413
            
            
            
            1,452,779Accumulated
      other comprehensive income
            
            
            2,648,549
            
            
            
            2,598,466Deferred
      compensation
            
            
            -
            
            
            
            (27,708
            )Total
      shareholders' equity
            
            
            20,006,195
            
            
            
            18,803,598Total
      liabilities, redeemable preferred stock and shareholders'
      equity
            
            $
            41,173,243
            
            
            $
            37,718,264





The
accompanying notes are an integral part of these statements.




-1-




CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC AND
SUBSIDIARIES





CONSOLIDATED
STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME


FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007


(UNAUDITED)





Three months endedSeptember 30,2008
            
            
            2007RESTATEDREVENUE:Sales
      of concrete
            
            $
            1,867,687
            
            
            $
            5,981,669Manufacturing
      services
            
            
            1,925,543
            
            
            
            -Technical
      services
            
            
            616,797
            
            
            
            -Mixer
      rental
            
            
            656,814
            
            
            
            -Marketing
      cooperation
            
            
            69,905
            
            
            
            -Total
      revenue
            
            
            5,136,746
            
            
            
            5,981,669COST
      OF REVENUE:Cost
      of sales
            
            
            1,560,307
            
            
            
            4,950,871Manufacturing
      services
            
            
            497,208
            
            
            
            -Technical
      services
            
            
            67,902
            
            
            
            -Mixer
      rental
            
            
            292,045
            
            
            
            -Marketing
      cooperation
            
            
            30,870
            
            
            
            -Total
      cost of revenue
            
            
            2,448,332
            
            
            
            4,950,871GROSS
      PROFIT
            
            
            2,688,414
            
            
            
            1,030,798SELLING,
      GENERAL AND  ADMINISTRATIVE EXPENSES
            
            
            657,109
            
            
            
            298,975INCOME
      FROM OPERATIONS
            
            
            2,031,305
            
            
            
            731,823OTHER
      (EXPENSE) INCOME, NETOther
      subsidy income
            
            
            227,594
            
            
            
            358,715Non-operating
      income (expense), net
            
            
            2,107
            
            
            
            (14,709
            )Interest
      income
            
            
            1,434
            
            
            
            1,196Interest
      expense
            
            
            (228,774
            )
            
            
            (84,540
            )Total
      other (expense) income, net
            
            
            2,361
            
            
            
            260,662INCOME
      BEFORE PROVISION FOR INCOME TAXES
            
            
            2,033,666
            
            
            
            992,485PROVISION
      FOR INCOME TAXES
            
            
            574,827
            
            
            
            -NET
      INCOME
            
            
            1,458,839
            
            
            
            992,485Dividends
      and accretion on redeemable preferred stock
            
            
            309,096
            
            
            
            -Net
      income available to common shareholders
            
            
            1,149,743
            
            
            
            992,485RECONCILIAITION
      OF COMPREHENSIVE INCOME:Net
      income
            
            
            1,458,839
            
            
            
            992,485Unrealized
      (loss) gain from marketable securities
            
            
            (13,341
            )
            
            
            27,527Foreign
      currency translation adjustment
            
            
            63,424
            
            
            
            172,815COMPREHENSIVE
      INCOME
            
            $
            1,508,922
            
            
            $
            1,192,827EARNING
      PER COMMON SHARE ALLOCATED TO COMMON SHAREHOLDERSBasicWeighted
      average common outstanding shares
            
            
            10,525,000
            
            
            
            8,809,583Earning
      per share
            
            $
            0.11
            
            
            $
            0.11DilutedWeighted
      average common outstanding shares
            
            
            14,121,413
            
            
            
            8,809,583Earning
      per share
            
            $
            0.10
            
            
            $
            0.11





The
accompanying notes are an integral part of these statements.




-2-




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY





Common stock
            
            
            Additional
            
            
            
            
            
            
            
            
            Retained earnings
            
            
            AccumulatedNumber
            
            
            Par
            
            
            Paid-in
            
            
            Contribution
            
            
            Deferred
            
            
            
            
            
            Statutory
            
            
            other comprehensiveof shares
            
            
            value
            
            
            capital
            
            
            receivable
            
            
            Compensation
            
            
            Unrestricted
            
            
            reserves
            
            
            income
            
            
            TotalBALANCE, June
      30, 2007
            
            
            8,809,583
            
            
            $
            8,810
            
            
            $
            12,091,290
            
            
            $
            (13,470,100
            )
            
            $
            -
            
            
            $
            6,309,675
            
            
            $
            896,634
            
            
            $
            659,922
            
            
            $
            6,496,231Net
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            992,485
            
            
            
            
            
            
            
            
            
            
            
            992,485Adjustment
      to statutory reserve
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (99,249
            )
            
            
            99,249
            
            
            
            
            
            
            
            -Unrealized
      gain from marketable securities
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            27,527
            
            
            
            27,527Foreign
      currency translation gain
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            172,815
            
            
            
            172,815BALANCE,
      September 30, 2007 (unaudited)
            
            
            8,809,583
            
            
            $
            8,810
            
            
            $
            12,091,290
            
            
            $
            (13,470,100
            )
            
            $
            -
            
            
            $
            7,202,911
            
            
            $
            995,883
            
            
            $
            860,264
            
            
            $
            7,689,058Shares
      issued due to reorganization
            
            
            1,690,417
            
            
            
            1,690
            
            
            
            (1,690
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -Shares
      issued for services
            
            
            25,000
            
            
            
            25
            
            
            
            33,225
            
            
            
            
            
            
            
            (27,708
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            5,542Warrants
      issued to placement agent on issuance of redeemable preferred
      stock
            
            
            
            
            
            
            
            
            
            
            169,345
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            169,345Contribution
      receivable offset with distribution owed
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            7,260,000
            
            
            
            
            
            
            
            (7,627,051
            )
            
            
            
            
            
            
            367,051
            
            
            
            -Capital
      contribution received
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            5,000,100
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            5,000,100Fair
      value of warrants issued with preferred stock
            
            
            
            
            
            
            
            
            
            
            1,201,935
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,201,935Offering
      costs related to issuance of redeemable preferred stock
            
            
            
            
            
            
            
            
            
            
            (771,845
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (771,845
            )Accretion
      of discount on redeemable preferred stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (33,657
            )
            
            
            
            
            
            
            
            
            
            
            (33,657
            )Adjustment
      to statutory reserve
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (456,896
            )
            
            
            456,896
            
            
            
            
            
            
            
            -Net
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            4,171,969
            
            
            
            
            
            
            
            
            
            
            
            4,171,969Unrealized
      loss on marketable securities
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (40,009
            )
            
            
            (40,009
            )Foreign
      currency translation gain
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,411,160
            
            
            
            1,411,160BALANCE,
      June 30, 2008 - Restated
            
            
            10,525,000
            
            
            $
            10,525
            
            
            $
            12,722,260
            
            
            $
            (1,210,000
            )
            
            $
            (27,708
            )
            
            $
            3,257,276
            
            
            $
            1,452,779
            
            
            $
            2,598,466
            
            
            $
            18,803,598Dividends
      on redeemable preferred stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (158,855
            )
            
            
            
            
            
            
            
            
            
            
            (158,855
            )Accretion
      of discount on redeemable preferred stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (150,241
            )
            
            
            
            
            
            
            
            
            
            
            (150,241
            )Stock
      based compensation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,771
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,771Forfeited
      stock compensation
            
            
            
            
            
            
            
            
            
            
            (24,937
            )
            
            
            
            
            
            
            24,937
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -Net
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,458,839
            
            
            
            
            
            
            
            
            
            
            
            1,458,839Adjustment
      to statutory reserve
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (163,634
            )
            
            
            163,634
            
            
            
            
            
            
            
            -Unrealized
      loss on marketable securities
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (13,341
            )
            
            
            (13,341
            )Foreign
      currency translation gain
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            63,424
            
            
            
            63,424BALANCE,
      September 30, 2008 (unaudited) - Restated
            
            
            10,525,000
            
            
            $
            10,525
            
            
            $
            12,697,323
            
            
            $
            (1,210,000
            )
            
            $
            -
            
            
            $
            4,243,385
            
            
            $
            1,616,413
            
            
            $
            2,648,549
            
            
            $
            20,006,195





The
accompanying notes are an integral part of these statements.




-3-




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007


(UNAUDITED)





2008
            
            
            2007RESTATEDCASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
            
            $
            1,458,839
            
            
            $
            992,485Adjustments
      to reconcile net income to cash (used in) provided by operating
      activities:Depreciation
            
            
            533,125
            
            
            
            282,942Amortization
      of deferred compensation expense
            
            
            2,771
            
            
            
            -Bad
      debt expense
            
            
            88,144
            
            
            
            -Change
      in operating assets and liabilitiesAccounts
      receivable
            
            
            (4,797,624
            )
            
            
            (1,967,122
            )Inventories
            
            
            (433,383
            )
            
            
            60,639Other
      receivables
            
            
            301,005
            
            
            
            629,600Prepayment
            
            
            1,012,365
            
            
            
            (43,248
            )Accounts
      payable
            
            
            854,631
            
            
            
            1,787,444Other
      payables
            
            
            (40,636
            )
            
            
            94,679Accrued
      liabilities
            
            
            191,718
            
            
            
            (39,163
            )Customer
      deposit
            
            
            (27,286
            )
            
            
            -Taxes
      payable
            
            
            579,742
            
            
            
            6,965Net
      cash (used in) provided by operating activities
            
            
            (276,589
            )
            
            
            1,805,221CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of property, plant and equipment
            
            
            (19,067
            )
            
            
            (6,173
            )Net
      cash used in investing activities
            
            
            (19,067
            )
            
            
            (6,173
            )CASH
      FLOWS FINANCING ACTIVITIES:Payments
      of short term loan
            
            
            (3,821,544
            )
            
            
            (3,031,400
            )Proceeds
      from short term loan
            
            
            7,354,278
            
            
            
            646,405Other
      payables - shareholders
            
            
            (86,558
            )
            
            
            -Restricted
      cash
            
            
            24,290
            
            
            
            -Net
      cash provided by (used in) financing activities
            
            
            3,470,466
            
            
            
            (2,384,995
            )EFFECTS
      OF EXCHANGE RATE CHANGE IN CASH
            
            
            (1,343
            )
            
            
            1,144INCREASE
      (DECREASE) IN CASH
            
            
            3,173,467
            
            
            
            (584,803
            )CASH,
      beginning of period
            
            
            1,910,495
            
            
            
            1,424,883CASH,
      end of period
            
            $
            5,083,962
            
            
            $
            840,080





The
accompanying notes are an integral part of these statements.




-4-




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(UNAUDITED)





Note
1 - Organization and description of business





China Advanced Construction
Materials Group, Inc. (“China ACM” or the “Company”) was founded as an
unincorporated business on September 1, 2005, under the name TJS Wood Flooring,
Inc. (“TJSW”), and incorporated in the State of Delaware on February 15, 2007.
On April 29, 2008, TJSW changed its name to China Advanced Construction
Materials Group, Inc. in connection with a share exchange transaction as
described below.





On April
29, 2008, the Company executed a share exchange agreement with Xin Ao
Construction Materials, Inc. (“BVI-ACM”) whereby the Company issued to the
stockholders of BVI-ACM 8,809,583 shares of the Company’s common stock in
exchange for all of the issued and outstanding capital stock of BVI-ACM (the
“Share Exchange”). Prior to the Share Exchange, and after the cancellation of
9,990,000 shares, China ACM had 1,166,667 shares of common stock issued and
outstanding. After the Share Exchange, China ACM had 10,500,000 shares of common
stock outstanding and the former shareholders of BVI-ACM owned 83.9% of the
issued and outstanding shares. The directors and executive officers of BVI-ACM
became the directors and officers of China ACM. This transaction has been
accounted as a reverse acquisition and recapitalization of the Company whereby
BVI-ACM is deemed to be the accounting acquirer (legal acquiree) and the Company
the accounting acquiree (legal acquirer). The historical financial statements
for periods prior to April 29, 2008 are those of BVI-ACM except that the equity
section and earnings per share have been retroactively restated to reflect the
reverse acquisition.


.


BVI-ACM
was established on October 9, 2007, under the laws of British Virgin Islands.
The majority shareholders of BVI-ACM are Chinese citizens who own 100% of
Beijing Xin Ao Concrete Co., Ltd. (“Xin Ao”), a limited liability company formed
under the laws of the People’s Republic of China (“PRC”). BVI-ACM was
established as a “special purpose vehicle” for foreign fund raising for Xin Ao.
China State Administration of Foreign Exchange (“SAFE”) requires the owners of
any Chinese companies to obtain SAFE’s approval before establishing any offshore
holding company structure for foreign financing as well as subsequent
acquisition matters under the “Circular 106” in the PRC. On September 29, 2007,
BVI-ACM was approved by the local Chinese SAFE as a “special purpose vehicle”
offshore company.





On
November 23, 2007, BVI-ACM established a subsidiary, Beijing Ao Hang
Construction Material Technology Co., Ltd. (“China-ACMH”), in PRC as a
wholly-owned foreign limited liability company with registered capital of $5
million.





BVI-ACM,
through its 100% owned China-ACMH and its variable interest entity (“VIE”) Xin
Ao (see Note 2), is engaged in producing general ready-mixed concrete,
customized mechanical refining concrete, and other concrete-related products
that are mainly sold in the PRC. Xin Ao, licensed by the Beijing Administration
of Industry & Commerce, PRC, was established on June 28, 2002 with an
initial capital contribution of approximately $3,630,000 (RMB30 million). On
July 8, 2005, the Board of Directors of Xin Ao increased its registered capital
to $12,100,000 (RMB100 million) through the use of Xin Ao’s undistributed
profits.




-5-




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(UNAUDITED)





On
November 28, 2007, China-ACMH entered a series of contractual arrangements (the
“Contractual Arrangements”) with Xin Ao and its shareholders in which China-ACMH
effectively took over management of the business activities of Xin Ao. The
Contractual Arrangements are comprised of a series of agreements,
including:





·
            Exclusive
      Technical Consulting and Services Agreement, through which China-ACMH will
      provide exclusive technical consulting and services to Xin Ao for an
      annual fee in the amount of Xin Ao’s yearly net income after
      tax.




·
            Equity
      Pledge Agreement. Xin Ao’s shareholders pledged their rights, title and
      equity interest in Xin Ao as security for China-ACMH to collect technical
      consulting and services fees provided to
  China-ACMH.




·
            Operating
      Agreement, through which China-ACMH has exclusive authority of all
      decision-making of ongoing major operations, including establishing
      compensation levels and hiring and firing of key personnel. In order to
      ensure Xin Ao’s normal operation, China-ACMH agrees to act as the
      guarantor and provide full guarantee for Xin Ao in entering and performing
      contracts, agreements or transactions in association with Xin Ao’s
      operation between Xin Ao and any other third parties. As a counter
      guarantee, Xin Ao agrees to mortgage all of its assets including
      receivables which have not been mortgaged to any third parties at the
      execution date of this agreement to
China-ACMH.




·
            Power
      of Attorney, signed by Xin Ao’s 100% shareholders Mr. Han Xianfu and Mr.
      He Weili, which authorize the individuals appointed by China-ACMH to
      exercise all of their respective voting rights as a shareholder at Xin
      Ao’s shareholder meetings.




·
            Option
      Agreement, through which Xin Ao’s shareholders granted China-ACMH the
      exclusive right and option to acquire all of their equity interests in Xin
      Ao.




The term
of these agreements is for ten (10) years and shall terminate automatically upon
expiration, and may be extended only if China-ACMH gives its written consent of
the extension before the expiration. The parties shall, through negotiations,
determine the extension term. During the term, Xin Ao may not terminate the
agreements except in the case of gross negligence, fraud or other illegal acts
or bankruptcy of China-ACMH.  Notwithstanding the foregoing,
China-ACMH may terminate the agreement at any time with a written notice to Xin
Ao thirty (30) days before such termination. Additionally, without China-ACMH’s
prior written consent, Xin Ao shall not assign or otherwise transfer its rights
and obligations under the agreements. Subject to compliance with the Laws of
China, China-ACMH may assign the agreements to any affiliate or any other
designated entity without the prior consent of Xin Ao.




-6-




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(UNAUDITED)





Through
China-ACMH, BVI-ACM operates and controls Xin Ao through the Contractual
Arrangements. BVI-ACM utilized the Contractual Arrangements to gain control the
operations of Xin Ao, instead of acquiring Xin, due to : (i) new PRC laws
governing share exchange transactions with foreign entities, effective since
September 8, 2006, make the consequences of such acquisitions uncertain and (ii)
other than by share exchange transactions, PRC laws require Xin Ao to be
acquired for cash and BVI-ACM was not able to raise sufficient funds to pay the
full appraised value for Xin Ao’s assets or shares as required under PRC
laws.





Through
this series of Contractual Arrangements, China-ACMH provides exclusive technical
consulting services to Xin Ao for an annual fee equal to Xin Ao’s yearly net
income.  China-ACMH effectively took over management of daily business
activities of Xin Ao and has the right to appoint all executives, senior
management and members of the board of directors of Xin Ao. China-ACMH
guarantees all of Xin Ao’s business activities with any third parties and in
return is guaranteed all of Xin Ao’s assets. In addition, shareholders of Xin Ao
pledged their shares in Xin Ao as collateral for the annual fees due to the
Company and granted China-ACMH the exclusive right and option to acquire all of
their equity interests in Xin Ao.




Note
2 - Summary of significant accounting policies





Restatement





The
Company previously accounted for its Series A Convertible Preferred Stock, which
was issued in a private placement on June 11, 2008 and which is redeemable on
June 11, 2010 if not previously converted by the holders, as a
liability.  The offering costs were deferred and were being amortized
over the period to redemption.  Because the preferred stock does not
meet the definition of a liability in Statement of Financial Accounting
Standards No. 150 “Accounting for  Certain Financial Instruments with
Characteristics of both Liabilities and Equity”, the Company has revised its
accounting to account for the preferred stock as an equity instrument, rather
than as a liability.  The offering costs, which were previously
deferred, have been charged to additional paid-in capital.  Dividends
accrued on the preferred stock and periodic accretion of the initial carrying
value of the preferred stock to its redemption value, which were previously
recognized as interest expense, have been charged to retained earnings. Because
the preferred stock is required to be redeemed by the Company if not previously
converted by the holders, it has been classified outside of Shareholders’
Equity, in accordance with EITF Topic D-98.




-7-





CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(UNAUDITED)





The
restatement had no effect on the Company’s consolidated financial statements as
of and for the three months ended September 30, 2007.  The Company’s
consolidated financial statements as of and for the three months ended September
30, 2008 have been restated as follows:





Three Months
              Ended
              September 30,2008Net
      income and net income available to common shareholders, as previously
      reported
            
            $
            1,074,430Amortization
      of deferred offering costs
            
            
            75,313Dividends
      and accretion on preferred stock
            
            
            309,096Net
      income, as restated
            
            
            1,458,839Dividends
      and accretion on preferred stock
            
            
            309,096Net
      income available to common shareholders, as restated
            
            
            1,149,743Earnings
      per share – basic, as previously reported
            
            
            0.10Earnings
      per share – basic, as restated
            
            
            0.11Earnings
      per share – diluted, as previously reported
            
            
            0.10Earnings
      per share – diluted, as restated
            
            
            0.10





Balance
      Sheet data:
            
            September 30,2008Deferred
      financing costs, as previously reported
            
            $
            511,506Deferred
      financing costs, as restated
            
            
            -Total
      assets, as previously reported
            
            
            41,684,749Total
      assets, as restated
            
            
            41,173,243Shareholders’
      equity, as previously reported
            
            
            20,517,700Shareholders’
      equity, as restated
            
            
            20,006,195Total
      liabilities and shareholders’ equity, as previously
    reported
            
            
            41,684,749Total
      liabilities, redeemable preferred stock and shareholders’ equity, as
      restated
            
            
            41,173,243




-8-




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(UNAUDITED)





Basis of
presentation





The
Company’s accounting policies used in the preparation of the accompanying
consolidated financial statements conform to accounting principles generally
accepted in the United States of America ("US GAAP") and have been consistently
applied.





Management
has included all normal recurring adjustments considered necessary to give a
fair presentation of operating results for the periods presented. Interim
results are not necessarily indicative of results for a full year. The
information included in this Form 10-QA should be read in conjunction with
information included in the 2008 annual report filed on Form 10-KA.





Principles of
consolidation





The
accompanying consolidated financial statements include the accounts of China
ACM, BVI-ACM, including its wholly owned subsidiary China-ACMH, and its variable
interest entity Xin Ao. All significant inter-company transactions and balances
have been eliminated in consolidation.





In
accordance with Financial Accounting Standards Board (“FASB”) Interpretation No.
46(R) (“FIN 46(R)”), Consolidation of Variable Interest Entities, all VIEs with
which the Company is involved must be evaluated to determine the primary
beneficiary of the risks for financial reporting purposes. Through a series of
Contractual Arrangements, China-ACMH effectively took over management of daily
business activities of Xin Ao and has the right to appoint all executives,
senior management and members of the board of directors of Xin Ao. Equity
holders of Xin Ao also signed a Power of Attorney, which authorizes the
individuals appointed by China-ACMH to exercise all of their voting rights as
shareholder at Xin Ao’s shareholder meetings. China-ACMH provides exclusive
technical consulting services to Xin Ao for an annual fee equal to Xin Ao’s
yearly net income, and guarantees all of Xin Ao’s business activities with any
third parties and in return is guaranteed all of Xin Ao’s assets. In addition,
shareholders of Xin Ao pledged their shares in Xin Ao as collateral for the
annual fees due to the Company and granted China-ACMH the exclusive right and
option to acquire all of their equity interests in Xin Ao. In accordance to
Paragraph 5 of FIN 46(R), the Company determined Xin Ao is a variable interest
entity subject to consolidation under the Interpretation and the Company is the
primary beneficiary. Accordingly, the financial statements of Xin Ao are
included in the consolidated financial statements of the Company.




-9-




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(UNAUDITED)





Foreign currency
translation





The
reporting currency of the Company is the US dollar. The functional currency of
China ACM and BVI-ACM is the US dollar. China-ACMH and Xin Ao use their local
currency Chinese Renminbi (“RMB”) as their functional currency. According to
Statement of Financial Accounting Standards (“SFAS”) No. 52, “Foreign Currency
Translation,” results of operations and cash flows are translated at the
average exchange rates during the period, assets and liabilities are translated
at the exchange rates at the balance sheet dates, and equity is translated at
the historical exchange rates. As a result, amounts related to assets and
liabilities reported on the statement of cash flows will not necessarily agree
with changes in the corresponding balances on the balance sheets.





Accumulated
other comprehensive income in the consolidated statement of shareholders’ equity
amounted to $2,648,549 and $2,598,466 as of September 30, 2008 and June 30,
2008, respectively. Asset and liability accounts at September 30, 2008 and June
30, 2008 were translated at 6.84 RMB and 6.85 RMB to $1.00, respectively. Equity
accounts were stated at their historical rates. The average translation rates
applied to consolidated statements of income and cash flows for the three months
ended September 30, 2008 and 2007 were 6.84 RMB and 7.55 RMB to $1.00,
respectively.





Translation
gains and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency are included in the
results of operations as incurred. Gains and losses from foreign currency
transactions are included in the results of operations. No material transaction
gain or loss for the periods ended September 30, 2008 and 2007.





Revenue
recognition





The
Company recognizes revenue in accordance with Staff Accounting Bulletin (“SAB”)
No. 101, “Revenue Recognition
in Financial Statements” as amended by SAB No. 104 (together, “SAB 104”),
which specifies that revenue is realized or realizable and earned when four
criteria are met:





·
            Persuasive
      evidence of an arrangement exists (the Company considers its sales
      contracts and technical service agreements to be pervasive evidence of an
      arrangement);·
            Delivery
      has occurred or services have been
rendered;


·
            The
      seller’s price to the buyer is fixed or determinable;
  and·
            Collectability
      of payment is reasonably assured.




-10-




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(UNAUDITED)





The
Company sells its concrete products and provides concrete manufacturing services
mainly to major local construction companies. Sales agreements are signed with
each customer. The agreements list all terms and conditions with the exception
of delivery date and quantity, which are evidenced separately in purchase
orders. The purchase price of products is fixed in the agreement and customers
are not permitted to renegotiate after the contracts have been signed. The
agreements include a cancellation clause if the Company breaches the contract
terms specified in the agreement. The Company does not sell products to
customers on a consignment basis. There is no right of return after the product
has been injected into the location specified by the contract and accepted by
the customer. The Company recognizes revenue when the goods are accepted by the
customer and title has passed.





Sales
revenue represents the invoiced value of goods, net of a value-added tax
(“VAT”). All of the Company’s concrete products that are sold in the PRC are
subject to a Chinese value-added tax at the rate of 6% of the gross sales
price.





Due to
the fact that the Company uses recycled raw materials to manufacture its
products, the State Administration of Taxation has granted the Company VAT tax
exemption from August 2005 through to August 2009. The VAT tax collected from
the Company’s customers is kept by the Company and recorded as Other Subsidy
Income.





The
Company also provides technical consulting services to and enters strategic
cooperation including market sharing and equipment rental with other
independently owned concrete companies. The Company signs a Technical Service
Agreement or Strategic Cooperation Agreement with each client, which specifies
all terms and conditions including prices to be charged. Once concrete products
are produced by clients and supplied to builders referred by the Company or cost
savings are realized by use of technical solutions provided by the Company, the
agreements consider the Company has rendered its service. The Company recognizes
revenue and invoices client monthly for technical service and marketing
cooperation on a per-cubic-meter basis and for equipment rental on a per-mixer
truck basis.





Shipping and
handling





Shipping
and handling costs related to costs of the raw materials purchased is included
in cost of revenues.





Use of
estimates





The
preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. The significant estimates made in the
preparation of the Company’s consolidated financial statements related to the
assessment of the fair value of share based payments and the collectability of
accounts receivable. Actual results could be materially different from those
estimates.




-11-




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(UNAUDITED)





Financial
instruments





SFAS 107,
“Disclosures about Fair Value
of Financial Instruments” requires disclosure of the fair value of
financial instruments held by the Company. SFAS 107 defines the fair value of
the financial instruments as the amount at which the instrument could be
exchanged in a current transaction between willing parties.  The
Company considers the carrying amount of cash, accounts receivable, other
receivables, prepayments, accounts payable, accrued liabilities, other payables,
taxes payable, and loans to approximate their fair values because of the short
period of time between the origination of such instruments and their expected
realization and their current market rate of interest.





On July
1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements. SFAS No. 157
defines fair value, establishes a three-level valuation hierarchy for
disclosures of fair value measurement and enhances disclosures requirements for
fair value measures.





The three
levels are defined as follow:





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





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





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





Marketable
securities, receivables and current liabilities qualify as financial
instruments. Fair values were determined using Level 3. Marketable
securities are carried in the balance sheets at fair value, with fair value
determined by the financial institution who sold the securities. The carrying
amounts reported in the balance sheets for receivables and current liabilities
are a reasonable estimate of fair value because of the short period of time
between the origination of such instruments and their expected realization and
their current market rate of interest. The Company did not identify any assets
and liabilities that are required to be presented on the balance sheet at fair
value in accordance with SFAS 157.




-12-




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(UNAUDITED)





Concentration of
risk





·
            Cash
      - Cash includes cash on hand and demand deposits in accounts maintained
      with state owned banks within the People’s Republic of China. The Company
      considers all highly liquid instruments purchased with original maturities
      of three months or less, and money market account, to be cash equivalents.
      Total cash in these banks at September 30, 2008 and June 30, 2008 amounted
      to $4,962,477 and $1,795,388, respectively, of which no deposits were
      covered by insurance. Also, as of September 30, 2008, the Company held
      $888,802 in restricted cash in a corporate legal counsel’s trust account,
      in accordance with an agreement with investors for the restricted use of
      preferred stock dividend and investor relation related expenses.
      Nonperformance by these institutions could expose the Company to losses
      not covered by insurance. The Company has not experienced, nor dose it
      anticipate, nonperformance by the
institutions.





·
            Major
      customers and suppliers - For the three months ended September 30, 2008,
      two customer accounted for approximately 37.3% of the Company's sales and
      9.3% of the Company’s accounts receivable as of September 30, 2008. For
      the three months ended September 30, 2007, one customer accounted for
      approximately 24% of the September 30, 2007. For the three months ended
      September 30, 2008, two suppliers accounted for approximately 51.8% of the
      Company’s purchase and approximately 4.4% to this supplier as of September
      30, 2008. For the three months ended September 30, 2007, three suppliers
      accounted for approximately 37.4% of the Company's purchases. These three
      suppliers represent approximately 12% of the Company's total accounts
      payable balance as of September 30,
2007.





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




-13-




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(UNAUDITED)





Restricted
Cash





Restricted
cash represents portion of the proceeds received from the June 11, 2008 Private
Placement that was deposited in a trust account held by the Company’s legal
counsel for payment of dividends, investor relations fees, and other
miscellaneous professional fees (see Note 10). Restricted cash is classified in
current assets as of September 30, 2008, based on the time period funds are
expected to be used.





Inventories





Inventories
consist of raw materials and are stated at the lower of cost or market, using
the weighted average cost method. The Company reviews its inventory periodically
for possible obsolescence. As of September 30, 2008, the Company determined no
reserves were necessary.





Prepayments





The
Company advances monies to certain suppliers for raw materials. These advances
are interest free and unsecured.





Plant and
equipment





Plant and
equipment are stated at cost. Depreciation is provided over the estimated useful
life of each class of depreciable asset and is computed using the straight-line
method with 5% residual value.





The
estimated useful lives of assets are as follows:





Useful
      LifeTransportation
      equipment
            10
      yearsPlant
      machinery
            10
      yearsOffice
      equipment
            5
      years





The cost
and related accumulated depreciation of assets sold or otherwise retired are
eliminated from the accounts and any gain or loss is included in the statement
of income.





Impairment of long-lived
assets





Long-lived
assets of the Company are reviewed at least annually, more often if
circumstances dictate, for possible impairment. Whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable, the Company records an impairment to reduce the related assets to
their net realizable value. The Company believes no impairment exists at
September 30, 2008.




-14-




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(UNAUDITED)





Accounts
receivable





During
the normal course of business, the Company extends unsecured credit to its
customers. Management reviews its accounts receivable each reporting period to
determine if the allowance for doubtful accounts is adequate. An estimate for
doubtful accounts is recorded when collection of the full amount is no longer
probable.  Known bad debts are written off against allowance for
doubtful accounts when identified. The Company’s reserves are consistent with
its historical experience and considered adequate by management.





The
ultimate collection of the Company’s accounts receivable may take more than one
year, and any portion of accounts receivable expected to be collected in more
than one year is reflected as noncurrent, net of allowance for doubtful accounts
relating to that portion of receivables. The bifurcation between current and
noncurrent portions of accounts receivable is based on management’s estimate and
predicated on historical collection experience.





Redeemable preferred
stock





On June
11, 2008, the Company completed the sale to certain accredited investors of
875,000 investment units for gross proceeds of $7,000,000, each unit consisting
of one share of the Company’s Series A Convertible Preferred Stock and one
warrant to purchase two shares of the Company’s common stock. The preferred
stock pays annual dividends of 9% regardless of the Company’s profitability.
Each preferred share is convertible into four shares of common stock. The
Company received net proceeds of approximately $5.3 million after offering
expenses and net of $930,000 restricted cash which was required to be placed in
escrow. Upon the two year anniversary of the closing date, the Company is
required to redeem for cash the outstanding preferred stock, if not previously
converted by the holders, for $8.00 per share plus accrued but unpaid
dividends.  Because we are required to redeem the preferred stock on
June 11, 2010 if it has not been previously converted by the holders, in
accordance with EITF Topic D-98, the preferred stock is classified outside of
shareholders’ equity.





In
accordance with APB 14, “Accounting for Convertible Debt and Debt Issued with
Stock Purchase Warrants,” the Company allocated the proceeds received between
the preferred stock and the warrants.  The resulting discount from the
face amount of the preferred stock is being amortized using the effective
interest method over the period to the required redemption date. After
allocating a portion of the proceeds to the warrants, the effective conversion
price of the preferred stock was higher than the market price at the date of
issuance and therefore no beneficial conversion feature was recorded. The
dividends on the preferred stock, together with the periodic accretion of the
preferred stock to its redemption value, are charged to retained
earnings.




-15-


CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(UNAUDITED)





Income
taxes





The
Company is governed by the Income Tax Laws of the PRC. The Company accounts for
income taxes in accordance with FAS 109, “Accounting for Income Taxes”
which requires the company to use the assets and liability method of accounting
for income taxes. Under the assets and liability method, 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
financial statement carrying amounts and the tax bases of existing assets and
liabilities. Under SFAS 109, 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. Since the
Company’s operations are outside of the United States, the Company did not have
any provision for income taxes including any deferred income taxes, for the
three months ended September 30, 2008 and 2007.





The
Company adopted FIN 48, “Accounting for Uncertainty in Income
Taxes-an interpretation of FASB Statements No. 109,” as of July 1,
2007.  Under FIN 48, the 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. FIN 48 also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosures, and transition.  The adoption had no affect on the
Company’s financial statements.  There are no deferred tax amounts as
of September 30, 2008 and June 30, 2008.





Chinese Income
Taxes





The
Company and its subsidiaries are governed by the Income Tax Laws of the PRC
concerning Foreign Investment Enterprises and Foreign Enterprises and various
local income tax laws (the “Income Tax Laws”).





Xin Ao’s
use of recycled raw materials in its production since its inception entitles the
Company to an income tax exemption from January 1, 2003, through December 31,
2007, as granted by the State Administration of Taxation of the PRC. Beginning
January 1, 2008, the new Chinese Enterprise Income Tax (“EIT”) law replaced the
existing laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises
(“FIEs”). The new standard EIT rate of 25% replaced the existing rates currently
applicable to both DES and FIEs. The income tax exemption granted to the Company
was eliminated after December 31, 2007. The Company is currently evaluating the
effect of the new EIT law will have on its financial position.




-16-




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(UNAUDITED)





PRC law
requires that before a foreign invested enterprise can legally distribute
profits to its partners, it must satisfy all tax liabilities, provide for losses
in previous years, and make allocations in proportions made at the discretion of
the board of directors, after the statutory reserve. The statutory reserve
includes the surplus reserve fund and the common welfare fund, and represents
restricted retained earnings.





The
following table reconciles the U.S. statutory rates to the Company’s effective
tax rate for the three months ended September 30, 2008 and 2008:





2008
            
            
            2007U.S.
      statutory rates
            
            
            34.0
            %
            
            
            34.0
            %Foreign
      income not recognized in U.S.
            
            
            (34.0
            )
            
            
            (34.0
            )China
      income taxes
            
            
            25.0
            
            
            
            33.0China
      income tax exemption
            
            
            -
            
            
            
            (33.0
            )Effective
      income tax rates
            
            
            25.0
            %
            
            
            -
            %





The
Company adopted accounting policies in accordance to U.S. GAAP with regard to
provisions, reserves, inventory valuation method and depreciation that are
consistent with requirements under Chinese income tax laws. The Company does not
have any intangible assets. Therefore, there were no deferred tax assets or
liabilities during the three months ended September 30, 2008 and
2007.





The
Company classifies interest and penalties assessed due to underpayment of income
taxes as interest expense and other expenses, respectively. The Company incurred
no such expenses for the three months period ended September 30,
2008.





Value added
tax





Enterprises
or individuals who sell commodities, engage in repair and maintenance or import
and export goods in the PRC are subject to a value added tax (“VAT”). The
standard VAT rate is 6% of gross sales for the Company’s industry. A credit is
available whereby VAT paid on the purchases of raw materials used in the
production of the Company’s finished products can be used to offset the VAT due
on sales of finished products. Due to the fact that the Company uses recycled
raw materials to manufacture its products, the State Administration of Taxation
has granted the Company VAT Tax Exemption from August 2005 through to August
2009. For the three months ended September 30, 2008 and 2007, $227,594 and
$358,715, respectively, was recognized as other subsidy income from VAT taxes
collected.




-17-




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(UNAUDITED)





Research and development
costs





Research
and development costs are expensed as incurred. The cost of materials and
equipment that are acquired or constructed for research and development
activities, and have alternative future uses, either in research and
development, marketing, or sales, are classified as property and equipment, and
depreciated over their estimated useful lives. Research and development expenses
amounted to $0 and $1,272 for the three months ended September 30, 2008 and
2007, respectively.





Earnings per
share





Basic
earnings per common share is computed on the basis of the weighted average
number of common shares outstanding during the period.  Diluted
earnings per share is computed on the basis of the weighted average number of
common shares and dilutive securities (such as warrants and convertible
preferred stock) outstanding. Dilutive securities having an anti-dilutive effect
on diluted earnings per share are excluded from the calculation.





Comprehensive
income





SFAS 130,
Reporting Comprehensive Income, establishes standards for reporting and display
of comprehensive income and its components in financial statements. It requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same providence as other financial statements. The
accompanying consolidated financial statements include the provision of SFAS
130, and therefore, comprehensive income consists of net income, unrealized
gains and losses from marketable securities, and foreign currency translation
adjustments.





Recently issued accounting
pronouncements





In
February 2007, the FASB issued Statement of Financial Accounting Standards
No. 159 (“SFAS 159”), “The Fair Value Option for Financial Assets and
Financial Liabilities-Including an amendment of FASB Statement No. 115.
SFAS No. 159 permits entities to choose to measure many financial
instruments and certain other items at fair value. Most of the provisions of
SFAS 159 apply only to entities that elect the fair value option. However, the
amendment to SFAS No. 115, “Accounting for Certain Investments in Debt and
Equity Securities, applies to all entities with available-for-sale and trading
securities. SFAS 159 is effective for financial statements with fiscal
years beginning after November 15, 2007. The Company chose not to elect the
option to measure the fair value of eligible financial assets and
liabilities.




-18-




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(UNAUDITED)





In
December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No. 51” , which establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent, the amount of
consolidated net income attributable to the parent and to the noncontrolling
interest, changes in a parent’s ownership interest and the valuation of retained
non-controlling equity investments when a subsidiary is deconsolidated. The
Statement also establishes reporting requirements that provide sufficient
disclosures that clearly identify and distinguish between the interests of the
parent and the interests of the non-controlling owners. SFAS 160 is effective
for fiscal years beginning after December 15, 2008. The Company has determined
that the application of SFAS 160 will have no effect on its consolidated
financial statements.





In
December 2007, SFAS 141(R), Business Combinations, was issued. SFAS 141R
requires an acquirer to recognize the assets acquired, the liabilities assumed,
and any noncontrolling interest in the acquiree at the acquisition date,
measured at their fair values as of that date, with limited exceptions. This
replaces SFAS 141’s cost-allocation process, which required the cost of an
acquisition to be allocated to the individual assets acquired and liabilities
assumed based on their estimated fair values. SFAS 141R also requires the
acquirer in a business combination achieved in stages (sometimes referred to as
a step acquisition) to recognize the identifiable assets and liabilities, as
well as the noncontrolling interest in the acquiree, at the full amounts of
their fair values (or other amounts determined in accordance with SFAS 141R).
SFAS 141R applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. An entity may not apply it
before that date. SFAS 141R will change the accounting for all future business
combinations.





In March
2008, SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities
– An Amendment of SFAS No. 133” was issued.  SFAS 161 requires
(1) the disclosure of the fair value of derivative instruments and gains
and losses in a tabular format; (2) the disclosure of derivative features
that are credit risk-related; and (3) cross-referencing within the
footnotes. The provisions of SFAS 61 are effective for interim period and fiscal
years beginning after November 15, 2008. The Company does not anticipate that
the adoption of SFAS 161 will have a material impact on its consolidated
financial position or results of operations.





In June
2008, EITF 07-5, “Determining whether an Instrument (or Embedded Feature) is
indexed to an Entity’s Own Stock” was issued. This standard triggers liability
accounting on all options and warrants exercisable at strike prices denominated
in any currency other than the Company’s functional currency. This Issue is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. Early
application is not permitted.




-19-





CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(UNAUDITED)





In June
2008, FASB issued EITF 08-4, “Transition Guidance for Conforming Changes to
Issue No. 98-5”. The objective of EITF 08-4 is to provide transition
guidance for conforming changes made to EITF 98-5, “Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios”, that result from EITF  00-27 “Application of Issue
No. 98-5 to Certain Convertible Instruments”, and SFAS 150, “Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity”. This Issue is effective for financial statements issued for fiscal
years ending after December 15, 2008. Early application is
permitted. Management is currently evaluating the impact of adoption of
EITF 08-4.





In
October 2008, the FASB issued FASB Staff Position No. FAS 157-3, “Determining
the Fair Value of a Financial Asset in a Market That Is Not Active” (FSP 157-3),
which clarifies the application of SFAS 157 when the market for a financial
asset is inactive. Specifically, FSP 157-3 clarifies how (1) management’s
internal assumptions should be considered in measuring fair value when
observable data are not present, (2) observable market information from an
inactive market should be taken into account, and (3) the use of broker quotes
or pricing services should be considered in assessing the relevance of
observable and unobservable data to measure fair value. FSP 157-3 became
effective on October 10, 2008, and its adoption did not have a material impact
on our financial position or results for the quarter ended September 30,
2008.





Note 3 - Supplemental disclosure
of cash flow information





During
the three months ended September 30, 2008 and 2007, the Company paid interest
totaling $58,645 and $84,540, respectively.





There
were no income tax payments for the three months ended September 30, 2008 and
2007.





Non-cash
transactions





The
Company assigned accounts receivables totaling $4,833,849 as payment to
suppliers whose balances were included in accounts payable.





Balances
of accounts receivable and payable reported on the balance sheets are net of the
assignments.




-20-




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(UNAUDITED)





Non-cash transactions in the
three months ended September 30, 2007





The
Company assigned accounts receivables totaling $1,343,937 to the suppliers as an
offset of the liability owed recorded under accounts payable and also assigned
and also assigned accounts receivables totaling $13,246 as an offset to other
payable. Balances of accounts receivable and payables reported on the balance
sheets are net of the assignments.





Note
4 – Marketable securities





All
securities are available for sale and therefore are carried at fair value with
unrealized gains and losses reported as accumulated other comprehensive income
in shareholders’ equity. Realized gains and losses are included in other income
(expense) and, when applicable, are reported as a reclassification adjustment in
other comprehensive income. Gains and losses on the sale of securities are
determined using the specific-identification method.





There
were no realized gains or losses from the sale of marketable securities for the
three months ended September 30, 2008 and 2007. The Company determines cost on
the specific identification method. Unrealized gains (losses) totaling ($13,341)
and $27,527 were recorded as other comprehensive income for the three months
ended September 30, 2008 and 2008, respectively.





Note
5 – Accounts receivable, trade





Accounts
receivable, trade, are generated from concrete products sold and technological
consulting services provided to clients. The payment terms are defined in
contracts. Over 80% of our receivables are due within a year by contract and are
classified as current assets on the balance sheet. For some large construction
projects that take years to complete, we may provide extended payment terms to
the general contractors. These contractors are usually large state-owned
builders with good credit rating. Sales and accounting departments together
evaluate at each period end the aging, structure and collectability of accounts
receivable and for these receivables that are past due or not being paid
according to payment terms, we will take actions including sending out past due
notice, strengthening collections efforts, lowering the client's credit rating,
seeking legal resolution in a court of law, and increasing allowance for bad
debt.




-21-




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(UNAUDITED)





Accounts
receivable and allowance for doubtful accounts consist of the
following:





September
              30, 2008
              (Unaudited)
            
            
            June 30,
              2008Accounts
      receivable, current
            
            $
            9,591,226
            
            
            $
            9,590,410Less:  allowance
      for doubtful accounts, current
            
            
            (254,037
            )
            
            
            (224,924
            )Net
      accounts receivable, current
            
            
            9,337,189
            
            
            
            9,365,486Accounts
      receivable, non-current
            
            
            5,164,506
            
            
            
            5,164,067Less:  allowance
      for doubtful accounts, non-current
            
            
            (471,783
            )
            
            
            (411,061
            )Net
      accounts receivable, non-current
            
            
            4,692,723
            
            
            
            4,753,006Total
      accounts receivable, net
            
            $
            14,029,912
            
            
            $
            14,118,492





Note
6 – Plant and equipment





Plant and
equipment consist of the following:





September 30,
              2008
              (Unaudited)
            
            
            June 30, 2008Transportation
      equipment
            
            $
            20,342,484
            
            
            $
            20,286,866Plant
      machinery
            
            
            2,214,676
            
            
            
            1,894,585Office
      equipment
            
            
            43,175
            
            
            
            43,057Construction-
      in-progress
            
            
            -
            
            
            
            295,033Total
            
            
            22,600,335
            
            
            
            22,519,541Less:
      accumulated depreciation
            
            
            (6,337,991
            )
            
            
            (5,789,321
            )Plant
      and equipments, net
            
            $
            16,262,344
            
            
            $
            16,730,220





Construction-in-progress
represents labor costs, materials, and capitalized interest incurred in
connection with the construction of a new mixer station inside the current plant
facility in Beijing. No depreciation is provided for construction in progress
until it is completed and placed into service. Maintenance, repairs and minor
renewals are charged to expense as incurred.  Major additions and
betterment to property and equipment are capitalized. Construction of the new
plant was completed and transferred to fixed assets by August
2008.  As of September 30, 2008 and June 30, 2008, $0 and $16,248,
respectively, of interest was capitalized into construction in
progress.





Depreciation
expense for the three months ended September 30, 2008 and 2007 amounted to
$533,125 and $282,942, respectively.




-22-




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(UNAUDITED)





Note
7 – Short term loans





Short
term loans represent amounts due to various banks, finance companies, unrelated
companies with existing business relationships with the Company, and the
Company’s employees, that are due on demand or within one year. These loans are
renewable. As of September 30, 2008 and June 30, 2008, the outstanding balance
on these loans was $7,811,689 and $4,271,222, respectively, and these loans
consisted of the following:





September 30,
            
            
            June 30,2008
              (Unaudited)
            
            
            2008Loan from
      Huaxia Bank, with effective annual interest rate of 7.5555%, due November
      16, 2008, guaranteed by the Company’s shareholder, Mr. Han
      Xianfu
            
            $
            2,926,000
            
            
            $
            2,918,000Loan
      from Beijing International Trust Co, Ltd. with effective annual interest
      rate of 15%, due July 15, 2009, guaranteed by Rayland Credit Guarantee Co.
      Ltd
            
            
            4,389,000
            
            
            
            -Loan
      from unrelated company Beijing Hengxin Huaxing Auto Accessories Company,
      with no interest, fully paid
            
            
            -
            
            
            
            379,340Loan
      from unrelated company Beijing Hongda Huaxin Wujinjidian Company, with no
      interest, fully paid.
            
            
            -
            
            
            
            204,260Loan
      from unrelated company, Beijing Sigi Qingbaosan Cement Company, with no
      interest, fully paid.
            
            
            -
            
            
            
            116,720Loan
      from unrelated individual Xia Hua Qing, with no interest, fully
      paid.
            
            
            -
            
            
            
            128,392Loan
      from various employees, with effective annual interest rate of 20%, due
      upon demand, unsecured.
            
            
            496,689
            
            
            
            524,510Total
      short term loans
            
            $
            7,811,689
            
            
            $
            4,271,222





Total
interest expense on short-term loans for the three months ended September 30,
2008 and 2007 amounted to $227,811 and $84,540, respectively.




-23-


CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(UNAUDITED)





Note
8– Other payables – shareholder





Beginning
in July 2007, one of the Company’s shareholders, leased an office to the
Company. For the three months ended September 30, 2008, the Company recorded
rent expense from shareholder of $43,279, all of which remained unpaid as of
September 30, 2008 and is included as other payables- shareholder.





The
Company’s shareholders Mr. Han, Xianfu and Mr. He Weili, who have 57.15% and
38.10% of ownership interest in BVI-ACM, respectively, together loaned $750,900
to BVI-ACM on March 12, 2008 for cash flow purposes. This is a non-interest
bearing loan, unsecured, and is payable on demand.





Total
other payables - shareholders are as follows:





September 30,
              2008
              (Unaudited)
            
            
            June 30, 2008Han
      Xianfu, shareholder
            
            $
            450,540
            
            
            $
            450,550He
      Weili, shareholder
            
            
            343,612
            
            
            
            429,752Total
      other payable – shareholder
            
            $
            794,152
            
            
            $
            880,302





Note
9– Taxes payable





Corporate income
taxes





Companies
established before March 16, 2007 will continue to enjoy tax holiday treatment
approved by local government for a grace period of either for the next 5 years
or until the tax holiday term is completed, whichever is sooner. These companies
will pay the standard tax rate when the grace period expires.





The
Company was granted income tax exemption from January 1, 2003 to December 31,
2007. Beginning on January 1, 2008, the Company and its subsidiaries were
subject to an EIT rate of 25%.  For the three months ended September
30, 2008 and 2007, the provision for income taxes amounted to $574,827 and $0,
respectively.  The estimated tax savings due to this tax exemption for
the three months ended 2007 amounted to $254,438. If the income tax had
been applied, for the three months ended September 30, 2007, the basic and
diluted earnings per share will decrease by $0.03.




-24-




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(UNAUDITED)





Taxes
payable consisted of the following:





September
              30, 2008
              (Unaudited)
            
            
            June 30, 2008Income taxes
      payable
            
            $
            1,650,162
            
            
            $
            1,072,747Other
            
            
            5,403
            
            
            
            490Total
      taxes payable
            
            $
            1,655,565
            
            
            $
            1,073,237





The
Company did not make any income tax payments during the three months ended
September 30, 2008 and 2007.





Note
10 – Shareholders’ equity





On June
11, 2008, the Company completed an offering (the “Offering”) on the sale of
875,000 of investment units for a total of $7,000,000, each unit consisting of
one share of the Company’s Series A convertible preferred stock, $0.001 par
value per share, and one (1) five year warrant to purchase two shares of Common
Stock (the “Warrants”). Each preferred share is convertible into four shares of
common stock.  Additionally, each holder is entitled to cumulative
dividends equal to 9% annually, payable in cash, whether or not the Company has
profits.





The
Company received net proceeds of approximately $5,223,291 with $930,000 in an
escrow and after payment of certain fees and expenses.  $497,500 was
paid to Maxim Group LLC (“Maxim”) who served as the placement agent for the
transaction, $9,500 was paid to American Stock Transfer & Trust Company as a
transfer agent fee, $60,000 was paid to the attorney, and $45,000 was paid for a
finance fee for the purchasers in connection with the transaction. These
offering costs aggregating $602,500 were charged to additional paid-in
capital.





The
Company also issued to the placement agent a warrant to purchase an aggregate of
245,000 shares of common stock with an exercise price of $2.40 per share with a
life of five years. The warrants are exercisable on a cashless basis, in whole
or in part, at an exercise price equal to $2.40 per share. The Company may call
the warrants for redemption at any time after the warrants become exercisable
(i) at a price of $.01 per warrant; (ii) upon not less than 30 days’ prior
written notice of redemption to each warrant holder; and (iii) if, and only if,
the last sale price of the common stock equals or exceeds $5.00 per share, for
any twenty (20) trading days within a thirty (30) consecutive trading day period
ending on the third business day prior to the notice of redemption to warrant
holders.





The value
of the warrants issued to the placement agent was calculated as $169,345 using
the CRR Binomial Model. The fair value of these warrants of $169,345 was
recognized as offering expense and charged to additional paid-in capital. The
value of the warrants was determined using the CRR binomial model using the
following assumptions: volatility 75%; risk-free interest rate of 3.49% of the
Investor Warrants, the Placement, and Advisory Warrants; dividend yield of 0%,
and expected term of 5 years of the Investor Warrants and the Placement and
Advisory Warrants. The volatility of the Company’s common stock was estimated by
management based on the historical volatility of a similar US public company due
to limited trading history of the common stock. The risk-free interest rate was
based on Treasury Constant Maturity Rates published by the U.S. Federal Reserve
for periods applicable to the expected life of the warrants. The expected
dividend yield was based on the Company’s current and expected dividend policy
and the expected term is equal to the contractual life of the
warrants.




-25-




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(UNAUDITED)





On May 1,
2008, the Company issued 25,000 common shares to the Company’s Executive, par
value $0.001 for services to the Executive renders to the
Company.  The shares become fully vested after one year from the date
of grants. On July 31 2008, the Company terminated employment, and 25,000 shares
were forfeited upon resignation.





Following
is a summary of the status of warrants outstanding:





Outstanding
      WarrantsExercise
      Price
            
            
            Number
            
            Average Remaining Contractual
              Life$
            2.40
            
            
            
            1,750,000
            
            4.69
      years$
            2.40
            
            
            
            245,000
            
            4.69
      yearsTotal
            
            
            
            1,995,000





Following
is a summary of the Warrants activity:





Outstanding
      as of June 30, 2007
            
            
            -Granted
            
            
            1,995,000Forfeited
            
            
            -Exercised
            
            
            -Outstanding
      as of June 30, 2008
            
            
            1,995,000GrantedForfeitedExercisedOutstanding
      as of September 30, 2008
            
            
            1,995,000





Additionally,
the Company's officers, directors and majority shareholders, Xianfu Han and
Weili He, entered into a Lock-Up Agreement with the investors whereby both
Xianfu Han and Weili He agreed they will not, offer, pledge, sell or otherwise
dispose of any shares of common stock or any securities convertible into or
exercisable or exchangeable for common stock during the period beginning on and
including the date of the final closing of the Offering through and including
the earlier of (i) two (2) years after the final closing of the Offering, (ii)
the voluntary conversion of all outstanding shares of preferred stock, (iii) the
mandatory conversion of all outstanding shares of Preferred Stock, or (iv) the
sale of the Company.




-26-




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(UNAUDITED)





Pursuant
to an escrow agreement signed between the Company, Maxim and the investors on
June 11, 2008, the Company placed a total of $930,000 in an escrow account with
the Company’s legal counsel, $630,000 of which will be used for the payment of
dividends on the preferred stock which the Company shall be obligated to
replenish each year prior to the year’s end, and $300,000 of which will be used
for the payment of investor relation fees. As of September 30, 2008, restricted
cash balance amounted to $888,802.





Pursuant
to the Make Good Escrow agreement, signed between the Company, American Stock
Transfer Trust Company, the shareholders Han Xianfu and He Weili, and the
investors on June 11, 2008, the shareholders agreed to transfer a total of
3,500,000 shares of common stock into the name of escrow agent if the Company
fails to meet certain performance thresholds:(1) $5,200,000 of net
income(calculated on a pre-tax basis solely with respect to 2008) for 2008; (2)
$9,000,000 of net income for 2009; (3) net income equal or greater than the
Company's net income for 2009, for 2010. The Company determined that the
threshold for the period ended September 30, 2008 has not been met.




Note
11 – Contribution receivable





On July
8, 2005, Xin Ao’s board of directors passed a resolution to increase the
registered capital from $3,630,000 (RMB30 million) to $12,100,000 (RMB100
million). The increase in registered capital of $8,470,000 (RMB70 million) was
funded by the undistributed profits as of June 30, 2005. Since Xin Ao did not
have sufficient undistributed profits from June 30, 2005, based on the PRC
government regulation, all companies need to record its capital in accordance
with the business license, the unfunded amount has been recorded as contribution
receivable.  Since the capital should be contributed by the
shareholders of the Company, the contribution receivable was recorded as part of
the equity transaction.





At the
inception of BVI-ACM, BVI-ACM issued 10,000 shares of common stock to its
founding shareholders. The shares were issued at par value or $0.01 per
share.





On
November 23, 2007, BVI-ACM established a 100% subsidiary, Beijing Ao Hang
Construction Material Technology Co., Ltd. (“China-ACMH”), in PRC as a wholly
owned foreign limited liability company with registered capital of $5 million.
According to the laws of PRC, BVI-ACM is required to pay 15% of $5 million by
February 22, 2008 and the remaining balance by November 22, 2009.





On March
30, 2008, Xin Ao’s board of directors approved to transfer $7,260,000 from
undistributed retained earnings into registered capital. Concurrently,
China-ACMH made a payment of $5 million and BVI-ACM made a payment of $100. As
of September 30, 2008, a contribution receivable in the amount of $1,210,000
remains unpaid.




-27-


CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(UNAUDITED)





Contribution
receivable consisted of the following:





Xin
      Ao
            
            
            CHINA-AC
              MH
            
            
            BVI-ACM
            
            
            TotalBalance,
      June 30, 2007
            
            $
            8,470,000
            
            
            $
            5,000,000
            
            
            $
            100
            
            
            $
            13,470,100Less:
      contribution received
            
            
            (7,260,000
            )
            
            
            (5,000,000
            )
            
            
            (100
            )
            
            
            (12,260,100
            )Balance,
      June 30, 2008
            
            $
            1,210,000
            
            
            $
            -
            
            
            $
            -
            
            
            $
            1,210,000Less:
      contribution received
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Balance,
      September 30, 2008
            
            $
            1,210,000
            
            
            $
            -
            
            
            $
            -
            
            
            $
            1,210,000





Note
12 – Reserves and dividends





The laws
and regulations of the PRC require that before foreign invested enterprise can
legally distribute profits, it must first satisfy all tax liabilities, provide
for losses in previous years, and make allocations, in proportions determined at
the discretion of the board of directors, after the statutory reserves. The
statutory reserves include the surplus reserve fund and the common welfare
fund.





The
Company is required to transfer 10% of its net income, as determined in
accordance with the PRC accounting rules and regulations, to a statutory surplus
reserve fund until such reserve balance reaches 50% of the Company’s registered
capital.





The
transfer to this reserve must be made before distribution of any dividends to
shareholders. The surplus reserve fund is non-distributable other than during
liquidation and can be used to fund previous years’ losses, if any, and may be
utilized for business expansion or converted into share capital by issuing new
shares to existing shareholders in proportion to their shareholding or by
increasing the par value of the shares currently held by them, provided that the
remaining reserve balance after such issue is not less than 25% of the
registered capital.





The
Chinese government restricts distributions of registered capital and the
additional investment amounts required by a foreign invested enterprise.
Approval by the Chinese government must be obtained before distributions of
these amounts can be returned to the shareholders.




-28-


CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(UNAUDITED)





Note
13 – Earnings Per Share





The
following demonstrates calculation of the differences between basic and diluted
earnings per common share for the three months ended September 30, 2008 and
2007:





2008
            
            
            2007Basic
      earning per shareNet
      income available to common shareholder
            
            $
            1,149,743
            
            
            $
            992,485Weighted
      average shares outstanding-Basic
            
            
            10,525,000
            
            
            
            8,809,583Earnings
      per share-Basic
            
            $
            0.11
            
            
            $
            0.11Diluted
      earning per shareNet
      income available to common shareholders
            
            $
            1,149,743
            
            
            $
            992,485Add:
      Dividends on preferred stock
            
            
            158,855Add:
      Accretion on preferred stock
            
            
            150,241Net
      income for diluted EPS
            
            $
            1,458,839
            
            
            $
            992,485Weighted
      average shares outstanding-Basic
            
            
            10,525,000
            
            
            
            8,809,583Warrants
            
            
            96,413
            
            
            
            -Preferred
      stock
            
            
            3,500,000
            
            
            
            -Weighted
      shares outstanding-Diluted
            
            
            14,121,413
            
            
            
            8,809,583Earning
      per share-Diluted
            
            $
            0.10
            
            
            $
            0.11





On June
11, 2008, the Company issued 875,000 shares of preferred stock, each of which
can be converted into four shares of common stock. The convertible preferred
stock is mandatorily redeemable for cash at the end of two years if not yet
converted. As of September 30, 2008, none of the preferred stock had been
converted. Dividends on the preferred stock and accretion of the initial
discount from the redemption value of the preferred stock, both of which are
charged to retained earnings, are subtracted from net income to determine
net income available to common shareholders for the purposes of computing basic
earnings per share. In calculating diluted earnings per share, the convertible
preferred stock is treated as common stock equivalents on an as-converted basis,
on which basis the weighted average common shares outstanding for the period
ended September 30, 2008, were 3,500,000. The dividends and accretion on the
preferred stock are added back to the net income available to common
shareholders for calculating diluted earnings per share, as if the preferred
stock were converted at the beginning of the period.  For the three
months ended September 30, 2008, 1,995,000 warrants at an exercise price of
$2.40 per share were included in the diluted EPS calculation, which under the
treasury stock method resulted in an additional 96,413 shares of common
stock.




-29-


CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(UNAUDITED)





Note
14 – Employee pension





The
Company offers a discretionary pension fund, a defined contribution plan, to
qualified employees. The pension includes two parts: the first to be paid by the
Company is 20% of the employee’s actual salary in the prior year. The other
part, paid by the employee, is 8% of the actual salary. The Company made $17,450
and $3,036 in contributions of employment benefits, including pension for the
three months ended September 30, 2008 and 2007, respectively.





Note
15 – Operating leases





The
Company entered into a lease agreement for manufacturing plant with an unrelated
party from October 1, 2007 to September 30, 2010 with monthly payment of $14,426
and leased office space from the Company’s shareholder, Mr. He Weili, from July
2007 to June 2009 with annual payment of $197,245. Total operating lease expense
for the three months ended September 30, 2008 and 2007 was $92,590 and $147,646,
respectively, and is included in selling, general, and administrative expenses.
Future minimum lease payments under noncancellable operating leases with a term
of one year or more consist of the following:




Year
      ended June 30,
            
            Amount2009
            
            $
            278,8292010
            
            
            197,1242011
            
            
            49,281Thereafter
            
            
            -





Note
16 – Commitments and contingencies





Litigation





From time
to time, the Company becomes involved in various lawsuits and legal proceedings
which arise in the ordinary course of business.




Following
is the summary of the current litigation as of September 30, 2008:




-30-




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(UNAUDITED)





Beijing Xin’Ao Concrete Co.,
Ltd vs. Beijing Boda Guosheng Investment Co., Ltd. (Beijing District Court,
PRC)





In August
2006, Xin Ao filed a lawsuit against Beijing Boda Guosheng Investment Co., Ltd
(“Boda”) seeking specific performance of Boda’s obligations under the sales
contract to pay approximately $275,380 (RMB2 million) for the cement supplied by
Xin Ao between March 2005 and June 2005 and compensatory damages of
approximately $23,500 (RMB171 thousand) to cover the interest incurred on the
unpaid balance. The Court ruled against Boda and ordered Boda to pay the amounts
requested by Xin Ao; however, Boda appealed the court’s rulings. In November
2007, the Appeals Court upheld the original verdict and again ordered Boda to
pay all the damages. Management does not believe that the ultimate outcome of
this case will have a material adverse effect on the Company’s consolidated
financial position or results of operations. As of September 30, 2008, the
Company has not received the damage payment from Boda, and management has
estimated that the collectability of the receivable is deemed low, therefore,
the Company wrote off the amount from its book.





Yunwei Zhang vs. Beijing
Xin’Ao Concrete Co., Ltd. (Beijing District Court, PRC)





In May
2006, an action against Xin Ao and Beijing Shangdi Xinda Company was filed by
(“Shangdi”) Yunwei Zhang in Beijing District Court seeking payment of
approximately $112,000 (RMB814 thousand for damages caused by Qingbao Zhang, a
contracted driver of Xin Ao and an employee of Zhangbei County Labor Service
Co., Ltd. The vehicle involved in the accident is owned by Beijing Shangdi
Xingda Company who leased to Xin Ao who subsequently leased the vehicle to
Zhangbei County Labor Service Company. On June 16, 2008, the Court ruled against
Xin Ao and Shangdi to pay the damages incurred to Yunwei Zhang in the accident.
Xinao is responsible for approximately $39,000 (approximately RMB 273,000) for
the damages.




Registration
Rights




In
connection with the private placement on June 11, 2008, the Company agreed to
file a registration statement to register the warrants and common stock issuable
upon conversion of the Preferred Stock and exercise of the Warrants. In
accordance with FSP EITF 00-19-2, registration rights penalties should be
accounted for under FAS 5 (i.e., recorded when it is ‘probable’ that penalties
will be incurred and it can be “reasonably estimated”). If at the time of
issuance it appears that any penalties are “probable,” they should be accrued as
part of the allocation of the initial proceeds received. The Company determined
that they were not “probable” at inception on June 11, 2008 and that any
penalties are not “probable” as of September 30, 2008. Accordingly, no accrual
for any penalties has been made. The Company will continually re-assess whether
the payment of any penalties is “probable” and, if it becomes “probable” that
penalties will be incurred, the estimated amount of those penalties will be
accrued.




-31-




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(UNAUDITED)





Note
17 – Subsequent Events





On
October 3, 2008, the Company entered into a one year director agreement with Mr.
Jeremy Goodwin in connection with his services as a member of the board of
directors, subject to a third party background check. The agreement provided a
stock option to purchase a total of 50,000 shares of the Company’s common stock
at an exercise price of $2.90 per share. Each quarter 12,500 options vest and
became exercisable.




On
December 1, 2008, the Company entered into a three year agreement with a Company
Executive. In connection with his services, the Company issued a total of
200,000 shares of the Company's common stock from the option bonus pool. The
option bonus pool consists of four equal tranches of 50,000 options, with the
first trance of 50,000 options carrying an exercise price of $3.00, the second
tranche of 50,000 options carrying an exercise price of $3.50, the third tranche
of 50,000 options carrying an exercise price of $4.00, and the fourth tranche of
50,000 options carrying an exercise price of $4.50. A quarter (25%) of each
tranche of options will vest at the end of each twelve month period of the
Employment Term of the Executive.




-32-




Item
2.     Management’s Discussion and Analysis
or Plan of Operation





The
following discussion and analysis of the results of operations and financial
condition of China Advanced Construction Materials Group, Inc. (“China ACM”) for
the three months ended September 30, 2008 and 2007, should be read in
conjunction with the selected consolidated financial data, China ACM’s
consolidated financial statements, and the notes to those financial statements
that are included elsewhere in this Form 10-Q. Our discussion includes
forward-looking statements based upon current expectations that involve risks
and uncertainties, such as our plans, objectives, expectations and intentions.
Actual results and the timing of events could differ materially from those
anticipated in these forward-looking statements as a result of a number of
factors, including those set forth under the Risk Factors and Business sections
in this Form 10-Q. We use words such as “anticipate,” “estimate,” “plan,”
“project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,”
“will,” “should,” “could,” and similar expressions to identify forward-looking
statements.





Overview




China
Advanced Construction Materials Group, Inc. (“China ACM”) is a holding company
whose primary business operations are conducted through our wholly-owned
subsidiaries BVI-ACM and China-ACMH. BVI-ACM engages in the production of
advanced construction materials for large scale commercial, residential, and
infrastructure developments. The Company is primarily focused on producing and
supplying a wide range of advanced ready-mix concrete materials for highly
technical, large scale, and environmentally-friendly construction projects.
BVI-ACM owns 100% of the issued and outstanding capital stock of China-ACMH, a
company incorporated under the laws of China. On November 28, 2007, China-ACMH
entered into a series of contractual agreements with Beijing Xin Ao Concrete Co.
Ltd. (“Xin Ao”), a company incorporated under the laws of China, and its two
shareholders pursuant to which China-ACMH effectively takes over management of
the business activities of Xin Ao and has the right to appoint all executives
and senior management and the members of the board of directors of Xin Ao. The
contractual arrangements are comprised of a series of agreements, including an
Exclusive Technical Consulting and Services Agreement and an Operating
Agreement, through which China-ACMH has the right to advise, consult, manage and
operate Xin Ao for an annual fee in the amount of Xin Ao’s yearly net profits
after tax. Additionally, Xin Ao’s Shareholders have pledged their rights, titles
and equity interest in Xin Ao as security for China-ACMH to collect technical
consulting and services fees provided to China-ACMH through an Equity Pledge
Agreement. In order to further reinforce China-ACMH’s rights to control and
operate Xin Ao, Xin Ao’s shareholders have granted China-ACMH the exclusive
right and option to acquire all of their equity interests in Xin Ao through an
Option Agreement. As all of the companies are under common control, this has
been accounted for as a reorganization of entities and the financial statements
have been prepared as if the reorganization had occurred retroactively. The
Company has consolidated Xin Ao’s operating results, assets and liabilities
within its financial statements.




BVI-ACM,
through China-ACMH, operates and controls Xin Ao through the contractual
arrangements mentioned above. BVI-ACM used the contractual arrangements to
acquire control of Xin Ao, instead of using a complete acquisition of Xin Ao’s
assets or equity to make Xin Ao a wholly-owned subsidiary of BVI-ACM because (i)
new PRC laws governing share exchanges with foreign entities, which became
effective on September 8, 2006, make the consequences of such acquisitions
uncertain and (ii) other than by share exchange transactions, PRC law requires
Xin Ao to be acquired for cash and BVI-ACM was not able to raise sufficient
funds to pay the full appraised value for Xin Ao’s assets or shares as required
under PRC law.





Together
with our subsidiaries, we are an advanced ready-mix concrete provider in the
Beijing area with an estimated market share of 6.8% in the open tendered
ready-mix concrete market in Beijing. Our management believes that we have the
ability to capture a much greater share of the Beijing market and further expand
our footprint in China via expanding relationships and networking, signing new
contracts, and continually developing market-leading innovative and eco-friendly
ready-mix concrete products.





In fiscal
year 2007 and in the first half of fiscal year 2008, we solely operated out of
one plant, which has an operating capacity of 768,000 cubic meters. Starting the
second half of fiscal year 2008, we entered technical consulting and marketing
cooperation agreements with several independently owned mixture stations,
pursuant to which, we are paid certain percentages of cost savings for technical
support provided to clients and of sales price for projects we refer to other
stations due to the restriction of our station’s geographical
location.





Principal
Factors Affecting Our Financial Performance




We
believe that the following factors will continue to affect our financial
performance:




Large Scale Contractor
Relationships. We have contracts with major construction contractors
which are constructing key infrastructure, commercial and residential projects.
Our sales efforts focus on large-scale projects and large customers which place
large recurring orders and present less credit risks to us. In the three months
ended September 30, 2008, our top ten customers’ sales accounted for 77.1% of
all sales revenue; the largest three of these customers accounted for sales of
24.6%, 12.7%, and 9.3%, respectively.




Experienced Management.
Management’s technical knowledge and business relationships gives us the ability
to secure major infrastructure projects, which provides us with leverage to
acquire less sophisticated operators, increase production volumes, and implement
quality standards and environmentally sensitive policies.




3




Innovation Efforts. We strive
to produce the most technically and scientifically advanced products to our
customers and maintain close relationships with Tsinghua University, Xi’an
University of Architecture and Technology and Beijing Dongfangjianyu
Institute of Concrete Science & Technology which assist us with our research
and development activities. During our 5 year agreement with the parties, we
have realized an advantage over many of our competitors by gaining access to a
wide array of resources and knowledge.




PRC
Taxation





Our
subsidiary China-ACMH is governed by the Income Tax Law of the People’s Republic
of China concerning Foreign Investment Enterprises (“FIE”) and Foreign
Enterprises and various local income tax laws (the Income Tax
Laws).





Xin Ao
has been using recycled raw materials in its production since its inception
which entitled us to an income tax exemption from January 1, 2003 through
December 31, 2007 as granted by the State Administration of Taxation, PRC. The
Company will apply for renewal of the income tax exemption. However in the
interim, the Company estimates Xin Ao’s net income after January 1, 2008 will be
taxed at a rate of 25%.





On March
16, 2007, the National People’s Congress of the PRC passed the new EIT Law,
which took effect as of January 1, 2008. Under the new EIT Law, an enterprise
established outside of the PRC with “de facto management bodies” within the PRC
is considered a resident enterprise and will normally be subject to the
enterprise income tax at the rate of 25.0% on its global income. The new EIT
Law, however, does not define the term “de facto management bodies.” If the PRC
tax authorities subsequently determine that we should be classified as a
resident enterprise, then our global income will be subject to PRC income tax at
a tax rate of 25.0%. In addition, under the new EIT Law, dividends from our PRC
subsidiaries to us will be subject to a withholding tax. The rate of the
withholding tax has not yet been finalized, pending promulgation of implementing
regulations. Furthermore, the ultimate tax rate will be determined by treaty
between the PRC and the tax residence of the holder of the PRC subsidiary. We
are actively monitoring the proposed withholding tax and are evaluating
appropriate organizational changes to minimize the corresponding tax impact. The
new EIT Law imposes a unified income tax rate of 25.0% on all domestic-invested
enterprises and FIEs, such as our PRC operating subsidiaries, unless they
qualify under certain limited exceptions, but the EIT Law permits companies to
continue to enjoy their existing preferential tax treatments until such
treatments expire in accordance with their current terms. We expect details of
the transitional arrangement for the five-year period from January 1, 2008 to
December 31, 2012 applicable to enterprises approved for establishment prior to
March 16, 2007 to be set out in more detailed implementing rules to be adopted
in the future. Any increase in our effective tax rate as a result of the above
may adversely affect our operating results. However, details regarding
implementation of this new law are expected to be provided in the form of one or
more implementing regulations to be promulgated by the PRC government, and the
timing of the issuance of such implementing regulations is currently
unclear.




Results
of Operations




The
following table sets forth key components of our results of operations for the
periods indicated, in US dollars.




Three Months Ended
              September 30,2008
            
            
            2007(Unaudited)
            
            
            (Unaudited)RevenueSales
      of concrete
            
            $
            1,867,687
            
            
            $
            5,981,669Manufacturing
      services
            
            
            1,925,543
            
            
            
            -Technical
      services
            
            
            616,797
            
            
            
            -Mixer
      rental
            
            
            656,814
            
            
            
            -Marketing
      cooperation
            
            
            69,905
            
            
            
            -Total
      revenue
            
            
            5,136,746
            
            
            
            5,981,669Cost
      of revenueCost
      of sales
            
            
            1,560,307
            
            
            
            4,950,871Manufacturing
      services
            
            
            497,208
            
            
            
            -Technical
      services
            
            
            67,902
            
            
            
            -Mixer
      rental
            
            
            292,045
            
            
            
            -Marketing
      cooperation
            
            
            30,870
            
            
            
            -Total
      cost of revenue
            
            
            2,448,332
            
            
            
            4,950,871Gross
      profit
            
            
            2,688,414
            
            
            
            1,030,798Selling,
      general and administrative expenses
            
            
            657,109
            
            
            
            298,975Other
      (expense) income, net
            
            
            2,361
            
            
            
            260,662Income
      before provision for income taxes
            
            
            2,033,666
            
            
            
            992,485Income
      taxes
            
            
            574,827
            
            
            
            -Net
      income
            
            
            1,458,839
            
            
            
            992,485Dividends
      and accretion on redeemable preferred stock
            
            
            309,096
            
            
            
            -Net
      income available to common shareholders
            
            $
            1,149,743
            
            
            $
            992,845




4




The
following table sets forth the results of our operations for the periods
indicated as a percentage of total sales:




Three Months Ended
              September 30,As
      a percentage of Revenue
            
            2008
            
            
            2007RevenueSales
      of concrete
            
            
            36.4
            %
            
            
            100.0
            %Manufacturing
      services
            
            
            37.5
            %
            
            
            -Technical
      services
            
            
            12.0
            %
            
            
            -Mixer
      rental
            
            
            12.8
            %
            
            
            -Marketing
      cooperation
            
            
            1.3
            %
            
            
            -Total
      revenue
            
            
            100.0
            %
            
            
            100.0
            %Cost
      of revenueCost
      of sales
            
            
            30.4
            %
            
            
            83.0
            %Manufacturing
      services
            
            
            9.7
            %
            
            
            -Technical
      services
            
            
            1.3
            %
            
            
            -Mixer
      rental
            
            
            5.7
            %
            
            
            -Marketing
      cooperation
            
            
            0.6
            %
            
            
            -Total
      cost of revenue
            
            
            47.7
            %
            
            
            -Gross
      profit
            
            
            52.3
            %
            
            
            17.0
            %Selling,
      general and administrative expenses
            
            
            12.8
            %
            
            
            5.0
            %Other
      (expense) income, net
            
            
            -
            
            
            
            4.4
            %Income
      before provision for income taxes
            
            
            39.5
            %
            
            
            16.4
            %Income
      taxes
            
            
            11.2
            %
            
            
            -Net
      income
            
            
            28.3
            %
            
            
            16.4
            %Dividends
      and accretion on redeemable preferred
            
            
            6.0
            %
            
            
            -Net
      income available to common shareholders
            
            
            22.3
            %
            
            
            16.4
            %




5




Comparison
of Three Months Ended September 30, 2008 and 2007





Revenue.
Our revenue is generated from sales of our advanced ready-mix concrete products,
manufacturing services, technical consulting and marketing cooperation services,
and mixer rental. For the three months ended September 30, 2008, we generated
revenue of $5,136,746, a 14.1% decrease from revenue of $5,981,669 during the
same period of 2007. During the three months surrounding the Olympic Games held
in August in Beijing, our primary area of operation, all construction within the
5th ring expressway surrounding the city was halted and delayed until after
the Olympics. In anticipation of this work stoppage and in an attempt to counter
any adverse effect such an event could have on our operations, we focused
efforts during this time to expanding the geographic area of our operations,
providing technical consulting services to other companies and renting our
equipment to other companies. During the quarter, we started supplying concrete
products to three railway projects located outside Beijing area through our
portable plants, specifically the Suzhou and Danyang sections of the
Beijing-Shanghai high-speed railway project and the East Datong-Gudian
connection railway project. These three projects contributed $1,925,543 to our
total revenue for the quarter. For these railway projects, the general
contractors supplied their own raw materials and we provided manufacturing and
transportation services. Additionally, technical consulting services generated
revenue of $616,797 during this time. During the quarter, we also rented our
mixer trucks to mixture stations located outside the 5th ring expressway of
Beijing, which generated revenues of $656,814, and reached marketing cooperation
agreements with several concrete producers where we were paid a minimum of RMB 5
per cubic meter for projects we refer to them due to restriction of our
station’s geographical location generating revenue of $69,905. We believe our
sales revenue will grow as the construction industry in Beijing returns back to
full scale following the Olympics and we expand into additional geographical
markets.




Cost of
Revenue. Cost of
Revenue, which consists of direct labor, rentals, depreciation, other overheads
and raw materials including inbound freight charge, was $2,448,332 for the three
months ended September 30, 2008 as compared to $4,950,871 for the three months
ended September 30, 2007, a decrease of 50.6%, which is more than the percentage
decrease in revenue. As previously mentioned, we took on three railway projects
this quarter, cost of which didn’t include raw material because the general
contractors supplied it themselves. We also entered concrete technical and
marketing cooperation service contracts and engaged in mixer rental during the
quarter which have a high margin, while we didn’t have such revenues for the
same period in 2007.




Gross
Profit. Our gross profit is equal to the difference between our revenue
and cost of revenue. Gross profit was $2,688,414 for the three months ended
September 30, 2008 as compared to $1,030,798 for the three months ended
September 30, 2007, representing gross margin of approximately 52.3% and 17.0%,
respectively. The higher gross margin on lower revenue reflects the fact that
cost of the three railway projects did not include raw materials that were
supplied by clients themselves. The higher gross margin is also attributable to
more profitable technical service and marketing cooperation contracts we
performed and mixer rental during the quarter.





Selling, General
and Administrative Expenses. Selling, general and administrative expenses
consist of sales commissions, advertising and marketing costs, office rent and
expenses, costs associated with staff and support personnel who manage our
business activities, and professional and legal fees paid to third parties. The
company incurred selling, general and administrative expenses of $657,109 for
the three months ended September 30, 2008, an increase of 119.8%, as compared to
$298,975 for the three months ended September 30, 2007. The increase is
primarily due to increased legal fees, auditing and accounting expenses,
investor relation and other professional expenses after the reverse merger and
financing, as well as additional bad debt expense recognized during the quarter.
Salaries for employees also increased an average of 35% as a result of
conforming to new Chinese Labor Law that became effective on January 1,
2008.





Other Income
(Expenses). Our other income (expenses) consists of valued added tax
exemption from the government, financial income (expenses) and other
non-operating income (expenses). We had net other income of $2,361 for the three
months ended September 30, 2008 as compared to net other income of $260,662 for
the three months ended September 30, 2007, a decrease in net other income of
$258,301. The decrease in net other income is partly due to receiving of value
added tax exemption from the government, which decreased 36.6% and is in line
with the decrease in concrete sales as this tax credit is related to gross sales
price of our concrete products. We had interest expenses of $228,774 for the
three months ended September 30, 2008 as compared to $84,540 for the three
months ended September 30, 2007, an increase of $144,234. The increase is
contributing to higher interest expense on short-term loans for the three months
ended September 30, 2008, and financial leverage as compared to the same period
last year.




Provision for
Income Taxes. Provision for income taxes amounted to $574,827 and $0 for
the three months ended September 30, 2008 and 2007, respectively. The Company
has been using recycled raw materials in its production since its inception
which entitled us to an income tax exemption from January 1, 2003 through
December 31, 2007 as granted by the State Administration of Taxation, PRC.
Starting January 1, 2008, the Company is subject to 25% income tax.





Net
Income. We had net income of $1,458,839 for the three months ended
September 30, 2008 as compared to $992,485 for the three months ended September
30, 2007, an increase of 47%. The increase in net income is attributable to
higher gross profit on the three railway projects, technical service and
marketing cooperation contracts, and rent income of mixer trucks as well as
appreciating of RMB against USD as all of our revenues were generated in PRC,
partially offset by higher general and administrative expenses and interest
expenses after the reverse merger and financing in addition to the 25% income
tax that we became subject to this year. Our net margin increased from 16.4% for
the three months ended September 30, 2007 to 28.3% for the three months ended
September 30, 2008 due to higher margin we realized on the three railway
projects on a lower cost-of-revenue basis as the general contractors supplied
raw materials themselves as well as greater profitability from the rent of mixer
trucks and technical service and marketing cooperation contracts performed
during the quarter. Our management believes that our profits will continue to
increase as we lease or build new plants to increase the customer reach to
construction sites located in Beijing, expand into other geographical areas, as
well as vertically integrate our operations across the supply chain, which will
further lower our costs and provide even greater profitability.




6




Dividends and accretion on redeemable
preferred stock.  The increase of $309,036 compared to the
three months ended September 30, 2007 is due to our redeemable preferred stock
offering in June 2008.  It included preferred dividend expense of
$158,855 and accretion of discount on the preferred stock of
$150,241.





Liquidity
and Capital Resources




As of
September 30, 2008, we had cash and cash equivalents of $5,083,962 and
restricted cash of $888,802. The following table provides detailed information
about our net cash flow for financial statement periods presented in this Form
10-QA:





Three Months Ended September 30,2008
            
            2007(Unaudited)
            
            (Unaudited)Net
      cash (used in) provided by operating activities
            
            $
            (276,589
            )
            
            $
            1,805,221Net
      cash provided by (used in) investing activities
            
            
            (19,067
            )
            
            
            (6,173
            )Net
      cash provided by (used in) financing activities
            
            
            3,740,466
            
            
            
            (2,384,995
            )Effect
      of foreign currency translation on cash and cash
    equivalents
            
            
            (1,343
            )
            
            
            1,144Net
      (decrease) increase in cash and cash equivalent
            
            $
            3,173,467
            
            
            $
            (584,803
            )




Principal
demands for liquidity are for construction or acquisition of concrete mixture
stations, purchases of concrete mixers and pump trucks, working capital and
general corporate purposes.





Comparison
of Three Months Ended September 30, 2008 and 2007





Net Cash Used
in/Provided by Operating Activities. Net cash used in operating
activities totaled $276,589 for the three months ended September 30, 2008 as to
net cash provided by operating activities of $1,805,221 for the three months
ended September 30, 2007. The decrease in net cash from operating activities was
primarily due to increases in accounts receivable and inventory of raw
materials, partially offset by deferred payment of cash tax and various non-cash
charges to income in the quarter such as bad debt. We expect our cash flow from
operating activities to improve as the construction industry in Beijing
accelerates following the Olympic Games and we strengthen our efforts to
negotiate better terms with our suppliers and customers.




Net Cash Used In
Investing Activities.  Net cash used in investing activities was
$19,067for the
three months ended September 30, 2008 and $6,173 for the three months ended
September 30, 2007. The cash was primarily used for construction in
progress.





Net Cash Provided
by/used in Financing Activities. Net cash provided by financing
activities totaled $3,470,466for the three months
ended September 30, 2008 as compared to net cash used in financing activities of
$2,384,995 for the three months ended September 30, 2007. The reason for the
increase in cash provided by financing activities was due to short-term loans of
$4,395,000 (RMB 30 million) from Beijing International Trust & Investment
Co., due July 15, 2009 and $2,930,000 (RMB 20 million) from Huaxia Bank, due
November 16, 2008, partially offset by repayment of short-term loans from Huaxia
Bank for $2,932,000 (RMB 20 million) and from employees and unrelated companies
for $860,266 (RMB 5,880,000). The net proceeds from the loans will be used for
building plant, purchasing concrete mixers and pump trucks, working capital and
general corporate purposes.





Cash.  As of September
30, 2008, we had cash of $5,083,962, as compared to $840,080 as of September 30,
2007. This increase was due primarily to increase in net short-term
borrowings.




The
Company believes it can meet its liquidity and capital requirements in 2009 from
a variety of sources. These include present capital resources, internally
generated cash, short-term borrowings from both related parties and financial
institutions, and future equity financings.




7




Loan
Facilities





We had a
total of $7,811,689 and $4,271,222 outstanding on loans and credit facilities as
of September 30 and June 30, 2008, respectively. The loans consisted of the
following:





September 30,
            
            
            June 30,2008
            
            
            2008(Unaudited)Loan
      from Huaxia Bank, with effective annual interest rate of 7.5555%, due
      November 16, 2008, guaranteed by the Company’s shareholder, Mr. Han
      Xianfu
            
            $
            2,926,000
            
            
            $
            2,918,000Loan
      from Beijing International Trust Co, Ltd. with effective annual interest
      rate of 15%, due July 15, 2009, guaranteed by Rayland Credit Guarantee Co.
      Ltd
            
            
            4,389,000
            
            
            
            -Loan
      from unrelated company Beijing Hengxin Huaxing Auto Accessories Company,
      with no interest, fully paid.
            
            
            -
            
            
            
            379,340Loan
      from unrelated company Beijing Hongda Huaxin Wujinjidian Company, with no
      interest, fully paid.
            
            
            -
            
            
            
            204,260Loan
      from unrelated company, Beijing Sigi Qingbaosan Cement Company, with no
      interest, fully paid.
            
            
            -
            
            
            
            116,720Loan
      from unrelated individual Xia Hua Qing, with no interest, fully
      paid.
            
            
            -
            
            
            
            128,392Loan
      from various employees, with effective annual interest rate of 20%, due
      upon demand, unsecured.
            
            
            496,689
            
            
            
            524,510Total
      short term loans
            
            $
            7,811,689
            
            
            $
            4,271,222




Total
interest expense on short-term loans for the three months ended September 30,
2008 and 2007 amounted to $227,811 and $84,540, respectively.





Obligations
Under Material Contracts





Below is
a table setting forth our contractual obligations as of September 30,
2008:





Payment due in
      year ended June 30,Total
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            ThereafterLong
      term debt obligations
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Capital
      commitment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Operating
      lease obligations
            
            $
            525,234
            
            
            $
            278,829
            
            
            $
            197,124
            
            
            $
            49,281
            
            
            $
            -Purchase
      obligations
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
            
            $
            525,234
            
            
            $
            278,829
            
            
            $
            197,124
            
            
            $
            49,281
            
            
            $
            -





Seasonality




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




Critical
Accounting Policies and Estimates




The
accompanying consolidated financial statements include the financial statements
of China ACM and its wholly owned subsidiaries, BVI-ACM, China-ACMH and its
variable interest entity Xin Ao. All significant inter-company transactions and
balances have been eliminated in consolidation. China ACM, its subsidiaries and
Xin Ao, together are referred to as the Company. In accordance with FASB
Interpretation No. 46(R), Consolidation of Variable Interest Entities (“FIN
46(R)”), variable interest entities, or VIEs, are generally entities that lack
sufficient equity to finance their activities without additional financial
support from other parties or whose equity holders lack adequate decision making
ability. All VIEs with which the Company is involved must be evaluated to
determine the primary beneficiary of the risks and rewards of the VIE. The
primary beneficiary is required to consolidate the VIE for financial reporting
purposes. In connection with the adoption of FIN 46(R), the Company concludes
that Xin Ao is a VIE and China ACM is the primary beneficiary. Under FIN 46(R)
transition rules, the financial statements of Xin Ao are then consolidated into
the Company’s consolidated financial statements.





Our
management's discussion and analysis of our financial condition and results of
operations are based on the consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements as well as the reported net sales and expenses
during the reporting periods. On an ongoing basis, we evaluate our estimates and
assumptions. We base our estimates on historical experience and on various other
factors that we believe are reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or
conditions.





While our
significant accounting policies are more fully described in Note 2 to our
consolidated financial statements included , we believe that the following
accounting policies are the most critical to aid you in fully understanding and
evaluating this management discussion and analysis:




8




Revenue
Recognition. The Company recognizes revenue in accordance with Staff
Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial
Statements” as amended by SAB No. 104 (together, “SAB 104”), which specifies
that revenue is realized or realizable and earned when four criteria are
met:





·
            Persuasive
      evidence of an arrangement exists (the Company considers its sales
      contracts and technical service agreements to be pervasive evidence of an
      arrangement);





·
            Delivery
      has occurred or services have been
rendered;





·
            The
      seller’s price to the buyer is fixed or determinable;
  and





·
            Collectability
      of payment is reasonably assured.





The
Company sells its concrete products and provides concrete manufacturing services
mainly to major construction companies. Sales agreements are signed with each
customer. The agreements list all terms and conditions with the exception of
delivery date and quantity, which are evidenced separately in purchase orders.
The purchase price of products is fixed in the agreement and customers are not
permitted to renegotiate after the contracts have been signed. The agreements
include a cancellation clause if the Company breaches the contract terms
specified in the agreement. The Company does not sell products to customers on a
consignment basis. There is no right of return after the product has been
injected into the location specified by the contract and accepted by the
customer. The Company recognizes revenue when the goods are accepted by the
customer and title has passed.





Sales
revenue represents the invoiced value of goods, net of a value-added tax
(“VAT”). All of the Company’s concrete products that are sold in the PRC are
subject to a Chinese value-added tax at the rate of 6% of the gross sales
price.





Due to
the fact that the Company uses recycled raw materials to manufacture its
products, the State Administration of Taxation has granted the Company VAT tax
exemption from August 2005 through to August 2009. The VAT tax collected from
the Company’s customers is kept by the Company and recorded as Other Subsidy
Income.





The
Company also provides technical consulting services to and enters strategic
cooperation including market sharing and equipment rental with other
independently owned concrete companies. The Company signs a Technical Service
Agreement or Strategic Cooperation Agreement with each client, which specifies
all terms and conditions including prices to be charged. Once concrete products
are produced by clients and supplied to builders referred by the Company or cost
savings are realized by use of technical solutions provided by the Company, the
agreements consider the Company has rendered its service. The Company recognizes
revenue and invoices client monthly for technical service and marketing
cooperation on a per-cubic-meter basis and for equipment rental on a per-mixer
truck basis.




Shipping and
handling. Shipping and handling costs related to costs of the raw
materials purchased is included in cost of revenues.





Inventories.
Inventories consist of raw materials and are stated at the lower of cost or
market, using the weighted average cost method. The Company reviews its
inventory periodically for possible obsolescence. As of September 30, 2008, the
Company determined no reserves were necessary.





Prepayments.
The Company advances monies to certain suppliers for raw materials. These
advances are interest free and unsecured.





Accounts
receivable. During the normal course of business, the Company extends
unsecured credit to its customers. Management reviews its accounts receivable
each reporting period to determine if the allowance for doubtful accounts is
adequate. An estimate for doubtful accounts is recorded when collection of the
full amount is no longer probable. The Company’s reserves are consistent with
its historical experience and considered adequate by management.





The
ultimate collection of the Company’s accounts receivable may take more than one
year, and any portion of accounts receivable expected to be collected in more
than one year is reflected as noncurrent, net of allowance for doubtful accounts
relating to that portion of receivables. The bifurcation between current and
noncurrent portions of accounts receivable is based on management’s estimate and
predicated on historical collection experience.





Value added
tax. Enterprises or individuals who sell commodities, engage in repair
and maintenance or import and export goods in the PRC are subject to a value
added tax (“VAT”). The standard VAT rate is 6% of gross sales for the Company’s
industry. A credit is available whereby VAT paid on the purchases of raw
materials used in the production of the Company’s finished products can be used
to offset the VAT due on sales of finished products. Due to the fact that the
Company uses recycled raw materials to manufacture its products, the State
Administration of Taxation has granted the Company VAT Tax Exemption from August
2005 through to August 2009. For the three months ended September 30, 2008 and
2007, $227,594 and $358,715, respectively, was recognized as other subsidy
income from VAT taxes collected.




9




Recently
issued accounting pronouncements





In
February 2007, the FASB issued Statement of Financial Accounting Standards
No. 159 (“SFAS 159”), “The Fair Value Option for Financial Assets and
Financial Liabilities-Including an amendment of FASB Statement No. 115.
SFAS No. 159 permits entities to choose to measure many financial
instruments and certain other items at fair value. Most of the provisions of
SFAS 159 apply only to entities that elect the fair value option. However, the
amendment to SFAS No. 115, “Accounting for Certain Investments in Debt and
Equity Securities, applies to all entities with available-for-sale and trading
securities. SFAS 159 is effective for financial statements with fiscal
years beginning after November 15, 2007. The Company chose not to elect the
option to measure the fair value of eligible financial assets and
liabilities.





In
December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No. 51” , which establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent, the amount of
consolidated net income attributable to the parent and to the noncontrolling
interest, changes in a parent’s ownership interest and the valuation of retained
non-controlling equity investments when a subsidiary is deconsolidated. The
Statement also establishes reporting requirements that provide sufficient
disclosures that clearly identify and distinguish between the interests of the
parent and the interests of the non-controlling owners. SFAS 160 is effective
for fiscal years beginning after December 15, 2008. The Company has determined
that the application of SFAS 160 will have no effect on its consolidated
financial statements.





In
December 2007, SFAS 141(R), Business Combinations, was issued. SFAS 141R
requires an acquirer to recognize the assets acquired, the liabilities assumed,
and any noncontrolling interest in the acquiree at the acquisition date,
measured at their fair values as of that date, with limited exceptions. This
replaces SFAS 141’s cost-allocation process, which required the cost of an
acquisition to be allocated to the individual assets acquired and liabilities
assumed based on their estimated fair values. SFAS 141R also requires the
acquirer in a business combination achieved in stages (sometimes referred to as
a step acquisition) to recognize the identifiable assets and liabilities, as
well as the noncontrolling interest in the acquiree, at the full amounts of
their fair values (or other amounts determined in accordance with SFAS 141R).
SFAS 141R applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. An entity may not apply it
before that date. SFAS 141R will change the accounting for all future business
combinations.





In March
2008, SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities
- An Amendment of SFAS No. 133” was issued. SFAS 161 requires (1) the
disclosure of the fair value of derivative instruments and gains and losses in a
tabular format; (2) the disclosure of derivative features that are credit
risk-related; and (3) cross-referencing within the footnotes. The
provisions of SFAS 61 are effective for interim period and fiscal years
beginning after November 15, 2008. The Company does not anticipate that the
adoption of SFAS 161 will have a material impact on its consolidated financial
position or results of operations.





In June
2008, EITF 07-5, “Determining whether an Instrument (or Embedded Feature) is
indexed to an Entity’s Own Stock” was issued. This standard triggers liability
accounting on all options and warrants exercisable at strike prices denominated
in any currency other than the Company’s functional currency. This Issue is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. Early
application is not permitted.





In June
2008, FASB issued EITF 08-4, “Transition Guidance for Conforming Changes to
Issue No. 98-5”. The objective of EITF 08-4 is to provide transition
guidance for conforming changes made to EITF 98-5, “Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios”, that result from EITF 00-27 “Application of Issue No. 98-5
to Certain Convertible Instruments”, and SFAS 150, “Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity”. This
Issue is effective for financial statements issued for fiscal years ending after
December 15, 2008. Early application is permitted. Management is currently
evaluating the impact of adoption of EITF 08-4.





In
October 2008, the FASB issued FASB Staff Position No. FAS 157-3, “Determining
the Fair Value of a Financial Asset in a Market That Is Not Active” (FSP 157-3),
which clarifies the application of SFAS 157 when the market for a financial
asset is inactive. Specifically, FSP 157-3 clarifies how (1) management’s
internal assumptions should be considered in measuring fair value when
observable data are not present, (2) observable market information from an
inactive market should be taken into account, and (3) the use of broker quotes
or pricing services should be considered in assessing the relevance of
observable and unobservable data to measure fair value. FSP 157-3 became
effective on October 10, 2008, and its adoption did not have a material impact
on our financial position or results for the quarter ended September 30,
2008.





Off-Balance
Sheet Arrangements




We do not
have any off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to our
stockholders.





Item 3. Quantitative and Qualitative
Disclosures About Market Risk





The
Company is subject to certain market risks, including changes in interest rates
and currency exchange rates.  The Company does not undertake any specific
actions to limit those exposures.




10


Item
4T.  Evaluation of Disclosure Controls and Procedures





a)
 Evaluation of
Disclosure Controls.





We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports filed under theSecurities Exchange Act
of 1934 , as amended, is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms, and that such information is accumulated and communicated to
our management, including our principal executive officer (our president) and
our principal accounting and financial officer (our chief financial officer) to
allow for timely decisions regarding required disclosure. In designing and
evaluating our disclosure controls and procedures, our management recognizes
that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives,
and our management is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.





Our
management does not expect that our disclosure controls or our internal controls
over financial reporting will prevent all error and fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, but no
absolute, assurance that the objectives of a control system are met. Further,
any control system reflects limitations on resources, and the benefits of a
control system must be considered relative to its costs. These limitations also
include the realities that judgments in decision-making can be faulty and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people or by management override of a control. A design of a control
system is also based upon certain assumptions about potential future conditions;
over time, controls may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and may not be
detected.




As of
September 30, 2008, the quarter end period covered by this report, we carried
out an evaluation, under the supervision and with the participation of our
management, including our principal executive officer and our principal
accounting officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. The current staff in the accounting
department is relatively new and inexperienced, and needs substantial training
so as to meet with the higher demands of being a U.S. public company. Therefore,
the Company lacks 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 also lacks an
internal audit department.  Based on the foregoing, our president and
our chief financial officer concluded that our disclosure controls and
procedures were not effective as of September 30, 2008, or during the end
of the period covered by this quarterly report.





In order
to correct the foregoing deficiencies, the Company has hired an independent
director to focus on our internal controls and procedures.  We have
also interviewed several Big Four accounting firms to assist the Company
with its SOX implementation.





Restatement





In a
comment letter on our Form S-1 registration statement, the Staff of the
Securities and Exchange Commission indicated that our redeemable preferred stock
should not be classified as a liability. After discussion with our independent
accountants, we concluded that our previously-issued financial statements
included in our Annual Report on Form 10-K for the fiscal year ended June 30,
2008 and our Quarterly Report on Form 10-Q for the quarter ended September 30,
2008 should be re-stated to account for the redeemable preferred stock as an
equity instrument and not as a liability.





We
previously accounted for the redeemable preferred stock as a liability, based on
its substantive terms.  However, because the preferred stock does not meet
the definition of a liability under paragraph A9 of FAS 150, we have modified
the accounting for the preferred stock to account for it as an equity
instrument.  In accordance with ASR 268, Regulation S-X 5.02-28 and EITF
Topic D-98, the preferred stock has been classified outside of permanent
equity.  Dividends paid on the preferred stock, and accretion of the
preferred stock to its redemption value, have now been charged to retained
earnings.  Such amounts have been separately disclosed on the face of the
income statement, in order to determine net income available to common
shareholders.




Because
we had classified the preferred stock as a liability, the associated issuance
costs were deferred and were being amortized to income over the period to
redemption of the preferred stock.  As a result of accounting for the
preferred stock as an equity instrument, the costs incurred have been
immediately charged to additional paid-in capital as of June 11, 2008, the date
the redeemable preferred stock was issued and the amortization previously
recognized in the income statement will be removed.  The calculation of
basic and diluted earnings per share has been modified accordingly.





Our
management has determined that the reclassification of the preferred stock was a
matter of interpretation under paragraph A9 of FAS 150.  Accordingly,
it was not a result of any deficiencies in our internal controls and
procedures.





(b)
 Changes in internal
control over financial reporting. Except as described above, there have
been no changes in our internal control over financial reporting that occurred
during the last fiscal quarter that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting. Our
management team will continue to evaluate our internal control over financial
reporting in 2009 as we implement our Sarbanes Oxley Act
testing.




11




PART
II - OTHER INFORMATION




Item
1. Legal Proceedings.




Currently,
we are not aware of any litigation pending or threatened by or against the
Company.





Item
1A. Risk Factors





There
have been no material changes from the risk factors included in the Annual
Report on Form 10-K for the year ended June 30, 2008.




Item
2. Unregistered Sales of Equity Securities and Use of Proceeds




None.





Item
3. Defaults Upon Senior Securities.




None.




Item
4. Submission of Matters to a Vote of Security Holders.




On
October 4, 2008, the majority shareholders approved by written consent the
appointment of Jeremy Goodwin to our Board of Directors and approved the
Director Agreement with Mr. Goodwin.




Item
5. Other Information.




None





Item
6. Exhibits and Reports of Form 8-K.




(a)           Exhibits




31.1
Certifications pursuant to Section 302 of Sarbanes Oxley Act of
2002




32.1
Certifications pursuant to Section 906 of Sarbanes Oxley Act of
2002




(b)           Reports
of Form 8-K




On August
4, 2008, the Company filed a Form 8-K with the SEC disclosing a change in
directors.





On August
7, 2008, the Company filed a Form 8-K with the SEC disclosing a change in
directors.




12




SIGNATURES




In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, there unto duly
authorized.




CHINA
      ADVANCED CONSTRUCTION MATERIALS GROUP, INC.RegistrantDated:  January
      23, 2009
            By:
            /s/
      Xianfu HanXianfu
      Han
              Prinicipal
      Executive OfficerDated:  January 23,
      2009
            By:
            /s/
      Chin HsiaoChin
      Hsiao
              Principal
      Financial and Accounting Officer




13